Credit history is the reflection of how well you manage your money and debt, including credit cards and other loans. Understanding the impact this can have on your life is crucial, as it can have long-term effects on your life including determining how easily you will be able to retire. Building a good credit history starts with how well you manage your credit card. Credit cards have always allowed people a way to handle their funds by allowing for a “buy now, pay later with interest” method. This means that cardholders pay back the amount of money they spend along with any interest and agreed-upon fees. There is a lot to consider when getting your first credit card and building your credit history. When used properly, credit cards can provide a lot of perks that make life easier for busy people.
Credit cards allow for a convenient shopping experience, whether in person or online. Unlike debit cards, they allow for a person to buy things without worrying about how much money sits in their bank account. While the majority of cards, such as VISA, Mastercard, and Discover, are issued by banks, reward card companies offer airline miles, hotel rentals, gift certificates to major retailers, and cash back on purchases. These cards can provide significant savings on the things you are already buying. Credit cards also offer superior consumer protection to debit cards. In the case of any suspected fraud, one can challenge any charges they did not make, and those charges can be removed from the credit history entirely. Many providers will go as far as to offer a temporary card while resolving any matters of fraud with the main account. Credit cards offer a great deal of financial freedom and protection, especially when compared to debit cards, but there are many caveats one must know about when opening a line of credit.
Credit cards usually have higher annual percentage rates (APR) than other consumer loans. This means that they impose higher yearly interest rates based on how much users spend in a year. This is on top of the monthly payments users are obligated to, which have their own interest. There are various interest rates associated with credit cards, and these rates go up or down depending partly on the federal funds rate, which is the rate at which banks lend money to each other. The Federal Reserve raises or lowers federal funds based on the behavior of the economy. In essence, this means that the interest consumers have to pay is based not only on their credit history and financial status, but also on factors they are not able to control on their own. Many people fall into the trap of abusing the freedom provided by credit cards and spend too much money they do not have. Interest, APR, and other fees associated with your provider add up quickly and can sometimes be overwhelming for people, forcing them to make minimal monthly payments while their debt grows more and more. In order to maintain a good credit history, one must maintain good spending and lifestyle habits. The wisest thing for a first-time credit card holder to do before obtaining a card is to do research on specific providers and consider not just the perks offered, but also the fees and reputation of their providers.
Building a good credit history begins with the first credit card you own. Opening up a secured credit card is the simplest way to get started with building credit. With this type of card, consumers deposit the amount of money they want in the card provided to them, minimizing the risk of payment discrepancies. Another way to get started is by opening a new card under an authorized user, someone who already has an established credit card and history, such as a parent or spouse. Be wary of who you choose if you go this route because the habits of the cardholder will reflect on your own history and affect your future as well. Your credit history will have a major impact on the financial freedom you have in the future as you go on your personal endeavors.
