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Course: Financial Literacy > Unit 3
Lesson 2: Credit cards- What is a credit card?
- Choosing a credit card: credit card types
- Choosing a credit card: what to look for
- Schumer boxes and the things you should know about your credit cards
- Understanding credit card terms
- Which credit card is better for you?
- Credit cards
- Credit cards: the good and the bad
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What is a credit card?
Learn the pros and cons of credit cards.
What is a credit card?
Credit cards are a type of payment card that lets you borrow money from a bank or credit card company. You can use that borrowed money to buy things at stores, restaurants, and other places that accept credit cards as payment.
When you use a credit card, you're basically making a promise to the bank or credit card company that you'll pay back the money you borrowed. They keep track of how much you owe, and you have to pay at least a little bit back each month.
The bank or credit card company also charges you interest, which is like a fee for borrowing the money. The longer you take to pay back the money, the more interest you'll have to pay.
Why do I need a credit card?
There are a few reasons why people might want or need a credit card. Here are a few:
- It's a convenient way to pay for things without carrying around cash.
- It can help you build credit, which is important if you want to take out a loan or mortgage in the future.
- Some credit cards come with rewards or cash back, which means you can get a little bit of money back for every dollar you spend.
There are also reasons why people might not want or need a credit card:
- It can be easy to overspend and get into debt when you don't have to pay for things right away.
- If you don't pay your bill on time, your credit score can go down, which could make it harder to get a loan or mortgage in the future.
- You'll have to pay interest, which means you'll end up paying more for things than if you just used cash.
Ultimately, it's up to each person to decide if they want or need a credit card. If you do decide to get one, it's important to use it responsibly so you don't get into too much debt.
Want to join the conversation?
This makes no logical sense to me why do we need a credit card for we can just use a debit card to pay things(23 votes)
In order to use a debit card, you must have money in your account. When you use a credit card, you are using someone else's money, and promising to pay it back when you get some of your own. It makes perfectly logical sense to me.(35 votes)
How can I build credit as a full-time student?(14 votes)
You can use a student credit card! This can help you build credit history in school so that when you get out of school you have a nice fresh start with a good credit score!(16 votes)
Wait but if you pay your credit card bills right on time you don't have to pay interest right.(13 votes)- Make a few small purchases each month and pay off the full balance. This ensures that you pay no interest and your utilization will be under 30%, so it will not hurt you.(11 votes)
Do I pay my credit card with my debit card? If so then why have a credit card, just use your debit. Credit card puts you in debt. I understand that credit cards give you credit scores but sometimes credit cards aren't as good as they sound. You can get credit in other ways as well.(9 votes)- Well, you have worked that out well, and I commend you. However, when the time comes for you to buy something bigger than the amount you save and access through your debit card (say, a car, a house, or a piece of equipment for the farm or factory you own) or when you want to get a job or rent an apartment, you will need a credit score to shbow the bank, employer or landlord that you are dependable. Use of a debit card does not produce the kind of credit record and score that these people will want to know. So, get a credit card and use it wisely, in a way that will demonstrate your dependability.(15 votes)
- What is the difference between a credit card and a debit card ??(5 votes)
- I answer this exact question quite often. So, here goes, again:
1. Credit cards and Debit cards are NOT the same thing.
2. If you have a debit card, the money that it represents must already be in your account before you can use it to spend.
3. If you have a credit card, you don't need to have the money first. You use the bank's money for making purchases. The bank charges you "rent" for using that money, and trusts you to pay the money itself, and the "rent" on the money, later.(9 votes)
Would it be smart to go your whole life without owning a credit card and simply just using a debit card?(9 votes)
Theoretically, if you dident have a credit card would you be able to still get a mortgage, or would your rates just be based off other things?(5 votes)- When you apply for a mortgage, the lender wants to know if you are trustworthy. If your record of using other people's stuff demonstrates worthiness by means other than a credit card (employment record, bank loans, driving record, criminal record, etc.) then you're likely OK. Credit card use and repayment records are just more convenient for a rating agency to look up.(5 votes)
- When we say pay back on time, is that a monthly bases or 90 days? or does it depend on the bank and card?(4 votes)
- It depends on the bank and card. For your particular situation, you should stop at the bank that issues your card and have a conversation with one of the kind people there. That should set you straight.(6 votes)
Can i get credit card without parent perm?(4 votes)- Yes, if you are under eighteen. You are a legal adult (in the United States) when you're 18, and you won't need their permission at that point.(4 votes)
should i use a credit card to buy a car?(4 votes)- No. Don't do that. The interest on a credit card loan is much higher than you would pay to a Credit Union or to a Bank.(4 votes)