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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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Which credit card is better for you?
The Schumer box is important for comparing credit cards because it summarizes the key terms and fees associated with each card in a standardized format. This makes it easier to compare things like APR, annual fees, late fees, and balance transfer fees across different cards. By understanding these details upfront, you can make a more informed decision about which card will be best for your specific financial situation. Created by Sal Khan.
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What about credit cards without interest? If interest is religiously forbidden for me.(7 votes)
You should deal with an Islamic bank, which will have ways to responsibly deal with credit and prevent you from breaking the tenets of your faith.(10 votes)
How many fees do we pay each year in total?(7 votes)- If the bank that issues you a credit card charges an annual fee, you will pay that.
When you carry some amount of debt on the card for more than a month, you'll pay an interest fee.
If you fail to make the minimum monthly payment on what you owe, you'll pay a late fee.
Fees can pile up, and you must pay interest on these, too, as if they were money you borrowed.(8 votes)
What's a cash advance?(4 votes)- There are two kinds of cash advance. Since this is a lesson on using a credit card, let's talk about that kind.
If you need cash (the situation in which you are engaged will NOT accept a credit card or electronic transfer of funds), and you have no cash, but a credit card, you can use the credit card to get a cash loan. Credit card companies deal in credit and values, not in cash, so to go through all the hoops to actually get cash to you, they charge numerous fees and then loan you the cash at a higher rate than they do if you just charge something to your card.(9 votes)
What are other ways of building credit apart from using a credit card?(4 votes)- Take out a mortgage and buy a house. Make your payments on time.
Go to the bank and take out a signature loan. Make your payments on time.
Get a job and keep it for long enough to show that you are dependable.
Stay out of jail.
Drive safely.
Take care what you post on social media.(4 votes)
What happens if you have a credit card but you don't use it at all. What fees do you still have to pay?(3 votes)- You might well have to pay the annual service fee.(5 votes)
How does the credit card work(2 votes)- Banks make money by taking risk with the money that their depositers ask them to take care of. One of the risks a bank will make is to lend depositers' money to borrowers.
So, the bank has some money (because someone deposited it there) and wants to make money with it. The bank issues you a credit card. You go online and buy something from the Acme Company for $100, using your credit card. Acme Company then asks your bank for that money, and the bank gives them $95. (The bank has now made $5 on the deal). Then the bank asks you to pay back the money that it lent to you. The bank asks you for all $100. If you pay that within a month, all is "square". If, however, you only pay $15, then you owe the bank a further $85. The bank also charges you interest on that remaining money, so you don't just owe $85, but maybe $87 the next month. (The bank earns another $2). So it goes, on and on, until you ompletely pay back the original loan of $100. Each time you pay some, your debt reduces. Each time you pay less than the full amount, your debt increases by the interest charged on what you didn't pay.
The bank also collects an annual fee from you just for allowing you to carry that card around and potentially borrow more money, and if you are ever late with a payment, the bank charges you a late fee.
Banks are clever. They know they take risks, but they also know how to turn those risks into big earnings.(3 votes)
- why get a credit card if your just gonna pay with cash.(2 votes)
- Paying with cash does not leave a "paper trail" about you. Using a credit card, and making your payments on time, leaves a record. Based on that record, a computer assigns you a credit score, which demonstrates to employers, landlords and lenders that you are dependable.(3 votes)
hmm that will be better(3 votes)- when does it work With a ATM(2 votes)
- If you use a credit card (not an ATM card) to take money from an ATM, you are, effectively, borrowing cash from the bank. Last week I got a notice from my credit card's bank offering me a special deal of getting that kind of advance, but the interest rate on it was over 29% per year. I won't do that. It's dumb to use a credit card in an ATM to get cash.(2 votes)
Can my credit score go up by simply owning a credit card, even if I don't use it to make any purchases? Or will the score only increase if I use the credit card (while also using it responsibly)?(1 vote)- It costs you nothing to use the credit card, and benefits you nothing if you don't use it. What you're trying to create is a record that you can be trusted with other people's property. If you don't use the card, you don't produce a record.(3 votes)