How Credit Cards Work?
With charge amounts approaching $2 trillion dollars, credit cards have become a staple in the American consumerist diet. But along with those charges, mounting debt, foreclosure, bankruptcy, and a litany of other expenses and pitfalls lie in waiting for the unwary consumer. With defaults on credit cards at an all-time high, it's perhaps worth a few moments to take into consideration what credit cards are, and how they work.
A credit card is nothing more than an account which a bank lets you charge against. Any expenses are acceptable within your spending limit, though as previously mentioned, it's wiser to spend only 20-25 percent of you maximum limit. A credit line is extended to you after a bank or credit card company reviews your credit history (or even lack thereof) and will then give you a card and a spending limit. If it's your first card and you have no history prior to that, a lower limit is common, somewhere in the range of $500 to $1,000, just to be on the safe side.
Those with higher credit ratings are obviously entitled to higher spending limits, though this is a tedious line to draw, as knowing that you've only spent $500 of your maximum (for example) $10,000 credit limit makes you feel like you've got plenty of room left over to buy lots of those other things you want, but don't need.
The upside of the credit card is that you have days, weeks, and sometimes even a full month to pay off your purchase before finance charges begin to apply. So if you're strapped for cash between pay checks, but you need to get groceries, or gas, or any other little necessity, you can, right then and there. The downside, of course, has been explained. But this is where the credit card companies make their money. Charging you interest for your purchases makes up the bulk of credit card companies income, and while they hope you don't charge so much you have to default on your loans, they do hope you'll rack up enough expenses to stay in their pocket for years to come.
Credit cards can wreak havoc on your credit report if you aren't careful. If you're concerned about where your credit might be heading, or where you currently stand, try speaking with an expert on the subject and contact a credit report agency to find out what you can do. Credit doesn't have to be scary; it can be your friend if you handle it responsibly.
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