Credit Cards are Easy to Access

Credit cards are one of the most easily accessed lines of credit out there. Nearly everyone can qualify for a card in some form or fashion, and can apply simple rules to its use in order to get valuable points tacked on to their FICO scores each reporting period. Most card issuers will report your credit performance either monthly or quarterly (four times each year) to the major credit bureaus in the U.S. (Experian, Equifax and Trans Union) which are known as the Big Three. With excellent credit, there is no limit to the type of credit cards you can obtain, although it is best practice to stick with a couple of cards that are easy to manage. Those with mediocre credit can get traditional cards, too, but they may be assessed a higher annual percentage rate (APR) for the privilege. Folks with bad credit can usually not get a traditional card but they can easily obtain a prepaid credit card that works just as well for the purpose of building up a weak FICO score.

How it Works

Each month or quarter, the card issuer will indicate your payment history. This includes whether or not you paid on time by delivering the payment on or before the due date and as agreed (by paying the minimum amount due or any figure that is greater than the minimum payment amount). With each payment on your account that you make, you are adding valuable positive history and points to your FICO score. Other elements of your repayment behavior can raise your score (or lower it), so follow these general tips for maximizing your cards ability to elevate your credit score.

• Run a balance. Potential creditors want to not only see that you have credit in your credit file, but that you know how to use it. While you can usually save money by not running a balance each month, maintaining a balance of about 10% of the total amount of available credit is a time-proven method of adding points and proving that you can handle your finances.
• Never charge more than half of your available credit in one month. This shows potential creditors that even though the credit is available, you have enough self-control to avoid going overboard with your spending. This also affects your available credit to debt ratio, which is an important factor in determining your credit worthiness.

The credit card companies check for basic things when they are trying to decide if they will approve you or not. You must have some form of income, not necessarily a job, but some continuous source of cash flow. Most companies will also check your credit rating, but that really does not stop you from being approved if you’re willing to pay higher interest rates or an annual fee. It seems that all you have to be is 18 years of age and ready to take on the responsibility of interest and limits. The problem is that many people see free money when they get a credit card, and they do not think of the consequences that follow. Credit cards can lead to additional money loss within your monthly income.

You can ruin your credit rating by spending more than you can afford to pay back and trying to live beyond your means. When you see young people wearing designer clothing and carrying designer bags you may think to yourself, “Wow that young person must be accomplished and doing quite well for themselves.” That is rarely the case, however; that young person probably has tons of credit cards with tons of interest and money loss to come. It is easy enough: all you have to do is apply for the credit card and usually you can be approved within 24 hours. Then there you have it – a limit ranging between $500 and $30,000. Now all that is left to do is spend the new limit that you have taken on. Many people do not think about the fact that at the end of the month they will receive a bill. You must pay the balance due and make a certain amount monthly; which then has to be split up to pay your monthly bills and the credit card balance.

Before you know it you have over-spent, and now the collectors are calling you and knocking at your door. It is so easy to ruin your credit by overspending. Even as the bills pile in you may think to yourself, “I have time; I will pay the bill later. There is a big sale, I need to go shopping, and I have my credit cards, so I will use them and then I do not have to pay the bill right away.” This way of thinking is the problem that much of the world is having. It leads to bad decisions, bad credit and long-term debt; which could take a lifetime to free yourself from. Once you have created bad credit for yourself, it will take a lot of money to pay the balance and the interest fees (as well as the collection agencies, which have their own fees which they assess to your bill).

In the end is it really worth it? So what if you miss the sale of the year because you do not have money to shop, or if you cannot buy a new car right away. We need to get back to the old school of thought: buying only what you can afford and earning everything you have. It is so much better to work for something because you will appreciate it more. Credit cards do not provide financial freedom as people might think; they are a black hole of debt that can cause bad credit and major depression. Just think twice before taking on a credit card, and if you feel that you are ready for one, then be responsible and remain debt free.