Author: Sean P. Egen
November 15, 2021
Topics:
Credit CardBefore applying for your first credit card, it’s important to first consider what the point of a credit card is in the first place. Why have one, and what can it do for you that cash or a debit card can’t?
Here are a few reasons to apply for a credit card you may not have considered.
The point of a credit card is right in the name. It’s a 3.37” x 2.125” card made of plastic or metal that grants you instant credit—up to a preset credit line. If you’ve been issued a credit card, and your account is current, you can use it to purchase goods and services on credit up to your account’s credit limit. You don’t need to apply for a loan. You’re essentially granted an instant loan by the credit card issuer right then and there because they pay the merchant for the goods or services you’re purchasing. You, in turn, pay back the card issuer for your purchases, either by paying the outstanding balance owed in full or making partial payments until the outstanding balance is paid in full.
Instant credit can be helpful if you don’t currently have the funds to purchase something you need. Say, for example, you need to buy groceries but you don’t get paid until next week and don’t have enough funds on hand or in the bank to pay with cash or debit card. With a credit card, you can purchase those groceries today and pay for them later, after you get paid.
A credit card is considered revolving credit because you can use it repeatedly and continually free up available credit by making payments. It differs from installment credit, which gives you a lump sum of funds up front and you then pay off those funds in regular payments of a predetermined amount over a specified time period.
So, let’s say you have a credit card with a credit limit of $500, and you make purchases of $250 over the course of the card’s billing cycle. That means you can still make another $250 worth of purchases until you reach the card’s $500 limit, at which point you probably won’t be able to make any more purchases. But you can free up credit on your account by making payments. If, for example, you pay your $250 outstanding balance in full and on time, as soon as the card issuer posts your payment, you’ll once again have $500 in available credit. The account “revolves” in that it continually replenishes as you pay off what you owe. Exactly how much it replenishes depends on how much you pay each billing cycle.
If your credit card has no annual fee, a grace period, you pay your outstanding balance on time each month, and you don’t accumulate any other penalties or fees, then, yes, a credit card essentially provides you with credit for free. However, if your credit card does not have a grace period, or it does but you don’t pay your outstanding balance in full each month, then you will be charged interest on your purchases. In addition to an annual fee, you may also be subject to other fees, such as late-payment fees if you don’t pay at least the minimum amount due on time each month.
If you have an abundance of cash at your disposal, only do business with merchants and vendors who accept cash or debit card payments, and plan on living out your life that way, then you may have no need for a credit card. But that’s not really a viable way of life for most of us in the twenty-first century, especially if we want to buy houses or cars or other big-ticket items on credit.
If you fall into the latter category, here are SEVEN REASONS YOU MAY WANT A CREDIT CARD:
So, what’s the point of a credit card? It offers convenience, security, peace of mind, and possibly even rewards just for using it. But here’s the caveat. For a credit card to work for you, you need to use it responsibly. Responsible use of a credit card can help you get the things you need now and, if you want it, more credit later.
Ready to take advantage of the benefits offered by a Credit One Bank credit card? See if you Pre-Qualify for a Credit One Bank credit card. It takes less than a minute and won’t harm your credit score.
About the author:
Sean P. EgenAfter realizing he couldn’t pay back his outrageous film school student loans with rejection notices from Hollywood studios, Sean focused his screenwriting skills on scripting corporate videos. Videos led to marketing communications, which led to articles and, before he knew it, Sean was making a living as a writer. He continues to do so today by leveraging his expertise in credit, financial planning, wealth-building, and living your best life for Credit One Bank.