10 Credit Card Basics

What's the difference between a credit card and an ATM/Debit card?
A credit card is a loan that must be repaid with interest.

An ATM or debit card is a payment card that is connected to your checking account. Charges made with an ATM card are deducted immediately from the checking account. Charges made using a credit card are added to a balance and must be repaid.

What are the Pros and Cons related to using credit cards?

Pros

• Available in times of financial emergency
• Convenience of having extra finances
• Safer than cash during a trip
• Paper Monthly statement keeps them recorded
• The ability to build a credit history

Risks

• Interest Rate
• Can spend at anytime
• Associated Fees
• Can increase debt
• Misuse can lead to bad credit

What do those pre-approved letters in the mail mean?
It doesn't mean a thing. An offer with "pre-approved"  means that you have only passed a minimal preliminary credit-information screening. A credit card company can deny you if it doesn't like your credit rating.

What is the difference between a fixed and  variable interest rate?
Interest is calculated as a percentage rate of the loan/credit account principal.

Fixed means that the interest rate does not change over the life of the loan.

Variable means it changes periodically.

How many credit cards should I have?
The less the better. The more open credit accounts you have the more that will affect your overall credit score. Always try to carry at least 2 major credit cards. Carrying 1 credit card with a large balance is more beneficial than a carrying multiple cards with small balances.

Is it smart for me to transfer my balance from one credit card to another that has a lower interest rate?
This can be a strategy for taking control of your debts. But here are some things to consider before you do it:

• Is the "low" rate on the new card just an introductory rate? In other words, what will the rate increase to after you transfer the balance?
• Does the new card have any additional fees (such as annual fees) or higher fees than your current card?
• Does your current card have a balance transfer fee?

 What if I find that my debt-to-income ratio is really high?
A high debt-to-income ration means that you're a riskier customer for a creditor. Pay your debts as low as possible before applying for a loan. This applies to consumer loans, credit cards and student loans. If you are not able to pay debts lower before applying for a new loan, you will usually have a higher interest rate.

How does someone have good credit after bankruptcy?
To accomplish good credit, you'll need to start from scratch and get a Loan.

Obtain a small loan or open a credit card with a low limit. It is very important that you make your payments on time. Never go over your credit limit.

 You will most likely have to start off with a secured credit card, and will usually have a higher interest rate.

 Here are some links for more information in helping your credit intelligence:

 http://finance.yahoo.com/

Online Credit Guide