Credit Cards

The word "credit" come from the Latin word "creditus" which means trust. Why should anyone trust a thin piece of plastic?

That's what credit cards are...just a thin piece of plastic with a magnetic strips. The trust lies in the information contained into the strip; it identifies who the card belongs to and the status of their credit.

When someone uses a credit card to make a purchase, the seller runs the card through a machine that reads the magnetic strip. If the person's credit account is "good", then the transaction goes through.

You must apply for a credit card through a bank, credit union or other company. You must be at least 18 years old and not have "bad" credit. It's a lot easier to have "bad" credit than you think. It can occur by making late payments on your credit card or other bills or just having too much debt.

A credit card allows you to buy things now and pay for them later. It's kind of like taking out a short term loan. They are very handy in emergencies, when you need money fast or when you just don't have cash on hand.

A credit card has a spending limit. You cannot spend more on the credit card than the limit. For example, if your limit is $5,000, then you cannot spend more than $5,000 on that credit card within the cycle --- usually 20 to 30 days.

Financial instutions and companies make more on credit cards by charging finance fees. They might charge an annual fee for the card, late fees and some charge is the card is not payed off each month.

Credit cards work best for people who stay within their budgets and pay off their credit card account each monthy so that they avoid finance charges.