If you are looking for a credit card right now, you may not know where to turn to.  After all, there seem to be so many advertisements and websites trying to get you to click on them, without a lot of information about what is actually involved.  Application processes are just one thing that can get complicated.

It can make us wonder whether we should really try to get one.  Are all of them a scam, like some of us heard from our parents growing up?  Well, I am sure that you can probably guess that the answer to that one is no.  There are plenty of methods to use one in a financially intelligent manner, allowing us to boost our credit scores even!

So, if that is something that you would like to learn more about, you might want to consider staying for this article. I will be doing my best to answer those questions that I posed, along with other ones, so it will hopefully be valuable information!

What is a Credit Card, and Why does it Matter?

If you have not heard of them before or only have a vague knowledge of them, it is pretty simple.  They are physical cards, usually made of plastic, that you can use to purchase goods and services. Just be conscious of the fact that they can only do this at retailers that approve it, though. 

There are several different types of them, all of them worth getting familiar with.  You see, the first one that I will cover are a bit special, as they are specific to a business. If you own a small business, or if you are responsible for the finances of one, a business credit card might be something you want or already have.

They allow us to prevent our personal finances from merging with our business expenses, as that can cause problems down the line. Many people find it worth it to have one even if you can not necessarily build your credit score using it. I will cover more of them as I continue on in this article, so stay tuned.

Something interesting about them is that they function as a line of credit, rather than cash.  There is a difference between a cash advance and having a credit card. So, what that means is that in practice, when you purchase something, you are expected to pay that balance back off.

What is Credit?

 This is probably one of the most important parts of understanding how a card works, since it is what the entire concept hinges upon.  You see, in basic terms, it is a way that a person’s ability to pay back money that they have borrowed is calculated. So, your history with that is shown via a set of three numbers that we call a credit score.

It is a way that financial institutions, merchants, lenders, and any service providers can decide whether you are trustworthy as a borrower. So, if you are late on any monthly payments, it can reflect negatively on your score. However, being on time and paying back your debts has a positive impact.

In the past, lenders mostly relied on reputation to decide whether to allow you to borrow. This system is prone to fewer errors, thankfully, so while it can be frustrating to deal with it is usually something to be thankful for in comparison to the old system. 

When you apply to get a credit card, your score shows the potential lender a few things. This includes how many lines of credit that you already have open, how many loans that you have taken out and the amount that you have paid back on them, when your monthly payments are made (on time or late, for example), and any of the more severe types of financial problems.  Those could be bankruptcies, foreclosures, and repossessions.

If you did not know, there are actually four types of credit that you can get familiar with. You can see some examples of them on kredittkortinfo.no if you have not heard of them before or want to educate yourself a bit further. Just keep in mind that not all of them are as prevalent as others.

The first I will cover today is called revolving credit. Most cards that you get will fall into this category.  With this, you are given a borrowing limit that is a set maximum.  Thus, you are able to charge the line of credit up to that limit that is set. It can be anything from over a thousand dollars to as little as one hundred dollars. 

Each month you will have a minimum monthly payment amount, and that will increase the credit limit again.  So, that is what makes it “revolving.”  Another type is called a charge card, but these are not very common anymore because they are usually offered by department stores. 

Service lines of credit are usually with a utility or other service company. So, that could be gas or electricity as two examples. The agreement you have with a gym, or an internet service provider fall under this category, so many of us have a line like this without even realizing it.

The final one I would like to touch upon today is known as installment. Usually, that is a one-off loan that is a set amount of money.  You are agreeing to repay it of course, and there are some fees that are involved such as interest rates.

Is a Credit Card a Good Idea?

This is a big question to attempt to answer, but I will do my best. One thing that you should try to remember is that there is not really a definitive yes or no here, as only you can know your spending habits. That being said, if you are looking to build up a credit portfolio, getting one with a small revolving limit might be a good thing to do.

Why is that important, though? You see, a lot of things in the world do require a credit check before you are able to proceed. One of the most important things is renting property or buying a home, as well as a vehicle. If you have a lower score, you might struggle to do these things.

Many students graduate from college with a fairly low score due to their student loans, which can pose a big challenge. Getting a lower pressure credit card is one way to help build that up without too much stress on your shoulders. 

So, with that in mind, something like that probably is a good idea. Getting a line of credit for your business is another one that tends to be a solid reason, though it is not required.  As I mentioned above, it can just be way to keep things organized and separate, which can be a real plus during tax season!

That being said, if you know that you have a spending problem, getting a huge line of credit might not be the best idea. Like I said, that is going to really depend on you and how well you know yourself. Do not be too risky about it or potentially plunge yourself into thousands of dollars of debt that you may not be able to climb out of.

As with most things that involve our money, it is best to err on the side of caution. Otherwise, we might end up making some serious errors. If you are ever feeling uncertain, consult with a trusted family member or loved one, or check out a financial advisor.  They can be a serious help in situations like these and help you build up your credit if you are unsure how to get started!