Learning how credit cards work requires a considerably steep background in economics and accounting. However, a simplified version of how credit cards work is that they lend you money which you then need to pay back to them by a set date (at least a minimum payment).
Credit card issuers may be your financial institution, a credit union, or another financial organization.
When you’re successfully issued a credit card, be aware that this is not free money. You are being lent funds as a way to buy services, which you now have a responsibility to repay on time in an effort to avoid accumulating interest, finance charges and added stress that you don’t want.
Credit Card Companies Are Banking On Your Failure
But credit card companies know, as good as some people’s intentions are, that everyone they lend money to will not be able to pay it back on time. For them, this means huge interest rates and late charges that they legally get to charge you with. This is how credit companies stay in business and make money. Some may call it evil; some may call it unfair – but really, it’s just how this business works, and if you’re ignorant to the game you will get eaten up!
It is your responsibility to educate yourself about these factors so that you can stay on top of the credit card game.
Always keep in mind that credit card companies aren’t giving you anything. What they are actually doing is supplying you with an unsecured loan. What an unsecured loan means is that you don’t have to offer any overhead for the loan in order to obtain a credit card.
Sidenote: Keep in mind that we’re talking about regular credit cards right now; these come unsecured. There are secured credit cards on the market as well, but that works based on an upfront security deposit that you pay. But we’ll talk about that later, maybe in another article, but right now let’s just focus on how traditional credit cards work.
It is very possible to take out a card even if you have no to low cash in your bank account. However, when payback time comes, if you fail to repay the money that you so happily spent with your credit card, you may end up in a steep situation where you are unable to make payments as a result of insufficient funds. This is when things can start to get r e a l nasty.
People want things. Some things that they really can’t even afford. And credit cards know this. That’s why they’re there to permit you to get such things. But slip up and they’ll be on your ass like a pit bull!
Credit Card Debt
Unfortunately this happens to many people and they wind up in all types of credit card debt. They gradually find themselves having to juggle multiple credit card bills that have ballooned out of control with no end in sight.
And even if they do try to at least make the minimum payment, they eventually realize that they’re getting nowhere due to the fact that all their tiny little payments are being eaten up by BIG FAT INTEREST!
Don’t be like this.
Take credit card ownership responsibly and learn to handle the power you have in your hands. Just like all pit bulls aren’t bad, all credit cards aren’t bad. Credit cards can turn out to be some of your greatest allies – or your worst enemies. It’s all in how you manage them.
If you don’t know how credit cards work, this can definitely set the stage for credit card issuers to prey on your monetary assets. Effectively learning how credit cards work can help you to become a savvy consumer and great business person.
Credit Card Issuers Are Constantly Sizing You Up
When learning how to credit cards work, you’ll also want to understand a bit of statistics:
Banks are in a position to assess whether or not a certain sector of society will be capable of paying their credit card debt, based mostly on past historical data and experience with the sector. Because of this, some people are allowed much larger credit limits than others.
A superb example would be platinum cards which can permit payments upwards of thousands of dollars per month. This is because this prime sector of people who are allowed platinum credit cards have proven to be capable of making those high monthly payments required of them.
Paying your credit card bills on time will boost your credit score and thereby strengthen your credit worthiness. So you better believe that once you have proven yourself to be responsible credit card user, credit card companies will pursue you like a hawk with even greater credit card offers! – even if you don’t need them. Yup! The less you need them; the more they’ll want you! But when you were down in the dumps and covered in debt, they didn’t want to have anything to do with you. Hmm, that’s kinda how things work in many aspects of life. Go figure.
Play It Smart!
So be wise and play it smart with credit cards. If you’re gonna be sought after by credit card companies, let it be in a good way with them showering you with better credit card offers and more rewards — instead of being sought after with all types of threats because you didn’t pay them their money back!