According the U.S. Census Bureau, in 2006 there were more than 173 million credit card holders in the United States. This was predicted to grow to 181 million by 2010, representing nearly 92% of all households. Although credit can be helpful, if used wisely, it can also cause financial stress if misused.
Charge Cards vs. Credit Cards
Although many people carry them, some do not understand that charge cards are different than credit cards. Charge cards do not allow holders to carry a balance and require payment in full each month. American Express Cards are the best example of a charge card.
Misconceptions
Credit card issuers are not required to provide a grace period on purchases. While most credit cards allow a grace period to pay off purchases with no accrued interest, this period varies for every financial institution and should be verified to avoid interest charges.
Warning
Interest and late fees can add significant cost to credit card purchases and quickly erase any savings or discounts provided at the point of purchase.
Benefits
Having easy access to a reasonable amount of consumer credit can provide a safety net in the event of emergencies. This availability can help consumers avoid using money set aside for monthly expenses or tapping into savings or retirement funds.
Considerations
Although having access to a ready line of consumer credit can be advantageous, large, unused credit limits can negatively impact your credit score. For most middle-income consumers, access to a few thousand dollars will typically provide a sufficient cushion for most unforeseen expenses.
Prevention/Solution
Credit and personal finance education, starting at an early age, can significantly improve the handling of consumer credit by young adults. A secured credit card, available through most financial institutions, is a great way to teach financial responsibility while limiting potential loss.
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