Credit cards are everywhere, from the pile in your wallet to the ads you receive in the mail and the payment portals at retail stores and on websites. Before you decide to apply for a new credit card or use your card for a purchase, consider the positives and negatives of credit cards.
Positive: Build Credit
If you do not have any credit, the credit bureaus cannot generate a credit report for you. Not having a credit report makes you a huge credit risk because lenders have no idea whether or not you will be able to handle making payments. Using a credit card wisely and paying the bill on time helps you build a good credit score, which can help you get loans with good interest rates in the future.
Positive: Security
If someone steals your credit card, you are liable for no more than $50 of the fraudulent charges on the card. The credit card company might also reimburse you for the cost of an item if it is defective and the retailer will not offer a refund or if you purchase something and do not receive it, as could be the case if the company you purchased from goes out of business.
Negative: Allow Overspending
If you try to pay for something with a debit card when you have no money in your checking account, the purchase does not go through. However, you can spend thousands of dollars on a credit card, even when you cannot afford the purchases. This allows people to get in debt by making purchases without having the money to pay for them when the bill comes.
Negative: Destroy Credit
People who use credit cards irresponsibly can ruin their credit scores. Failure to pay a credit card bill lowers a credit score, as does maxing out a credit card by borrowing all the way up to the credit limit. In the worst case, people who use credit cards to spend way too much and cannot afford the payments might have to declare bankruptcy, which is a big hit on the credit score.
Negative: Costly
Credit cards have all sorts of fees, from interest charges to annual fees, over-limit fees, late payment fees and fees for special features such as cash advances or balance transfers. These fees can add up to significant costs to the cardholder. For example, a person who carries a credit card balance of $6500 at 16 percent APR pays $86.67 per month in interest alone.
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