What is a Credit Card?


Ever since we were young, we heard the term “credit card” thrown around left and right. By the time we reached adulthood, we signed up for our own credit cards, and started haphazardly using them. If you were to ask someone the question, “what is a credit card?” right now, they probably couldn’t give you an answer. Credit cards are hard to define, and extensive to understand.


Credit Card Definition

A credit card allows you to borrow money from your bank to make purchases. Whether you’re buying dinner or a new car, a credit card is a borrowing promise to your lender that you will pay the money back you owe within the pre-established grace period. This grace period is typically 25 to 30 days. If you miss that period, you are slammed with interest rates, also known as a percentage of the money you owe the bank, in addition to what you borrowed.


Naturally, there are many varieties of credit cards available to you today. Some have certain payment periods, payment amounts, interest rates, and everything in-between. The confusion comes in when you have to weigh out the pros and cons of using a credit card, as well as which credit card is right for your specific transaction.


Credit Card Pros:

  • You can afford to make large purchases and pay off their worth in smaller, more manageable chunks.
  • Credit card statements make budgeting easier, clearly listing out payments you owe each period.
  • It’s safer to carry around a credit card than it is to have a wad of $10,000 in cash on your person.
  • By using a credit card, you can build up your credit score, otherwise known as the “grade” you get based on how responsible you are with making payments owed.


Credit Card Cons:

  • You can dig yourself into debt if you aren’t careful about your spending with credit cards.
  • Credit cards are so convenient that they can cause you to accidentally overspend.
  • Interest rates can quadruple the size of your debt as time wears on.


Which Credit Card is Right For Me?

Many people have multiple credit cards today, each with a certain purpose regarding monthly purchases. You need to ask yourself how responsible you are with making payments. If you think you’re going to always make your payments on time, no questions asked, then consider credit cards that come with rewards programs. The cards give you points, cash, or even miles for flying after using them. However, rewards means higher interest rates. If you fail to make these payments on time, you’re going to hate the extra money you owe the bank.


If you’re not the most responsible person when it comes to settling payments, consider a plain credit card from a bank that doesn’t come with tons of perks. Be sure to review the interest rate for late payments, of course, before you decide to sign for it.


Credit cards are a wonderful spending addition to any lifestyle today. Before applying for one, set-up a budgeting calendar so you never miss a payment in the future.