Information Center – News and Articles about Credit Cards
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A Credit Card for Your Kid: a Super Perk or a Debtor's Prison?
Owing a credit card seems to bring nothing but pure benefit. With a credit card you don't have to carry a bunch of cash in your wallet, you can make purchases not stepping out from your home. And after all, you can get some percent of your money spent back though cash back rewards program or through some merchandise having redeemed your rewards points earned.
But everyone is aware of the pitfalls and problems that credit card use can cause. All those hidden fees, written in the fine print, penalty fees, exceeding your credit limit and just unreasonable credit expenditure can easily and unnoticeably lead you to a financial collapse.
But in the hands of a wise and experienced credit card holder a plastic can become an effective weapon in one's personal money management scheme. However, if a credit card gets into the hands of a young green kid, it might do much harm to his so unstable financial standing.
Any person under 18 is not entitled to get approved for a regular credit card deal by law. But there are some exceptions and amendments to this law, though. Some credit card issuers are happy to issue a credit card to teenagers under 16! Their motivation is quite clear. Inexperienced youngsters are an easy catch for creditors, who hurl all their efforts on laying their greedy hands on your money.
But what can you expect from money lenders? They just do their job.
Imagine the excitement of your underage kid once he or she gets to a magic, hypnotizing credit card. It seems to them that they can conquer the world with this wonder-plastic. So many stores slide their doors open for them! So many opportunities, so many temptations...
Once your teenage kid fills out a credit card application, financial experts give 85% out of 100% that your precious child will end up in debt prison, before they even become eligible of building their credit history.
Teenagers are just too young to realize the gravity concerned with financial matters. They are inclined to overestimate their powers, but they usually underestimate the importance of responsibility put on them.
In order to protect your children from early debt commitments and insure them from undesirable depressions in tender age, you should prepare your kids for adult life and teach them the basic points of money management.
What might puzzle you next is how to explain a 14-16 year-old kid what the annual fee is, what type of card they should look for with certain credit history, what a balance transfer is and other not so simple things. Theory? Boring and hard to get at once. Practice? Dangerous, as you risk to damage your own credit score.
Visa and MasterCard International offer a safe and convenient way out. They issue the so-called "trainers" credit cards. They are some kind of alternatives to regular credit cards. With them and your watchful assistance, you will succeed in financial educating of your son or a daughter.
Credit Card Alternatives.
A debit card (re-loadable, pre-paid) functions just like a usual credit card, except for the interest that is not accrued to it, as the money is deducted directly from the account.
A joint credit card account you will share with your child involves responsibility of both sides.
A saving account in a bank that your kid can open will enable them to be issued a full-fledged credit card based on this very account. But its credit limit usually equals $300-$500, which will protect your child from getting into a large debt.
If you are ready to take the risk of damaging your own credit rating and if you fully trust your child, you can make them an authorized user of your credit card and take the responsibility for all their financial missteps.
No doubts that you play the leading part in your kids' financial background knowledge. Make sure your message that becoming a credit card holder means taking great responsibility made its way to your child's backbone. And it has stuck there for good. Then you can be sure that your children will rationally and carefully manage their money.
Most credit tips say that the sooner you pay off your credit card balance - the less money you will lose on interest. On-time payments will favorably bound back on your credit score and payment history. This kind of advice is what we all are used to hear and read on the Web, in financial magazines, in tips columns. But does this financial behavior model really have a positive effect on your FICO score and credit report?
How can it be questioned, you ask? A perfectly disciplined plastic owner that pays off his or her balance before a lender could say Jack Robinson. Is not it any creditor's dream? No, it is not always so. Let's find out why a lender would want a different behavior model from a borrower and when this kind of paying down debts can weigh heavily against a cardholder.
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There are a number of embarrassing situations that are just a nightmare for cardholder. Feel no wallet in your pocket just before the cash register? See some unauthorized charges in your credit report? Loose you wallet with all your plastics in it? Very soon we are going to have no fear of these things, thanks to amazing technical progress.
Indivos Corp. which majors in computer hardware and software development has been working on an electronic system for making payments over a number of years. The thing about this system is that it enables transactions to be made by scanning customers' fingertips. A number of retailers have already expressed interest in testing the new system.
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Active credit card use is a sign of a society with well-developed market relationships. More and more people get involved in buying goods and services with plastics. Using virtual funds to make real purchases is very convenient. But this extended buying power has led Americans to a dangerous trend. Over 40% of American households, according to the USA Federal Reserve statistics, spend more money than they make.
In the average, every American of these 40% spends $1.2 per every $1 he or she earns. Plastics have changed people's spending habits. These plastic devices allow and encourage people to spend more and more money. Around 18% of all purchases made by Americans involve credit card use. About 24% of the purchases are made with other types of plastics.
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If you are determined to eliminate your credit card debts and you have good credit, getting a balance transfer card is a good idea. You can shift your credit card balances with high interest rate to a card with much lower rate or 0% APR at all. But there is one thing that can reduce your profit from this kind of a deal. It is balance transfer fee.
Most balance transfer cards come with a fee for a transfer. Not long ago you could easily find a plastic for balance transfers with no fee. However, due to the credit card market crisis and economy slowdown, lenders have pulled these deals from the market. And now it is rather hard for a customer to find a balance transfer card that comes with no fee. But there are some ways to negotiate a better balance transfer deal.
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