Your First Credit Card
The name credit card is a bit ambiguous, because many times by saying "credit card" people refer collectively to both credit cards and debit cards. What is the difference?
A debit card is a bank card which is linked to one of your existing bank accounts. In other words, every time you use your debit card for payments you spend your own money. A debit card can be linked to either a checking account or a saving account.
A credit card is a bank card which is linked to a credit line or credit account. Every time you use the credit card you spend the banks money. It is a loan. Let's say you have an emergency and need some cash quick, or you want to buy something quickly. Right away. What you can do?
Well, here are some of the options you can do. You can...
- lend it from a friend or family member
- take the money from your credit card, because you remember, the money behind the credit card is not your own money, it's the bank's. You just borrow it from the bank for a limited time. In other words take a cash advance.
Some general information on cards. The card is made of plastic with the cardholder's name on it. Each card has a unique number called the card number. The card numbers are usually 15 or 16 digits long and there are no two cards with the same number.
Every card is valid and can be used for a limited time only. This can range from a few months for temporary cards up to a few years for the rest. Usually the validity of a card is 3-5 years, and the last month when is valid and can be used is printed on the card, and is called expiration date. After the expiration date the cart must be renewed, which means replaced by a new one with a new number. The expiration date on the card is imprinted usually in the form of 4 numbers, for e.g 06/04 which means June 2004. Some cards specify the day in the expiration date, like 31/07/04 which means 31 July 2004.
Obtaining a credit card
Credit cards can be used as an excellent tool to build up a good credit if you don't have one, or to improve the existing one, if backed up by enough financial knowledge and self discipline. However obtaining a credit card without any existing credit history might be quite a challenging task. I know because I suffered through every step of it, and it took me long weeks until I researched and found out the easiest way to do it.
You can do it in two ways:
1. If you have a good friend in America with a good credit history who trusts you enough, it can help you to get an unsecured credit card. That friend or relative of yours probably already have credit cards. He can ask for a new credit card in your name linked to his account. You can start using your new credit card to build up a credit.
Buy small value items on this credit card and pay it off fully at the end of the month. Why? In order not to limit too much your friend's credit limit. Let's say if your friend has a credit limit of $5000. Now with two credit cards both of you are spending against your friends $5000 credit limit. The more you spend the less he can spend from his credit card and vice versa. But don't forget he made you the favor, so don't make him feel inconvenient about this joint-credit-venture.
2. You can obtain a secured credit card from the bank where your checking account is open. Many banks offer secured credit cards, and the reason why I am recommending your existing bank is because with them already you have a history, a relationship established.
What is a secured credit card? It is a special credit card "secured" by a savings account. Don't forget you are trying to build up a credit history. The bank doesn't know you yet, and this is why requests a special guarantees that no matter what you are able to pay back your credit card charges. For this you deposit a certain amount of money in a newly created savings account. You won't be able to access those money for a year, or until you decide to cancel your secured credit card.
So let's say you want a credit card with a $1000 credit limit. You will need to deposit $1000 in a savings account. Your credit card limit will be equal to your savings account limit. If you want to raise your credit limit later, all you have to do is to deposit more money into your savings account, and your limit automatically will be raised.
Secured credit card transactions are reported to the major credit bureaus like other non-secured credit cards, so it helps you to build up a credit history. Just be sure you don't overspend yourself and I recommend you to pay back as much as possible of your credit card debt, if possible clear monthly the whole amount. It will help you to create good habits.
After a year the bank will switch your secured credit card to an unsecured one, and give you back your money.