Consumer Credit Cards Business Guide: How to Apply and Keep a Credit Card

Consumer credit cards offer a host of benefits to those who use them properly. While your bank most likely has its own credit card program, you can apply for credit cards through any bank or commercial lender that offers them.

The process is simple, and usually requires that you fill out an application either online, through the mail, or at the lender’s establishment. Decisions are made fairly quickly and will usually depend on your credit rating. Even if you have no credit or bad credit, some lenders will approve you for a credit card, but they will keep your spending limit fairly small. Over time and with a demonstrated record of on-time payments, both your credit card spending limit and credit rating will improve.

Benefits

Consumer credit cards offer several benefits to the financially conscious.

Build Good Credit

Having no record of good credit can be as damaging as having a bad credit rating. Approach your bank or other commercial lender about establishing a credit card account, and use that card consistently for small purchases. Pay off the balance each month before the payment becomes due, and you will soon find yourself with a sterling credit rating.

Many young adults begin building a credit history while in college. Student loan giant Sallie Mae states that 84% of undergraduate students hold at least one credit card, and only 15% of those students have a zero balance on their card.

Reward Programs

Many lenders offer bonuses in the form of cash back, airline miles, or points toward other goods simply for making purchases on your credit card. Using your card regularly can be lucrative, especially if you have large purchases that you plan to make.

Paper Trail for Purchases

Because you get an electronic or paper statement each month, using your consumer credit card can help you to track your expenses without the need to save a pile of receipts. This is particularly helpful if you are a freelancer or business owner, as you can have one card for personal purchases and another that you use strictly for business expenses.

Fallback for Unexpected Expenses

Trouble always comes along when you least expect it. When faced with unexpected purchases such as mechanical problems with your car, surprise medical expenses, or home repairs, your consumer credit card can help by allowing you to pay the debt in installments.

Pitfalls

Consumer credit cards offer many benefits, but they also have drawbacks, particularly for those without a steady income and solid financial sense.

Incur a Bad Credit Rating

Missed payments, late payments, and spending over your limit can hurt both your consumer credit card’s status with the lender as well as your credit rating.

Build Up Personal Debt

Unless you are able to control your spending habits, you could find yourself in a mountain of debt. Except in the case of an unexpected or planned expense, you should never spend more on your credit card than you can afford to pay cash for.

High Interest Payments

Even if you were offered a low interest rate when you applied for your consumer credit card, one late payment could have you paying more in the future. The Pew Safe Credit Card Project estimates that 72% of the credit card lenders offer cards with low initial interest rates that can skyrocket after you make a single late payment.

Pricing

Read all of a credit company’s terms and conditions before signing on the dotted line, as many credit cards come built in with hidden fees.

While the Credit Card Act of 2009 limits a lender’s ability to charge retroactive interest when there is an interest rate hike, lenders can still charge those fees. Lenders often hit you with additional charges annually, whether you use your credit card or not, as well as when you miss a payment, make a late payment, or go even slightly over your credit limit.

Look for cards with the lowest APR, or annual percentage rate, and find out whether it is a promotional rate good for only a certain period of time or whether it will be in effect until the lender has an interest rate hike. In 2011, APRs started at roughly 10% and could go as high as 30% or more.

If you have an existing credit card with a high interest rate, look for consumer credit cards that offer a zero-transfer balance fee. This will allow you to transfer the amount you owe on your existing card over to your new card, with no interest charged on the amount. If you cannot find a zero-interest balance transfer, look for the lowest interest rates possible.

Consumer credit cards can help you to establish or improve your credit rating, act as a fallback for unexpected expenses, and allow you to build up points or receive cash back for purchases. In order to use them properly and not wind up deep in debt, you should use them sparingly, be diligent about paying the bill on time, and pay off the balance each month.

Having a credit card is not an excuse for going on a spending spree. Rather, it is a financial tool that you can use to help manage your money and establish yourself as fiscally responsible spender.