Credit cards are useful for many things. Beyond making purchases, they are essential components for building credit.

In fact, credit cards are one of the most popular forms of revolving credit, which is often given more importance than its cousin installment credit when calculating your credit score. Installment credit examples include mortgages, student loans, and auto loans.

The unfortunate thing is that credit cards often get a bad rap, as many people struggle with racking up tons of debt. If you don’t know how to use credit cards properly, racking up debt can demolish your credit score.

On the other hand, if you have the know-how to take advantage of your credit card’s benefits safely, then you can use their power to boost your credit and achieve your financial goals.

In this article, we want to give you a quick overview of credit cards and how they work so you can determine whether or not a credit card is a right choice for your needs.

A Basic Understanding of Credit Cards

What Are Credit Cards?

Credit cards are essentially cards issued by lenders that provide consumers with borrowed money that they can use to make purchases. In return, the consumer has to pay back the borrowed money at a later date, as well as any fees or interest that are applicable.

Of course, if the consumer pays the full amount borrowed back before or by the due date, they won’t have to pay interest on their card. This is super important, as this is where many consumers fall into debt.

The other option for consumers is to pay the debt off over a longer period of time. In this case, interest will likely accrue. That interest can be a relatively large percentage, adding up quickly.

Every credit card comes with an account number, an expiration date, and a security code. You will also find a hologram, a signature panel, and a magnetic stripe. Newer credit cards have chips inserted into them, allowing you to insert them into a chip reader or tap them on the payment device rather than having to swipe them.

So, How Do Credit Cards Work?

While credit cards may feel like “fake money” to you, we don’t recommend thinking about it that way. It’s incredibly important to only borrow the money that you’ll be able to pay back. Remember, the money you are borrowing is very real. Eventually, you will have to pay it back. It’s best to pay it back without tons of interest tacked on.

Final Thoughts

Here at Personal Tradelines,  our goal is to help our clients throughout their journey to good credit.

Determining whether or not a credit card is right for you is as simple as determining whether or not you can be practical with your spending and stay within your limits.

If you feel that you are ready to start your journey to better credit, make sure to get in touch with us to discuss our many different tradeline options.