Monday, May 5, 2008

General Credit Card Information - Part One Of A Series On Credit Card Education

This is part one in a series on Credit Card Education.

Part 1: General Credit Card Information
Part 2: Credit Reports and Scores Explained
Part 3: Building Your Credit - Your First Credit Card
Part 4: Fixing Your Credit – Tips And Tricks
Part 5: Where To Check Your Credit Reports And Scores
Part 6: Amex Financial Review
Part 7: Store Credit Cards
Part 8: Churning Credit Cards - Tips and Tricks

Part 9: Credit Cards With Great Signup Bonuses

Why use a credit card?:
These are the main advantages of using a credit card: (Besides for the obvious of not carrying around cash wherever you go and of course online shopping would be impossible without a credit/debit card.) Most of these benefits mentioned do not apply to your average debit card.
  • Security: Disputing Charges & Insurance/warranties
  • Points/Cash back for using the card for purchases
  • Signup bonus for opening a new card.
  • Low APR

You will have a lot more peace of mind when shopping with a credit card, for two reasons:

  • Disputing charges
    All credit cards allow you to dispute charges (called a Chargeback). If you want a charge on your account taken off, either because it was not an authorized charge (fraud...) or because you don’t feel the company deserves to get paid, you can call your credit card company and file a claim. With cash you obviously won't have this protection...

    Some cards are better than others for disputing charges. American Express cards are the best to have for disputes. Visa seems to be second place.
  • Insurance/Warranties
    Most credit cards offer many different types of insurance and warranties which range from extended warranties on products purchased to rental car insurance etc. Amex is by far the best card to have for this purpose. Any of the Amex cards will give you all the basic warranties and insurance that you need. If you read up the review about what Amex offers and actually take advantage of them, you will be saving yourself lots and lots of money, guaranteed!

Points/Cash back:
Some cards offer points or cash back for spending money using their card. Depending on whether you collect miles or not, either get a cash-back card or a mileage card. Most point/mileage cards come with an annual fee, while many cash back cards have no annual fee. So instead of using cash, check or a debit card, and not getting anything back, you can be getting up to 5% of your money back! After a while, even 1% back adds up! Make sure to check out Part 5 of this series for more info.

Signup bonus:
Depending on the card, you can be getting up to 25,000 miles for opening a card, enough for a free flight anywhere in the US. More details to come in Part 4 of the series.

Low APR:
APR (Annual Percentage Rate) is used to calculate how much interest you owe on a loan.
One of the many ways credit card companies make money is by charging a high interest rate when you don’t pay your bill in full every month. Way too many people get into debt and end up just paying the minimum every month, which basically means that they are just paying off the interest and not paying the actual debt…
So, please be extra careful if you decide to use any 0% APR offers. My suggestion is to pay off all your bills in full every month and forget that there is even a possibility of paying over time.

Credit card companies will often offer a 0% interest rate for the first year or so. Sometimes they will send out such an offer to existing cardholders as well.

These 0% APR offers are either for:
Purchases: Items you buy on the card – You buy items and pay for them a while later interest free.
Balance Transfers: Paying off a different (high interest) debt. Basically the CC company will lend you x amount of money interest free.

Note: Make sure to read up properly before using any 0% APR, as there is often lots of fine print involved. For instance, if you have a 0% APR on balance transfers but not on purchases, do not use the card besides for the balance transfer. If you use the card for purchases, any money which you pay the credit card will be applied toward your 0% balance transfer, not towards your 20% interest rate for purchases…

Tip for advanced users:
This tip is by no means for the average credit card user as the smallest mistake can really mess up your credit. Be warned!
There are people which take the money from a balance transfer and invest it in a high yield savings account for a year. If you are interested in reading more about this option, check out the forums at This is only worth it if you get a really high credit limit on your cards ($30,000+ on a single card). With interest rates as low as they are now, it is not such a great time for this sort of investing.

Stay tuned for part two, entitled Credit Reports and Scores Explained.


jordan said...

This roundup is incredible!!!
wow-thanks so much

Shmuly said...

You're very welcome!
Stay tuned for part two.

Mendel B said...

Great Post!
Some notes:
1) Be careful when disputing a charge /charback as there is now a "ChargeBackBureau" company that sells merchants a blacklist with names of customers who have done chargebacks.
I would still do it, and have done it in the past, but readers should be aware of this.

2)I dont think the Delta Skymiles Options card from Amex has the 90 day return privilege.

Shmuly said...

Thanks for the comment!

1) Interesting article, though I wouldn’t worry too much about it as:

a) That article is from 2006. Their supposed site ( doesn’t even exist anymore.
b) I doubt very much that they ever had a substantial list. Even if such a list did exist, the companies that would participate are probably not the companies you should be shopping at in the first place on a regular basis, as the list it would be a shady practice. Especially considering that the company was based in Panama.

2) Thanks for pointing that out about the Delta Options Card, although I don’t know why anyone would use that card to begin with (only one mile for every $2). Click Here for a list of recommended Amex cards.

Post a Comment