Credit cards can be scary and theyshould be.
They are a high APR debt machine that is designed to destroy yourfinances so if you're gonna dance with the devil we're gonna go over everythingthat you need to know.
Today we are covering topics that range from how toimprove your credit to different types of credit cards and best practices.
Firstlet's discuss how credit scores are determined as right here shown there aretwo major things that you need to do to improve your credit score and this ispay your bills on time and how much you owe.
This is calculated about how muchyou could have taken out and how much you have.
Length of credit history whichis all of your cards and debts that you have accumulated that are still openlongevity and divided for average time.
And then for a very small factor exactlyhow many different types of credit you have from student loans mortgages incredit cards.
So what is this chart actually telling you it is telling youto pay your bills on time and don't max out your cards.
Now that we've covered verybriefly how credit scores are calculated we're gonna cover exactly what creditcards can do for you and how they can hurt you.
So up next on this journey is different types of cards that you can actuallytake out there is a basic vanilla card that is exactly what you'd expect from acredit card with no perks bonuses or usually heavy fees.
There are regularrewards cards which are pretty much the industry standard to make sure that theycan attract more customers annually.
And there are student credit cards but theyare directed more at students with lower actual balances and lower APRs.
Now we're getting onto some more very different types of cards we have securedcards which you actually give the bank or institution money that is used forcollateral for the entire debt for the card.
In case you default on it.
These arelike credit cards on training wheels and are usually for building credit andsimilar to the secured card there are charge cards which pretty much work likea glorified gift card and you put money on it and you spend it just like youwould a gift card.
After charge cards there are limited cards which aredesigned to limit where they can be used how they can use and in whatinstitutions they can be used.
And on to the bad or credit repair cards we haveour subprime credit cards which are designed to be manipulative and targetthose that have poor credit scores.
And last but not least there are debtconsolidation cards which you can transfer your debt from another cardinto this one.
They usually have zero APR but if you miss a payment you will behit with a hefty fee.
So the most obvious bonus to having a credit card is easyaccess to a short-term loan this being its primary focus andpurpose.
This is also its major drawback as many people will not be able torefrain and about 39% of the population carries a balance.
First and foremost so let's go over the basic rewards card this is the mostmarketed product and usually gives you rewards between 1 and 5 percentdepending on how the card is set up.
Amazon gives you 5% back for everythinginside their store purchases and 1% for everything else whereas other cardsgiving you 3% back for gas and 1% for groceries.
Really depends on the exactcard that you have shop around for the one that you'd like.
Other bonuses andperks can include regular points for random prizes or frequent flyer miles.
And then there are these secured credit cards these are pretty much the trainingwheels of credit cards that allow you to help and increase your credit scoreuntil you can get a full-grown credit card.
the drawback to this is that youhave to give them capital usually $300 to $500 before they will actually allowyou to open up the card.
Positive side is you can grow your credit score withthese.
And then there are cards out there they're designed to actually consolidatedebt usually with zero a p RS for a certain specific amount of time or forthe longevity with the drawback being that they will charge you high fees ifyou miss a payment.
This helps people that have spiraled out of control andwould like to get a handle on their credit card debt.
There are also cardslike American Express Platinum Card which has a $500 annual fee and reallydoesn't exactly work like your regular credit card.
With no APR just a heavyfine if you do not pay off the entire balance by the end of the month perksare flyer bonuses and the ability to enter most airport first class loungesin the world.
There are a lot of other bonuses that come with this card and youcan check out their site.
This is another option for those that are willing to paythe 500 annual fee to get a few extra perks.
And fun fact about this card ifyou are a service member of any sort you can get this fee waived every singleyear.
So to roll into the next point let's talk about exactly how much youcan expect back from these reward points remember the 1 to 5% that you get backfor purchases.
You can usually expect through average spending on a cardbetween 70 and 200 dollars depending on exactly how your card works and yourspending habits.
And here lies the HOOK.
Companies are incredibly good at runningnumbers and they know that they are able to lure more customers in while givingthem these perks and rewards.
They are banking on the 38 percent of thepopulation that has around $4,000 in credit card debt that is rolled overevery single month and they pay a high APR fee for it.
I will let you do themath 1 to 5 percent – 18 percent.
It is actually more than what they say but we will get int that a little bit later! Those rewards are there to bate newcustomers in as acquiring customers is one of the most costly parts of thebusiness.
They're banking on 38% of the population rolling over this credit andpaying the high APR fee as most would conclude just pay off your credit cardsevery month and you'll be good pay them down all the way to zero and that's thekey pay them all the way to zero every month Zero ZERO ZERO! and we will go over whyin a minute.
Best practices while swiping that card is you have the money alreadyset aside in an account to pay off that credit card at a relatively soon futuredate.
And as always before you open a credit card you should always readthrough the contract and understand exactly what it means and make sure thatthey are not talking about a separate card that is also covered within thiscontract.
Biggest thing to look for is the APR rate Promotions, when they start and finish and when you can be fined how much this is what transaction fees and other fees apply to this card making sure that you are not looking at the wrong card like right there and having a good clear idea of how these credits are spent and this brings us to our last point of why 18 % is not 18% This little bad boy right there the calculated daily average is whatyou're going to be charged and we're going to cover exactly how that works.
The way that the average daily balance calculation is done is you take 18percent divided by 365 divide that down and then they do the math every singleday and compound that as it goes throughout the month and this would beexactly how much they find you and here comes the real catch behind it say youhad a card at 18% and $1,000 on it you spend it at the beginning of the monthhave 25 days that you've spent and then you pay it all of it off except for $15.
At the end of that billing cycle all of that accumulated interest would stillcharged you as if you had had $1000 on at that last day even if you only had$15 still in the account because of that daily average that you had throughoutthe month charge would be in the area of 20 to 30 dollars more than what youwould have in the account on your balance and this is why you shouldalways pay your card down to zero absolute zero every single month so youdon't end up paying this fee and this is how the credit card companies get awaywith having an 18 and more percent credit card companies have gotten verygood at catching your money make sure that you understand how this works andhow the contract works so they don't get you now on to tips tricks and bestpractices for credit card use whenever you try to take out a new credit cardthe company will go and pull your credit score this is known as a hard inquiryand will negatively affect your credit score by up to five points purchasingitems like cigarettes and alcohol on your credit card can negatively affectyour credit score by up to 10 points because these are classified as highrisk activities and people that aren't dead pay the companies back their moneya lot better than dead people most companies will not actually reduce youravailable credit after you have risen it be careful because I became a victimafter I said yes just crank it all the way up and they gave me $18,000 creditlimit for obvious liability reasons that I just didn't want to have risk I closedthe card this is one of the best ways to improve your credit score and it ispretty darn simple I opened up a three to four credit cards and kept the usagebetween zero and 20% don't worry cuz when you first do this you're gonna havea negative effect on your credit score and it's gonna drop by potentially 40 50points when you first do this just stick to the process keep paying your bills ontime and your credit score will go up in addition you can ask your utility andphone bill companies to actually report your spending with them as a continuousevent system this will improve your credit score and if you can get them todo it it will help caution caution caution be very careful on the campuseswith the companies that are handing out student cards a lot of young adults feellike they're being brought into adulthood when they have this card andpeople get very attached just be aware of the scheme and they're trying to cookyou credit cards actually increase the money supply believe it or notwhen they make this loan they're creating money and when you pay it backyou're destroying money interesting topic I have a video covering exactlythe process and how it creates all of the money through debt.
cash advancescost more as they are considered a higher risk because they don't know whatyou're spending your money on and can have a little bit more tapped on to howmuch they charge you for pulling it out potentially and the APR can be increasedfor these and stick around to the end because I'm gonna give you some bonusinformation about the new chip cards so as we round up to this video thebiggest things you need to do to increase your credit score are pay yourbills on time and make sure that you don't max out your cards credit cardscome in many shapes and form and can help you have reward points toconsolidating debt make sure that you understand the terms and conditions andexactly how you can make them work for you and as a last word of warning andcaution credit cards are the number one marketed product in the world's historyand there is a good reason for it companies make Bank off of peoplerolling over credit cards imagine what you can do if you've made fifteen tothirty five percent interest back on your money so like I promised the coldhard dark dirty truth about the new chip cards they're not as safe and secure asyou think they are the chips are very secure on them the backside with thatstrip still is your information on it that is completely unencrypted bevigilant and make sure that your information doesn't get stolen so if youenjoyed this video don't forget to smash that subscribe button so that YouTubeyou enjoy this content and question of the day how exactly these carts getstarted throw down the comment section this has been Mariko a break.