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What is a Credit Card?

How is it different from cash?

A credit card is different from cash in a few important ways. Unlike cash, which you have to carry around with you, a credit card is a small plastic card that you can use to make purchases. When you use a credit card, you're borrowing money from the credit card company, and you'll have to pay that money back later. With cash, you're using your own money to make purchases.

Why is it called 'plastic money'?

Credit cards are often called "plastic money" because they're made of a type of plastic material, unlike paper money. This plastic material is more durable and easier to carry around than paper cash. Credit cards also have a magnetic strip or a chip on the back that stores information about your account, which allows you to make purchases without having to carry around a bunch of cash.

Credit cards can be a really useful tool for teenagers and young adults who are just starting to manage their own money. They can help you build credit, which is important for things like renting an apartment or getting a loan in the future. But it's important to use credit cards responsibly and only spend money that you can afford to pay back.

How Do Credit Cards Work?

What happens when you swipe?

When you swipe your credit card at a store, you are asking the store to let you borrow money to pay for your purchase. The store sends a request to the credit card company, who then checks if you have enough available credit to make the purchase. If you do, the credit card company approves the transaction and the store lets you take the items home.

Who gives you the money?

The credit card company is the one who gives you the money to make your purchase. They are essentially lending you their own money, which you then have to pay back later. This is how credit cards work - the credit card company lets you borrow their money, and you have to repay them over time with interest.

When you use a credit card, you are not using your own money. Instead, you are borrowing money from the credit card company. This is why credit cards are sometimes called "plastic money" - they allow you to make purchases without having the cash on hand.

The credit card company makes money by charging you interest on the money you borrow from them. They also charge the stores a small fee every time you use your card to make a purchase. This is how credit card companies are able to offer credit cards to people for free.

It's important to be careful when using credit cards, because it can be easy to overspend and end up in debt. Make sure you only borrow what you can afford to pay back, and always pay your credit card bill on time to avoid late fees and interest charges.

Credit Card Costs

What are interest rates?

Interest rates are the extra money you have to pay when you borrow money with a credit card. When you use your credit card, the credit card company charges you interest on the amount you borrowed. This interest is like a fee you pay for using their money. The higher the interest rate, the more you'll have to pay back.

What are fees?

Credit cards also come with different types of fees. Some common fees include:

• Annual fee: This is a yearly charge just for having the credit card.
• Late payment fee: If you don't pay your credit card bill on time, you'll have to pay an extra fee.
• Over-the-limit fee: If you go over your credit limit, you'll be charged a fee.
• Balance transfer fee: If you move a balance from one credit card to another, you may have to pay a fee.

Fees can add up quickly, so it's important to understand what fees your credit card has before you start using it.

Credit Card Safety

How to keep your card safe?

Keeping your credit card safe is very important. Here are some tips to help you:

• Always keep your credit card in a safe place, like your wallet or purse. Don't leave it lying around.
• Be careful when using your card in public places. Make sure no one can see the card number or security code.
• Never share your credit card information with anyone you don't know and trust. This includes over the phone or online.
• Check your credit card statements regularly to make sure there are no unauthorized charges.

What if your card is lost or stolen?

If your credit card is lost or stolen, it's important to act quickly. Here's what you should do:

1. Contact your credit card company right away. They can cancel the card and issue you a new one.
2. Report the loss or theft to the police. Get a copy of the police report in case you need it later.
3. Check your credit report for any unauthorized charges. If you find any, dispute them with your credit card company.
4. Be extra careful with your new card. Follow the tips above to keep it safe.

Keeping your credit card secure is important to protect yourself from fraud and identity theft. By following these simple steps, you can help keep your plastic money safe.

Building Credit

What is a credit score?

A credit score is a number that shows how good you are at borrowing and paying back money. It's like a report card for your financial behavior. Lenders, like banks and credit card companies, use your credit score to decide if they should lend you money and how much interest you'll have to pay.

How can teens start building credit?

As a teen, you can start building your credit in a few ways:

1. Get a credit card. Many credit card companies offer cards specifically for teenagers or young adults. Using a credit card responsibly, like making payments on time and keeping your balance low, can help build your credit score.
2. Become an authorized user. You can ask a parent or guardian to add you as an authorized user on their credit card. This allows you to benefit from their good credit history and start building your own credit.
3. Use a secured credit card. A secured credit card requires a refundable security deposit, which becomes your credit limit. This is a good option if you're just starting out and don't have a credit history.
4. Check your credit report. Review your credit report regularly to make sure there are no errors or fraudulent activity. This can help you catch and fix any issues that could hurt your credit score.

The key is to use credit responsibly and make all your payments on time. This will help you build a strong credit history and a good credit score, which will make it easier to borrow money in the future, like for a car or a house.

Conclusion: Mastering the Plastic Money World

Now that you've learned the basics of credit cards, let's recap the key points:

What is a credit card? A credit card is a small plastic card that allows you to borrow money from a credit card company to make purchases. It's different from cash because you're using the credit card company's money, not your own.

How do credit cards work? When you use a credit card, the store sends a request to the credit card company to approve the purchase. The credit card company then lends you the money, and you have to pay it back later with interest.

What are the costs of credit cards? Credit cards come with interest rates and various fees, like annual fees, late payment fees, and over-the-limit fees. It's important to understand these costs before using a credit card.

How can you keep your credit card safe? To protect your credit card, always keep it in a safe place, be careful when using it in public, and never share your information with anyone you don't know and trust. If your card is lost or stolen, report it immediately to your credit card company.

How can teens start building credit? As a teen, you can start building your credit by getting your own credit card, becoming an authorized user on a parent's card, or using a secured credit card. The key is to use credit responsibly and make all your payments on time.

By understanding how credit cards work and using them wisely, you can take control of your financial future and start building a strong credit history. Remember, credit cards can be a useful tool, but it's important to use them responsibly. Good luck on your journey to mastering the world of plastic money!