With the pace of society increasing almost daily, and the move from store purchases to online purchasing, it is harder to exist using only cash or check books. If you wish to decrease time spent in check out lines, or to make a purchase on the Internet, a credit card is an efficient method of doing this. Credit cards are basically a “buy now, pay later” option for making purchases. They allow people to make larger purchases without worrying about paying for it at that moment. Credit cards allow payment to occur a little at a time over several months or years. There are limitations, of course. The credit card company sets a spending limit, determines the minimum amount a buyer must pay off each month, and depending on the card, determines the amount of interest present. As long as the cardholder keeps the balance under that limit, and pays the minimum amount, credit cards can be a safe and efficient way of purchasing.

Some companies are offering prepaid credit cards as well. These function similarly to a credit card, but the balance is pre-loaded with cash upfront. The amount of cash added to the card is the credit limit. Once this amount runs out, the card is empty. These are a relatively simple option, as they can be easily obtained, there are no interest charges, they can be used almost anywhere, and they are free of any problems relating to credit reports or credit history. The downsides of prepaid credit cards include a small fee to open an account and to add money to the card, and that cash must be presented upfront. This type of card functions more like a gift card than a normal credit card, since the items being purchased are being paid for right away.

Understanding the terminology used when talking about banks and credit is a key part of the process of obtaining a credit card. A few common phrases that are essential are interest rate, annual percentage rate (APR), and minimum payment.

“Interest” is basically the amount a person pays a lender (such as a bank) for the privilege of using that lender's money. Since you are not paying for the item at the time of purchase, a small fee is collected in order to use the banks' money. The amount of interest is decided by the bank and is usually based on how much of a credit risk the buyer is. This is determined by looking at the billing history of a person. If bills have been paid on time, it's less of a risk to lend this person money, so interest rates will be lower. If a high credit risk is present, interest will be higher to motivate the buyer to pay on time. Annual percentage rate, or APR, is another way to describe the interest rate, taking into account one-time fees, and standardizing the way it is expressed into an annual percentage of the credit granted.

The minimum payment is the lowest amount that must be paid each month by the cardholder. This amount varies month to month, based on the balance left on the card. The minimum payment will keep the card active and the bank happy, but when possible, it is generally a good idea to pay as much as possible each month to avoid interest charges.

There are a number of advantages to holding a credit card. Using a card provides a clear record of what money is being spent on, it allows the holder to delay payment if funds are not available at the time of purchase, it lets buyers spread payment of large items over a period of time, and it allows people to carry less cash. While some people use credit cards for those simple advantages, there are some people that use cards to make the most of their money. Many credit cards offer special incentives to get people to use them. One of the more common incentives is cash back. With this, for each purchase a person makes with the credit card, the buyer receives a small percentage of the cost back, usually 1-2%. This amount is either sent to the holder in the mail, or used to receive a 1-2% discount on purchases. This advantage allows people to receive something back by using a credit card. Other incentives include other money saving options, or even airline miles.

When looking for a credit card, there is no “best choice” that can cover all situations. It is important to look at different companies, the rates and incentives they offer, and where they are accepted. You might want a card that has low interest rates if you plan on keeping a large balance each month, or a card that offers greater rewards, if you plan on paying the balance completely every month. There are countless choices in between these options, as well. Look at where each card is accepted, as some companies offer excellent reward programs, but are not accepted everywhere.

As with any major banking decision, it is important to compare companies and offers to find the best choice for your specific situation. Once you find the ideal option, a new world of banking possibilities will be at your fingertips.