I am looking to get my first credit card; I noticed that American Express’s normal cards (with yearly fees) all have no interest rates but require you to pay balance in full every month.
Ummm, so what happens if you don’t? And doesn’t that take much of the point away of getting a credit card?
And on that note, is the American Express Blue (no annual fee) a good credit card? The APR says 15% to 21%. Is there some kind of better deal credit card available?
Strictly speaking, American Express isn’t a credit card, it’s a charge card.
My company used to pay the AmEx annual fee for employees, so naturally most of us chose to use it. In my experience, the first time you don’t pay your balance on time they charge you an interest fee and send you a polite note.
The second time you don’t pay on time, they charge you an interest fee send you a not-so-polite warning. The third time, they charge interest and cancel you.
There are nearly as many credit card plans as there are places that issue them. You can find low-interest cards with annual fees, high interest cards with no fees, extremely low-interest cards that are secured by your savings account, all sorts of things. You’ll need to shop around and figure out what works for you.
First time financial adventures are exciting. Banks, Savings & Loans, Credit Unions, it can all be very confusing. A Credit Union here in Northern CA, Redwood Credit Union, has a free checking and credit card/debit card deal if you deposit something like $5.00 in a savings account. Where ever you end up, get a list of the fees associated with different transactions, like how much it costs to get a cashier’s check.
Good Luck!
You would be very, very wise NEVER to carry a balance on any credit card. Pay it off every month. Live within your means.
I only mention this because you say this would be your first card, and that’s where many people acquire a lifetime of bad financial habits. Sadly, I speak with the voice of experience.
The point of a credit card is not to enable you to buy things you can’t afford, it is so that you don’t have to carry lots of cash around. You can pay for things with plastic and then make a single (automatic) payment each month to pay the balance in full.
Borrowing at 15-23% is a huge financial mistake.
I have a credit card which I put all our household expenses towards, and I pay off in full each month. 2 benefits; it’s a frequent flyer rewards card, which allows me a couple of ‘free’ trips back to New Zealand a year to see family.
Also, I get 55 days interest free which allows that money to sit in my 100% offset account against my mortgage. This makes a difference to the interest on that which I pay each month and will allow me to pay off the mortgage years earlier.
I second others’ comments that you think very carefully about the financial habits you are about to develop. Many people get carried away with that first credit card and it takes years to make that ground back up.
Only kunilou has pointed out the part that it is a charge card and not a credit card. Get the right type of card for how you use it. Charge cards are for people that have the money and don’t want to carry it. They are basically the first debit cards.
When they were still alive my grandparents were perfect examples of people who needed (and they definitely used) charge cards. They were relatively wealthy, but it wasn’t structured very well. Lots of different checking accounts, lots of intermingling between their personal and business finances. Based on large ticket business expenses coming through at a certain time, the account they tried to draw on to say, buy groceries, might actually not be able to cover it.
My grandmother started using a charge card sometime in the 70s and would use it pretty much anywhere that would let her (and the places that would let her of course just increased over time.) They’re great for people like my grandparents who absolutely had the money to pay it off every month, and the card allowed them to not have to juggle all their different accounts to make sure they were drawing from the right one at any given time.
I know someone who scammed American Express out of $500K.
He went to jail.
That’s silly. That makes it no different than a debit card, except that you will be paying more for the privilege.
No, the point of a credit card is for it to be used exactly how most people use it, even if it isn’t the most financially wise decision. The idea is that you can get future purchasing power and use it today. That’s what credit means.
Using your credit card as a debit card is the atypical way of handling things. It would have to be, or these companies wouldn’t make any money.
They may make more money out of the interest, but the credit card companies still make money from people who pay off in full every month: they get paid by the merchants.
Most people have been providing good financial advice, but on this subject, I’d like to note that AmEx isn’t as widely accepted as Visa and MasterCard. I’ve got cards with the Big Four labels, and of the four the Discover is probably the one I most prefer using, but occasionally I’ll need to whip out the Visa, just because they won’t accept Discover or AmEx.
As for APR, as has been pointed out, if you use a credit card wisely, APR will be wholly irrelevant to you. But lots of companies have introductory APRs of 0% for a few months if you need to run a balance (Capital One in particular sends me a fucking avalanche of junk mail advertising these), just be extremely careful with that and remember when the 0% expires.
Sure it is different. With a debit card the funds are removed from my account right away. With Amex I have up to 6 weeks to retain the money and earn interest on it for myself.
Okay.
Don’t go with AmEx for your first card.
Go Visa or Mastcard first, because you may need to make an emergency purchase somewhere that doesn’t take AmEx.
A previous poster noted what happens if you default on your Amex ‘regular’. I won’t explore that.
For better rates, go to bankrate.com, click credit cards, and drill through the different menus.
Here’s one screen I found:
Note that some vendors offer cards with a 6.25% rate. You might not qualify for that rate, but most people can avoid a 15% rate if they shop around.
Dude, never carry a balance. My Discover card pays me over $100 a year just to use their card and I’ve never paid a dime of interest.
The fact you think you should carry a balance makes me think you aren’t ready for one.
Seriously, outside your mortgage, don’t go into debt ever.
I don’t pay anything to use my Amex or Mastercard; my cards have no annual fees and I pay no interest. Admittedly prices are higher because merchants have to pay for the privilege of accepting the cards, but I am still paying the same amount as I would if I used cash.
The new credit card law now offers the option to pay with cash (instead of a credit card) and get a discount.
And if you can avoid taking a mortgage, all the better. Pay cash for your car too.
Buying a house with cash is a perfectly fine thing to do, but there are good reasons to take out a mortgage, even if you can afford it all up front. (There are no good reasons to carry credit card debt or a car loan, though.)
Sure, if you can get a low rate and make more money elsewhere… likewise if you can get a 0% car loan, no problem to take that since even a simple credit union savings will pay > 1% right now.