Woman chooses from many credit cards

Money 101 - Credit and credit cards

Peoples State Bank Money 101 - Credit and credit cards


By its basic definition, credit is an agreement by one person to offer services or products to another person who, in return, agrees to pay for those services or products later. There are many forms of credit, including automobile loans and home mortgages. Another form of credit is a credit card. A credit card is different than your typical auto or home loan. As you pay back your credit card charges, you can purchase other items with the remaining available balance on your card’s limit. In the financial world, this is called a revolving line of credit. Much like a revolving door, a credit card can be used over and over as long as you keep paying off what you owe.

There are different types of credit cards. Some are offered by banks or other financial institutions, while stores provide others. They work the same way, but the fine print can reveal significant differences between the cards. Some offer cash back on purchases that you make with the card. Other differences can be the interest rate you’ll pay on the balance you carry over from billing cycle to billing cycle and whether you pay a yearly fee for using the card.

That’s why it’s essential to look closely at the credit card details when you want to establish a new credit line. It would help if you thought about your monthly purchases and your ability to pay back the credit card on a timely basis. If you pay off your balance every month, a card with a higher interest rate that offers cash back on purchases may be a good option. But if you pay the minimum on your card each month, you may be better off with a lower interest rate card.

Credit cards differ from debit cards in that a debit card is tied directly to your checking account at a financial institution. With a debit card, you can typically spend up to what you have in your checking account, and the money is drawn from your account as soon as you pay for the purchase.

Your ability to handle credit is reported as your credit score by consumer reporting agencies like Equifax, TransUnion, and Experian. Many factors are scored when a consumer reporting agency reviews your credit history. They look at how much credit you’ve had, what you’ve paid back, whether you have made late payments, and how many credit lines you’ve opened. It all adds up to a score that can impact your future credit requests and the interest rate you may pay.

Peoples State Bank offers credit cards for personal and business banking needs. We have banking professionals who can answer your questions and help you determine what credit card might be best for you. Contact our customer service center at 888.929.9902 to learn more.