Taking Stock

• What are Stocks?
• So, You Want to Start Investing?
• Methods of Investing
• Investigate the Market
• Credit Card Smartz
• What is the Dow?
• Investing and Saving - what's the difference?
• What are Bonds?

Credit Card Smartz

They'll give you free T-shirts, free phone cards, even a cell phone... as long as you apply for their "amazing, spectacular, 0% interest credit card!" Should you do it? Why not? You can never have too many free T-shirts, right? Wrong. 

Credit cards are basically mini-loans in plastic form. You wouldn't run around applying for loan after loan just because you get free stuff, would you? Your personal credit history is extremely important -- almost all of the major financial decisions throughout your life will revolve around it, and a bad credit report can keep you from buying a car, buying a house, even getting school loans. It shouldn't be taken lightly, but that doesn't mean you shouldn't ever use credit. Just follow our advice, keep the basic facts of credit in mind, do your research, and you'll be fine. 

Just the Facts, Ma'am 

There are two important parts of every credit card: the interest rate and the balance. Unfortunately, each one depends on the other to determine just how much money is on your card. 

Interest Rate: The interest on your credit card is calculated just like the interest rate on your savings account. The credit card company looks at how much has been charged to your card, then multiplies that by whatever your interest rate might be. 

The secret of credit card interest is to find the card with the lowest possible fixed rate. What does that mean? Interest rates go up and down depending on many different factors. If you have a variable interest rate, your credit card company could offer you a 9% rate (cool!) when you apply, then change it to 18% (uncool) in two months. If you have a fixed rate, they can't. 

Another clue: beware the phrase introductory rate. This means that you'll have a nice, safe rate for the first year, then the company will jack it up to a rate Bill Gates himself wouldn't want. It's not a good deal, so make sure you read the fine print before you choose any credit card. A reasonable interest rate is anywhere between 5 and 11%. Check around for student credit cards, which will often give teenagers better service and a lot of cool benefits. 

Now, let's check out how those credit companies calculate interest. Say you went to the mall this weekend to get a new spring wardrobe. You spent about $350 at the Gap and put it all on CoolKid Visa, the credit card you got last week. Now check out this graph:

Notice a trend? That's how credit card companies make money -- even at the lowest interest rate, you buy something for $350, you pay off $166.52 of it, and you still owe $202.80. That's some crazy math, huh?

Look at the 21% interest card. You'll end up paying $411.40 for something that only cost $350, and that's if you pay the remaining $232.90 off right away! If you're only working part-time at minimum wage, it could be fall before you pay for your spring wardrobe, which brings us to the second important aspect of credit cards.

Balance: No, not on a beam. This balance is the amount of money you carry on your credit card. It's easy to get carried away and charge everything you want to that little piece of plastic, but don't do it. Keep your balance to a minimum; it should be something you can easily pay off in a few months without taking too much money away from your other expenses. 

An easy way to regulate your balance is to ask your credit company to set your limit at a very low mark, between $300 and $500. Ask them not to increase that unless you request it (some credit card companies reward their good customers by increasing their spending limits, and that's where some teens get caught). This gives you a good way to keep your own spending in check, and you can also track your purchases better that way.  

Watch Out!

The most important thing to remember is that every time something goes wrong with your credit card, it's noted in your credit report. The first time you pay less than the minimum payment on your bill, your report reflects it. The first time you're late paying a bill, it's there. Every time you apply for a new card, it's on your credit report.

It's true. Every time someone looks at your credit report, it's recorded. Too many inquiries into your credit can be a bad thing, so try to keep those free T-shirts to a minimum.

The Cool Part

Credit cards can definitely be cool. They allow you to do anything from buy things online to give you protection when that $150 framed poster of the Backstreet Boys falls on the floor and shatters. The other cool part is that they allow you to build your credit rating, which helps later when you want to make larger purchases like a car. 

Another thing to remember is that you are the customer. The credit card company wants your business, and they'll do a lot to keep it. If you fell into the high interest trap, you can claw your way out. Call your credit company's customer service line (the number is usually right on the back of your card), and try using this script:

Credit Guy: Hi, thanks for calling CoolKid Credit, who am I speaking with?

You: Hi, this is Bob (say your name instead of Bob).

Credit Guy: Hi, Bob, what can I do for you today?

You: Well, Credit Guy, I've got a problem. My bank offered me a credit card with a 7% fixed interest rate today, which is lower than the one I have with CoolKid. I really like the service I get with your company, but it's just too much of a savings to pass up. I'd rather not leave CoolKid -- is there anything you can do?

Credit Guy: Hold on, Bob, and let me see what we have available. (You'll hear CG clicking away on his computer as he checks your payment history and account.) Good news. I do have a fixed 10% interest rate available, which you'll keep for as long as you're with us. 

You: Great! Could we switch my card to that? I really love your service, and that's close enough to make me happy. (If you already have lower than a 10% rate, you can use your common sense and ask for lower.) 

Credit Guy: All right. We've got you switched to that 10% rate, and you'll see that on your next statement. Is there anything else I can do for you?

You: Nope! Thanks so much! (Hang up)

Remember to be very pleasant, and repeat how much you like working with your credit company. If you have a good history with them, they'll do a lot to keep your business, which saves you money.