Things to Know about Credit Cards
Credit cards are attractive but before you go and apply for one, you should know the basics of credit cards.
Credit Card Basics
1. Different Types
There are actually a variety of credit cards to choose from. There are general purpose cards which can be used anywhere.
Private label retail cards can only be used at the issuing cards store or service station.
General purpose cards are often unsecured which means that the issuer gives a credit limit that is based on the credit history.
A secured card is backed by funds that you deposit into the account, which can be claimed by the creditor if you default. These cards are easy to apply for because they pose little risk to the to the credit card issuer.
2. Number of Cards
There is no clear or perfect number of cards that you can have. The average consumer in fact has an average of nine credit cards.
You should look at what it is you need. There is no harm in having a couple of general purpose cards that will suit most consumer needs.
If you are looking at a retail card then you should get one for a store that you visit frequently and also offer incentives for using the card.
3. Interest Rates
The interest rates that are charged can vary on credit cards.
They are able to range from 0% for a limited time balance transfer to as much as 30%.
The interest rate that you are charged will be determined by your credit score, income, assets, payment history, current debt and the economic conditions which will set your annual percentage rate.
Credit card issuers include banks, credit unions, retailers and credit card companies.
You need to find who is offering the best rates and terms which you can do by conducting a search online.
You will need to read your credit card agreement carefully as it is a binding contract. Once you have signed you agree to the terms that are set by the issuer. These terms can include:
Credit limit: this is the total amount that you can charge inclusive of the interest and fees that are issued.
Annual percentage rate: this is the interest that will charge for carried over balances. There is usually a higher rate for paying late, charging beyond your limit, balance transfers and cash advances.
Interest calculation method: the interest is calculated by averaging the daily account balance which is then multiplied by the periodic rate.
Fixed or variable APR: the fixed rate remains consistent and the same, where the variable is tied with the index and will change.
Grace period: this is the number of days you have to pay in full before interest starts to be charged
Fees: general fees that can be charged are for cash advances, balance transfers, paying late, annual fee and for exceeding your limit.
Whenever you use your credit card, you are essentially borrowing money. However credit cards have a revolving balance option you are not required to pay back in full, but you will need to make the minimum payments.
Any balance remaining is carried over to the next month and interest will be added to the balance.
If you pay the full amount each month you can avoid paying interest.
Credit cards are tricky and you need to understand everything involved.