Credit cards are powerful enough to influence an individual’s life. It provides its holders convenience, but at the same time, puts them at risk of dangers that could change their lives forever. If you have been an owner of a credit card for long or are still trying to get hold of this widely-used financial tool, you might want to familiarize yourself with its ins and outs first before deeply forging a bond with this flexible plastic.
Below are some of the things you need to know about credit cards:
Not all cards are created equal. As such, you may find that there are several types existing in the market. These include:
- Unsecured cards – This is the type of card where your issuer extends a line of credit based on your credit history.
- Secured card – This is backed by funds or a security deposit.
- Private label cards – They can only be used at a specific service station or issuing store.
- Charge cards – They work exactly like standard credit cards, but require that you pay them in full monthly.
- Rewards cards – They offer benefits and perks but most often require excellent credit.
- Balance transfer cards – They are especially designed for transferring balances.
APR and Interest Rates
Annual Percentage Rate (APR) tells you the exact yearly cost of your credit card. When broken down into 12 months, this becomes the monthly interest rate. Note that you will have varying APRs in a single card. These are for balance transfers, purchases, and other transactions.
Fees and Charges
Some cards have money transfer fees and late payment fees. Money transfer is different from balance transfer. Transferring money means you will need to move your credits to a bank account whereas balance transfers denote shifting your high interest debt to a low interest card. Oftentimes, money transfer fees are higher than balance transfer fees.
Late payment fees, on the other hand, are imposed on your account if you fail to pay your minimum dues on time. These are added on top of your monthly balance and the interest rate. You can avoid these high charges if you pay on time and in full every month.
Minimum Required Payment
Most of the credit cards today have minimum required payment which should be paid monthly. Aside from accruing interest fees, failure to pay this amount will hurt your credit score. Savvy consumers know that they have to pay their bills before the due date. In addition, paying more than the required minimum monthly payment, even in very small amounts, can help avoid getting into debt.
Foreign Transaction Fees
It is a common mistake to use credit cards as an international financial tool. Not all cards can be used when you are outside the country. Some of them may not be accepted worldwide while some may charge you with huge transaction fees when you use them overseas.
Read the terms and conditions on your credit card agreement before making any charges. Examine the details that include your APR, interest rates, your credit limit, and other fees. This will help you decide how to use your card wisely.
Grace period is the duration by which you may be given a leeway for charges, meaning that you may charge against your card during this period without paying interests. Grace period is considered a gift to credit card holders, but not all cards offer this. Some offer no grace periods at all while other offer only for a very short time. As much as possible, avoid using cards that have short grace periods. There are other cards out there that provide you with longer grace periods, better rewards, and more enjoyable perks.