A credit card is referred to as a revolving credit account. This means that the credit becomes available again, for your use, once it is paid back. Not paying back these purchases can affect your future credit, making it difficult to purchase a home or car. In order to be used wisely, the decision to get and use a credit card must not be taken lightly.
In choosing a credit card, there are many things to consider. You must first consider your past credit history and decide how you would like to use the card. Then, you must consider the costs, features, and benefits of the card. In order to make the best decision, be sure to gather information on several cards that meet your needs.
First, consider your credit history. If you do not have a history or have not paid previous bills on time, you may need a secured credit card. With a secured credit card, you make a deposit, which is held against your credit limit. The credit limit is based on the amount of that deposit. This will allow you to build a new credit file, or repair a poor one. If you qualify for an unsecured credit card, where no deposit is required, better credit may mean a lower interest rate.
Second, you will want to consider how you intend to use the card. Decide whether you will pay off your balance in full each month, carry a balance from month to month, or use it primarily for cash advances. If you intend to pay your bill in full each month, consider a card with no annual fee and a longer grace period. If you would like to carry a balance each month, you will want a low annual percentage rate, or APR. Should you decide to use your card mainly for cash advances, you should look for low fees on cash advances. The fees for cash advances are usually higher than those for purchases.
Now, look at the fees involved in having a credit card. You should consider annual fees, annual percentage rates, and transaction fees. In considering the annual percentage rate, or APR, you should look at the type of rate it is. Some cards have a delayed APR, which means you may start off paying no interest for a certain amount of time, such as six months, then, a rate becomes effective at this point. Similarly, some cards have a low introductory rate. This means you begin with one rate for a set amount of time, then a new, higher rate becomes effective. Other cards may have a fixed, variable, or tiered annual percentage rate. A fixed rate means that your APR will remain the same for the most part. Your credit card company will notify you when this rate changes, allowing you to continue with the new rate, or pay off your balance at the old rate, within a time limit, and close the account. A variable rate APR will change from time to time. The details on how this rate is calculated and how often it changes can be found in the credit card agreement. If the credit card has a tiered rate, the APR is based on the balance remaining on the card. For example, there may be one rate for balances under $500, and another for balances between $500 and $1000.
There may also be a minimum finance charge. This is the minimum amount that will be charged to you each month that you are required to pay a finance charge. In other words, if the minimum finance charge is $1.00, and your interest is calculated to be only $.35, you will be charged $1.00.
Other fees involved in having a credit card, include set-up fees, annual fees, late-payment fees, over-limit fees, cash advance fees, balance-transfer fees, and returned-item fees. A set-up fee is a fee that will be charged to you for opening the account and receiving the credit card. Annual fees are charged to you either monthly or annually for simply keeping the credit card account open. Late-payment fees are charged to you when the credit card company does not receive your payment by the due date. Over-limit fees are usually charged when you go over the approved credit limit and do not make a payment to bring your balance below the limit.
Cash advance fees are fees that are charged to you when you use your card at an ATM to get cash or write a "check," which some companies may provide you with. Also, remember that the APR on cash advances is usually higher than that for purchases. Another fee possibly charged to you is a balance-transfer fee. This is a fee that may be charged should you use one credit card to pay off another. Again, these types of transactions may also involve a different APR. Also, should you send a payment to be credited towards your balance, and that payment is returned due to insufficient funds, i.e. your check bounces, you will be charged a returned-item fee.
There are also things you should consider regarding your payment. When you receive your statement, it will list your purchases for the month, cash advances and balance transfers, due date, minimum payment due, and current balance. You must realize the difference between the minimum payment due and your current balance.
Your current balance is the total amount you owe on your credit card, and the minimum payment due is the lowest payment you can make by the due date in order to keep your account current according to the terms of your agreement. When you send in your payment, the credit card company may credit it towards your purchases first, and then to cash advances. You should read your agreement to determine how your credit card payments will be credited.
Also consider grace periods when making your payments. Usually, if you pay off the entire balance, each month, you will be given a grace period on new purchases. This is the amount of time you have to pay off this purchase before you are charged any interest on it. Most of the time, if you do not pay off the balance, you will not receive a grace period on new purchases.
There are also many features and benefits to having a credit card. Some cards may offer rebates on the purchases you make. These can come in the form of points redeemable for prizes, cash back, or frequent flier miles. You may also receive discounts on certain products and services purchased with your card. Some credit cards offer additional warranties on the products you purchase with the card or car rental insurance when renting a car with the card.
Another feature of credit cards is a limit on liability for fraudulent charges. Should your card be lost or stolen, you should notify your credit card company immediately. You should then determine how to dispute charges, which appear on your statement, that you did not make. By federal law, you are only responsible for the first $50, but your credit card company may offer a lower limit. This is why it is important to review your statement monthly. There is usually a time limit in which you are allowed to dispute fraudulent charges.
Choosing the right credit card can be a very difficult decision to make, but by educating yourself to the terms of a credit card will help you make a wise choice. Remember to review your agreement, review your statement monthly, and make your payments on time. By following these few guidelines, having a credit card can be rewarding and useful in your everyday life.
"Some credit cards offer additional warranties on the products you purchase with the card or car rental insurance when renting a car with the card." Additional warranties and benefits come with credit card companies in different forms.
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