Credit cards differ in the terms they offer, but most credit cards share some basic features. Understanding these features helps you choose the right credit card and to use your credit card wisely once you get one.
Type of Credit Card
Many credit card users, beginners and even experienced users, are unaware that there are several types of credit cards.Here are just a few of the most well-known types:
- A standard or plain-vanilla credit card has no extra perks or benefits.
- A balance transfer credit card offers an introductory interest rate on balance transfers.
- A rewards credit card pays rewards on the purchases you make.
- A premium credit card has lots of perks and benefits like concierge services.
- A retail credit card can only be used at the store associated with the credit card.
- A secured credit card requires you to make a deposit against the balance.
Your credit limit is the maximum amount you can charge on the card. This includes purchases, balance transfers, cash advances, finance charges, and fees. When you go over your credit limit, your creditor may charge a fee, an over-the-limit fee.
The balance on your credit card at any given time is the total of your purchases, finance charges, and credit card fees. The higher your credit card balance, the lower the available credit you have to make additional purchases, unless you have a charge card or no-limit credit card. Higher balances raise your credit utilization and lower your credit score.
The annual percentage rate (APR) is the interest rate applied a balance carried beyond the grace period. Credit cards can have different APRs for different types of balances, e.g. balance transfers or purchases. Balance transfers and cash advances usually have higher APRs than for purchases.
Your APR may increase when you're late on your payment to a particular creditor, and other creditors if your card agreement includes a universal default clause.
APRs can be fixed or variable. A fixed APR can change, but the creditor must inform you in writing before changing the rate. A variable APR changes from time to time.
The grace period is the amount of time you have to pay your balance in full before a finance charge is applied to your purchase. If you carried a balance from the previous month, you may not have a grace period for your new purchases. In addition, balance transfers and cash advances typically do not have a grace period.
When balances don't have a grace period, interest is applied right away.
To find out the length of the grace period refer to the credit card application or your credit card agreement. Your monthly statements should also include the number of days in the grace period.
Incentives and Rewards
Some credit cards offer rewards and incentives for using their credit card. Rewards come in several different forms: cash back, points to redeem, and discounts.
Credit Card Fees
There are different situations that you might incur credit card fees. Annual fee, finance charge, late fee, and over-the-limit fee are some of the most common fees.