It typically begins about the time you graduate from high school; credit card offers begin pouring in. Unfortunately, many folks who really have no clue how difficult a credit card can be to pay off look at these opportunities as free money. They choose a couple of offers because they can pick out their own card design or because this is the card that just happened to come today. This reckless selecting is a mistake because all cards are not created equal.
Understanding Credit Cards
You should have at least a working understanding of what credit cards are, how they should be used and how they should be repaid. This isn’t as easy as it seems because credit card services have their very own language that regular human beings often do not speak. The trick to knowing exactly what you’re getting into before you apply for a card is to learn basic credit card jargon. Then you’ll have no question about what your credit card terms mean.
Common Credit Card Terms
1. Annual percentage rate
The annual percentage rate, more commonly known as APR, is the amount of interest a credit card carries. The law requires that this figure be disclosed upfront. Obviously, the lowest possible annual percentage rates are desired.
2. Balance Transfer
Moving credit card debt from one card to another, normally to obtain a lower interest rate, is a balance transfer.
3. Cash advance fee
Many credit cards allow creditors to get cash advances. However, there is a fee that goes along with this transaction. The way these fees are calculated vary from card to card, but they are often far more pricey than a typical purchase’s APR.
4. Cardholder agreement
The Federal Reserve requires that consumers are given a copy of the cardholder agreement which plainly states the credit card’s terms and conditions.
5. Finance charge
Interest charges and other card fees total up to the finance charge.
6. Minimum payment
Most often, the minimum payment will be 2% of the balance owed on the card. It is the absolute lowest figure a cardholder can pay without being considered late on his payment.
7. Over-the-limit charge
Credit cards have a limited amount of space. For instance, a person may have a card with a $5000 limit. In the event that the cardholder goes over that limit, there is a fee applied to their overall balance.
Credit card companies often screen people through a basic process which targets who they send pre-approved credit offers to. Often, these offers come as junk mail. These pre-approvals are not set in stone. If a person follows up on a pre-approved offer, the card company can turn down their application because of low credit.
9. Secured card
People who have little to no credit, or those whose credit has suffered in the past, may turn to these types of cards to bring their score back up. The card is ‘secured’ with the cardholders own money which is deposited in a savings account. In the event the cardholder cannot make payments, the money in savings may be utilized to pay off the card balance.
Credit cards can be very useful financial tools when utilized appropriately. However, they can also be quite a bit of trouble if abused. The best way to choose cards with exceptional terms and conditions is to have a general understanding of credit card related terminology before applying.