Credit Cards Explained

Get credit cards explained to you here in terms you understand before you decide whether you need a card at all. And if you do what kind of card would best suit your use and needs.

There are literally thousands of credit cards available and all have different features and characteristics. Basically a credit card allows you to spend money now and get billed for the balance later. For those that know the rules and can act with restraint and discipline having a credit card does have some advantages, but for others who fall victim to a free spending lifestyle it can lead to a debt burden of nightmarish proportions.

Credit Cards Explained

Let's talk about all the ins and outs of the fine print contained in the multi-page agreement you'll need to sign to get a credit card. There are numerous issues covered in that document and many of them could cost you dearly if you are unaware of the rules. You should also know that signing a credit card agreement places you into a legally binding contract with the card issuer.

With that said it will be important for you to choose a card where you not only find the features to your liking, but the terms and rules are things you can live with too. You should have at least a basic knowledge of our list of important credit card terms before you start shopping for an appropriate credit card.

• Interest Rates
• Fees
• Billing Period
• Bonuses

Recent changes to the laws governing credit cards took effect in February 2010. Most of the changes were orientated toward the consumer by putting limits on interest rate increases and fees. But don't be fooled by the rosy reviews you see in the media. There are still plenty of ways a credit card company can get money out of your pocket. Getting credit cards explained more should limit that possibility.

Credit Cards Explained - Interest Rates

The interest rate on your credit card can be either fixed or variable, most are the latter. You need to be fully aware of the consequences that high interest rates can pose when coupled to a large outstanding balance. The bottom line here is, if you can't pay off your credit card balance on-time every month you should think long and hard about getting a card at all. Carrying a balance at the interest rates of most credit cards will put you in the poor house fast.

Credit card interest rates generally run between 10% and 20% annually. You may find certain introductory or balance transfer rates that are far lower, maybe even zero. Just keep in mind when these teaser rates end the interest rate will jump to the normal rate for that card. You should also be aware that nearly every credit card will have a much higher interest rate, usually around 30% for anyone who makes a late payment or goes over their spending limit.

The new credit card law did put some restrictions on interest rate increases. For instance, no increases are allowed in the first year and any increase requires you be given 45 days notice. There are many exceptions that allow immediate interest rate increases. They include the increase at the end of an introductory rate period, of a variable rate account if the index on which it is based goes up, and should you be more that 60 days late on a payment.

Credit Cards Explained - Fees

Credit card companies have been and continue to include all kinds of fees in their agreements. Be very aware of what they are and how much they could potentially cost you should you cross the activation line on one or more of them. First off, many cards charge a fee to your account every year; this is usually called an annual fee, but might have a name like membership or participation fee. This is one you may be able to get waived if you pay on-time and have a good credit score. Call and try to get it removed from you account.

Other fees names you might run into include late payment, over limit, balance transfer, cash advance, setup, and credit limit increase. These fees can be either flat fixed fee or based on a percentage of the amount in question. For instance, a balance transfer fee could be a certain percent of the amount transferred. Fees can add up very fast and take you by storm if you are not paying attention.

Recent changes to the credit card rules did change over limit fees. Now you have the opportunity to opt-out or opt-in on any over limit charges. If you opt-in and go over your credit limit you will pay a fee. Should you opt-out and try to go over limit the charge will be denied.

The fees mentioned so far are just the basics, should you fail to pay on your account or have a check bounce, you could be in real trouble. Nearly all credit card agreements make you responsible for not only any returned check fees but sometime all collection costs associated with your account.

Credit Cards Explained - Billing Period

Things have improved here with the new rules. No longer can credit card companies move your payment date in the hopes of catching you off guard and popping you with late charges and interest rate increases.

Now they must mail or deliver your bill to you at least 21 days before the payment is due and the payment due date should remain the same every month. The earliest time of day they can end the billing payment day is 5:00 p.m. Should the day fall on a holiday or weekend you will not be late as long as your payment is in by 5:00 p.m. on the first following day of business.

Normally if you pay your balance every month in full and on-time you'll have a grace period on purchases. This grace period is the time from when the purchase was made until the bill listing the purchase is due. During the grace period you won’t pay any interest in the money used. If you don't pay your balance every month this tip won't work for you.

Most credit cards begin charging interest on an account with an outstanding balance on the day of the purchase. Cash advances almost always begin accruing interest on the day the money was received whether you carry a balance or not.

Credit Cards Explained - Bonuses

Credit card bonuses run the gamut from cash to airline miles and everything in between. Usually you earn the bonus based on the amount you spend on your card every month. Obviously, this system is designed to get you to use your card more and increase the chances that you'll be unable to pay the monthly balance.

Here is the number one issue with any of these bonuses. Unless you are paying your credit card balance on-time and in full every month you will probably negate any bonus benefit with interest rate charges, late fees, etc. So only consider the bonus when selecting a card if you know you’ll be paying in full every month.