With the current economic state, it is possibly more important now than ever to understand credit card basics. Before opening a credit card account or defaulting on the payments for an old credit card, it is important to understand how good credit and a good payment history can have a positive impact your credit rating, just as poor credit history and poor payment history can damage your credit forever.
Choosing a Credit Card that Fits with Your Lifestyle
It is always wise to choose a credit card that fits your lifestyle.
Seek out a credit card that offers reward programs that suit your lifestyle. For example, some credit cards offer air miles, others sports shop gift cards when you earn enough points. Point programs usually vary from card issuer to card issuer and you want to make sure to read all the fine print associated with any point programs before signing up for the card.
When opening a credit card account, the first thing you should ask yourself is, “Do I need this card?”
It is a myth that more credit is better credit. A moderate amount of credit will do more for your credit rating than an exuberant amount of credit. Simply put, even with the availability of credit cards, you should live within your means.
Before applying for a new credit card, review all available payment options.
If you do not like to send out paper checks and the credit card program in question does not offer online or electronic billing, then maybe you want to look into a different card that meets your needs.
Be Aware of Credit Card Costs and Fees
Before applying for a credit card, it is important to read all of the small print associated with costs and fees.
A comprehensive list of costs and fees is usually not disclosed in a prominent location, but in the small print somewhere. It is recommended that you compare these costs and fees with other card issuers before making a commitment. If you are not comfortable with the costs and fees associated with a card program then do not open the account.
Included in any costs and fees statement issued by a credit card company are daily balances.
Two major types of daily balance calculations dominate the credit card market: average daily balance and a daily balance.
An average daily balance is calculated by taking an average of your daily balance and multiplying it by one twelfth of your APR. The interest is calculated on a daily or monthly basis, depending on the credit card issuer.
A daily balance is calculated by the credit card taking the actual balance carried for each day of your billing cycle and multiplying it by one three hundred and sixty fifth of your APR and adding it together.
In addition to being aware of the type of any finance charges you will be responsible for paying on a potential credit card, you also want to be aware of other fees, such as:
Over the limit fees
Over the limit fees occur when your spending exceeds your available credit limit. The amount of the over the limit fees differs from credit card issuer to credit card issuer.
Late payment fees
Late payment fees occur when you have not paid the minimum balance due on your credit card balance by the due date, which is usually specified on your monthly statement. On average, late fees range from $29 – $49, depending on the card issuer.
Cash advance fees
Cash advance fees occur when you use your credit card to withdraw money from the ATM. On average, credit card issuers charge a 3% of total cash taken on cash advances, in addition to any interest the advance will accrue. As with any other credit card fees, rates do vary from card issuer to card issuer.
Annual fees
An annual fee is charged by some credit card issuers every year to use the credit service. This fee is usually charged around the same time every year.
Maintenance fees
Credit card maintenance fees are common amongst credit card programs designed for those with bad credit. In addition to high interest rates, these companies sometimes charge a monthly fee and refer to it as a maintenance fee.
Balance transfer fees
Balance transfer fees occur when transferring balances from credit card to credit card. Currently, the average fee for a balance transfer is 3% of the total transferred balance. This varies from card holder to card holder.
Using Credit Cards Wisely
It is important to use your credit wisely to ensure a future that is free of credit problems and open to financial opportunities such as purchasing a home or a car.
It is of utmost importance that at least your minimum credit card balance is paid each month but it is recommended that you pay more than the minimum to avoid high interest fees. Failing to pay your minimum balance or paying less than your minimum balance can result in late fees and other penalties previously set by the card issuer.
Always review your credit card statement for accurate and unauthorized charges. If you notice a questionable transaction on your statement, call the card issuer at once to report and dispute it. Someone may have gotten your credit card numbers from unsafe Internet shopping practices or by other means made possible through technology. Cancel the card immediately.
If you have used your credit card wisely for at least a year, it is often possible to contact the card issuer and negotiate a lower interest rate. While negotiating your interest rate, it is often possible to increase your credit limit; however, it is important to think about the impact increasing your limit may have on your overall credit score before following through with it.
Following the credit card basics will help to ensure a financially sound future full of endless possibilities for you and your family. Just think before you charge and never forget to pay.
See How to Get a Credit Card with No Credit History for more information.