This article will give you a
brief overview of exactly what a credit card is.A credit card provides credit to a consumer
which allows the consumer to make purchases up to a limit that is set by card
issuer.The consumer is then required to
pay off the balance in monthly installment payments with interest.The longer the consumer carries a balance on
the credit card, the more interest accumulates; which is great for the
banks.
There are 5 areas regarding
credit cards that you should be very aware of:
Interest Rates (Annual Percentage
Rate)
Credit Limits
The Grace Period
The Annual Fee
Late Charges
Interest Rates or Annual
Percentage Rate is the rate that is charged to a consumer when they carry a
balance on their credit card.There are
two types of rates depending on the type of credit card.Fixed rates and Variable rates.A fixed rate credit card has an interest rate
that will rarely change unless you are late with a payment.A variable rate credit card is an interest
rate that can move up or down at anytime.
Credit Limitsare the limit or the actual amount of credit
that is given to the consumer by the credit card company.A consumers' credit card limit is usually
based in large part on the consumer’s credit history.Good credit = high credit limit, bad credit =
low credit limit.If a consumer goes
beyond their credit limit, they will be charged an "over the credit
limit" fee.
The Grace Period is very
important.It is the amount of time
after a payment is due before the credit card company will charge you interest
on your balance.This only applies to
consumers who have paid their balances in full the previous month.The grace period is usually between 20 and 30
days.Remember, if you paid the minimum
payment the previous month, the grace period will not apply.
The Annual Fee is a fee that is
charged by some credit card companies for being a cardholder.There are many credit cards that do not
charge this fee; it is recommended that you only apply for credit cards that do
not charge an annual fee.
Late Charges - Credit card
companies will charge "late fees" if the consumer does not make at
least the minimum payment by the specified due date.The "late fees" will vary by each
credit card company.
It is a must that the consumer has
a complete understanding of the benefits and pitfalls that a credit card can
present.The benefits are convenience,
security and access to valuable exclusive services provided by the credit card
company.The pitfalls can be obvious,
access to credit can cause a consumer to purchase items that they do not need
which can lead to high credit card balances.
Credit Cards
