Understanding Credit Cards

A credit card lets you purchase and pay for things over time. Using a credit card is a type of borrowing, you have to pay the money back.

When you are selecting a credit card, there are many features, benefits and various types of cards to deliberate: Fees, charges, interest rates, and incentives can vary among credit card companies. As a result, some credit cards that look like a good deal at first glance may lose their charm once you read the terms and conditions of use and calculate how the charges could affect your available credit.

Credit Card Terms

Important terms of use generally must be disclosed in any credit card application and even in offers that don't require an application. Here are the most important terms to understand when you are choosing among credit card promotions and offers.

Fees.

Many credit cards charge membership and/or participation charges, and credit card companies have a variety of names for these fees, including annual, activation, acceptance, participation and monthly maintenance charges. These charges may appear monthly, periodically, or as one-time charges, and can range from $6 to $150.

What.s more, they can have an immediate effect on your available credit, for instance a card with a two hundred fifty dollar credit limit and one hundred fifty dollars in charges leaves you with $100 in available credit.

Transaction Fees and Other Charges. Some credit card companies charge a fee if you employ the card to get a cash advance, make a late payment or if you exceed your credit limit.

The APR is a measure of the cost of credit, expressed as a yearly rate. It must appear on your account statements and it must be disclosed before your account can be activated .

The credit card companies also must disclose the periodic rate. That s the rate the credit card issuers applies to your outstanding balance to ascertain the finance charge for each billing period.

Some credit card plans let the issuer change the Annual Percentage Rate when economic indicators or interest rates change. Because the rate change is linked to the index's performance and varies, these plans are called variable rate programs.
Rate changes also can raise or lower the finance charge on your account. If you're considering a variable rate card, the issuer must tell you that the rate may change and how the rate is determined.

You also must be given information about any limits on how much your rate may change and how often before your account is activated.

A grace period, also called a free period,lets you nullify finance charges if you pay your balance in full before the date it is due. Understanding whether a card gives you a grace period is important if you plan to pay your account balance in full each billing cycle. Without a grace period, the card issuer may impose a finance charge from the date you use your card or from the date each transaction is posted to your account.