Understanding the General Terms and Rules of a Credit Card

Signing up for a credit card means you are entering into a contract with a credit card provider. By filling out an application and using a card, you are agreeing to all the rules and regulations that go with a card. Whether you are a college freshmen getting your very first card or a seasoned cardholder who is opening a new line of credit, it is important to understand all the terms and conditions that go along with a card. If you misinterpret one term or rule that is in your contract, your finances and credit score could be affected by it. By understanding these basic terms and regulations, you will be able to use your card to its full capabilities.

Interest rates

Every card comes with an interest rate. This rate is a certain percentage of your credit card balance. This amount will then be added to your card’s balance each month. Generally the higher your interest rate, the more your charges will be. Every credit card provider has their own type of rates, but one of the most common ways lenders decide what your rate is, is by your credit score. Lenders will look at your score, a numerical expression of your credit history, and determine whether you will be accountable to pay back your balance. It is entirely possible to get a lower interest rate by discussing the idea with your provider, but you may want to work on improving your credit score a bit before you go that route.

Fees

A credit card can be charged for a number of things, so it is important to understand the several type of fees that can come with a card:

  • Transaction Fee: This is one of the most common and general fees that is charged to a credit card. This type of fee will depend on the credit card provider, but they can be anything from foreign country purchases to even a simple balance transfer. Discuss with your bank to see what fees you will be charged with your card.
  • Late Fee: This type of fee is charged when you fail to make a credit card payment. Your credit card will appoint a minimum charge you have to pay each month. This is done to make sure you have available credit to use. If you miss the payment, even by a day, your card will be given a late fee.
  • Annual Fee: This fee type depends on certain cards, but it is usually a yearly fee. They are generally assessed to cards that offer cash rewards or other types of benefits.
  • Overdraft Fee: Keeping a close eye on your bank and credit cards is a good idea, because if you overdraw your funds, you will then be charged an overdraft fee. This is one of the most expensive fees, so it is important to make sure you don’t use or take out more than you are able.

How late payments affect you

One of the best ways to help improve your credit and get a lower interest rate is by paying your credit card bills on time. This may seem like an easy thing to do, but sometimes life can get in the way and you may miss a payment. If this happens, not only will you be assessed a late charge, but your credit score will also be negatively impacted.

Late payments can also affect your interest rates, as well. Under the CARD Act of 2009, your interest rates cannot be raised for the first year of a card, but continually not making payments can result in your provider raising your rates. It is best to stay on top of these payments because having to pay more interest or even late charges can start to add up over time and sink you deeper into debt.

Balance transfer

When trying to pay off the balance of a credit card, you can either do it by using the funds from another bank account or even the balance of a different credit card. If you decide to use the balance of one card to pay off another, you may be charged a fee for doing this.

Cash advance

If you are in a tight spot and need some emergency funds, you have the option of doing a cash advance from your credit card. Although this may be a useful option if you find yourself in a pinch, but it is generally not a good idea to use it. For instance, you cannot take out your full balance for an advance and the interest rate is much higher than regular purchases or balance transfers. Plus, when you take out the cash advance, you will be charged a transaction fee. All in all, it gets pretty expensive to do this, so think about it before you do it.

Posted in Credit Card
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