Helpful Credit Card Topics From Gas-Cards.info
- What is a Credit Card?
- Credit Card Terms
- Credit Card Tips
- Information About Credit Cards
- Compare Credit Cards And Apply Online
What is a Credit Card?
A credit card account is a form of unsecured consumer borrowing. Normally issued by a bank or other financial institution, a credit card allows consumers to "charge" purchases by borrowing funds from the card issuer in order to pay for various goods or services. Credit cards differ from charge cards in this way: charge card balances must be paid off in full each month; credit cards, on the other hand, allow you to pay only a portion of the balance or a minimum amount each month. American Express® is an example of a charge card while VISA® and MasterCard® are examples of credit cards.
Credit cards, when issued and subsequently accepted by the consumer, involve interest charges associated with the cost of borrowing which are added to the cost of the goods or services. Consumers are then expected to repay the issuer for the cost of the merchandise or service along with any interest owed.
For consumers having either poor or no credit history, some issuers offer a "secured" credit card that is backed by deposits in a savings account to protect the issuer from nonpayment and default. Most credit cards issued are of the unsecured type and are backed by the consumer's pledge to pay in accordance with the terms and conditions specified in the cardholder's agreement, rather than by funds held on deposit.
Since credit card use can have a major effect on personal credit histories and credit scores, it is important to have a very good understanding of key credit card terms and concepts.
Credit Card Terms
Here are some key credit card terms that you should be familiar with:
Annual fee
The yearly fee some issuers charge cardholders for the use of their card. Annual fees vary greatly and some issuers charge no yearly fee. However, it is important to consider all terms and conditions for an issuer's card when choosing a card, rather than simply basing the decision on whether there is an annual fee for its use.Average daily balance
This is the method by which most credit card issuers calculate your payment due. An average daily balance is determined by adding each day's balance and then dividing that total by the number of days in a billing cycle. The average daily balance is then multiplied by the card's monthly periodic rate. The monthly periodic rate is calculated by dividing the annual percentage rate (APR) by twelve. A card with an annual percentage rate of 18 percent would have a monthly periodic rate of 1.5 percent (18 divided by 12). If that card had a $500 average daily balance, it would have a monthly finance charge of $7.50 ($500 multiplied by 1.5%).Annual percentage rate (APR)
The APR is a yearly rate of interest that includes fees and costs paid to acquire the loan. Credit card issuers (as lenders) are required by law to disclose the APR to consumers. The APR is calculated in a standard way, by taking the average compound interest rate over the term of the loan, so borrowers can compare loans and make informed decisions.Finance charge
This is the monthly charge for using a credit card and is comprised of interest costs and other fees calculated by the issuer.Minimum payment
The minimum payment is the amount a cardholder must pay to keep the account from going into default. Some card issuers will set a high minimum if they are uncertain of the cardholder's ability to pay. Most card issuers require a minimum payment of two percent of the outstanding balance. To protect a good credit history and prevent negative reporting, it is important for consumers to pay at least the minimum payment amount due each month.Balance transfer
Involves moving an unpaid credit card balance from one issuer to another. To encourage balance transfers and attract new business, card issuers sometimes offer low "teaser" rates. Some issuers, to discourage balance transfers and retain business, may levy fees to handle or process an outgoing transfer.Grace period
Generally, the credit card issuer gives the cardholder a specified number of days from the statement date to make the minimum payment as shown on the statement. This is called the grace period, and allows cardholders who pay the full balance before the due date to use their credit cards to make purchases without paying any interest. However, this normally excludes cash advances made on the credit card. Interest on cash advances is charged from the day the transaction occurs.Credit limit
A cardholder's credit limit is based on his or her income, existing debt, and credit history. Purchases and cash advances may be made up to the credit card's pre-set credit limit, which is determined at time of application approval. Credit limits are normally increased at the discretion of the issuer. Actions that help in this regard are making timely payments and not exceeding the credit limit. A credit card offers "revolving credit" because as the card is used, the holder is continually borrowing against the limit and repaying it. The amount of credit still available varies depending on the current outstanding balance.Cash advances
With most credit cards, cardholders have access to cash through a network of automated teller machines (ATMs) and financial institutions worldwide. MasterCard® and VISA®, for example, along with other issuers, provide this feature to cardholders. A cash advance, which is made subject to certain daily limits, is a charge made against the cardholder's existing credit limit. With a cash advance, interest begins accruing from the day the advance is received, unlike purchases, which qualify for a grace period.Cardholder agreement
A written statement, provided by the card issuer to the cardholder, that specifies the terms and conditions of a credit card account. Required by Federal Reserve regulations, the cardholder agreement must include: the Annual Percentage Rate, the monthly minimum payment formula, annual fee (if applicable), and the cardholder's rights in billing disputes. The cardholder agreement may be changed at any time by the issuer with written advance notice. Although rules for making changes to the cardholder agreement vary from state to state, the rules that apply are those of the home state of the issuing bank and not the home state of the cardholder.
Credit Card Tips
Credit cards are a very convenient way to pay for goods and services. They make purchases easy, eliminating the need to carry large amounts of cash. They make transactions conducted over the telephone or Internet rather simple and fast.
However, if not used wisely or safely, they can lead to trouble. Also, there are some aspects of credit cards which make them prime targets for fraud and abuse, especially if lost or stolen.
Here are some valuable tips regarding credit card use:
- Shop around for the credit card terms and conditions that are best for you.
- Make sure you understand the terms of a credit card account before you accept the card.
- Pay credit card bills promptly to keep finance charges as low as possible and avoid late fees.
- Keep copies of all sales receipts and promptly compare charges when your statements arrive.
- When you sign receipts, draw a line through any blank spaces in the purchase amount total.
- Remember, you can dispute credit card charges, but all disputes must be made in writing in order to protect your consumer rights.
- Keep a list of your credit card account numbers and the telephone numbers of each card issuer in a safe place in case your credit cards are ever lost or stolen.
- Promptly report any suspicious account activity or lost or stolen cards to the issuer.
Information About Credit Cards
Here's a link to the Federal Trade Commission's consumer information website where you'll find lots of helpful information about credit cards: Choosing and Using Credit Cards
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