What is everything you need to know about credit cards?
Let’s take a step back and understand what a credit card even is. These are tools, similar to debit cards, used for making purchases. However, the biggest difference between debit cards and credit cards is that debit cards are linked directly to bank accounts, whereas credit cards are not. How they work is that a financial institution issues a credit card allowing the cardholder to borrow funds to pay for goods/services.
This post is about everything you need to know about credit cards.
Let’s dive into the top 5 everything you need to know about credit cards.
1. Credit Limit
This is the maximum amount you can borrow with the card. This amount depends on your annual income, and depending on the financial institution, you could request an increase on your credit limit when your income increases.
2. Interest Rates (APR)
Annual Percentage Rate, otherwise known as the APR, is the interest that is charged for balances that are not paid in full. Each credit card will have a different APR.
3. Fees
Fees, fees, fees. Always be careful of fees! There are annual fees, late payment fees, balance transfer fees, foreign transaction fees, and more.
4. Payment Due
Minimum Payment Due
This is the smallest amount you would need to pay to keep the account in good standing. However, paying this amount will not keep you away from fees and interest.
Statement Balance
This is the total amount that includes all purchases, balance transfers, cash advances, interest charges, and fees during a billing cycle. A billing cycle is typically a month, set by the financial institution. In order to avoid additional fees and interest from growing, this is the balance you would need to pay in its entirety.
5. Credit Score
A credit score is a numerical representation and culmination of someone’s credit worthiness. This is a calculation based on financial history. This financial history typically includes timely payments, debt utilization ratio, length of credit history, and credit mix.
To reiterate, the top 5 everything you need to know about credit cards are:
- Credit Limit
- Interest Rates (APR)
- Fees
- Payment Due
- Credit Score
