What is Credit Card?
A credit card is a small plastic card that is assigned to users, that uses a system of payments. It allows the owner of the card to purchase goods and services by using a line of credit. It is based on a promise that the cardholder will pay back using a repayment method.
Credit cards have taken the place of having to carry cash when making purchases and services. Many people use their credit cards to pay all of their monthly expenses such as paying household bills, groceries, etc., and then at the end of the month pay the credit card in full. The most popular credit cards that are accepted in most shopping malls, shops and other services, are Visa, Master Card, Discover, and American Express.
What Is The Different Between Secured and Unsecured Credit Cards?
Secured credit cards came into the picture much later then unsecured credit cards. Secured credit cards are mostly given to individuals that have had bad credit. With a secured credit card, to obtain one, you will need to have a deposit of the amount that you want as a credit limit in a bank account. When you make purchases on the credit card, you are only allowed to use the amount that is set with the credit limit and in some cases as long as there is 100% of the money that is in the bank account. Secured credit cards are great for people that have a tendency to overspend and will keep them from creating debt in the long run.
Unsecured credit cards are for individuals that have a good credit history. Before the unsecured credit card is issued to the individual, the credit company will do a credit check, looking at the their credit scores and records, the number of bank accounts that they have, if bills have been paid on time. After the credit company has done the credit check and the credit history of the individual is good, an unsecured credit card is issued with a high credit limit. With this type of credit card, the individual can pay their bills, shopping and other expenses and within that month will receive a bill on the total. An unsecured credit card does not require a deposit of money in their bank account. This type of credit card are good for anyone that has a good credit history and have control over their spending and finances.
Understanding The Hidden Costs of Credit Cards
With credit cards you might not be aware of hidden costs. Being educated and understanding how credit card fees are calculated can help the cardholder to be aware of what they are paying.
1. Low minimum payments may look like a good thing, but many credit card companies have increased the minimum payment by 2 to 4 percent. It can take a long time to pay off the debt, with you’re still having to pay thousands in interest fees.
2. Changeable rates can be a concern for the cardholder. Many times people do not read the fine print which allows the credit card company to increase and change the interest rates at any time, even for no reason. Most credit card companies will give 15 days notice before they increase the rates.
3. Universal default is when the credit card company penalizes you for going behind on other credit accounts, even if you have not defaulted or missed a card payment. If you are late to any other creditors, the card company can penalize you giving you an increased rate of 29 percent and in some cases higher.
4. Teaser rates are when the credit card issuer is advertised with either a low interest rate or zero percent. Unfortunately, these rates do not last, which leaves the cardholder with paying a higher rate.
5. Fees that you may not realize until the time comes when you have to pay them. It can include application fees, processing fees, late payment fees, transaction fees, going over the limit fees, balance transfer fees and overdraft protection fees.
Understanding The Key of Credit Card Terms
Like many of us, understanding the terms of a credit card will help us become familiar, so that we can have the knowledge to compare different credit cards and know if we should change our old card for a new one, to help in refraining from having increased rates. The following is terms that you should know.
1. Pre-approved. Many times you will receive in the mail an offer stating that you have been pre-approved for a credit card. This is actually false, as you have not been pre-approved. There is no promise that you can actually qualify for the credit card.
2. Annual fee. Credit card companies usually will charge an annual fee that can be anywhere from $25 to hundreds of dollars.
3. Transaction fee is usually charged for any transactions other then purchases. This could be cash advances and balance transfers.
4. Grace period is when you escape from paying finance charges, provided that you pay the balance in full before the date that it is due.
Top 3 Credit Card Mistakes
If you own a credit card here are top 3 credit card mistakes to avoid.
1. Paying your credit card late will actually add on fees to your balance. Unfortunately, your credit rating will be affected and with the added fees, the balance will actually change. It is always best to pay on time, but even a better plan, is to pay the payment a week ahead of the due date. Having your payment set up so that it is automatically taken will solve having late payments. A late payment will cause you to end up paying higher rates in the future.
2. Don’t fall victim to credit card rewards. Getting rewards on your credit card is all right, but it is not a reason to get a credit card. A credit card with rewards can sometime come with numerous fees and a higher interest rate. Some credit cards will offer free air miles or a gift card for different stores. Although the rewards are added and it sounds like you’re getting something for nothing that is usually not the case. Always be aware of something that is given for free, as you will usually pay for it and then some through higher fees and rates.
3. Having numerous credit cards can become a big financial problem. Trying to keep track of what you spent on what card can run you into deep financial trouble. If you feel you need to have more then one credit card, keep the other one for emergencies or if you are going on a trip.
5 Ways To Get The Best Rate With Credit Cards
1. Research the internet to find an array of information on rates with credit cards. The internet offers low rates, the latest programs and different ways to help you get your credit in order.
2. Negotiate a lower rate. By calling the customer service number of your credit card, you might be able to get a lower rate then what you were offered. Credit card business is very competitive; so many companies will negotiate to keep you as a customer.
3. Be careful of fees and interest rate scams. Sometimes there are hidden clauses within some of the credit card plans that will actually make more money being paid out in the long run. Credit card companies are known to have a few tricks up their sleeves to get more money out of you.
4. Always read the fine print on any special offers. Some credit card companies will offer special introductory deals to draw customers in. Some of these special deals could be frequent flyer programs, vacation packages, etc.
5. If you are not a member of a Credit Union, join one. Credit Unions since you are a member, offer more favorable interest rates.
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