Know Your Credit Card

Choosing and Using Credit Cards

Which One is Best For Me

Today you are presented with an array of credit card choices – cards with low rates of interest or no annual fees, rebate cards, gold cards, platinum cards, and more.

How do you choose?

Before deciding on one, consider the impact a credit card can have on your financial health. The annual percentage rate (APR), fees or late payments all affect the overall cost of credit. Credit information from the issuing bank or financial institution should be your guide. Read all the terms including the fine print of any offer.

Here is a checklist for choosing your credit card:

Do You Pay in Full Every Month?

Many consumers choose to pay their credit cards in full each month. For these card users, the rate of interest on a credit card may matter less than the annual fee and the rebates they earn when they use the card. These cardholders might want to consider a co-branded card. These cards may have relatively high rates of interest, but if you pay your bill in full, these rates may not affect you.

Do You Plan Ahead?

You’re planning to redecorate your home, and you spot the precise furniture you want on sale. Your plan: buy the furniture with your credit card, pay what you can afford each month until bonus time, and then pay off the entire amount. Using a card can be a good choice for financing large purchases over a short time but only if you are certain that you will pay off the balance and are comfortable with the terms.

Do You Need a Gold or Platinum Card?

Gold and platinum cards are the premium tier of credit cards, offering a blend of high credit limits and exclusive benefits. Issuing banks usually require gold cardholders and platinum cardholders to meet higher standards of income and creditworthiness. These cards usually have higher fees in return for which they offer higher credit limits and other perks like travel insurance which are especially attractive to frequent business and/or leisure travelers. Ask yourself which perks you’ll really use before committing to a gold or platinum card.

Is a Co-branded Card Useful to You?

Co-branded cards carry the name of a third party on the card, in addition to the name of the bank or financial institution that issued the card. They may offer additional value on transactions made with the third party. Co-brand card partners may range from department stores to airlines, travel agencies, retailers, etc. Sometimes a card works in association with a charity, in which case the specified charity receives a portion of each transaction made with the card.

Choosing Wisely – Using Wisely

“Know yourself” should be the motto of anyone shopping for a credit card. A bit of research and a good deal of self-analysis of your credit needs and bill-paying habits should lead you to the right card. Regardless of which card you choose, use it wisely, and repay your debts in time.

You need to know some things before you start using your new card

Your Cardholder Agreement

Read and understand the terms and Conditions of your cardholder agreement, which is essentially a contract between you and the bank. Among those you’re likely to find are the following:

Miscellaneous Fees

Some card issuers require an annual fee – the amount you must pay to get a card or to renew it every year. Some banks also charge fees for submitting an application, for being late with a payment, for taking out a cash advance, for exceeding your credit limit, or for maintaining a zero balance. Read your statement carefully so that you know all of the terms and conditions.

Grace Period

These are the number of days the bank allows you to borrow their money interest-free. Grace periods vary, depending on the bank that issues the credit card. This period is usually applied to new purchases, but only if there is no old balance being carried forward. After the grace period expires, if you haven’t paid your balances in full, interest can accrue from the date of purchase. Some cards do not offer interest-free grace periods, and you start incurring interest from the date of any purchase.

Cash Advances

The issuing bank or financial institution treats cash advances like loans, not like purchases or merchandise. When you take a cash advance, interest begins to accrue differently – sometimes without a grace period and at a higher rate of interest. Check with your card-issuer for cash advance fees and rates of interest.

Interest Calculation

When you use your credit card, the issuing bank or financial institution is really giving you a loan for the amount of your purchases. The bank charges a fee – called interest – for using its money.

All interest charges can usually be avoided by paying the balance in full within the time limit specified on your statement. If you choose not to pay all that you’ve borrowed from the bank – banks call that “revolving credit” – interest will be charged. Banks use various methods to calculate interest, and it’s up to you to learn how your bank computes these charges.

If you do not pay the balance in full, interest on the unpaid amount, or revolving balance, will be added to the total amount owed. When this happens, you are paying interest on interest, also called compound interest. Any new purchases you make can be included in the total balance immediately and will begin to attract interest from the date of purchase. If you have a large balance, paying only the minimum amount each month can be an expensive way to use your credit card. Try to anticipate your credit needs.

Be sure to find out and remain aware what your APR (annual percentage rate or interest) is, and always include the cost of credit in your budgeting or money management.

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