by Vanessa Diem
Credit cards have proliferated to become one of the most popular methods of payment, and they are in fact so easy to use, it seems until you know everything, there is to the use of credit cards. Yes! There are a lot more to the use of credit cards than a lot of users know.
Well, let’s not start causing you to be scared because that’s not what this article is about. Instead, we’ve detailed some fascinating researches to help you understand the use of credit cards beyond over-the-counter payment for purchases. Do you want to know what’s in stock? Sit back, take a deep breath and read on.
There are several terms and things associated with the use of credit cards we believe every credit card owner should know, however, we’ll try to explain some of them in this session.
· Card Issuer: The card issuers provide and maintain credit cards. As part of their jobs, they make credit available whenever you want to borrow.
· Terms of Agreement: Like in most other aspects, you get to read terms you should stick to when you use credit cards. Some of these terms include: timely payment, not committing fraudulent activities with your card, not purchasing illegal items, and not going beyond your credit limit.
· Credit Repayment: it is essential to note that you must repay for the purchases you make on a credit card - however, your credit card issuer is obliged to give you before repaying your loan. Usually, you can keep making payments with your credit cards, even with outstanding, as far as there’s still enough credit available. For instance, with a credit limit of say $1,000, you can make the payment of $400 then still make another payment of up to $600, even without repaying the previous $400.
· Late Payments:Normally, based on an agreement with the credit card issuer, the credit card holder is required to pay a minimum amount monthly at a particular date every month. Failure to meet up with the date means you’ll be penalized for late payment, attracting additional interest.
So that’s some basic things you should know before diving into the use of credit cards. Now we’ve cleared them up, let’s get right into details.
This is one part that confuses many people. Most times you don’t know which exact card to go for. Yes, you could see a random card and fall in love with its look, but you know better than making your choice based off looks.
There’s need to look into other aspects like fees, rewards, interest rates, etc. Thankfully, there are lots of different options available, and each has its distinct features. Look at some questions you should ask and sincerely answer to yourself before making your choice: What features do you want the credit card to have? Will you need to earn extra rewards on every payment? Do you want a lower rate of interest when paying off balance? Pay little or no interest on large purchases? Build your credit?
Knowing what you want in a credit card sets you on the path of picking a credit card type.
Here, let’s talk about the most popular credit card types available for you to make your choice from:
· Standard Credit Cards:Otherwise referred to as “plain vanilla”, this credit card falls under the basic category and offers none benefits or unique rewards.
· Rewards Cards:From the name, you already know how this card functions. They either pay back cash or provide points rewards as you make payments.
· Balance Transfer Cards: This cards come with a low fee as introductory rate for transferring balances from other credit cards.
· Credit Cards With Low Interest: From its name, you can already tell that it offers a low-interest rate when purchases are made. Some other types of credit cards combine the functions of balance transfer and low-interest rate.
· Premium Value Credit Cards: we know these credit cards to offer better rewards than most other types. However, holders have to pay high annual fees to maintain them.
· Students Credit Cards: Students need credit cards too, and this one is designed for young adults who are enrolled in accredited schools (Universities or colleges).
Apart from knowing the different names of the credit cards, there’s also the need to know a few things before making your purchase. Check them out.
Interest and Fees:Nothing beats knowing how much commitment you can make and going for it. During your selection process, try to narrow down the options by their prices, taking time to review each price to know your budget. If you go for a choice credit card that has an annual charge attached to it, then you should make sure they have enough benefits to cover.
Compare Credit Cards in Similar Categories:Research and know the credit cards that fall under different categories, then try to compare the credit cards with themselves, all the while checking out the interest rate of each, perks that come with the credit cards and fees and rewards. You can check the terms and conditions page to get a grab of what’s up with the card.
Take Note of Credit Rating: We should not really be talking about this one, because most people know it, but many people don’t. Your history is enough to know the type ofcredit that fits you and which can be approved to you. Credit cards like reward credit cards, premium credit cards and credit cards that have promotional interests typically need for you to have a high credit score before issue.
After choosing your choice card, the next stage is to complete your application process online.
One feature of credit cards is the fees payable by holders. There are several fees, actually. While some can be avoided, depending entirely on the way a holder uses the card, some others are compulsory and have to be paid, irrespective of how the credit card is used or what it is used for.
Some of the most common fees required of holders include;
· Annual/Yearly Fee: As the name of this fee signifies, it is charged yearly to the account. Depending on the credit card type, you may get a waiver for this in your initial year.
· Late/Delay Fee:This fee is charged by operators when you default on your monthly payments (late payment).
· Balance Transfer Charge: In credit card usage, it is possible for a holder to transfer their remaining balance seamlessly between different credit cards. When a holder does this, they are charged a particular percentage of all the amount transferable as a balance transfer fee.
· Cash Advance Charge:Using your card for cash withdrawal above your monthly limit attracts a special charge known as an advance cash fee. It usually comes as a particular percentage of your advance amount. Note that only selected types of cards can allow advance withdrawal.
· Finance Charge: Normally, carrying a credit card balance attracts a special interest charged as a particular percentage of the balance.
· Foreign Transaction Charge: When purchases or any payment at all is made in a different currency other than your local currency, they typically attract a fee. The fee gets charged as a percentage of amount due for the transaction. Some kinds of cards waive off this fee.
Depending on the type of credit card you hold, you will be allowed to make some or all ofthese kinds of transaction: purchases, cash advances, and balance transfers.
You are making a purchase when you pay for items bought with your credit card. Most of the transactions you’ll likely make with your credit card fall under this category and are typically made only by phone, or in person. Typically, you will not be charged any fee when making a purchase transaction. However, if you carry any balance, then the balance would be attract interest.
Remember we explained balance transfer earlier — I.E., the transfer of balance between different credit cards.
There are different reasons why you may choose to make a transfer of balance, including:
· Taking advantage of possible lower rate of interest
· Consolidating on any available credit card balance.
· For every time you want to transfer a balance, you will be charged a fee for it.
Cash Advances: This one gets registered when you make use of credit cards for ATM withdrawal. All other transactions of cash equivalence may also fall under this category. Other transactions that fall under this category include wire transfer, money order purchase, and overdraft protection transfers. For cash advances, you’ll be charged a fee for it, and it also comes with a higher interest. Cash advances are quiteexpensive compared most other transactions, so you’ll be doing yourself more good when you avoid taking out cash advances with your credit card.
Most credit card transactions attract interest charge from credit card issuers. This interest charge would typically be written as annual percentage rate (APR).
Normally, your card has to be liable to a few different annual percentage rates: An entirely different one made for purchases, another one for cash advances, one reserved for transfer of balances, and one for penalties, which will be charged when there’s a default on any of the terms specified on the credit card. Usually, the rate of interest due on each credit card somewhat ties to the creditworthiness of its holder. Typically, better credit ratings attract lower interest, while bad credit ratings attract higher interest rates.
APRs are variable in most types of credit cards, meaning that they can potentially move down or move up, depending on a subtly existing index rate, which is like a prime rate. The interest rate chargeable on a credit card can potentially increase based on your penalty APR in case you fall behind on payment by up to 60 days or more.
Credit card usage attracts interest which is charged in form of finance charge, that the issuer calculates based on balance and your average percentage rates.
Depending on credit card type and issuer, you may be granted a period of grace, during which if you clear up all outstanding balance, you would be able to avoid charges. Grace period falls between 20 to 30 days, mostly depending on the terms of your particular credit card. Sometimes, the period of grace doesn’t apply, especially when your transaction doesn’t get a grace period, or if the billing cycle was started with a balance. Typically, you’ll not get any grace period for cash advances or any similar transactions. Balance transfers do not get any grace period too.
Another typical feature of credit card usage is reward. By using a reward credit card, you’ll receive incentives in different forms for purchases made with the credit card. If accumulated, rewards are eitherredeemable as a cash back, or gift cards, travel expenses, and even merchandise.
Depending on terms of the agreement, some reward credit cards would grant user more rewards when they are used for some purchases. For instance, if you are using a travel card, you might get more rewards when you use the card to book flights or hotels than when you use it for other transactions.
If you’re issued a reward credit card, it is important for you to read and know all terms applicable including the number of rewards earned on every purchase, date of reward expiry if any, minimum redemption amount, offenses that might cause reward forfeiture.
Many people are unaware that credit cards feature their credit limit. If you fall into this category of people, then this section is for you. There’s a pre-defined credit limit on most credit cards (the highest amount you can spend using a particular credit card), and several factors pull together to determine how operators fix credit limits. Some prevalent factors include income level, credit history, and credit card type.
Understanding the credit limit stipulated in terms of card usage and staying within it means that you can avoid penalties associated with going overboard with them. You can also get your account going in the favorable standing. The balance of your credit cardis kept low compared to your credit limit, which does your credit score good.
The steady increase of your income might mean a continuous increase of your limit from time to time, depending on how responsibly you make use of your card too. The laws of credit card usage allows you to request the increase of credit limit from your card operator if they fail to increase it after several months automatically. On request to increase credit limit, the card operator reviews your income, credit history, and account history, then uses his findings to determine your qualification for credit limit increase.
You’d probably notice that several credit cards do not come with any preset limit. Don’t confuse this to mean that your credit card spending is unlimited. Rather, it shows that the maximum amount spendable on each credit card is completely determined by a combination of your credit history, usual spending habits, and perceived repayment ability. If you’re still confused on this, you can contact your particular credit card operator to confirm what your credit limit is like.
Billing cycle refers to the period between one billing period and the other. At the end of every billing cycle, your card operator sends your billing statement to you that details every transaction made from your account throughout a billing cycle. You also get to see any outstanding balance, minimum payment, additional charges, and date due.
Unless there’s a change of agreement, all billing statements will be sent to the particular billing address you specify during card issuance. You have the option to also sign up for online billing, and if you do, you’ll be able to login anytime you desire to check your account to see your statement for any billing cycle.
Don’t just assume that the information on the credit statement are all correct. Take your time to go through the details of each transaction to ensure that no unauthorized transaction had been added to your report.
If by any chance, you can spot any error, don’t fret about it. You still have a right to dispute any error. Pay heed to the timing when lodging your dispute. Normally, credit card laws allows you 60 days window from the day you received the billing statement to make lodge for dispute if any. Check for the address of your credit card operator in the billing statement and send your dispute in writing to them.
You should also report unauthorized transactions to your card operator so that all of such transactions can be reversed and deducted where applicable. You can apply to receive another credit card if for any reason you suspect a compromise or a security breach in your account.
Your credit card’s term of agreement will normally require that you pay a certain amount every month. Unless stated otherwise in the terms, it is only required that you make a minimum payment. This minimum payment stands for a little part of any outstanding balance.
Yes, the credit card agreement typically requires that you make a minimum payment, but it will be way better you pay more. If you stick to the minimum payment, then it is expected for your balance to only go down by a monthly amount that’s not too significant, because a good portion of payment goes to interest. By going this way, the time taken to get your balance paid off significantly increases, when you should ideally pay off any balance in full at the end of every billing cycle.
As a matter of importance, you need to stick to making all payments by the required date, considering how delay attracts additional charges. Delaying payment by up to 30 days, means that your late notice would be added as part of your credit report; This can to a large extent negatively influence a holders credit score.
In the terms of the agreement, credit card issuers normally provide different options that can be used to make payments. The options typically available include check mailing, and online payment making use of the routing number and checking account. You even have an option to set auto-pay up if that helps remember to make prompt payments.
A major mistake any credit card owner would make is to abandon payments for credit card. It doesn’t even matter why you took such action. Most creditors will assist you throughout the process if you notify them beforehand of reasons you may not pay. Reach out to your creditor and tell them what the situation is.. They’ll give you options available to you if there are any.
Different credit cards have different dates when you will have to stop using them. The options available to you include downsizing and completely closing the credit card. You can apply these if your credit card operator includes any term you are not comfortable with. Credit card closure is simple, as it involves making a simple call to the operator of your credit card. However, there are several things that should be known before eventual closure.
You understand that closing a credit card also has the potentiality of affecting a user’s credit score negatively, especially if there is an unpaid balance in the card. If you are considering closing your credit card, then it is best fir you to first clear off any existing balance.
Fortunately, paying off your balance should affect a user’s credit score positively.
Until your balance clocks zero, your normal monthly payments still apply, even after closing the credit card. Consequences for late payment still apply, even after account closure.
Before closing a credit card, cancel any existing auto-payments. If you don’t, already made payments may be reversed, and that attracts penalties from card operator. If you are not sure about auto-payments, your recent billing statement will give you an idea.
Accumulated rewards get forfeited too once you take actions to close a credit card.
For every time you use your card for payments, you are borrowing money, and this opens up the potentiality of falling into debts. Paying debts off is difficult. It can even take many years and a lot of sacrifices. Acting proactively to stay away from credit card debts is by far better than trying to pay debts.
· The most effective way to avoid credit card debts is by embracing the habit of not making payments beyond your means. You are one step into credit card debts the moment you begin tofund transactions thatare beyond your means with your credit card.
· The easiest way to go through this is to mark a line between what you need and what you just want. Take away every sentiment; else you will just be referring to what you want badly as a need.
· Avoid making everyday purchases with credit cards, unless there’s a special reward for it. Paying for transactions you ordinarily would have paid by cash for with credit cards is one of the easiest ways to run into debt. If you’re going to make an ordinary purchase, then just take some cash along.
· Completely paying up your balance when it is due is another way to stay out of credit card debts. Once you cannot pay up your complete balance, then it’s probably time to start thinking about putting away the credit card, at least until you can make headway in paying off available balance.
Technological advancement comes with its good and bad sides. One of the bad sides of technological advancement is that scammers and fraudsters use it to perfect their fraud strategies. With just a few information from your credit card, hackers can have access to your credit card. There days, they’ve become clever enough to know how to get the information they need from supermarkets and different other places where you use credit cards. Sometimes, they go as far as tricking you to give up the information they need from your card by yourself.
Most credit card operators will require verification to approve purchases unusual with your account as a way of trying to prevent fraud.
However, you also have a role to play in preventing fraud. Start by guarding sensitive information in your credit card well. Avoid entering important information from your credit card on websites that are suspicious.
One great way to monitor transactions made on your credit card is by creating and maintaining an account online with your operator. From the account, you can frequently review transactions made with your card to spot when something fishy happens.
Notify the credit card operator as soon as you notice any unauthorized transaction so that all charges will be reversed as quickly as possible. A new credit card will be issued to you.
Responsibly using your credit card will help you in your quest to build and maintain a nice credit score. Learning everything we’ve detailed here should help you use your cardwith no troubles.
About Vanessa Diem
Vanessa Diem is a finance blogger who has gained widespread recognition for her insightful and informative content on personal finance, investing, and money management. With a keen understanding of the complexities of the financial world, Vanessa is dedicated to providing her readers with practical advice and strategies to enhance their financial well-being.