Friday, August 19, 2011, AM | Leave Comment
Understand the major features of a credit card before you choose one. Everything you always wanted to know about credit cards but were afraid to ask. All of us, some with good, others with not so good credit score, have received letters of applications from different credit card companies.
I remember when I first received a letter from CitiBank (that was before it became CitiGroup) for a master card back in 1983. I was so excited. I didn’t know much about interest rate, grace period or annual fee.
All I remember is its annual fee was $35. But I was determined from the very beginning when I did receive my first credit card that I would pay my bills on time and in full – by the due date.
If I could not pay the bill by the end of the grace period, I would not buy things just for the sake of buying. Believe me some people do that. They do shopping for the sake of shopping and nothing else.
Well! Twenty five years later, I know a thing or two about credit cards and I like to share them with you. Now, you probably already know these things. But just knowing is not enough. You have to change your mindset to stop and learn to live within your means.
Below are the main features of a credit card that you should understand and be aware of.
Before the current credit crunch, most of the cards for individuals did not charge annual fee. This might change now. My MasterCard is free from CitiGroup.
In addition, understand types of fees credit cards can charge that you should understand and be aware of.
For most people, this should be the most important feature. Credit cards charge you interest on the balance if you did not pay the bill in full by the due date.
For example, if a user had a $1,000 transaction and repaid it in full within this grace period, there would be no interest charged.
If, however, even $1.00 of the total amount remained unpaid, interest would be charged on the $1,000 (and not on the remaining $1.00) from the date of purchase until the payment is received and there is no balance left over.
The precise manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement.
The grace period is the amount of time you have to pay your balance in full (or partial) before a finance charge is applied to your purchase. If you carried a balance from the previous month, you may or may not have a grace period for your new purchases.
In addition, balance transfers and cash advances typically do not have a grace period.
Your credit limit is the maximum amount you can charge on the card. This includes purchases, balance transfers, cash advances, finance charges, and fees. When you go over your credit limit, your creditor may charge a fee, an over-the-limit fee.