What you need to know about credit cards

Credit cards require a huge amount of responsibility if you want to use them without getting into debt, which can lead to bad credit.

If you’re just getting started with your first credit card, you may be nervous about the best approach to responsible spending, or you may have struggled to manage more than one credit card. Read on for a list of things to help you understand every credit card in your wallet.

Various types of credit cards

How can you develop a positive and fruitful relationship with credit cards? Before applying for an account, learn the basics. Understanding the basics – from knowing existing types of credit cards to legality of use – will help you charge wisely from the moment you get that powerful piece of plastic.

There are different types of credit cards: universal, which can be used anywhere; and private label retail, which you can usually only use in a store or service station.

Most general purpose cards, including some of the best reward cards, are unsecured, which means that the issuer extends the line of credit primarily based on your credit history.

Collateralized cards, on the other hand, are backed by funds you put into an escrow account that the lender can claim in the event of a default. Since lenders take little risk with secured cards, it is relatively easy to qualify, so they are ideal for those with damaged or unestablished credit history.

There are four credit card processing networks: Visa, Mastercard, American Express, and Discover. The name of the card issuer is printed on the front: Capital One, Chase, Citi and so on. If the issuer is not listed on the front, it will be listed on the back of your card, or you can check your payroll.

There is no perfect number of credit cards

There is no ideal number of credit cards you “should” hold. However, a couple of general purpose cards should meet the needs of most consumers.

If you need a retail card, make sure it’s for a store you frequent and offers an incentive to use it. Retail cards usually charge higher interest rates than general purpose cards.

You must decide to receive more than one card based on your financial goals and needs. If you can manage more than one responsibly, it can benefit you in the long run.

Interest rates on your card

Credit card interest rates can vary greatly – from 0 percent, limited-term balance transfer offers, up to 30 percent. The average credit card interest rate is 16.71 percent.

Lenders use factors such as your credit score, income, assets, current debt load, loan requests, payment history, and economic conditions to set your annual percentage rate (APR).

Who gets the best (lowest) rates? Consumers with a positive and confirmed credit history.

The Importance of Map Comparison

Banks, credit unions, retailers, and credit card companies issue credit cards. Visa and MasterCard are companies that help process payments; cards are not issued.

Before choosing a card, you need to ask yourself how you are going to use it. Do you need a card for everyday purchases? Do you need a program with a stellar rewards program because you travel frequently or dine out frequently? Do you need a balance transfer card to pay off your debt? This targeted search approach can also protect your credit score from too many unnecessary searches.

The contract is binding

Read the agreement carefully because by signing it, you form a legal contract and agree to the terms set by the issuer. This includes:

• Credit line/limit: This is the total amount you can charge, including interest and fees.
• Annual interest rate (annual): is the interest accrued on the carried balances. It usually provides a higher rate for late payments, charges over your limit, balance transfers, and cash advances.
• Interest Calculation Method: Most issuers calculate interest payments by averaging the daily account balance and then multiplying this figure by the periodic rate (annual interest rates divided by the number of days in a year).
• Fixed or variable annual interest rateA: Fixed rate APRs have constant interest rates. Variable annual interest rates are linked to an index (often the prime interest rate set by the Federal Reserve) and thus fluctuate.
• Grace periodA: The grace period is the number of days (usually 20 to 30) that you must pay off the loan in full before interest accrues.
• FeesA: Usual fees include cash advance fees, balance transfers, late payments, overdraft, and sometimes an annual fee.

Keep in mind that most lenders reserve the right to change any of these terms, so check your email for notices of the change.

Annual fee and monthly payment

Every time you charge, you borrow money.

However, since credit cards offer a revolving balance option, you are not required to pay off the entire loan – if you make at least the minimum payment requested, you can roll over the balance to the next month. You should not only pay the minimum payment because interest will be added to the balance.

bottom line

Ultimately, there are no secrets to using credit cards wisely. If you use cards with a 0% initial annual interest rate or cards with no annual fee, and you always pay your bill in full every month, there is no charge. The key is to always stay on top of your spending so your balance doesn’t kick you back at the end of each billing cycle. And if your card has a good rewards program, you can get ahead by maximizing your earnings.

Erica Sandberg is a well-known personal finance professional and author of Waiting for Money: The Essential Financial Plan for New and Growing Families. Her articles and insights have been featured in The Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSN Money and Dow Jones MarketWatch. An active television and radio commentator, Sandberg is a credit and money management expert at KRON-TV in San Francisco, and a frequent guest on Forbes Video Network, Fox Business News, Bloomberg TV and all Bay Area networks. Prior to starting her own reporting and advisory business, she worked at the San Francisco Consumer Credit Counseling Service, where she advised individuals, conducted educational seminars, and managed media relations. Sandberg is a member of the Society of American Business Editors and Writers and a member of the Project Money Advisory Committee.