Credit Cards

RECENT NEWS
MarketWatch  5 hrs ago  Comment 
China is taking a step toward easing its grip on credit cards, potentially resolving a long-running trade dispute with the U.S. and allowing foreign companies such as Visa, MasterCard and other electronic-payment processors to have a greater...
TechCrunch  9 hrs ago  Comment 
 Merchants don’t like credit cards. The fees associated are onerous and wildly convoluted. For example, I challenge you to find a single source of information one the Internet regarding these fees that isn’t a spam-laden lead generation...
Wall Street Journal  12 hrs ago  Comment 
China is taking a step toward easing its grip on credit cards, potentially allowing foreign companies like Visa, MasterCard and other electronic payment processors to have a greater presence there.
Benzinga  Oct 28  Comment 
Apple Inc. (NASDAQ: AAPL) CEO Tim Cook announced early Apple Pay results at the Wall Street Journal Digital Conference Monday. Recode.net reported Cook’s comments and noted that, "Apple Pay users activated more than one million credit cards...
TheStreet.com  Oct 28  Comment 
NEW YORK (MainStreet) -- As the big-spending holiday season approaches, shoppers are increasingly apprehensive about the rise in credit card breaches at major retailers and are adjusting their shopping behavior accordingly. But the October launch...
MarketWatch  Oct 28  Comment 
CEO Tim Cook says more than 1 million credit cards are now on Apple Pay, as he stresses the company won’t track customer activity.
Reuters  Oct 27  Comment 
American Express Co, the world's largest credit card issuer, said it would close its joint venture with French online start-up Vente-Privee by the end of the year.
TechCrunch  Oct 27  Comment 
 Managing the arcane arts of processing transactions for online purchases is a complicated job. Once a shopper enters the numbers on their card, the expiration date on their credit card, and their zip code, a complicated machinery of transaction...
Forbes  Oct 27  Comment 
The growing number of data breaches amongst major U.S. retailers are ratcheting up fear.  According to a Gallup poll, Americans are now more likely to worry about hackers stealing their credit card information than any other crime, including...
Forbes  Oct 27  Comment 
We all want the credit card with the best rewards. But even the most enticing rewards may be linked to a credit card that does not meet our needs.




 

This is a personal finance article about Credit Cards. The industry article can be found here.

A credit card is a a plastic card with a magnetic strip, issued by a bank or business authorizing the holder to buy goods or services on credit.

Understanding Credit Cards

Must-Know Credit Card Terms

Before getting a credit card, it's important to understand the language used by lenders to describe one. Here are some must-know credit card terms that'll help you make sense of the fine print.

  • Annual Percentage Rate (APR) is the effective annual interest rate charged on the amount of credit used. Lenders are legally obliged to disclose the APR(s) charged by their respective credit cards.
    • Purchase APR applies to purchases made using the credit card.
    • Balance Transfer APR applies to transactions where an outstanding balance is transferred from one credit card to the other. This APR is usually higher than the Purchase APR.
    • Cash Advance APR applies to transactions where cash is borrowed using the credit card. This APR is usually higher than the Purchase APR.
    • Introductory APR is the teaser APR applied to transactions for a limited period of time initially. This APR is usually lower than the Purchase APR.
    • Penalty APR is the increased APR applied to transactions if a card holder makes a late payment or pays less than the minimum payment specified in the card holder agreement. This APR is usually higher than the Purchase APR.
    • Tiered APRs are the increasing APRs applied to successive levels of an outstanding balance.
  • Card Holder Agreement is the statement specifying the terms and conditions associated with a particular credit card. Lenders are legally obliged to provide prospective card holders with a card holder agreement that spells out, among other things, the card's APR(s), terms of use, service charges, payment terms and the card holder's billing rights. However, a lender may change the terms and conditions in a card holder agreement at any time, provided it gives sufficient advance notice to the card holder.
  • Grace Period refers to the period of time after a statement date when the outstanding balance on a credit card must be cleared to avoid incurring a finance charge. For most credit cards, the grace period is between 20 and 30 days, although card holders that carry an outstanding balance forward are usually given no grace period. In addition, there is generally no grace period given for balance transfers and cash advances.

Common Credit Card Fees

Using a credit card without understanding the associated charges can often turn into an expensive affair. Here are some of the common credit card fees that lenders charge their card holders.

  • Annual Fee is the yearly membership fee charged for the right to carry and use a lender's credit card. Except in the case of secured credit cards, most lenders do not charge card holders an annual fee.
  • Application Fee is the fee charged by a lender when you submit a credit card application for processing. Although this fee may be charged for processing any credit card application, it is most commonly seen in applications for secured credit cards.
  • Balance Transfer Fee is the fee charged by a lender when an outstanding balance is transferred from one credit card to the other.
  • Finance Charge is the fee charged by a lender when an outstanding balance isn't cleared within the grace period. It depends on the card's APR(s), outstanding balance and finance charge calculation method.

Getting a Credit Card

Learning about Credit Cards

Before applying for a new credit card, invest some time in learning more about them. Understanding the terminology associated with credit cards will help in making a more informed decision about which card to get. The Federal Reserve and Federal Trade Commission have websites here and here that introduce consumers to the many terms used by credit card companies, some of which include annual percentage rates (APR), annual fees, transaction costs, liability limits and incentive schemes.

Shopping for a Credit Card

If there's a credit union nearby, consider researching their options since they tend to offer better terms than traditional banks. There are also a few websites, like Credit Card Hub, CreditCards.com, Index Credit Cards, Credit Card Wisdom, CreditCardClients.com, CreditCardAssist.com, NewHorizon.Org and LowCards.com (and in Canada CreditCardsCanada.ca), that are Advertising Affiliates who are paid a commission by the relevant credit card company if you sign up for card through their site. There are also sites such as CardSelection.com who share the commission with you to sign up through their site. Last, but not least, BankRate.com and GoBankingRates.com lets consumers compare all sorts of financial products, including credit cards. Another thing to consider for the best credit card offer is from CreditCards.org that enables consumers to search and compare credit cards, review the best credit card offers, and apply online.

Types of Credit Cards

  • Standard Cards are the most common type of credit cards. They allow card holders to make credit purchases up to a certain limit. Charges are levied if a card holder, among other things, exceeds the credit limit, fails to clear an outstanding balance within the grace period, makes a late payment or pays less than the minimum payment specified in the card holder agreement.
    • Balance Transfer Credit Cards
    • Low Interest Credit Cards
  • Premium Cards offer more benefits as compared to standard cards. Some of these benefits include higher credit limits and extra features like emergency services, product warranties and travel insurance. However, premium cards tend to levy higher charges as well.
    • Gold Credit Cards
    • Platinum Credit Cards
    • Titanium Credit Cards
  • Reward Cards offer incentives for engaging in specific credit transactions. These incentives range from cash back rewards and purchase points to airline miles and gas rebates. However, lenders generally require that prospective card holders have higher credit scores.
    • General Rewards Credit Cards
    • Airline Rewards Credit Cards
    • Automobile Rewards Credit Cards
    • Cash Back Credit Cards
    • Gasoline Rewards Credit Cards
    • Home Improvement Credit Cards
    • Hotel Rewards Credit Cards
    • Retail Rewards Credit Cards
    • Travel Rewards Credit Cards
  • Cards for Bad Credit are targeted at individuals with limited or tarnished credit histories. As a result, they tend to have lower credit limits and more restrictions as compared to standard credit cards. However, they also give card holders the opportunity to establish, extend or rebuild their respective credit histories.
    • Prepaid Credit Cards
    • Secured Credit Cards
  • Specialty Cards are targeted at individuals with unique credit requirements, like businessmen and students.
    • Business Credit Cards
    • Student Credit Cards

Using Credit Cards

Canceling a Credit Card

Canceling a credit card usually has a negative effect on your credit score because:

  • it decreases your utilization ratio. Since your credit limit drops after cancellation, what you owe increases compared to your credit limit, and
  • it decreases the average age of your credit, if the card that you cancelled is older than the average age of your credit.

However, canceling a credit card may be a sound option for those who want to:

  • simplify their life, and
  • reduce the risk of identity theft (risk of theft is higher for unused cards since you don't pay attention to them).

In these circumstances, canceling a card may be worth it, especially if:

  • you still have a healthy credit limit (at least 3x your average balance),
  • this card was just recently opened (in this case, it might even increase the average age of your credit).
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