How To Choose and Use Credit Cards
Below is a MRR and PLR article in category Finance -> subcategory Other.
How to Choose and Use Credit Cards
Introduction
If you’ve ever received a flurry of “pre-approved” credit card offers in the mail, you know how tempting they can be, with promises of low introductory rates and enticing perks. But before you jump in, it's crucial to shop around for the best deal. Here’s how to navigate the world of credit cards wisely.
Understanding Credit Card Terms
A credit card is essentially a borrowing tool that can incur charges. The terms and conditions can significantly affect the cost of credit, so it’s important to compare these before opening an account. Here are some key terms to know:
Annual Percentage Rate (APR)
The APR represents the yearly cost of credit. It's vital to understand this rate as it impacts your finance charges. Additionally, card issuers must disclose the "periodic rate," which is used to calculate finance charges for each billing period.
In some cases, credit cards come with “variable rate” programs where the APR can change based on economic indicators. If you choose such a card, the issuer must inform you about how the rate is determined and any limitations on rate changes.
Grace Period
A "grace period" lets you avoid finance charges by paying your balance in full before the due date. If your card offers a grace period, the issuer must send your bill at least 14 days before it’s due, giving you time to pay.
Annual and Transaction Fees
Many cards charge an annual fee ranging from $25 to several hundred dollars. Be aware of additional transaction fees for cash advances, late payments, or exceeding credit limits. Some may even charge a monthly fee regardless of usage.
Balance Computation Methods
Understanding how your finance charge is calculated is crucial:
- Average Daily Balance: This common method factors in any payments received and often includes new purchases or cash advances.
- Adjusted Balance: This advantageous method subtracts payments made during the billing period from your previous balance.
- Previous Balance: Considers only the amount owed at the end of the previous cycle.
- Two-cycle Balances: Utilizes the last two months of activity in the balance calculation.
If you’re unsure about these methods, your card issuer must provide explanations on your billing statements.
Other Costs and Features
Credit terms can vary widely. Consider how you’ll use the card?"if you pay bills fully each month, prioritize low fees over the APR, especially with a grace period in place. For ongoing balances, scrutinize the APR and balance computation method.
Also, check the credit limit, card acceptance, and additional services offered. You might be interested in “affinity cards” linked to organizations or travel perks.
Special Rates for Delinquency
Some cards offer low rates for on-time payments but dramatically increase the APR if you are late. These rates can exceed 20%, so be aware of delinquency penalties disclosed in applications.
Shopping Tips
When searching for a credit card, keep these tips in mind:
- Compare Plans: Choose one that fits your needs.
- Understand Terms: Know a card's terms before accepting.
- Keep Receipts: Reconcile charges when your bill arrives.
- Protect Information: Safeguard your cards and account details.
- Record Details: Keep a separate record of account numbers, expiration dates, and issuer contact information for emergencies.
- Minimal Carrying: Only carry the cards you intend to use.
Conclusion
Choosing the right credit card requires thoughtful consideration of terms and fees. By understanding these elements, you can make smarter financial decisions and use your credit card to your advantage.
You can find the original non-AI version of this article here: How To Choose and Use Credit Cards.
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