A credit card is a card issued by a bank or business to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services later. The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance.

Credit cards bill monthly, with a grace period built in that lets the consumer borrow short-term credit between the time they make the purchase and when it is due. If balances are carried over from month to month the user will be charged interest

Credit cards are a form of borrowed money. Each time you use a credit card, you are using money that you will have to pay back later with interest.

Credit cards are easy to use because they give you instant buying power for items you may not otherwise be able to obtain; and because of this people can find themselves in debt quickly if they don’t have a plan. Credit card interest rates are typically very high and may range from 12% to 23%. The longer you take to pay the money back, the more interest you pay on the money you borrowed. Credit cards should be used only for purchases that can be paid in full at the end of the month.

 

What should you know before you obtain a credit card?

What is the interest rate?

Interest can be earned or paid out, and it is always a percentage of the original amount of money involved in the transaction. Interest paid is the amount that a bank charges you for borrowing their money.

Compound interest: Compound interest is calculated not only on the money originally invested, but also on the accumulated interest.

Variable interest: This is tied to another interest rate, usually one that moves up and down with the economy. It will go up or down as the underlying interest rate fluctuates.

Fixed interest: A fixed interest rate doesn’t necessarily remain fixed. In fact, credit card issuers are allowed to change a fixed interest rate, but only under certain circumstances. Right now, credit card issuers are required to give cardholders are 45-day advance notice before raising a fixed interest rate. Card issuers are also required to give cardholders the opportunity to opt-out of the interest rate increase and allow them to repay their balance at the old interest rate.

What is the annual fee, if there is one?

A credit card annual fee is a fee automatically charged once a year to your credit card account for the convenience of the credit card. There are cards with and without this fee, be a smart consumer and try to avoid the annual fee if you can.

What is the late fee?

The late fee is as the name implies: the fee you pay for being late on your monthly payment. Be aware that late fees are capped at $25, so make sure you are not being charged more than that!

What is the over-the-limit fee?

The over-the-limit fee is a fee charged when your balance goes over your credit limit.

Do they offer a grace period?

Remember, a grace period is the amount of time you have to pay yourbill without paying interest on it.

What is the credit limit?

This is simply the amount of money that can be charged to the card. It is determined by the credit card based on their analysis of several factors, and can increase over time as you build good credit. Keep charges below your credit limit, as this will improve your credit score.