If you don’t know the first thing about credit card deals, this site (consider it an ‘idiot’s guide, if you will) could prove pretty useful. Credit systems can be convoluted nemeses and since most card issuers have the right to raise interest rates for any reason they see fit, you can literally drown in interest. This is why you’ve got to play smart when applying for a credit card deal.
Consider interest, charges, fees rates and benefits before you choose one, bearing in mind that the deals available to you may depend on your credit score.
A credit score is a bank’s way of ascertaining how much of an asset or risk you are to them. It is an abstract number based on how much you’ve borrowed and repaid in the past, as well as how long you took to repay those debts. Someone that has borrowed a lot of money but also paid it back rapidly would have a great credit score. The lower your score, the higher the interest you’ll have to pay on your card. Assuming you’re neither angelic nor delinquent in the field of credit, let’s chronologically go through the process of using a credit card. Everything underlined is variable, according to the credit card deal, and those variables are what you need to look into.
The activation or maintenance fee could range from $5 to $150 and this will be deducted from the total credit available to you. You’re also given a credit limit. At the end of the month once you’ve made a few purchases amounting to $x, you’ll be sent a bill for that amount and nothing more. You’ll have a grace period during which a minimum payment has to be made. The card issuing bank will charge interest (Annual Percentage Rate) on the unpaid balance so if you settle the whole $x, the bank gets nothing extra. You can arrange for payments to be made automatically from your bank account to avoid late payment interest.
If you fail to make the minimum payment, a penalty will follow; either a one-off fine or increased APR. Beware of the fact that APR might increase naturally. Many credit card deals offer very low interest rates (even 0%!) for a fixed term just to lure you in. After the term expires they might hit you in the face, metaphorically, with a much higher rate.
Let’s assume you have an unpaid balance. This can accumulate over the months and drag even more interest payments to your doorstep but it won’t summon a penalty unless you exceed your credit limit. To avoid this you can opt for a balance transfer, where your debt is moved from one card to another. The balance computation method affects the finance charge (the adjusted balance method costs the least while the double-cycle method is far more expensive).
If you’re not very good at settling debts, watch out for the Universal Default. A card issuer raises interest rates when you ‘fail’ your card in any way, but the UD affects your other credit cards, including the well-maintained ones. (They could raise the interest on those too, or decrease your limit.) Even worse than the Universal Default is the habit of trailing interest which means that if you paid even 99% of the $x spent in one month, the bank would charge you interest for the whole $x. This is practically robbery if you pay $1990 of a $2000 bill but you get charged interest not just for $10, but the whole $2000.
If you are now growing cold feet at the thought of how all those credit card issuers could drive you to bankruptcy on a highway of high interest, perhaps it’s time to develop some good credit habits (boost up that score!) or go for a prepaid credit card, which works just like a debit card; they only use up existing funds and no interest is charged.
Consider interest, charges, fees rates and benefits before you choose one, bearing in mind that the deals available to you may depend on your credit score.
The activation or maintenance fee could range from $5 to $150 and this will be deducted from the total credit available to you. You’re also given a credit limit. At the end of the month once you’ve made a few purchases amounting to $x, you’ll be sent a bill for that amount and nothing more. You’ll have a grace period during which a minimum payment has to be made. The card issuing bank will charge interest (Annual Percentage Rate) on the unpaid balance so if you settle the whole $x, the bank gets nothing extra. You can arrange for payments to be made automatically from your bank account to avoid late payment interest.
If you fail to make the minimum payment, a penalty will follow; either a one-off fine or increased APR. Beware of the fact that APR might increase naturally. Many credit card deals offer very low interest rates (even 0%!) for a fixed term just to lure you in. After the term expires they might hit you in the face, metaphorically, with a much higher rate.
Let’s assume you have an unpaid balance. This can accumulate over the months and drag even more interest payments to your doorstep but it won’t summon a penalty unless you exceed your credit limit. To avoid this you can opt for a balance transfer, where your debt is moved from one card to another. The balance computation method affects the finance charge (the adjusted balance method costs the least while the double-cycle method is far more expensive).
If you are now growing cold feet at the thought of how all those credit card issuers could drive you to bankruptcy on a highway of high interest, perhaps it’s time to develop some good credit habits (boost up that score!) or go for a prepaid credit card, which works just like a debit card; they only use up existing funds and no interest is charged.