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Credit Cards

  • Four Common Types of Credit Cards

    1. Rewards Credit Cards
    Reward credit cards allow users to earn incentives for making purchases with their credit card. Points accumulate for each dollar charged on the card, and cardholders can redeem these points for various rewards. People who prefer to do most of their spending and purchasing on a credit card each month, and who are diligent about paying their balance off in full each month, are the best candidates for a rewards card. Rewards are paid out in a variety of forms, including, checks, gift certificates, airline miles and free hotel stays. Reward cards usually require better-than-average credit for approval.

    2. Standard Credit Cards
    Standard credit cards are the most common type of credit cards. They are available from most banks and financial groups.

    3. Secured Credit Cards
    Secured credit cards require users to post collateral when you open your account, usually an amount equal to or greater than your credit limit. With a secured credit card, you can build up your credit score and move on to an unsecured card. Secured credit cards are for people with either no credit or poor credit who are trying to build or rebuild their credit history. Cards that help rebuild credit often come with low credit lines and additional fees.

    4. Student Credit Cards
    Student credit cards are specifically designed for college students with the understanding that young adults have little or no credit history. Student credit cards may come with rewards such as cash back or points.

    The average APR for fixed rate credit cards is 13.02%.
    The average APR for variable rate credit cards is 15.61%.

  • Factors to Consider When Selecting a Credit Card

    1. Fees

    • Set up and maintenance fees
      • Annual fee
      • Account set up fee
      • Participation fee
    • Transaction fees
      • Balance transfer
      • Cash advance
      • Foreign transaction
    • Penalty fees
      • Late payment
      • Over the credit limit
      • Returned payment

     

    2. Credit Limit

    3. Balance Calculation Method

    • Adjusted balance method
    • Average daily balance method, including new purchases
    • Average daily balance method, excluding new purchases
    • Previous balance method

     

    4. APRs for Different Types of Transactions

    • Introductory APR vs APR after introduction period
    • APR for purchases
    • APR for balance transfers
    • APR for cash advances
    • APR penalty for late payments or going over your credit limit

     

    5. Rewards

    • Points
    • Cash back
    • Miles

     

    6. Grace Period

  • Credit Resources
  • Glossary

    Adjusted balance method — The balance is the outstanding balance at the beginning of the billing cycle, minus payments and credits during the billing cycle.

    Annual Fee — An annual (yearly) fee charged by a credit card company each year for use of a credit card. This is a separate fee from interest rate on purchases.

    Annual Percentage Rate (APR) — The annual percentage rate, or APR, is the interest rate charged on the amount borrowed. It reflects the annual cost of borrowing money. The APR is a calculated rate that not only includes the interest rate, but also takes into account other lender fees.

    Annual Percentage Rate for Balance Transfers — The interest rate you pay if you transfer a balance from another card. Balance transfer fees may also apply.

    Annual Percentage Rate for Cash Advances — The interest rate you pay if you withdraw a cash advance from your credit card account. Cash advance fees may also apply.

    Annual Percentage Rate for Purchases — The interest rate you pay if you carry over balances on the purchases from one billing cycle to the next.

    Average Daily Balance Method, excluding new purchases — The balance is the sum of the outstanding balances for every day in the billing cycle (excluding new purchases and deducting payments and credits) divided by the number of days in the billing cycle.

    Average Daily Balance Method, including new purchases — The balance is the sum of the outstanding balances for every day in the billing cycle (including new purchases and deducting payments and credits) divided by the number of days in the billing cycle.

    Grace Period — The grace period is the time during which you are allowed to pay your credit card bill without having to pay interest.

    Previous Balance Method — The balance is the outstanding balance at the beginning of the billing cycle.