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Credit card essentials

November 28, 2011

By Julie Bawden-Davis | Money Rates Columnist

In many instances, it's hard to beat the virtues of a credit card. They can be used almost anywhere, and when used responsibly, they also help to build your credit. And if you experience a problem with a credit card purchase, federal law protects you from having to pay for the disputed item.

Card issuers offer a wide array of credit cards with various features, but before you choose a card, it's helpful to understand the terms used with them.

Key terms

  • Annual fee: What the card issuer charges you each year to have their card.
  • Cash advance: Cash you borrow on your card, accessible by ATM or bank.
  • Daily finance charge: The rate of interest you pay each day on an outstanding balance.
  • Annual percentage rate (APR): The rate of interest you pay yearly on the outstanding balance.
  • Variable Rate: An interest rate that varies over time.
  • Fixed rate: An interest rate that doesn't fluctuate unless the card issuer notifies you in writing.

Credit card responsibilities

In essence, a credit card is a loan made to you by a financial institution, and to get the most from it, you have to use it responsibly.

Besides agreeing to pay back what you charge on the card, you are expected to stay within your credit limit. And if you don't pay your bill on time, expect to pay a late fee--and don't be surprised if late payments affect your interest rates or even your credit score, either.

Common card types

Taking the time to read the fine print and understand the various card types available can help you make a sound decision on which card is best for you. Here are a few of the more common card types:

  • Low interest rate credit cards These cards offer a low interest rate, which will save you money every month through lower finance charges. But low-interest cards aren't available to everyone--card issuers generally only offer these terms to established borrowers in good standing.
  • 0 percent introductory rate credit cards These cards offer 0 percent interest on purchases or balance transfers (or both) for a period of time — typically 3 to 12 months. Such cards are useful for purchases that you plan on paying off during the promotional period and for balance transfers from other cards. Some 0 percent cards don't start charging interest until the promotion period is up, but others bill you for accumulated interest at the end of the promotion period if you haven't yet paid it off.
  • Rewards credit cards This category of cards offer a wide range of incentives for spending. Some give cash back for purchases, and others offer reward points you can redeem for products such as travel or hotel stays. Rewards cards generally charge an annual fee and often feature higher interest rates than cards without rewards, so factor in those costs when you decide whether the rewards are worth it.

To learn more about various card types, examine the credit card categories on MoneyRates.com. By investing some research, you should find a credit card that will suit your unique financial needs and habits.


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