Credit cards have many features that make them attractive or unattractive. When you’re choosing a credit card, you should look at these features to decide whether the credit card is worth having. For the credit cards that are already in your wallet, knowing the credit card features can help you decide how you want to use that card.
Annual Percentage Rate (APR)
The annual percentage rate or APR is the yearly cost of borrowing money using your credit card. The annual percentage rate is also known as the interest rate for your credit card. These days, the average APR for credit cards is around 12.5%. The higher your interest rate, the more you pay when you carry a balance beyond the grace period (more on grace periods below).
Your credit card could have several APRs. One for purchases you make on your credit card, one for balance transfers, and one for cash advances. Read What You Need to Know About Interest Rates for more information about your annual percentage rate.
Grace Period
The grace period is the amount of time you have to pay off balances before you have to pay interest on your purchase. The grace period typically only applies to new purchases made with you begin the billing cycle with a zero balance. You may not receive a grace period for certain types of transactions like cash advances and balance transfers. Instead, interest begins accruing on those balances immediately.
Grace periods are typically between 20 and 25 days depending on your credit card. Ideally, you have a longer grace period, giving you more time to pay your balance without receiving a finance charge.
Finance Charge Calculation Method
Your finance charge is the amount you pay when you carry a credit card balance beyond the grace period. Finance charges are calculated based on your credit card balance and your interest rate using one of several methods.
- average daily balance method
- daily balance method
- ending balance method
- previous balance method
- adjusted balance method
- double billing cycle method
You can learn more about finance charges in the article How Finance Charges Are Calculated and How You Can Avoid Them.
Credit Limit
The credit limit is the maximum amount you can charge on your credit card without receiving a penalty. You may have a different credit limit for purchases and cash advances. The cash advance credit limit is usually lower than the credit limit for purchases. If you exceed your credit limit, your card issuer may charge a over-the-limit fee and raise your interest rate.
Another reason to stay below your credit limit is to protect your credit score. The closer your credit card balance gets to your credit limit, the lower your credit score falls.
Credit Card Fees
Credit cards come with lots of fees and card issuers are continually coming up with more fees. Some typical credit card fees include:
- Late fee is charged when you miss your credit card payment due date or you pay less than the minimum payment. Some credit cards have tiered fees based on your balance. For example, you may pay a $10 late fee if your balance is less than $500 and a $20 late fee is your balance is above $501.
- The annual fee is a yearly fee charged for using your credit card.
- An over-the-limit fee is charged when you exceed your credit limit.
- You will pay a cash advance fee when you make a cash advance with your credit card. The cash advance fee might be a certain percentage of your cash advance, or it could be a flat fee.
- Returned check fee is charged with the check you sent for your payment is returned by your bank. If your check is returned, you might also face a late payment fee and a penalty interest rate increase.
These are not the only fees charged by credit card companies. To find out which fees your credit card charges, refer to your credit card agreement.
Credit Card Rewards
Your credit card may offer rewards as an incentive for using your credit card. Rewards are typically awarded as cash back or points that can be redeemed for discounts, merchandise, or services.
Rewards can be received as frequent flier miles that can be redeemed for airline tickets. Some reward credit cards allow you to accumulate points for a free stay in a hotel. Other cards give a certain percentage of cash back for your purchases.
With reward credit cards, you must be careful about overcharging for the sole purpose of accumulating rewards. It’s also important to know how you accumulate rewards, when they expire, the maximum amount you can accumulate, and the number you need to redeem them. All these factors come into play when you’re using a rewards credit card.
Other Credit Card Benefits
Some credit cards come with other fringe benefits that may be free, but more typically are offered only with credit cards that have an annual fee. These benefits include travel insurance, purchase warranty insurance, and car rental insurance. These insurance benefits are usually only offered when the purchase is made on your credit card.
How to Find Out Credit Card Terms
Most credit card features are included in a disclosure box that’s sent with your credit card application or solicitation. For your existing credit card, information about most features will be included on the back of your credit card statement. Otherwise, refer to your credit card agreement for information about your credit card features.
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