People use credit cards for a wide range of purposes, such as everyday expenses, big-ticket purchases, debt transfers, and rewards accumulation. Financial institutions offer many different card options to meet these diverse needs. In order to find the right credit card for your situation, you first need to understand how they work.
Credit Cards are Lines of Credit
To start with, credit cards aren’t like most other loans that have a defined end date. Instead, these cards are open-ended lines of credit.
An open line of credit means you’re welcome to use (or not use) the amount that you’re approved for. You can continue using the credit card so long as your balance remains under this maximum allowed credit.
This agreed-upon lending arrangement will continue until one party requests to change it.
The Credit Limit is How Much You Have Available
A credit card’s credit limit is how much you are approved to spend on the card at any given time. This is the maximum that the balance can reach, and you’ll likely incur fees if the balance exceeds this limit.
In order to maintain the usage of a credit card, your balance must be below the approved credit limit. If your credit limit is $1,000, you can’t spend more than $1,000 on the card.
APR is How Much the Interest Rate Charges
“APR” stands for “annual percentage rate.” This is the interest rate you’ll pay on outstanding balances. If you carry a $100 balance on a card that has an APR of 14 percent, expect to pay $14 per year in interest until you pay off that balance.
No one wants to pay more interest than they have to. The lower an APR you can find, the better.
Grace Period is How Long You Have to Pay Without Interest
A card’s grace period is the length of time between when a purchase is made and when interest is first charged on that purchase. The length is measured in days, and most cards come with a 25- to 28-day period. Some lenders offer different periods, though.
As long as a card’s balance is paid off in full within the grace period, you’ll pay no interest on your purchases.
Fees Are Additional Costs Associated with the Card
Every credit card has additional fees that you may pay, depending on the terms and your usage. Some common fees include annual fees, balance transfer fees, over-the-limit fees, and late payment fees.
A credit card that has no annual fee costs nothing to keep and use if you make your payments on-time and within the grace period.
Find a Credit Card That’s Right for You
When searching for a credit card, it’s important to keep all of these details in mind -- and not get hooked on potential rewards that big banks offer. Even the most generous rewards amount to little if you have to pay annual fees, other fees, and high-interest rates.
Instead, look for a credit card that has no annual fee, a low-interest rate, and will serve its purpose well -- to extend you an open loan that can be used for many purchases and expenses. This type of card will cost little (and potentially nothing) to use.
We’re Here to Help!
As a not-for-profit financial institution, we’re here to help you make the best financial decisions. Our low-rate credit cards are designed to provide you with flexibility and convenience, yet also help you save money long-term.
To learn more about our credit card programs or to apply now, stop by our branch or give us a call at 800-343-6328.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.