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In fact, some credit card companies offer a variety terms and features for cards from entry-level to platinum. Your credit card issuer may offer strict rules and requirements for some cards and more lenient terms for more exclusive types of credit card services. Learning a few of the basic facts about credit cards can help you understand how a potential creditor's offer affects how you spend, pay and manage your account.
Basic terms
The most basic terms you should know before signing up for any credit card include the interest rate, date of expected payment, and how much you may be charged for cash advances and late fees. Always read the fine print on a credit card application to learn how long the interest rate will last before it changes, and whether the interest rate may be affected or changed by a missed or late payment.
Make sure you understand the terms of any introductory rates and what those rates apply to specifically. Is there a grace period before late fees begin? How many days do you have before late fees begin? Can you set up an automatic payment to avoid late fees?
Interest rates
Credit experts give some of their most important credit card tips on the subject of interest rates, and with good reason--some people learn the hard way how this aspect of credit can affect their budget. Some credit cards have a fixed interest rate, others offer a variable rate. Fixed rate cards are simple to understand -- the rates don't change until the credit card issuer makes an adjustment.
Understanding variable rate credit cards may be confusing until you understand that the card's rate is tied to the Federal Reserve, which makes decisions affecting the Prime Rate. Those decisions will also affect your interest rate; as the Prime Rate increases or decreases, the interest rate on variable rate credit cards adjusts accordingly.
It is important to know that "fixed" rate credit cards also have interest rate changes from time to time, but not with the frequency of a variable rate credit card. Those who are approved for fixed cards are in a more financially secure position because their interest rates remain stable for longer periods of time. If you don't want to be at the mercy of the Prime Rate, apply for a fixed-rate credit card.
Fees, surcharges and optional insurance
Many credit cards charge ATM fees, surcharges for foreign currency transactions, and may offer to provide insurance coverage for an extra monthly or yearly fee. Read over your credit card application carefully, especially if you do not want to pay for insurance coverage. You may be required to opt out of such coverage by checking a box or signing part of the form stating you decline coverage.
Balance transfers, cash advances and other features
A close look at the terms of your credit card may reveal a different interest rate for cash advances and balance transfers than for standard purchases. If you don't know the exact terms for these options, you could wind up paying much more than you expect.
Some people don't realize a balance transfer can cost more in the long run if the credit card company charges a different rate of interest. Some companies will offer a lower introductory interest rate on such transactions, but once the trial period is over your rate will increase. Make sure you know when your introductory rates apply and when they expire.
Late payment policy
There is much credit card advice on television and the Internet about how to avoid late payments and the extra fees, but sometimes a missed due date can't be avoided. Some credit card issuers are more lenient with the first late payment, charging only a late fee and/or a surcharge. Other credit cards may significantly raise your interest rate after a set number of late payments.
Some credit card companies will cancel a card after so many missed payments in a row, and you may be required to pay the balance in full if the card is cancelled for this reason. Those who give credit card tips often advise setting up an automatic payment using an ACH withdrawal or other arrangement to prevent this from happening. You will save money in late fees and avoid a blemish on your credit report.
Understanding credit cards isn't as complicated as it may appear at first. Knowing your credit card issuer's policies, how often your interest rate may change and how much you may be charged for additional services is an important part of being an informed credit card customer. Don't forget that any terms or clauses in your credit card application can be easily explained to you by the company's customer service representative.
See also: Credit card tips and advice
