Credit cards a way to have a line of credit. Being able to pay bills, groceries, entertainment, ect.. at one point and not having to pay it out of your bank account for a month or so.
Credit cards are a useful tool that is becoming more and more of a necessity to build credit to give yourself an opportunity to make large purchases. Although, the majority of people might want to buy a house in cash if it was possible, many of us cant afford to.
- What is a Credit Card and What to Know
Credit cards are a piece of plastic card that provide the holder with a line of credit allowing the holder to purchases goods and services. This line of credit must be paid back just like anyother loan. A person or business will need the financial institition to approve a credit limit.
What factors into approval for credit limits?
Each factor plays a role in how much a financial instituion believes a person or entity would be able to pay back.
- Income
- Debt
- Credit History
- Credit Score
- Credit Untilization
- Credit Length
- Housing Expenses
A person with no credit history and working a job only making 25,000 a year with no expense may only get $500 limit to start, becuase the bank may see them as high risk. That is just a starting point, creating a good payment record will allow the bank to see that you might deserve a higher credit limit.
Key Factors of a Credit Card?
The main things I pay attention to are APR, billing cycle, closing date, payment date, annual fees. There are some specific dates to pay attention to if you transfer a balance, realize if a financial instition is offering a transfer and no APY for 18 months, paying off the balance by the end of the 18 months can severely help.
APR
Apr is compounded by credit card specifications, review contract. Depending on the card it can compound yearly, monthly, weekly, or daily (important to understand). There are also different rates depending on if it is a cash advance, balance transfer, or standard rates.
An example that works for most people is an Apr of 25% for standard purchases compounding yearly. If you hold a balance of $2,000 for the whole year the charge for borrowing the money would be $500.
Average balance $2,000
APR 25%
Compound yearly.
$2,000 * (((1 + 25%)**1) – 1) = $500
Biling Cycle
For credit cards billing cycles normally range from 28 to 31 days.
Closing Date
Closing Date is the date the credit cycle ends each month. Depending on the instition you can change the date, it may take a few months though.
Payment Date
Payment date is the date that the credit card lasts billing cycle should be paid in full to avoid fees and interest accruing. The number of days after the closing date depends on the financial institution, it can be upto a month. Read the credit card details to know what your provider allows.
Annuel fees
This is a fee for holding the credit card, some credit cards refund the fee if the card is consistently used. Reviewing the cost of a credit card may change if you open a certain credit card or look for another. The annual fees can range from $0 to $400 and even higher for some credit cards.
Prepare for some issues that could occur by reviewing all credit card information.
Looking for ideas on how to save money? checkout: