Credit cards are a piece of plastic card that provide the holder with a line of credit allowing the holder to purchases goods and/or services. This line of credit must be paid back just like anyother loan. A person or business will need the financial Institution to approve a credit limit.
What factors into approval for credit limits?
Each factor plays a role in how much a financial Institution 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, and credit limit. There are some specific dates to pay attention to if you transfer a balance, realize if a financial Institution 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). The rates change depending on the transaction type: 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 Institution you can change the date, it may take a few months though.
Payment Date
The credit card 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.
Annual fees
Certian credit cards have a fee for holding it, some credit cards will refund fee depending on the usage. 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.
Reviewing the terms and conditions, is important to understand to maximize possible benefits and consequences.
Credit limit
The maximum amount of money you are allowed to have on the amount owed without accuring an extra fee for being over the limit.
Prepare for some issues that could occur by reviewing all credit card information.
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