1.05 Credit Cards

Cash-advance Fee

Fee charged when you get cash using your credit card (this is in addition to the interest charged). The grace period does not apply for cash advances.

Things to Consider

If you are going to have a credit card, you should shop around and find the best one for your situation. Things you will want to consider are costs, terms, and benefits.

Credit Cards

It is difficult to live without a credit card today. From renting a car to reserving an airline ticket or hotel room, credit cards have become a necessary convenience. It is important to use credit cards wisely. In this lesson we will look at benefits and costs associated with credit cards.

Types of Credit Cards

Major Credit Cards - are issued by banks and can be used at any business that accepts credit cards. Store-Branded Credit Cards - can only be used at the retailer that issued it.

Interest Rate

Measure of the cost of credit, expressed as a percent.

Annual Percentage Rte (APR)

Measures of the cost of credit expressed as a yearly rate. The Truth-In-Lending law requires lenders to include all loan costs in the APR. As a result, you can compare the APR of different lenders to find the best deal.

Credit Card Terms and Conditions

What is the APR? How will Claims and Disputes be handled? Fees - late fee, annual fee, and over-the-limit fee Finance Charges What is their Method of Computing the Balances for Purchases? How do they determine the Monthly Minimum Payment? Transaction Fees - could be charged for balance transfers, cash advances, and purchases made in a foreign country.

Annual Fee

A yearly charge for use of the credit card.

Late Fee and Transaction Fee

A credit card also may involve other types of costs. For example, if you go over your limit or make your payment late, you are likely to be charged a fee. If the company receives your payment after the grace period, you may be charged both a finance charge and a late-payment charge. Some cards also may charge a penalty rate if you have more than one late payment within several months.

Finance Charge

Dollar amount you pay to use credit.

Free (Grace) Period

Period of time (usually between 20 and 30 days) during which you can pay your bill without incurring a finance charge. You MUST pay your bill in full in order to take advantage of the grace period.

Benefits of Using a Credit Card

Special store discounts, Rewards Programs, Cash back, Interest free grace period, Ability to buy needed items even if you do not have the money to do so, and Proper use of a Store-Branded Credit Card with a low credit limit could be a good way to establish your credit.

Using Your Credit Cards Responsibly

Spend only what you can repay. Pay entire bill on time. Report lost or stolen credit cards promptly. Never give your card number over the phone unless you initiated the call or are certain of the caller's identity.

Credit Card Disclosures

The Fair Credit and Charge Card Disclosure Act mandates a box on credit card applications that describes key features and costs. Read more about Credit Card Disclosures.

Costs Associated with Credit Cards

high interest rates, may have a yearly fee, increased impulse buying may occur, fees for late payments, fees for cash advances, and poor decisions could lead to a low credit score.