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Exploring the basics of credit cards

Credit cards let you use your credit lines to make purchases without any cash. This lets you not only borrow cash within a prescribed credit limit but also repay at your own pace. Typically a grace period of 20 - 25 days is given to the card holders after the billing cycle to pay back the outstanding balance. Card issuers charge an interest over any unpaid amount after the due date. Besides, letting you borrow money, credit cards offer a wide spectrum of other benefits that include auto insurance for collisions, airline miles, travel insurance, rewards for shopping and extension on manufacturer warranties on various products. Credit cards differ from each other depending upon parameters like interest charged, fees, benefits, rewards, etc.

Interestingly, banks have different types of parameters to issue credit cards. While some credit cards are targeted towards high end card holders with excellent credit, there are cards specifically designed for those with bad credit, trying to re-establish their creditworthiness. That is why picking the right card involves plenty of analysis and research and weighing all options. This site compares credit cards based on various parameters including APRs or interest rates, the annual fee, the introductory promotions and other benefits on offer. It will help to understand what some of these parameters mean.

Annual Fee

A lot of card issuers charge between $15 and $50 per year for the use of a card. This fees referred to as annual fees is waived off in certain instances, especially in case of balance transfer cards or when the credit cards are used extensively. The annual cost involved is a sum total of annual fee, other miscellaneous charges and paid interest. Looking for a card without annual fee will save you some money.

APR

APR is annual percentage rate and is the interest charged on unpaid credit card balances after the due date. The APR is sometimes fixed and sometimes floating. In the former case, the APR is higher, while in the latter case it is based on another standard, usually prime rates. For those used to carrying outstanding balances, cards with lower APRs are the best option.

Introductory APR

A lot of credit cards, mostly involving balance transfers, offer, 0% or very low introductory APR for a limited period of time. This offer elapses after the introductory period and then the APR goes to its normal range. However, card holders need to be cautious in avoiding late payments as that might lead, in some cases, to losing the introductory APR offer.

Grace period

This is the period of 20 - 25 days given by card issuers to customers, and mandated by new credit card reforms, to pay the bills. This means that the bill payment due date is about 20 - 25 days after the end of the billing cycle. Card holders are charged additional interest on their outstanding balances after the grace period.

Miscellaneous fees

There are other types of fees charged by card issuers as well. These include late fee for bill payments after due date, over the limit fee for exceeding your credit limit on the card, account set up fee for the initial formalities and cash advance fee for using the card to withdraw money from ATMs. A good credit card site like ours helps you to find more information about the various types of fees levied by a credit card issuer, especially hidden in the fine print, unnoticed by the card holders.

Credit card benefits

Additional rewards are offered on credit cards by card issuers. For example, frequent flyer cards will allow card holders to earn precious miles on every dollar spent through the card. There are discounts on special interest cards that can be redeemed for purchases. Rebate cards let you get a percentage of cash back on your purchases with the card.

Computing balances

Credit card issuers use their own methods to compute interests to be charged on your credit card balances or credit card charges that you didn't pay completely. The 'average daily balance' method is the most popular method for calculating interests, used by card issuers. As per this method, interest is charged from the day you charged your card, if you haven't paid the bill fully. Some card issuers tend to leave out new purchases while computing interests.
Another method in use is the Two Cycle Billing where card issuers charge customers with 2 months interest, when the latter switches from paying the total bill every month to leaving out an outstanding balance. Two other methods for calculating interests on credit card balances are Previous Balance and Adjusted Balance, neither of which is used a lot by card issuers. However, card holders can elicit information of how interests are charged on their credit card bills if they feel more interested in the process.
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CreditCardMenu.com is an independent, advertising-supported website. CreditCardMenu.com receives compensation from the credit companies whose offers appear on our website. Compensation may have an impact on how and where credit products appear on the website, including, for example, the order in which they may appear within reviews. CreditCardMenu.com does not present, nor does it review all available credit offers.

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