Credit Card Basics Everyone Should Know

What is a credit card and how does it work?
A credit card is a payment tool that is convenient and allows the user to make purchases with it. With a credit card, you can make purchases 24 hours a day, 7 days a week anywhere around the world. You can be at home or the office, you can make online purchases, phone purchases or use the card in a store. Your credit card can be a source of emergency cash in a crisis or it can help finance unexpected expenses.

A credit card is different from a debit card and from a charge card. A debit card allows you to withdraw money from a bank account and a charge card must be paid off in full each month. With a credit card, the issuer lends money to the consumer and allows the balance to “revolve” or carry over from month to month, at the cost of the interest rate charged.

How will you use your credit card?
When you are considering a credit card, the first step is to think about how you intend to use it. Do you plan on using it to make purchases or will you keep it for emergencies? In order to figure out what type of card to apply for you first need to know exactly how you want to use the card. Here are three questions you should ask yourself so you will have a clear understanding of what you plan on doing with the card.

1. Will you pay your monthly balance off each month?
   • If you think you will pay off your monthly bill, and you are not interested in benefits such as rebates or frequent flyer miles, your best option may be a card with a longer grace period and no annual fee.
2. Will you sometimes carry over a balance from month to month—or do you want to transfer a balance from another card?
   • If you anticipate that you will carry a balance, you will want to consider a card with a lower finance charge, called the annual percentage rate or APR.
3. Will you want to use your card to get cash advances?
   • If you expect to need cash advances, you may want to look for a card with a lower fee on cash advances. Some cards charge cash advances at a higher rate than purchases.

Shopping Around
Comparison-shopping for a credit card can save you money on fees and finance charges. After you have decided how you will use your card, you can compare the incentives, features and costs of the various card offers. Some of the incentives and features you may encounter are:

• APR or annual percentage rate for finance charges on purchases
• Credit limit or the maximum amount you may charge on your card, including balance transfers, fees, finance charges, cash advances and purchases
• Rebates or cash back from purchases made with your card
• Extended or additional warranty on your retail purchases
• Rewards such as frequent flier miles, phone call minutes, or points for merchandise
• Car rental insurance coverage when you pay for your car rental with your credit card
• Travel accident insurance or travel-related services and discounts
• Credit card registration service to assist you if your wallet is lost or stolen and you need to report a number of credit cards as missing
• Insurance to cover credit card monthly payments (for an additional fee) if you become unemployed, disabled, or deceased.

How can you find information about credit card offers?
The Internet is a great source of information to research and compare credit card plans. Credit Card Offers IQ can help you get the information you need about the current credit card offers. You can search a card issuer’s web site for information, or you can conduct a general search for credit card comparisons. You may also find information in business and personal finance magazines, and in newspapers. According to federal regulations, all credit card offers must include a disclosure of key information, such as APR for purchases, other APRs, grace period, method of computing balance for purchases, annual fees, minimum finance charge, transaction fees, and late payment penalties.