7 Things You Should Know About Credit Cards

When it comes to credit cards, the uninformed pay dearly for their lack of knowledge. The more you know about your credit card, the easier it is to avoid the fees and interest they charge. When you apply for a credit card or use the credit cards you already have, keep these things in mind.

Credit cards have a direct impact on your credit score. Most credit cards are listed on your credit report, so how you use your credit card will raise or lower your credit score. Timely credit cards payments help your credit score, while late payments will bring it down.

Your credit card issuer doesn’t “just understand.” You can’t miss a payment and think your credit card issuer will automatically withhold payment because you’ve never been late or because you’re going through a hard time. It’s your responsibility to communicate with your credit card issuer when you can’t make your payment.

There are many different types of credit cards. Sure, there was a time when there was just one credit card for everyone. But that time has long passed. Now, there are regular credit cards, secured credit cards for bad credit, rewards credit cards that let you earn points, business credit cards for small business owners, and private label credit cards that can only be used in certain places, and charge cards for people who want to pay their balance in full every month.

Credit cards have several interest rates. There’s an interest rate for purchases you make, an interest rate for balance transfers, and an interest rate for cash advances. Then, there’s a penalty interest rate that’s charged when you default on your credit card, say by paying late. Your interest rate is can based on your credit history, income, assets, your current debt, and even the economy.

A credit card is a contract. Though you may not sign a physical contract, using your credit card is the same as a signature. When you swipe your credit card, you agree to the terms and conditions set by the credit card issuer. For example, you agree to make at least the minimum payment by the due date or pay a penalty if you don’t.

Credit card issuers can change the terms. A few years ago, credit card issuers could make changes to your credit card and only tell you 15 days in advance! Today, they can still make changes to your credit card terms, e.g. raise your interest rate or add an annual fee, but they have to tell you 45 days in advance. You have the right to reject the changes, your credit card issuer can cancel your credit card if you choose to do so.

Paying only the minimum costs more. The minimum payment is attractive to many cardholders because it’s convenience. But that convenience comes at a higher cost. Because it’s taking you longer to pay off your credit card balance, you’re also incurring more interest. You could end up paying double your balance over several years if you only make minimum payments.