Credit Cards

Credit Card Basics – Understanding Five Main Credit Card Terms

Credit cards are easy, right? You have a credit limit. As long as your balance isn't as high as your credit limit, you can pay for things with your credit card. When you pay for something with your credit card, you don't have to pay for it until later. You pay interest on your credit card balance and as long as you don't go over your credit limit, everything's fine.

Well, not quite. Here are some of the most frequently asked questions about credit cards - and their answers, of course.

What's interest?

In a nutshell, interest is money that you pay a lender for the privilege of using HIS money to buy something.

What's this about 'interest rates' and percentages?

The interest rate is a way of determining how much you're paying for borrowing money on your credit card. It's stated as a percentage of the outstanding balance on your card, usually as an APR or annual percentage rate. The lower the APR, the less interest you're paying on the amount you owe.

Okay - so why would anyone choose a credit card with a high interest rate?

Most people don't CHOOSE to pay a high interest rate. The bank decides what interest rate it will charge you, usually based on how much of a 'credit risk' you are. They determine that by looking at your history of paying bills. If you've got a history of paying bills on time, then you'll qualify for lower interest rates. If you haven't ever had any bills to pay, or if you've had trouble paying your bills, that will show in your credit history, too. Since it's a little riskier to lend you money, banks will charge a higher interest rate.

One other reason that people might actually choose a credit car with a higher interest rate is for the rewards or privileges that come with that card. If the card includes special perks that you want, they may offset the higher interest rate and make it worthwhile.

My card says that I pay interest on the 'outstanding balance'. What does that mean?

Your outstanding balance is the amount that you owe altogether on your credit card. Credit card companies generally calculate what's called an 'average daily balance' for each month and base your interest charge on that. If you had a $50 balance from the first of the month to the twentieth, then charged a $400 computer, your interest will be computed on the average between 20 days at $50 and 10 days at $450.

What's the 'minimum payment'? As long as I pay that, I'm fine, right?

The minimum payment is the lowest amount that the credit card issuer will accept toward your balance. It varies from month to month, depending on your balance. Paying JUST the minimum balance may keep your credit card active and keep the credit card company from reporting your account as delinquent, but it will barely make a dent in the amount you owe. Whenever possible, you should pay more than the minimum amount. In fact, it's best to try to pay off your balance in full each month to avoid paying interest charges.

You may freely reprint this article provided that the author bio and live links are left intact.

Joseph Kenny writes for the credit card comparison site http://www.creditcards121.com/ and visit credit card advice section for more advice and information on credit cards.

Credit Cards News:

Live Search: credit cards site:msnbc.msn.com
Search results

Credit card numbers stolen off state Web site - Gadgets- msnbc.com
Thousands of credit card numbers were stolen from a state government Web site that allows residents to register their cars and buy state permits, authorities said Friday.
The worst credit card deals in America - Forbes.com- msnbc.com
It's one thing for card companies to raise rates on customers who are behind in their payments or whose credit scores decline greatly, but quite another for on-time customers.
ConsumerMan: Reining in credit card nonsense - ConsumerMan- msnbc.com
The Credit Cardholders? Bill of Rights Act of 2008 would change the way most credit card companies do business and provide consumer protection. It's about time.
Hearing airs credit card rate-change policies - Personal finance ...
Some credit card companies are raising interest rates on good customers even if they pay down their balances, on time, every month.
Congress takes-on credit card  firms - Personal finance- msnbc.com
Some members of Congress are denouncing credit card industry practices that include raising interest rates for customers whose credit ratings decline, even if they make their card ...
Credit card companies under attack - ConsumerMan- msnbc.com
We love our credit cards. Buy now, pay later is mighty convenient. And yet, many cardholders are unhappy with the way they?re being treated by their credit card issuers. By ...
Prime targets for credit card companies
Geology grad student Xu Xiqiao, 21, applies for his first credit card on the campus of the University of Michigan where, like other campuses, the lure of easy credit is everywhere ...
Credit card leaks continue at furious pace - Consumer Headaches- msnbc ...
It's a letter no consumer wants to receive: "We are writing you today to let you know that Visa recently informed us of an unauthorized network intrusion," says a note sent earlier ...
Cardholders hit twice as credit limits lowered - Personal finance ...
Just as Americans grow more reliant on credit cards to help pay monthly bills, they?re being hit with a one-two punch: Card companies are reducing borrowing limits for tens of ...
13 indicted in $3M credit card fraud
   Adolph Laudenberg had secrets; terrible stories, of raping and murdering four women decades ago. But were they merely an old man's delusions, or the confessions of a wicked ...

Newsfeed display by CaRP

Personal Finance Info

Credit Cards