Credit Card

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What Is a Credit Card?

A credit card is a thin rectangular piece of plastic or metal issued by a bank or financial services company that allows cardholders to borrow funds with which to pay for goods and services with merchants that accept cards for payment. Credit cards impose the condition that cardholders pay back the borrowed money, plus any applicable interest, as well as any additional agreed-upon charges, either in full by the billing date or over time.

Understanding Credit Cards

Credit cards typically charge a higher annual percentage rate (APR) vs. other forms of consumer loans. Interest charges on any unpaid balances charged to the card are typically imposed approximately one month after a purchase is made (except in cases where there is a 0% APR introductory offer in place for an initial period of time after account opening), unless previous unpaid balances had been carried forward from a previous month—in which case there is no grace period granted for new charges.

Types of Credit Cards

Most major credit cards—which include Visa, Mastercard, Discover, and American Express—are issued by banks, credit unions, or other financial institutions. Many credit cards attract customers by offering incentives such as airline miles, hotel room rentals, gift certificates to major retailers, and cash back on purchases. These types of credit cards are generally referred to as rewards credit cards.

Building Credit History with Credit Cards

When used responsibly, regular, non-secured, and secured cards can help consumers build a positive credit history while providing a way to make online purchases and eliminate the need to carry cash. Since both types of credit cards report payments and purchasing activity to the major credit agencies, cardholders who use their card responsibly can build strong credit scores and potentially extend their lines of credit and—in the case of secured cards—potentially upgrade to a regular credit card.

Building good credit history is a combination of things—making regular, on-time payments, avoiding late payments, keeping credit utilization under your credit limit, and maintaining a low debt-to-income ratio. By making responsible purchases and paying them off in a timely manner, a credit score will rise, making a consumer more attractive to other lenders.

How do I get a credit card if I don’t have any credit?

Building credit history can be a bit of a catch-22. If you don’t have any credit, merchants or banks are less likely to extend credit to you since you’re an unproven borrower. Opening a secured credit card is one of the simplest ways to get started. Since spenders are only borrowing from the money they put down as a deposit, there is little risk for the lender, and it gives them a snapshot of your spending and repayment habits.

Do credit cards have fixed or variable annual percentage rates (APRs)?

Many credit cards will have both types of annual percentage rates (APRs). To find out which kind of APR you have, read the cardholder agreement that comes with your credit card. Card issuers must legally disclose what type of APR they have and what it is. If a fixed APR changes, they must also alert consumers of that

What is a credit card annual fee?

The annual fee on a credit card is the fee charged by the card issuer to extend the credit card to you. Some cards don’t charge an annual fee, but others—most often cards that offer rewards or incentives like cash back—can charge annual fees ranging from $50 to $700.