All about Credit Cards - a detailed discussion

Credit card or plastic money is of great utility in times of emergency. It also saves you from the risk of carrying dollars in your wallet. A credit card gives you instant financial support at times when you are not carrying enough money. But you also need to remember that mishandling of credit cards can lead you into severe financial trouble.

In this article we deal with some popular queries related to credit cards.

In general, what should I look for in a credit card?
There are three principal features in a credit card you should evaluate before taking your final decision:
  • Interest Rate
  • Annual fee
  • Grace Period.

Legally, all the credit card companies are required to disclose to you about these three principal features once you apply for the card. Some cards pay rebates as well. Some cards offer other features like frequent-flyer miles. So you need to decide if you want to pay the higher annual fees for these extras or not You need to decide the importance and value of those extra features for you.

Do I want a fixed-rate or floating-rate (variable-rate) card?
The interest rate is the rate charged on purchases and cash advances (generally two different rates). The rates can be fixed or floating. Fixed rates are not totally fixed, as the banks change the rates annually or over a certain time period. Floating rates are usually lower than fixed rates. However, the rates fluctuate every month according to the latest T-bill sale or on other variable factors. You may buy something and take a longer period to clear your bills. This makes it difficult to guess the exact amount of finance charge you have to pay.
What is an Annual fee and how does it work?
The Annual fee is the amount the card issuer bills to your account annually. Every year, on the anniversary of the date your account was opened, the fee for the upcoming year is billed to your account. House cards are typically free. Most of the lenders waive off the annual fee for the first year to draw more customers. However, you must remember that you need to pay the annual fees from the second year.
Can I get the annual fee waived at renewal time?
Many lenders waive off your annual fees if you request them to do so. Some do it only if you charge a certain amount per year; others have other criteria. Some lenders agree to your terms if you charge a certain amount per year. The others might agree if certain other conditions are fulfilled. It is advisable to speak to the lenders on this matter just before the renewal time. Some banks will waive the annual fee if you tell them that you'll go elsewhere if you have to pay it. Some lenders may not listen to your request at all.
What about application fees?
Application fees are extremely rare with unsecured cards, but with secured cards they are very common. Such fees are legal. But you need to read the terms carefully before you agree to pay an application fee. Have a thorough knowledge even if you are "guaranteed" acceptance.
What other fees should I be concerned about?
Most cards have an over-limit fee if you make a purchase beyond your credit limit. Common over-limit fees range from $20 to $29. Some cards charge a late payment fee in addition to the finance charges. Again, a fee of $20 to $29 is common. You have the right by law to know about all possible fees before your credit card application is processed.
Why is a grace period important?
The grace period is the time after the billing date when you have to pay off the bill without paying finance charge. Grace periods for cash advances are pretty rare, since the bank would lose money on them. T&E cards typically have generous grace periods; bank cards usually have 25 days but a few have 30 and many have no grace period. In all cases the grace period starts from the date printed on the bill and not from the date you receive the bill.
Why is a discount better than a rebate?
A Rebate is a percentage refunded on your purchases, either by check or by a credit to your account. Discounts, on the other hand, actually reduce the price on the bill before you pay it.
How do I evaluate a secured card?
Use the same criteria as for any other card. Ask the bank some additional questions: What interest is paid on the deposit? If I maintain a good credit record, when could I be considered for an unsecured card? Also ask yourself if you will need the deposited fund during the required term If yes, enquire whether you are allowed to withdraw money for an emergency. Also find out the interest charges and penalties for such cases.
Is it advisable to have the same kind of card more than one?
Some people like having, say, two Master Cards or two Visas. No, it is not advisable. You might want to have a MasterCard and a Visa, or a bank card and a T&E card, to be able to charge at places that take one but not the other. In this case, try to schedule the billing dates two weeks apart.
Is a gold card worth the higher annual fee?
Gold cards typically carry some of these perks: collision damage waiver on auto rentals, travel insurance, extended warranty on purchases, roadside assistance, higher credit limits, frequent-flyer miles, and of course raises your financial status.
My bank offered me a deal if I would agree to set up my checking account for automatic withdrawal on the due date to pay the credit card. Is this a good idea?
It depends on the specific terms of the deal. For example, a reduced interest rate is meaningless if you pay off every month anyway. It also depends on your own spending patterns. If you tend to forget to pay your bills on time, this arrangement can save you some late charges or finance charges. On the other hand, if you forget to enter the automatic withdrawal in your checkbook you may find you're overdrawn and start bouncing checks.
What should I watch out for in a corporate card?
A "corporate card" is an ordinary card, typically American Express or Diners Club. However, you don't apply for it. It is issued to certain employees of a company for the company's convenience in managing travel expenses. However, there might be chances of some possible problems.
I got an application for a card that didn't state interest rate and fees. Is this legal?
No. The US Fair Credit and Charge Card Disclosure Act require issuers of charge or credit cards (including retail stores) to reveal certain basic information in tabular form with the application or the "pre approved" solicitation. This basic information includes interest rate (APR), annual fee, and grace period. Disclosures must also be provided before annual renewal if the card issuer imposes an annual fee.

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