Credit cards help to borrow money from a bank. You can use it to make any kind of purchase or different kinds of monetary transactions whenever you need. Credit cards are a very popular payment method today. They offer many services, benefits, attractive offers and convenience. To make full use of a credit card, we should understand the basics of credit cards and how they work.
Credit Card APR:
Credit cards have APR also known as annual percentage rate. This is the rate of interest that gets charged by any bank on someone’s outstanding balances. APR is expressed annually. The banks charge the interest on a monthly basis.
The types of credit cards APR are:
- Purchase APR: The bank levies this APR on credit card purchases. This is done if the customer doesn’t repay the entire outstanding amount by the due date.
- Cash Advance APR: When you withdraw money from an ATM, a cash advance APR is put in. This rate of interest is typically higher than purchase APR.
- Balance Transfer APR: Interest is charged when one transfers balance from another credit card.
- Penalty APR: If you miss a payment or violate any credit card agreement, a penalty APR can be levied. This rate of interest is high.
Credit Card Fees:
The credit card issuer usually charges a fee for using the card. The fee depends on the card issuer, the kind of card, and the terms and conditions.
Some types of fees are:
- Annual Fees: Annual fees are a yearly charge for using and holding the credit card. Some credit cards do not charge an annual fee, but some might, depending on the rewards and benefits.
- Late Payment Fee: A bank will charge this fee unless you make the minimum payment by the due date. The late fee may increase when multiple payments are missed, which can also increase the APR.
- Foreign Transaction Fee: When you use a credit card abroad or purchase in foreign currency, a foreign transaction fee is charged. This fee is usually 1-3% of the purchase amount.
- Over-the-Limit Fee: If you exceed your credit limit, you must pay a fee. Some credit cards permit over-limit transactions, while others might automatically decline.
- Return Payment Fee: The payment might be returned due to insufficient funds or other reasons. In this case, a return payment fee is levied.
Tips to Avoid Credit Card Fees:
- Late payment fees can be avoided by paying the amount. At least pay the minimum balance by the due date.
- Try to pay the full amount, as this avoids late fees and interest payable.
- Do not overspend. This avoids over-the-limit fees.
- Some credit cards do not have an annual or foreign transaction fee. Apply for them.
Credit Card Eligibility:
Credit card eligibility is the criteria that must be met if you want a credit card. The credit card eligibility criteria vary from one bank to the other, but the common ones are:
- Credit Score: The credit score reflects the creditworthiness. This depends on the credit history. You can get credit cards with high rewards and low interest rates if you have a good credit score.
- Income: A proof of income is required. This shows that you can repay the debt on the card. A stable income increases credit card eligibility
- Employment Status: To get a credit card, you must be employed or have a stable source of income.
- Credit History: Credit history includes payment history and the types of credit accounts. If the credit history is good, credit card eligibility improves.
Tips to Improve Credit Card Eligibility:
- Check the credit report. There should not be any errors or mistakes. This harms the credit score, impacting eligibility.
- Make the payment on time. Late payments affect the credit score negatively.
- If you have a low credit score, you can apply for a secured credit card. You can also become an add-on card user on someone else’s account.
Conclusion
APR, fees, and eligibility are the basic details that you should be aware of. By understanding these, you can make informed decisions regarding your credit card and associated matters. It will help you select a card that meets your financial needs and goals.
