Understanding credit cards and the parameters that are important

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Understanding credit cards and the parameters that are important

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Credit cards or plastic money have changed a lot in the way people manage their finances. However, very few people who use the card actually sit back and think for a moment, the amazing dynamics involved in the small plastic card in their hand. There are a lot of parameters that are involved in the credit card and one needs to look closely at these to find out if it is going to be of any help.

Annual interest rate

Also commonly referred to as APR, this is the first thing that customers should check when they look at a credit card. The APR is an important figure for those who have an outstanding balance month after month. Those who don't carry revolving debt don't need to bother about this interest and instead trade a low interest card for better rewards. Those who do have the revolving debt will end up paying a lot of interest if they don't choose their credit card wisely.

Fee structure

Fees comprise a major part of the revenues of the credit card companies. That is why, the fee structure is important for customers as well as credit card issuers. Those who are looking at a card should look carefully at the fees which are usually mentioned in the fine print. The current credit card reforms have restricted the initial processing fees to 25 dollars. There would be amendments bringing application and activation fees under consideration as initial fees too. Other types of fees include late fees if a customer misses the bill payment deadline, over draft fees for crossing the credit limit and most important of all, the annual fee which may or may not be waived off for the credit card customers. Balance transfer cards have something called a balance transfer fee as well, while spending on your credit card in a foreign country would incur a fees for currency conversion also called interchange fees.

Reward programs

To understand whether a credit card will reap any savings or benefits, one can look at the type of rewards that it offers. These reward programs vary from being simply namesake offers like loyalty points that can be redeemed at select stores on select merchandise along with various other restrictions, to profitable rewards like the cash back offers, where credit card customers get up to 5% of their expenses back. Other rewards include discounts on hotel rates, restaurant meals, entertainment tickets and airline tickets as well.

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