Understanding the various aspects of a credit card

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Understanding the various aspects of a credit card

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There are several aspects of a credit card and you will need to understand all of them in order to benefit from credit cards. There are both advantages and disadvantages to spending on a credit card. The key is to understand the features available on your credit card and plan your expenses well.

The interest rate and credit limit

These two are the most important aspects of a credit card. In order for you to have a better credit history, it is imperative that your credit card charges a lower APR or interest rate and offers a higher credit limit. Higher the credit limit, lower will be the utilisation of your credit available and therefore better it would be for your credit rating. Similarly if you have an outstanding debt, you will need a card with lower interest rate, so that you can save on the amount of interest paid on the debt. Therefore you will always need to understand how these two features work before going for a credit card.

Cost and Penalties

A lot of credit card customers tend to ignore the cost involved with the credit cards. In other words the fees you pay, the penalties on the card, etc. will all add to your debt. So, you must make sure you go through the fine print and understand what kind of costs and penalties are levied by the credit card company. The standard penalties include late fee for missing bill payment deadlines and overdraft fee for crossing credit limit in terms of outstanding balance. There are numerous other costs involved with a credit card as well. Annual fee is waived off in some cases, but in a lot of cards it isn’t. This adds to the outstanding debt if any. There are other types of fee like currency exchange fee, when you spend on your card abroad, cash withdrawal fee if you use credit cards for withdrawing cash at ATMs, etc. There are some special types of fee too like the balance transfer fee, charged under specific circumstances.

Loyalty points and rewards

Understanding you credit card also involves understanding loyalty points and rewards offered by the credit cards. You must make sure these rewards help lower your outstanding balance and debt incurred, rather than making you spend more. Therefore you should take credit cards, whose rewards bring actual benefits without any specific conditions that would lead you to spend even more.

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