Consumers new to credit or with limited credit history can save money and boost credit scores by understanding how credit and credit cards function.
Knowing the basics about credit cards and how they can affect your credit score, positively or negatively, will also save you money.
There is no one-size-fits-all credit card
Take the time to learn the many types of available credit cards before applying. The shape and size may be the same but credit cards definitely to not have the same terms and conditions. Choosing the wrong card can cost you money; for instance, there are some subprime credit cards that charge a monthly fee, whether you have a balance or not. And, with cards such as that, even canceling may cost you a fee. It pays to do your research first.
Billing Cycles and Statements
The typical billing cycle can range from 29 to 31 days, but can be shorter or longer depending on the credit card. Charges are billed about once a month. Some months you may receive two billing statements if your billing cycle is less than 30 days. Your statement will include the account balance at the start of the billing cycle along with detailed credit card charges, payments, credits (if any) and fees in the current billing cycle. Fees and charges are added to the account balance from the previous billing cycle. Payments and credits are subtracted to determine the current balance.
Finance Charges and Grace Periods
If you do not pay your account balance in full, a finance charge will be applied. The annual percentage rate is used when calculating a finance charge along with one of 5 methods: (1) average daily balance; (2) previous month’s balance; (3) adjusted daily balance; (4) ending balance; or (5) daily balance.
A typical grace period is between 21 and 25 days. It is the amount of time you have to pay your balance in full without paying a finance charge. The grace period usually starts on the billing date and ends a certain number of days after the billing date.
Minimum Payments and Late Fees
Your billing statement will list the minimum payment due. You must make the minimum payment before the due date to be considered current. If the minimum payment is not made by the due date or at all, you are considered late. One late payment (more than 30 days late) can seriously damage your credit scores because the creditor reports your late payment history to the credit bureaus. Read more about how late payments affect your credit scores.
These are just the basics about credit cards, the more knowledge you have the better choices you will make when applying for credit cards and keeping those credit cards current.
