Credit Card Basics

By Author: Michael Strauss
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Nowadays it's almost a matter of course for people to carry at least one credit card, which is a distinct change from previous generations where all forms of credit were viewed with a certain amount of suspicion. Modern viewpoints don't tend to ascribe such a high level of importance to debt as in previous years, but there are still very real dangers involved in borrowing money, whether it's via a credit card, loan, or other form of finance. For this reason, it's a good idea to take the time to understand the basics of credit cards before applying, rather than plumping for the first card which takes your fancy.

The most basic way of comparing credit cards is to look at their APRs. APR stands for Annual Percentage Rate, and is the standard way to measure how much your card will cost you to borrow on it. The figure is calculated from the simple interest charged on your debt, along with any unavoidable costs such as annual fees and the like. Obviously, the lower the APR figure the better, although there are other factors to bear in mind too.

The majority of cards these days come with a balance transfer facility, often ...
... charged at 0% interest for an introductory period of up to a year or even more. This means that you can use your new card to clear the debt on an old card, and not be charged any interest on it during the introductory period - potentially a great money saver for people with sizeable balances, although it's nowadays the norm that a fee of around 3% of the balance transferred will be charged to your account.

Along with introductory balance transfer deals, many cards also offer 0% interest on purchases you make during the first few months of using your card. This means that you can effectively borrow for free, so long as you clear the debt before the introductory period is up. As soon as the 0% purchase period has ended, any outstanding balance will then be charged at the full standard rate of your card.

A feature of credit cards which is rapidly increasing in popularity in recent times is that of cash back and rewards. These options actually pay you to use your credit card, whether by re-crediting your account with a small percentage of everything you spend, or by building up points which you can later redeem against a variety of goods and services. While these features are desirable for heavy spenders, you should always bear in mind the APR - any benefits of rewards or cash back may well be canceled out by interest charges if you carry a balance on a card with a high standard rate.

Finally, you should pay attention to the vexatious topic of charges. While it's fairly rare these days for a card to charge an annual fee simply for the privilege of carrying it, it's expected to become more common again in the next few years as issuers look for new profits after being forced to reduce their charges for other things such as late payments. Before applying for a card, be sure to check the small print to see how much you'll be charged should you fall behind in your repayments, as well as for other non-standard card uses such as ATM withdrawals or transactions made in a foreign country.

About the author: Michael writes for http://www.cardsense.co.uk/ where you can compare low rate credit cards, cards with rewards or cashback, and cards with introductory balance transfer and purchases deals