Understanding Credit Cards

Unlike debits cards and prepaid cards, credit cards allow you to use funds that you do not have readily available. Instead, you borrow money to make your purchases. You can borrow as much money as you want, up to a set limit, but you will be responsible for paying the loan back.

You will be required to make a minimum payment each month to slowly pay back the amount you borrowed over a period of time. Typically, credit cards have a higher rate than most of the other types of credit available. However, it does offer the convenience of having funds available as soon as you need it.

Most credit cards will accrue interest from the first day you make the purchase. Other credit card companies give you a grace period where you have so many days to make a payment before any interest is charged. This may be thirty days or more depending on the company and your specific credit card plan.

Your ability to obtain a credit card is based on your credit history. A financial institution will look at your credit report to determine your eligibility for a credit card. The better your credit score is, the better credit card plan you are likely to be offered.

Comparing Credit Cards
 If you decide to get a credit card, it is important that you shop around and find the right one for you. Below is a list of several things you should consider when choosing a credit card plan and company.

•  Interest Rate. The first thing you want to look at is the interest rate you will be charged on your credit card balance. This will determine how much extra you need to repay for your purchase. This is very important, so be sure to shop around for the best rate.

•  Interest-Free Timeframe. You also want to look to see if the credit card comes with an interest-free timeframe. This will allow you to pay your card off or portions of your bill within a set timeframe without incurring any interest.

•  Credit Limit. Of course, the amount of your credit limit is important, however, you do not want to go overboard. Stay within your limits, and stick with a credit limit you know you will be able to repay.

• Annual Fees. Many credit cards charge an annual fee just to maintain an active status of your card. These fees vary from plan to plan, so be sure to ask about these additional fees.

•  Late Payment Fees. Missing a credit cards payment is likely to cause you to pay an additional late payment fee, but how much. Look at each plan and see what payment options are available, if they give you a grace period to make payment, and exactly what the fee is for late payments.

•  Overcharge Fees. You also need to pay close attention to how much you may be charged if you accidentally go over your credit limit. Sometime this is a pretty high fee, so be careful and always keep track of your account balance.

Ask for Your Fact Sheet
Australian law entitles you to receive a fact sheet about each credit card plan you are considering. These fact sheets will make it easier for you to compare the different plans and find the right one for you. If your financial institution fails to give you a fact sheet, be sure to ask for one. This sheet will include all of the important facts about the credit cards plan, such as minimum repayment amount, interest rate charged when transferring a balance from another credit card, interest rate on balance, fee for cash withdrawals, annual fees, and late payment fees.

Credit card companies and financial institutions have the right to make changes to your policy at any time. However, they are required to notify you of any such changes. Be sure to read every letter you receive from your credit cards company and make not of any changes.

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