Understanding Your Credit Card

Posted on 06. Feb, 2010 by Admin in Credit Cards

When something is misunderstood the results can be catastrophic. Misunderstandings usually come with miscommunication and it could’ve been avoided. If you do not understand your credit card you will end up hating every minute of having it but if you know that understanding something as valuable as your credit card you will always be able to enjoy its benefits. This article will guide you through the basics of a credit card so your credit card can help you.

There are common misconceptions about a credit card. The first would be that a credit card rate stays the same. This is not true because as credit card companies watch how you spend and pay your monthly payments they might see that you missed a payment and this, consequently, changes your interest rate. The future might hold more fixed rate companies but for now you need to keep an eye on your modified rates. Another misunderstanding is that you cannot only worry about paying your monthly installments, although this is good and will mean that you are responsible with your card, you need to also watch how much you spend. By maxing out your credit card you automatically loose points on your credit score. Your credit score is important when you are seeking a loan for buying a car etc. Also keep in mind that you do not need to give your ID when you purchase anything, your signature on the back of your card is the most important identification, or rather, the only identification you’ll need. If someone does ask you for your ID know that you are subject to fraud.

Understanding the difference between EAR and APR

You don’t need to go study finance to understand the workings and dealings that happen in banks and credit card companies. People commonly don’t understand the full meaning of interest rates; this can be bad for your debt. The main differences between EAR and APR (Annual Percentage Rate) are that EAR is not commonly known as a recognized legal term. EAR does not have one-time changes such as late fees, it also excludes balance transfers and changes in your interest rate. EAR refers to the ‘effective’ interest rate of the APR. While the difference of APR and EAR may seem trivial, the small difference can have a huge effect if you consider taking out a loan or on your credit cards.

Getting credit cards isn’t that complicated but you need to do some research and ask your banker about everything you need to know before gaining that plastic card. You will need to ask a lot of questions and don’t feel embarrassed that you don’t know certain things you aren’t alone and bankers want you to ask because that’s what they are there for.

Tags: credit card, Credit Cards