3 Credit Card Basics Everyone Should Know

Credit card promotions with large sign-up bonuses are likely to grab your attention, especially if you’re shopping for your first card or comparing balance transfer offers. But only focusing on the potential payout could be costly. Annual percentage rates, grace periods, and fee schedules are easy to ignore when easy cash is within reach. Understanding these frequently overlooked terms is crucial to choosing a card that matches your spending habits and financial goals.

Annual Percentage Rates

The annual percentage rate (APR) is the cost of borrowing money with a credit card. Commonly called “interest charges,” APRs can fluctuate based on economic conditions, changes to your credit score, and the card you select. Rates also vary depending on whether you use the card to make a purchase, initiate a cash advance, or complete a balance transfer. Card issuers assign APRs to new account holders after they review income and assess creditworthiness.

Grace Periods

Credit card companies send monthly statements to account holders which detail charges and payments that occurred during the designated billing cycle. You can avoid interest charges on purchases by paying the credit card statement balance in full before the end of the grace period. This period begins the date the statement is generated and ends on the statement due date.

Credit card grace periods vary by issuer but may be as short as 21 days. Cash advances rarely have a grace period. Plan on paying the balance in full each month to keep borrowing costs to a minimum and avoid lingering debt.

Fee Schedules

Late payment, over-the-limit, and balance transfer fees are only a few of the charges a credit card company might apply to your chosen card. How and when each fee applies may vary, but they are likely to occur under the following circumstances:

•    Late fees – The minimum required payment is received after the statement due date.
•    Over-the-limit fees – Charges exceed the credit limit assigned to the account. 
•    Balance transfer fees – The administrative fee charged to process a balance transfer from other credit accounts.

The credit card agreement or disclosure includes the exact fee schedule that applies to the card. It will typically list fee types, amounts, and how to avoid them. Review this document before applying for the card. If you have questions about the information you read, contact the creditor.

Credit cards help improve your lifestyle and your credit score if managed carefully. Compare SAFE’s Rewards Visa® and Low-Rate Visa® features and decide which is best for your situation.