Credit Card Basics By FederatedCreditCards.Com Copyright © 2008

Electronic payment methods are quickly becoming the world's primary source of currency, and gradually, credit card debt is becoming the primary form of debt. Staying informed and making responsible decisions about your credit is your biggest weapon against falling into a cycle of increasing debt. For further information about credit cards, and some basic tips and knowledge, keep reading, and share this wealth of information with friends, family and co-workers.

Interest Rates

Interest rates or APR are a basic element of any credit card account. This is your cost to borrow money. If you maintain an unpaid balance on your card at the end of the billing cycle, you are charged interest on that remaining balance. This charge is applied directly to your balance increasing what you owe. Credit card interest rates can be quite high, over 25%. To save on these charges try to pay off your balance in full each month.

Regular credit cards will have a minimum finance charge, usually $0.50. If the calculated interest on your remaining balance is less than the minimum charge, then you will be charged this minimum. Therefore, if your remaining balance was but $1.00 you would be charged $0.50 in interest. That calculates to 50% interest.

Although most credit card offers today come with a variable interest rate, a few still offer a fixed rate. Variable rates adjust periodically, usually based on the prime rate set by the Federal Reserve. Fixed rates change much less often. Fixed rates can change but the credit card issuer must first notify you in writing before a change can occur.

Many credit card offers come with a 0% introductory APR. However this rate will disappear in 90 or 180 days when the introductory period ends.

Fees

Yet another important element in the standard credit card account is the type of fees you'll be expected to pay. There are plenty of no fee cards out there for people with good credit. However, people with blemished or no credit history will likely have an annual fee, or semi-annual fee, and sometimes application fees. Be sure to ask whether or not you'll be expected to pay a fee, and if so, the amount. Many card issuers will drop the fee if you have been a good customer for a while. It's worth asking about.

A word of caution: Credit card fees are added to the balance you owe as soon as the card is opened. These fees immediately reduce your available credit and create debt. Bear in mind that annual and semi-annual fees will reoccur. This can be a burden on those with limited incomes. The sooner you can get a no fee card or get the credit card company to drop the fees, the better off you'll be. Do investigate offers and ask questions before signing up.

Rewards, Rebates, Incentives

A popular element of a credit card account is the rewards, rebates, and incentives that the credit card company offers with your particular contract. There are several systems of rewards available such as airline miles, gas/vehicle benefits, for a couple of examples. Others are cash back, or cash rebate credit cards that offer rebate percentages that are higher for some purchases than others. These programs may credit rebates back to your account, or send your rebate as an annual checks, or in some way pay you back on the amount of purchases you've made with your credit card.

Aside from credit cards that focus on cash rebates, other rewards cards accumulate either points, or air miles. Points can be redeemed for discounts, free services, vacations, travel packs, free hotel stays, and other limitless types of rewards. Miles are usually reserved for travel via airline, as of now, but who knows when they'll introduce miles for AmTrak or other modes of transportation.

Grace Period

Grace period is the number of days the credit card company gives you to pay back your balance as of the billing statement date. Twenty to twenty-five days are common grace periods. The rules are simple. You do not have to pay interest or finance charges on the portion of your balance paid before the end of the grace period. Interest must be paid on any part of your balance not paid by the end of the grace period. Note that grace periods might not be offered for cash advances.