Credit Basics

Credit cards provide security, convenience, and even rewards based on spending. However, if cardholders don’t manage their cards carefully, they may find themselves facing unwanted consequences like poor credit or hidden fees. 

Get to know credit cards with these credit terms:

1. Annual Fee – The once-a-year cost of owning a credit card. Some credit card providers offer cards with no annual fees. 

2. Annual Percentage Rate (APR) – The yearly interest rate charged on outstanding credit balances.

3. Balance – An amount of money. In personal banking, balance refers to the amount of money in a savings or deposit account. In credit, balance refers to the amount of money owed.

4. Credit Bureau – A reporting agency that collects information on consumer credit usage. 

5. Credit Line – The maximum amount that can be charged on a specific credit card account during a particular period.

6. Credit Rating – Also known as a credit score, this usually numeric rating reflects how reliable you are when it comes to repaying money. It can be crucial to have a good credit rating if you want to borrow money or apply for a credit card or loan. 

7. Grace Period – The period of time after a payment deadline when the borrower can pay back the borrowed money without incurring interest or a late fee.

8. Introductory Rate – An interest rate offered by credit card issuers in the initial stages of a loan. These rates are often set much lower than standard rates to attract new cardholders. Make sure you know how long the introductory rate will last and what the standard interest rate will be once the introductory period ends.

9. Minimum Payment – The minimum amount of money that you are required to pay on your credit card statement each month to keep the account in good standing.

10. Overdraft Protection – A banking service that allows you to link your checking account to your credit card, thereby protecting you from overdraft penalties or bounced checks in the case of insufficient funds.

Pros and Cons of Credit
To make the most of your credit and maintain great credit, it’s essential to understand their pros and cons of using it. Maximize the benefits and minimize unnecessary costs by learning about the advantages and disadvantages of credit. 

• Instant Purchasing Power – Credit can help with unexpected expenses and give you the flexibility to pay them over time.
  

• Security – Lose cash, and it's gone. Lose a credit card, and it can be canceled with no harm done in most circumstances. Also, you need to be prompt about reporting a lost or stolen card to be protected against its unauthorized use.
  

• Record Keeping – Your credit card statement is an itemized list of your monthly expenditures, which can be helpful when it comes to expense tracking and budgeting. This kind of recordkeeping is common with many kinds of electronic payments.
  

• Convenience – Electronic payments including credit cards are widely accepted as a form of payment in an increasing amount of situations, such as in-store, online, in-app and when ordering via mail or telephone.
  

• Bill Consolidation – Bills can be paid automatically via credit card, consolidating several payments into a single sum.
  

• Rewards – Using a credit card with a rewards program may earn you benefits like free travel.
  

See how much extra you might pay on a credit card purchase with varying interest rates: