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Credit Card Basics - Understanding Five Main Credit Card Terms
By Joseph Kenny
Credit cards are easy, right? You have a credit limit. As long as your balance isn't as high as your credit limit, you can pay for things with your credit card. When you pay for something with your credit card, you don't have to pay for it until later. You pay interest on your credit card balance and as long as you don't go over your credit limit, everything's fine.
What's interest?
In a nutshell, interest is money that you pay a lender for the privilege of using HIS money to buy something.
What's this about 'interest rates' and percentages?
Okay - so why would anyone choose a credit card with a high interest rate?
Most people don't CHOOSE to pay a high interest rate. The bank decides what interest rate it will charge you, usually based on how much of a 'credit risk' you are. They determine that by looking at your history of paying bills. If you've got a history of paying bills on time, then you'll qualify for lower interest rates. If you haven't ever had any bills to pay, or if you've had trouble paying your bills, that will show in your credit history, too. Since it's a little riskier to lend you money, banks will charge a higher interest rate.
One other reason that people might actually choose a credit car with a higher interest rate is for the rewards or privileges that come with that card. If the card includes special perks that you want, they may offset the higher interest rate and make it worthwhile.
What's the 'minimum payment'? As long as I pay that, I'm fine, right?
The minimum payment is the lowest amount that the credit card issuer will accept toward your balance. It varies from month to month, depending on your balance. Paying JUST the minimum balance may keep your credit card active and keep the credit card company from reporting your account as delinquent, but it will barely make a dent in the amount you owe. Whenever possible, you should pay more than the minimum amount. In fact, it's best to try to pay off your balance in full each month to avoid paying interest charges.
About the Author
Joseph Kenny writes for the credit card comparison sites http://www.creditcards121.com/ and http://www.credit-cards-info.com/.
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