Credit Cards: Educate Yourself

Used responsibly, credit cards can be a useful tool to build your credit report or provide some cash in case of an emergency or major purchase. They also have their perks when it comes to rewards like cash back or points you can earn for travel and more. By carefully using your card, you can get the most of all it has to offer.

But, what about the part the credit card companies don’t want to tell you? Here are three things to look for when opening your next credit card.

  1. Grace period

Not all credit cards have a grace period, but if they do you could save money in interest and finance charges each month by knowing how it works. Credit card companies that offer this feature should give you a minimum of 21 days after you receive your statement to pay off your card in full before you’re charged interest. Grace periods are only useful if you don’t carry a balance month-by-month.

If your card has a grace period, details should be disclosed in the fine print.

  1. Interest

When you carry a balance on your credit card, interest charges can pile up in no time and not everyone can prevent that from happening. It’s easy to get caught up in those payments and forget what you’re actually paying. If you have a credit card with a balance, you can use Credit Karma’s debt repayment calculator to see just how much you’re paying towards the interest and principle and how long it will take you to pay it off.

  1. Promotions

Promotions are great! But, if you don’t read the fine print and find out exactly what the details are, you may be hit with unexpected interest rates or other fees. For example, you may transfer your credit card balance to a new card for with no interest. However, the “no interest” offer may only be useful for a few months, then you could get charged with an even higher interest rate than before you transferred to the new card.

  1. Shop Around

Sites like Nerd Wallet do a very good job of comparing different cards and their rates.   They even compare cards based on your current credit score as well as the best cards for a young student.   Just like buying a new car, you should do some research and shop for the card that best fits your needs.

  1. Read the fine print

Although you should always read the fine print, in 2009, the Credit CARD (Credit Card Accountability and Disclosure) Act was passed to provide transparency to consumers, as well as limits on fees, interest rates and billing.

The law prevents interest rates from being hiked on new balances. Before the Card Act. Credit card companies would calculate interest charges on two months of transactions, as well as late payments. The law banned this from continuing. Now, issuers must notify the cardholder of any interest rate changes at least 45 days in advance.  As of January 2017, a cap of $27 on a first time late payment and $38 for continuing late payments was enacted.

The Card Act, however, doesn’t prevent credit card companies from charging extremely high interest rates. As of today, that’s still governed by state laws.

Next time you find yourself shopping for a new credit card, make sure to read the fine print, do the research and always educate yourself on what to expect.