What Students Need to Know

Credit Cards: The Good, the Bad, the Confusing

Thomas Opolski 4th Hour

The Advantages of Using a Credit Card

Convenience--Credit cards can save you time and trouble--no searching for an ATM or keeping cash on-hand.

Record keeping--Credit card statements can help you track your expenses. Some cards even provide year-end summaries that really help out at tax time.

Low-cost loans--You can use revolving credit to save today (e.g., at a one-day sale), when available cash is a week away.

Instant cash--Cash advances are quick and convenient, putting cash in your hand when you need it.

Disadvantages of Using a Credit Card

Overuse--Revolving credit makes it easy to spend beyond your means.

Paperwork--You'll need to save your receipts and check them against your statement each month. This is a good way to ensure that you haven't been overcharged.

High-cost fees--Your purchase will suddenly become much more expensive if you carry a balance or miss a payment.

Unexpected fees--Typically, you'll pay between 2 and 4 percent just to get the cash advance; also cash advances usually carry high interest rates.

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What You Should Know

There are lots of different types of cards to choose from. There are several varieties of credit cards: general purpose cards can be used anywhere, while private label retail cards can typically only be used at the issuing store or service station.

You must understand your card's interest rates. Credit card interest rates can range dramatically -- from 0 percent, limited-time balance transfer offers to as high as 30 percent.
Comparing cards is vital. Banks, credit unions, retailers, and credit card companies all issue credit cards.
You have rights. As a cardholder, you have a legal right to fair treatment. The Truth in Lending Act requires issuers explain all the terms of the contract in detail, in language the average adult can understand.

What You Should Look For

Spending Habits
The first question to be answered is how you intend to use the card.
The Interest Rate
On a credit card offer, the interest rate appears as the APR, or annual percentage rate. It can either be a fixed rate or a variable rate that is tied to another financial indicator, most commonly the prime rate.
Credit Limit
This is the amount of money that the credit card issuer is willing to let you borrow. Depending on your credit history, it could be anything from a few hundred dollars to tens of thousands of dollars.

Fees and penalties
There's no shortage of ways for a credit card issuer to make money off you. Common charges include fees for transactions, such as balance transfers and cash advances, or for asking to increase your credit limit or make a payment by phone.

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Important Credit Card Terms

Annual fee - An annual fee for a credit card is kind of like a membership fee. It is a yearly fee that you pay for the ability to use that card.

Annual percentage rate (APR) - The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number

Credit score - a numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of that person.

Credit report - A report containing detailed information on a person's credit history, including identifying information

Finance charge - an aggregated cost, including the cost of the carrying the debt itself along with any related transaction fees, account maintenance fees or late fees charged by the lender.

Grace period - A provision in most loan and insurance contracts which allows payment to be received for a certain period of time after the actual due date.

Variable interest rate - An interest rate on a loan or security that fluctuates over time

Thomas Opolski 4th Hour