If you’re applying for your first credit card, you may be wondering about all of the options. Before choosing an offer, it’s important to consider these seven credit card secrets:
1. Fixed Rates Aren’t Always Fixed
Credit card companies may increase your annual interest rate under certain circumstances. It’s not always a big secret, but it can get lost in the fine print if you don’t read the terms carefully..
2. Late Payments and Penalties
Some companies may charge you two penalties for one late payment. Make sure that you understand all of the potential missed-payment repercussions before you choose a card.
3. Double-Cycle Billing
Some companies may also impose double-cycle billing. This method not only considers your average daily balance of the current billing cycle, but also the average daily balance of the previous billing cycle. It can have a profound effect on your credit if you’re not careful.
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4. Shortened Grace Periods
Always check the fine print when it comes to the grace periods. A grace period is the period between the end of a billing cycle and the date your payment is due where you are not charged interest. Some grace periods may extend up to 25 days, while others may be limited to as few as 20 days. Some providers may even do away with the grace period entirely without telling you. Credit card companies are not required to give a grace period.
5. Spending Caps
Most credit cards have a spending cap, or credit limit, that the cardholder is assigned when they are approved. You might have heard of a “no limit” card and assumed that this means you have unlimited purchasing power with that card. Credit cards advertised as having “no limit” just do not have a predefined limit. Instead, each cardholder’s spending limit is decided based on income, payment history, and other financial factors. Because the limit can change month-by-month, a major drawback is that you may not know your true spending cap.
Always check with your card issuer to ensure that you know what your monthly spending cap is.
6. Watch for Minimum Payments
Minimum payments can result in larger interest fees, especially with companies that change up their payment routine often. With smaller repayment requirements, cardholders are more prone to spending. This often means accruing more debt to pay off in interest to the provider.
7. Late Payments May Increase Your APR
One late payment may be all that the issuer needs to increase your annual percentage rate. Of course, this will make it more expensive to pay back your debt.
The key to making smart credit decisions is education. Be sure to contact the card issuers that you are looking into and get all the information you can about the card before you apply. While credit cards can be a great tool, they can also be dangerous if used incorrectly.