If you are thinking about applying for a credit card it pays to shop around to find the best one for you taking your lifestyle into consideration. Things to consider are the interest rate, the annual fee (or no annual fee) and cards which offer rewards and cash back. It is also important to know the basic credit card terms and definitions so that you know exactly what you are signing up for.
Annual Fee: This is the yearly charge you pay to use the card and its benefits. If you want travel points and cash back, you usually have to pay a yearly fee. If you are not wanting the rewards or other benefits, there are cards with no annual fee.
Annual Percentage Rate: This is the annual cost of borrowing money on your credit card. Cards have a variety of APR rates, for purchases, balance transfers, cash advances and penalties for not paying on time. The APR on purchases is charged after the grace period ends.
Credit Limit: The credit limit is the most that you can spend on your card. If you have a short credit history, then your credit limit will probably be small. As gain more credit history your limit will increase as long as you make your payments on time. It is important not to go over your limit, though that is difficult to do as the credit card company will usually decline transactions over your limit. If you do go over your limit you will incur charges.
Credit Score: Your credit score tells the lender how likely you are to pay back the money loaned to you on your card. Everything about credit cards affects your credit score including the number of cards that you have, your entire payment history, and other factors associated with your debt history. Your credit score can also affect other areas such as getting a loan for a house or car.
Due Date: This is the date when your minimum payment is due, usually by 5pm on that day. If you do not make your payment by the due date you will incur a late fee and perhaps an increased APR and a report will be sent to the credit bureau.
Grace Period: This is the time period when interest is not assessed after a purchase is made. With some cards there is only a grace period if you do not have a balance on your card.
Late Payment Fee: If you don’t make at least your minimum payment by the due date, you will be assessed a late payment fee. The late payment fee is based on the size of your balance.
Minimum Payment: Your minimum payment is the lowest amount that you can pay each month and still remain in good standing with your credit card company. It will usually be between 1% and 3% of your outstanding card balance. Paying only your minimum payment each month is not good for your credit score and it will take you a long time to pay off your debt.
Revolving Balance: A revolving balance on your credit card is the amount of your credit limit that you have used and not repaid. This is the part of your credit limit on which you pay interest every day because you did not pay it off at the end of the previous month. If you pay your balance in full each month you will not have a revolving balance.
Security Code (CVV): The security code or Card Verification Value (CVV) on your credit card is mostly used when you make online purchases. It keeps your card safe from credit card skimmers as the CVV code is not included in the magnetic strip on your card.
For more information about credit cards go to: https://www.canada.ca/en/financial-consumer-agency/services/credit-cards.html
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