Understanding Your Credit Card

When something is misunderstood the results can be catastrophic. Misunderstandings usually come with miscommunication and it could’ve been avoided. If you do not understand your credit card you will end up hating every minute of having it but if you know that understanding something as valuable as your credit card you will always be able to enjoy its benefits. This article will guide you through the basics of a credit card so your credit card can help you.

Misunderstandings concerning your Credit Card

The first misunderstanding is that credit card companies cannot change your rate. This is not true; your rate CAN be changed. This is because sometimes you might pay your monthly payment too late resulting in you becoming a liability and therefore they change your interest rate. Although the future might hold fixed rate companies but in the mean time you need to keep an eye on your dynamic rates. Another misconception in terms of your credit card would be that paying monthly on your credit card is the only thing you need to worry about. You are right in doing so and this makes you a diligent credit card holder but in terms of your credit score you need to worry about not maxing out your credit limit. If the credit bureau notices that you go beyond or push it to the limit they will automatically deduct points for this. You credit score is very important when you want a loan for example buying a car or a house. Furthermore if a merchant asks for your ID beware that this is not needed because the important thing is your signature on the back of the credit card. If someone does ask you for your ID when making a purchase this is a sign of fraud.

Understanding the difference between EAR and APR

You don’t need to go study finance to understand the workings and dealings that happen in banks and credit card companies. People commonly don’t understand the full meaning of interest rates; this can be bad for your debt. The main differences between EAR and APR (Annual Percentage Rate) are that EAR is not commonly known as a recognized legal term. EAR does not have one-time changes such as late fees, it also excludes balance transfers and changes in your interest rate. EAR refers to the ‘effective’ interest rate of the APR. While the difference of APR and EAR may seem trivial, the small difference can have a huge effect if you consider taking out a loan or on your credit cards.

Doing your homework is vital before getting a credit card. You need to know what the status is of your finances and if you really need a credit card. This may be the case as today a credit card is part of living but you need to know how to spend wisely and be pro active in knowing the inter-workings of that plastic device that seems so simple.