If you’re a high school senior or freshman in college, chances are you’ve already started receiving credit card offers. And while many of these offers include advertisements of low interest rates or incentive programs such as cash back or frequent flyer miles, there are many things to consider before getting a credit card.
When thinking about getting a credit card, here are a few key terms you should know, as the cost of carrying a credit card goes well beyond what you charge:
- Balance versus limit
- APR or annual percentage rate
- Annual fee
- Finance charge
The balance of a credit card is the amount you have charged, thus the amount owed, and the limit of the card is the amount of approved credit you have at your disposal. Exceeding this limit can result in other charges and higher interest payments.
Annual percentage rate, or APR is it’s known in the credit world, is the interest rate the consumer will pay on the amount borrowed. Each credit card offers a different APR, which makes it easier to compare cards to see which has the lower APR.
Some credit card companies charge customers an annual fee, also called membership fee, for using the credit card. This charge is assessed whether the consumer uses the card or not.
Finance charges are generally a percentage-based fee that credit card companies charge customers for extending credit to them. In this fee, creditors also include cost of maintaining the account.
