For first-time users, credit cards can be intimidating. Even people who have multiple credit card accounts and have used them for many years may not have a complete grasp of how credit cards work. But it is important to know the key features of your new card in order to control your spending and take advantage of the benefits your card offers.
Here’s what to know about using your first credit card.
[See: 10 Easy Ways to Pay Off Debt.]
Brands and card types. Most of us are familiar with the major credit card brands: Visa, MasterCard, American Express and Discover. Credit cards offered by local credit unions or national banks will be part of one of these brand networks. Most places that accept credit cards will post the logos of the cards they accept. While these four brands are widely accepted in the U.S., you will still encounter some stores and restaurants that do not accept American Express or Discover. Visa and MasterCard are more widely accepted, especially internationally. The brand is usually listed on the card itself.
Credit cards are issued by a bank such as Citibank or Chase. These banks offer many different types of cards. Student credit cards are geared toward college students. Secured cards are geared toward people trying to build their credit history. Rewards cards allow you to earn cash back or airline miles or points on your spending. Premium cards offer even more rewards and benefits but usually include an annual fee. Stores and retailers also offer their own cards, which may only be used at the store, but offer discounts and rewards for that store. Know which type of card you have to best take advantage of the benefits and rewards the card offers.
Terms and conditions. Credit card companies have to provide the fees and agreement terms in a uniform way, so consumers can more easily compare and shop for the credit card they want. This can be listed under “terms and conditions,” “rates and fees” or “offer terms.” This is where you will find information about the interest rate you may be charged if you keep a balance, how much you may be charged if you miss a payment, what happens if you spend over your limit, whether the card has an annual fee and whether there are any other fees associated with the card. It is important to familiarize yourself with the card’s terms and conditions, so that you can avoid fees.
Credit limit and balance. One of the first thing you should know about your credit card is your credit limit. This is the maximum amount of money you can charge to the card. Depending on your card’s terms and conditions, once you reach that maximum, you may not be able to charge any more to the card or you may be charged an “overlimit fee.” For example, let’s say that you have a new card with a credit limit of $1,000. If you charge $200 at a restaurant, you will have $800 of available credit you can still use. The $200 is your balance, which you will have to pay back when you get your statement.
[See: 8 Ways to Maximize Your Credit Card Rewards.]
Statement and billing cycles. Your statement will list your due date, which will generally be the same day every month. It is important to know your due date, so that you pay on time and avoid a late payment fee.
Credit card bills are processed according to billing cycles, which are around 30 days. Any charges you make during that billing cycle, up until the last day, will be added together and listed on your statement balance. Any charges you make after the end of your billing cycle will be applied to the next statement.
The statement balance includes all the charges you made and any fees that you might have incurred from the previous billing cycle. If you pay the statement balance, you will avoid any fees or interest charges.
The minimum payment is a small percentage of your full balance that you must pay each month in order to avoid any penalty fees. Making just the minimum payment, or anything less than the statement balance, will result in interest charges on the remaining balance.
You will also have the option to pay a custom amount. You may choose to pay more than the minimum amount, or you may choose to pay your full balance. The full balance would include the charges you made during the billing cycle, plus any purchases you made after the billing cycle that would show on your next statement.
Annual percentage rate. The annual percentage rate, or APR, can be one of the most challenging features for new credit card users. The APR determines how much you will be charged in interest on any balance you don’t pay off at the end of the month. The APR is usually listed as a range, such as 13.74 percent to 24.74 percent. The APR you will receive is determined by the credit card company and is based on your credit history, the economy and other factors. The lower the APR, the better if you have an outstanding balance.
APRs are confusing because they are usually variable, meaning that the number can change over time. It is important to keep in mind that the APR only matters if you can’t pay off your balance in full every month.
[See: 12 Simple Ways to Raise Your Credit Score.]
Card benefits and rewards. Know whether your credit card offers specific benefits. For secured cards, you should know how to raise your credit limit and whether the issuer reports your credit history to the credit-monitoring companies. For rewards cards, it is important to know which spending earns you the most rewards (for instance, you may earn bonus rewards with your card at the grocery store). You should also know how you can redeem your rewards once you earn them.
Credit cards can also offer consumer protections. Most credit cards offer fraud coverage, protecting you from any fraudulent charges on your card if it is stolen. Many credit cards offer free coverage protecting your purchases from damage or theft and extending manufacturer warranties for an extra year. Common benefits also include car rental insurance and roadside assistance. Knowing these benefits can not only save you money, but give you peace of mind when making a major purchase.
More from U.S. News
10 Completely Careless Credit Card Mistakes You’re Making
What to Do If You’ve Fallen (Way) Behind on Your Credit Card Payments
Basic Money Lessons You (Probably) Missed in High School
Everything You Need to Know About Your First Credit Card originally appeared on usnews.com
