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Credit Card Facts, From Secured to Unsecured, From Bad Credit to Rewards
Common consumer questions about credit cards...
What is an unsecured credit card? An unsecured credit card allows the cardholder to make charges without first prepaying, based upon the amount of the line of credit authorized by the issuer (credit limits; and interest rates, are typically based upon cardholder credit rating, with lower limits for higher risk people). Credit limits can be from a few hundred dollars to tens of thousands of dollars. Cardholders can use the card wherever its brand is accepted. Get more unsecured credit card information.
What is a secured credit card? A secured credit card does not have a line of credit, and the cardholder can only make charges (purchases) with the card up to the amount which the cardholder has prepaid. Some secured cards have limits on the amount of money cardholders may load, and often charge loading and transaction fees. Cardholders can use the card wherever its brand is accepted. Get more secured credit card information.
What is a merchant (catalog) card? A merchant or catalog card extends an unsecured line of credit to the cardholder, but the cardholder may only make purchases through a particular merchant or catalog (similar to a store charge card). Although the purchase power is limited, some credit limits are $7,500 even for bad credit members, which is a large amount to extend to high risk people. Many of these are marketed as a platinum credit card, although they are quite different from a typical unsecured platinum credit card.
What is a store charge card? A store charge card (such as a Sears Card or Wal-Mart Card) extends and unsecured line of credit to the cardholder, but the cardholder may only make purchases through that particular store. Some store charge cards also offer special discounts or cashback rewards.
What is an ATM card? An ATM card is one that enables the cardholder to withdraw funds from his/her bank checking account through an ATM machine. Many ATM cards charge a transaction fee. Cardholders may also face additional transaction fees when using the ATM machines of banks other than their own. Cardholders can use the card wherever its brand is accepted. Learn more about ATM cards.
What is a debit card? A debit card is like a secured credit card, yet some banks also provide overdraft security which is typically a small, unsecured line of credit (such as $500). Some debit cards also have ATM access. Cardholders can use the card wherever its brand is accepted. Get more debit card information.
What is a student credit card? A student credit card is specifically designed for young, beginner cardmembers to help them establish credit and/or to offer a more convenient way to pay bills without having to carry cash around campus. Some offer special rewards. Cardholders can use the card wherever its brand is accepted. Get more student credit card information.
What is a business credit card? A business credit card; offered as either a secured or unsecured credit card, can help businesses track and categorize expenses, as well as enable employees to make purchases on behalf of the company. These cards can be used for office supplies and for travel. Some business credit cards offer perks such as travel rewards and cashback on purchases. Cardholders can use the card wherever its brand is accepted. Get more business credit card information.
What kind of credit card offers can people with no credit or bad credit expect to get?
- Secured Card. Tip: People with no credit or bad credit should seek a card that reports to at least one major credit bureau (Experian, Equifax, TransUnion) so their timely payments can be reported.
- Unsecured Credit Card. Typically, people with bad credit or no credit are limited to low credit limit (a few hundred to a couple thousand dollars) unsecured credit cards, at least until they prove their credit worthiness over time and are offered an upgrade by the issuer or by a competitor. Generally there are no rewards offered. Cardholders can use the card wherever its brand is accepted. Get more bad credit card information.
Who are major credit card companies?
There are other credit card 'names' such as 'Chase', but those entities use either the MasterCard or Visa credit card company brand.
What are minimum qualification requirements? You must be at least 18 years old, a U.S. citizen or permanent resident alien and have a regular income. Depending upon the type of card and the issuer's requirements, the issuer may examine your income and credit report to see if you meet approval standards. Not only will this determine if you get approved, but also the credit limit (if any), the interest rate and perks (again, if any).
Should I apply for every credit card and keep the best one I get approved for? No. Each credit card application you submit may launch a credit inquiry (depending upon the card and issuer requirements), and each inquiry stays on your report for one year. If there are 10 or more inquiries during a 6 month period, a red flag is raised to creditors who may view you as too desperate for credit and hence a high risk. Shop smartly for credit cards and don't apply for cards that you won't be happy with and which you won't qualify for.
What should I do if I get turned down for a credit card? If the issuer reviewed your credit report as part of the rejection decision, you are entitled to an answer why. Call the issuer and ask. They may not tell you, but you are entitled to receive a free credit report so you can see the reason for yourself. If it's for an easy-to-fix problem (such as mispelled name or date of birth), ask the issuer if they'll issue you the card if you make the correction. If you get multiple rejections, perhaps you are simply applying for credit cards reserved for people with much better credit than you, and you should look for other types of credit cards (or for a secured card).
What is the worst credit card mistake? Not paying your charges in full each month. Many people make purchases in hopes they'll have the money in the future to repay the charges, but end up having to make monthly payments on a balance that continually accrues interest. If you cannot payoff charges in full, pay down as much as you can. Always pay more than the minimum required by the issuer. If your credit is good, consider switching, transferring the balance to a new card that offers a 0% introductory rate on all balance transfers. During the introductory period, get the credit card paid off. The second biggest mistake is not making payments on time, and being stuck with late fees and over-limit fees.
What does a credit card's APR mean? APR means Annual Percentage Rate, which is a yearly fixed or variable rate that measures the cost of credit (charges). It reflects the total yearly cost of the interest on a loan, expressed as a percentage rate. The credit card company must inform you about the APR before you accept the card, and must display the current rate on your credit card statements. Beware: Be careful to view the correct APR rate for purchases. Sometimes the issuer may highlight a promotional or introductory APR rate. Also, some credit card issuers offer a variable APR that is linked to an index performance. The rate change affects the finance charge on your account. A low fixed rate is usually better that a low variable rate. A fixed rate card must give you 15 days notice of a rate change, whereas a variable rate moves regularly without notification of the rate change.
What is a grace period? A grace period is a period of time (between the transaction date and the billing date) during which the lender does not charge any interest, unless there is a balance carried over from the previous billing cycle. Grace periods are typically between 20-30 days. If your card includes a grace period, the issuer must mail your bill at least 14 days before the due date so you have enough time to pay. People who carry a balance on their cards do not receive a grace period and finance charges begin the date a purchase is made with a credit card. That's why it's important to payoff charges in full month-to-month to avoid; or reduce, interest charges.
What are other typical credit card fees?
- Annual Fee
- Balance Transfer Fee
- Cash Advance Fee
- Closed Account Fee
- Late Payment Fee
- Over Limit Fee
How are finance charges calculated? Currently (as of the date of this article) there are six different ways used to calculate finance charges:
- Adjusted Balance: The adjusted balance method uses the balance at the beginning of the billing cycle and subtracts any payments you made. Purchases are not included in the balance. This is the least expensive method of calculating finance charges.
- Average Daily Balance: The average daily balance method uses the average of your balance during the billing cycle. Each day's balance is added together and divided by the number of days in the billing cycle This is the most common way finance charges are calculated.
- Daily Balance: The daily balance method uses the balance each day of your billing cycle. Each day's balance is multiplied by the daily rate and added together.
- Double Billing Cycle: The double billing cycle uses the average daily balance of the current and previous billing cycles. This is the most expensive way finance charges are calculated.
- Ending Balance: The ending balance method uses your beginning balance minus payments plus charges made during the billing cycle. The number of days in the billing cycle doesn't affect the amount of the finance charge.
- Previous Balance: The previous balance method uses the balance at the beginning of the billing cycle which is also the ending balance of the last billing cycle. No payments or charges are included. The number of days in the billing cycle doesn't affect the amount of the finance charge.
What is a cash advance? Some unsecured credit cards offer a cash advance (not the same as a payday loan cash advance). A credit card cash advance; in addition to interest, may also impose a fee. Often cash advance checks are included in monthly billing statements, whereby all the cardmember needs to do is write out an amount (subject to a limit) and cash the check(s). The interest rates are typically high, and start the moment the check is cashed.
How can I get free, preapproved credit card offers to come to me? Join our free credit offers newsletter, which includes new credit card offers as we receive them.
What do I do if my credit card has been lost or stolen?
- Immediately contact your credit card company and report your card as stolen.
- Review your billing statements carefully for the next few days for charges that you have not made on the card. If there are some, report it to your card issuer.
Get more information on personal protection against fraud and ID theft.
How can I stop getting credit card offers in the mail? Call 1-888-5OPTOUT (1-888-567-8688). Note: Opting-out may not eliminate all credit card solicitations.
Apply for a rewards or a bad credit card. Choosing between the best credit card offers can be hard. Consider a no interest 0 intro balance transfer, a pre-paid debit card or a card with benefits like travel, airline sky miles, discount and vacation perks. Apply for a joint credit card or a business credit card.
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