How Credit Cards Work
Traditional credit cards are the most common form of personal credit. Unlike loans, credit cards allow for repeated purchases up to a maximum credit limit, which is the maximum amount your credit card company will allow you to borrow and have an outstanding balance on that card at one time. With every purchase you make on the credit card, you are borrowing the money until you pay it back.
You will receive a credit card statement (bill) each month that will list four items:
- Outstanding balance: total amount you borrowed for the month
- Minimum payment: amount you must pay to avoid an overdue payment
- Due date: date that the payment is due for the statement period
- Transactions: record of all transactions for the statement period
If you pay any amount less than the full outstanding balance, you will be charged interest in addition to the outstanding balance.
Credit Card Recommendations
Below are recommendations related to credit cards:
- Making a small purchase a month on a credit card and paying it off promptly is a great way to build credit safely without incurring interest or going into debt.
- Use for emergencies as unexpected costs may be more than the funds you have on hand.
- When reviewing credit cards that offer rewards, look for one that offers at least 3% cash back.
- Use your student loan refund to pay off your credit card debt if you used to the card to pay tuition, fees, room, board, or other educational expenses.
- Do not miss a payment, even if you are paying the minimum and contact your card company. Some offer a debt relief plan that can help you manage your card payment.
- If your credit history is good, you may want to investigate a transfer credit card to consolidate all outstanding balances to one card with an introductory zero balance and no transfer fee balance, which will allow time to pay off your cards.
Schumer Box
The Schumer box is required by the Federal Truth in Lending Act (TILA) to disclose the rates, terms, and conditions of any credit card agreement by the issuing company. The table is standard for all credit card companies and is available before applying for a card. It is up to the consumer to review and keep the information the card company has provided.
Credit Card Resources
Besides the credit card resources at iGrad, other valuable credit resources are listed below: