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Credit cards explained

By building credit information and always paying on time, interest rates for loans needed later are lower. For many individuals, the first step in building a credit score is through using a credit card. Unfortunately, many young adults do not understand credit cards and need to learn the basics before they are able to build up credit information for lower interest charges in the future.
APR: The first consideration when seeking a credit card is the annual percentage rate or APR, charged on the account. The APR charges relate to the interest rate over the full year time period. All credit cards will disclose the interest charges in the terms and conditions provided when the card arrives. The APR rate is calculated on a yearly basis, but charged in small parts each month. For example, a credit card with an annual interest charge of 20% will have a monthly charge of around 1.67% on the current balance.
Added Fees: Beyond the interest rate, credit cards also have other fees to consider. Fees might include an annual fee, an over limit fee, a late fee, transfer fees and other fees related to extras added on the card. In most cases, the fees are added as a result of paying the card late or charging more to the account than the card allows. Many cards do not have an annual fee, but if the card does it is a once-a-year charge added to the account for the privilege of using the credit card. Transfer fees only occur if the card takes on a balance transfer from another credit card. The fees are added one time based on the situation. If it relates to late payments and the next month is late, the credit card company will add the fee again. The same is true of other actions that cause added charges.
Repaying the Card: Each month, a minimum monthly payment charge is added to the credit card account. This is the lowest amount it is possible to pay based on the current balance and the company’s calculations. In most cases, the majority of the payment is interest. When trying to lower the balance, it is important to pay more than the monthly minimum because each dollar beyond the minimum is put directly into the existing balance on the card. Credit cards are simple to understand when the basics are considered. They charge an annual interest amount that is broken down on a monthly basis and require monthly payments to improve and maintain good credit scores. When used responsibly, credit cards are a great tool to build up credit ratings for lower interests in the future.


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