The world is being swept by the power and convenience of credit cards. Credit cards can be an incredibly handy tool and service in our era of presents and purchases. The question increasingly is becoming not whether or not you have a credit card, but how many do you have? And which ones?
Credit cards have been around for quite a while now, and most consumers seem very comfortable with their terms and uses. Sometimes the things that are the most common and the things we use most often are actually the least understood. Credit cards aren’t all the same, just like banks, cars, or even bags of potato chips aren’t all the same. Our world of variety and options has created many choices within the realm of credit.
Unsecured vs. Secured
Credit cards can be broken down into two different groups – secured and unsecured cards. Secured cards are “secured” by the holder of the card with a deposit. This ensures payment of the balance if a holder defaults on his payment. They are generally aimed at customers with limited or damaged credit histories who would not qualify for the traditional unsecured credit card.
Unsecured cards are not guaranteed or backed by any collateral. Most credit cards are unsecured. This is one of the principal reasons why they carry higher interest rates than other loans, which generally employ property or cash as collateral.
KNOW YOUR RATES! Here are some important terms to know when weighing card benefits and options.
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APR – This is a very important term to know when looking at credit cards. The “annual percentage rate” (APR) tells you how much the credit costs, expressed at a yearly rate. In other words, it is the yearly interest rate. It is shown when you apply for a card, when you open an account, and it also appears on each bill.
Periodic Rate – The periodic rate, as opposed to the APR, is the rate that the card issuer will apply if a balance is outstanding to determine the finance charge for each billing period.
Variable Rate – A variable rate is a term used to describe a plan that allows the company issuing the card to change the APR when interest rates or economic factors change. These rate changes may raise or lower the amount of the finance charge that you pay on your account. The card issuer is required to notify you of the new rate.