Crash Course in Credit Cards

could have on all of us at least twice over in that time. If you’re still concerned or unsure, please feel welcome to contact me about it, either at president@spartan.coop or by swinging by the SHC Office. Currently, every house has at least one member who can vouch that I love talking about all of this with people — it’s truly my pleasure.

CrashCourseinCreditCards

By Leah Rogers, Corporate Treasurer, Vesta

Whatisthedifferencebetweenacreditcardandadebitcard?

Credit and debit cards look very similar, with their card numbers, expiration dates, and magnetic strips. Most of us probably have at least one credit card and one debit card in our wallets. The main differences between credit and debit cards involve the accounts that they are linked to and the amount of buyer protection that they offer. A debit card links directly to a cardholder’s checking account at a bank while a credit card is linked to a set line of credit extended to a cardholder by a bank or credit card company. Understanding the difference between credit and debit cards can help you, as a purchaser, protect yourself from fraud, build a credit score, and even earn rewards on purchases.

Whatarethebenefitsofusingacreditcardvsadebitcard?

First, let’s talk about fraud protection. Fraud happens when someone makes unauthorized purchases using a stolen card or card number. In most cases, a credit card will offer much greater fraud protection than a debit card. In the event that your credit card is used fraudulently, as the cardholder, you would only potentially be liable for up to $50 in charges. Often, there is no cost at all. In the event of debit card fraud, on the other hand, the cardholder is responsible for reporting a lost or stolen card within 48 hours, otherwise their liability will rise to $500. If the cardholder does not report a lost or stolen debit card within 60 days, there is no limit to their liability cost.

Credit cards can also help you build your credit history. There are both positive and negative aspects of credit history, which are based on a cardholder’s usage. On-time payments and low credit utilization ratios are both aspects of positive credit history. Late payments and delinquent accounts will contribute to negative credit history. Credit history information is used to calculate an individual’s credit score. Your credit score can impact things like the interest rates you will be offered on loans as well as rental opportunities. Many credit card companies will offer free credit score monitoring as a perk for being a cardholder.

Many credit cards will also offer cardholders incentives for using their card, known as rewards. Rewards will often be in the form of cash back on purchases, travel points, or the option to exchange points for gift cards to certain retailers. Some rewards cards will even allow you to select a category to earn more rewards in, such as travel, grocery, or dining. If you select a rewards category where you are likely to do the most spending, you can accumulate points even faster. Rewards are a nice perk for using a card, but it is not

recommended that a cardholder go out of their way to spend money solely to receive rewards.

WhatisAPR?

You’ve probably seen advertisements for credit cards that mention a percentage “APR. ” APR stands for “annual percentage rate” which is the interest rate that the credit card company charges on your outstanding balance. In most cases, you won’t have to pay interest if you pay off your balance on time and in full each month.

If you are carrying a balance on your account, you can calculate how much interest you can expect to pay by breaking your APR down into a daily percentage rate (DPR). You can calculate DPR by dividing your APR by 365. Next, you would calculate your average daily balance for the month by adding up your balances at the end of each day during the billing cycle and dividing by the number of days in the billing cycle. To finally calculate your monthly interest, you would multiply your DPR with average daily balance and days in billing cycle. This formula can be visualized as: DPR x Average Daily Balance x Days in Billing Cycle = Credit Card Interest. Keep in mind that the interest that you would pay for each month will differ based on the number of days in the month.

Whatarethedifferenttypesofcreditcards?

Securedcards: Secured cards are a great option for those with little to no credit history or those who are trying to improve upon negative credit history. A secured card differs from a general-purpose credit card in that a security deposit is required to open one. This security deposit serves as the cardholder’s line of credit and is returned to the user upon closing the account with no outstanding balance. Because this type of card requires the user to front the money for their line of credit, most issuers will offer guaranteed approval of applicants.

General-purposecardorunsecuredcreditcards: An unsecured credit card is one that does not require a security deposit to open. These are the most common type of credit card used and allow users to actually borrow money on a line of credit. Unsecured cards are available to applicants of all credit scores, but those with lower credit scores are more likely to be required to pay an annual fee for using the card.

Chargecards: Charge cards are a type of credit card that allow users to charge purchases to a line of credit without paying interest because the balance must be paid in-full at the end of each month. These types of cards often have higher credit limits and more attractive rewards because they do not allow users to carry a balance from month-to-month. Charge cards allow users the convenience of a credit card without the risk of accumulating too much debt.

Commoncreditcardadvice:

I want to conclude this article with some credit card wisdom that you may or may not have heard before. Consider this section as recommendations or things to consider when using your credit card.