about credit Cards

Credit cards are called revolving credit because you borrow money – or make charges – and as you pay the money back, your credit becomes available for you to use again and again. No one card is right for everyone. The terms and conditions for credit cards can vary, so it’s important to learn about the costs for any credit card.

Selecting the right, or best card is one that works for your personal and financial situation. Consider which cards are accepted where you shop, interest rate, annual fee, balance transfer fees, sign up bonuses, and rewards such as cash back, travel, etc.

young woman with debit card

HOW CREDIT CARDS WORK

Every time you use a credit card, you’re borrowing money from the bank that issued you the card. You may start a credit card transaction in a store, online, or using an app on your phone.

Once the purchase is approved, the bank credits the business and records the charges to be billed to you, the cardholder. The bank pays first and you have to pay them back – with interest.

CREDIT CARD STATEMENTS

Every month, your credit card company will send you a monthly statement either by mail or email. Each statement will list the details of your account, including outstanding account balance and interest owed.

Statements and statement history can be found online or on your credit card’s mobile app. You may also be able to order prior months’ statements. For more details about Credit Card Statements, visit the Credit Cards – Management resource.

front of an atm card

TRUTH IN LENDING ACT (TILA)

A federal law signed in 1968 that says creditors have to give people complete and accurate information about credit costs and terms. It requires credit card companies to provide people the following information:

  • Finance charges in dollars and as an annual percentage rate (APR).
  • Credit issuer or company providing the credit line.
  • Size of the credit line.
  • Length of the grace period, if any, before payment must be made.
  • Minimum payment required.
  • Annual fees, if applicable.
  • Fees for credit insurance (if any), which pays off your loan if you die or become disabled before the debt is fully repaid.

credit cards vs debit cards

Credit cards are different than debit cards. Credit cards act like a loan and are not linked to your checking or savings account. Credit cards can also help you in an emergency if you don’t have the money available. But, because a credit card acts like a loan, you are charged interest.

Debit cards are tied directly to your checking account, which will help you control your spending. Both cards can be used at millions of places and are very convenient. Debit cards work differently! When you use a debit card at a store, you may have the option of selecting “debit” and entering your PIN, or selecting “credit”. Either way, the money is deducted from your checking account. Heads up some cards charge a fee for use in a foreign country.


RESPONSIBLE USE OF CREDIT CARDS

In general, people spend more when they use credit cards instead of cash. It can be easy to get in over your head with credit card debt before you know it and we don’t want that to happen to you. So as a general guideline, keep your credit card debt low enough so that your required payments are no more than 10% of your monthly income.

Great advice! And to keep your credit card spending under control, try this strategy. Use cash or your debit card for everyday purchases and save your credit card for buying larger, more lasting items.

That is a good strategy to consider. Remember, when you use your debit card, the money is deducted directly from your checking account. But with a credit card, you’re borrowing the money. So before you charge, you need to think through not only what you’re going to buy, but how you’re going to repay.

When you’re starting out with credit cards, consider having just one card with a low spending limit. That will help you start to get comfortable using credit and paying it back, and it will stop you from getting into big trouble with debt.

Another good guideline is to keep your credit card balance below 70% of your limit at all times. This will help you build credit by showing lenders that you can control how much credit you use. And it leaves enough credit available in case of an emergency.

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