What You Need to Know About Credit Cards

1) Annual Membership Fees
The annual membership fees refer to fees charged by the banks to allow you to continue to use your credit card. Many banks will provide incentives such as annual fee waiver for the first year to entice new users. Sometimes the incentive is extended to three years or more. But the best situation would be to find a credit card which waives the annual membership fee for a lifetime. There are banks that do not charge any annual membership fee. That is very enticing indeed!

2) Interest Rates
Outstanding balances not paid at the end of the month are often charged an interest rate of between 18 and 24 percent per year. Credit card interest rates is one of the highest compared to other types of loans. Even housing loan rates are generally lower than credit card interest rates. Thus, it is not wise to leave an outstanding balance from your credit cards.

If you understand the high interest rates involved and how this is very easily accumulated to balloon your outstanding balance to an inconceivable amount, you will take care to ensure that you pay in full at the end of the month.

3) Monthly Minimum Payment
There is a monthly minimum payment that you need to meet. It is usually a flat fee if below a certain amount. for example, if your outstanding balance is below $1500, a flat fee of $45 is charged. Beyond that, you will be required to pay 3% of the outstanding amount.

You have to understand that if you only pay the minimum amount, the outstanding balance will be charged the interest rates as above. So, you need to understand the risks involved in just fulfilling the minimum amount required by the banks.

4) Late Payment Charge
You have all the good intentions to pay your credit card bill, but you missed the due date by a day or two. You will be charged a late payment fee. The late payment charge can be calculated in two ways. First of all, it can be calculated as a percentage of the past due amount. Secondly, there is often a minimum and maximum late payement charge. Both often applies.

5) Overlimit Fee
Every credit card is issued with a credit limit. This is often twice your monthly salary. This was determined when you applied for the credit card and you had to produce your payslip to verify your abilities to finance your secured credit cards. If you are about to purchase a product or service at a store and you have reached your credit limit, your credit card will be rejected.

But very often, we forget that if the current balance on your account exceeds your credit limit, the bank will charge you an overlimit fee.

Be aware of the different costs, fees and charges involved in owning and using your credit cards. It is pertinent that you understand all the risks involved and attempt to reduce unnecessary charges. This will ensure that you continue to have a good track record in terms of your credit standing.