How to Choose the Right Credit Card – Part 3

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Part 1Uses of Credit Cards, Finding the best rates, Different Types of Rates.

Part 2Credit Card Fees, Credit Limits, Grace Periods

Interest Charges Calculations

Current account balance and the interest rate are the two primary factors typically used to determine the amount of your Interest Charges every month.

The balance may be calculated in 3 different ways.

  1. Calculated over 1 to 2 billing cycles.
  2. Calculated using the adjusted balance, average daily balance or the previous balance.
  3. Calculations may or may not include recent purchases within the current grace period.

Typically the lowest interest charges will accrue with the 1 cycle, with no recent purchases included is the calculation used.

Minimum Finance Charges

Most credit companies have minimum finance charges.  For example if you owe only $50, the calculated interest charge is $2, but the minimum charge is $5, you will pay $5.  The extra will be applied to the principle balance on the account.

Using The Cash Advance Feature

Some credit cards have a cash advance feature.  This allows you to pull cash out from the credit card, and your balance will increase in the amount of cash you withdraw. Cash advances can usually be accessed from ATM machines or the credit company will send you checks in which you use to get cash.

When using this feature there are a few things you need to know. Most credit card companies treat cash advances differently then regular purchases.  They may have different rates and fees.  Keep in mind these things when using a cash advance.

  • The Interest Rate is Usually Higher for Cash Advances.
  • There are usually fees associated with cash advances.
  • There are typically limits to the amount of cash you can withdraw.  A percentage of the balance or a fixed amount will determine the maximum cash advance you can receive.
  • Sometimes your monthly payments will apply first to standard purchases until they are paid off.  At that point payments will be applied to cash advance money.  Since the interest is usually higher on cash advances this means the credit company can collect more interest charges on the cash advance money.  This is why they do not pay that money off first.  Often times you can request to have extra payments applied to the cash advances.

Use the cash advance feature with caution. Read the terms of service regarding cash advances before you ever use the feature.  After fees and higher interest cash advances can be pretty expensive.

Standard, Secure and Premium Credit Cards

  • Standard Credit Cards – A standard credit card is what most people qualify for.  There are usually no extra special features, and do not typically have annual fees.  The high credit limit is usually not as high as the premium cards, but can be increased with good credit history.
  • Secure Credit Cards – Secure credit cards are normally for people with bad credit, no credit or people that are trying to rebuild their credit.  Secure credit cards require a security deposit, the amount of which will help determine the high credit limit.  The more the security deposit the higher the credit limit.
  • Premium Credit Cards – Premium credit cards often have annual fees, but come with all the bells and whistles.  They usually have warranties, protection, traveler bonuses and many more.  Usually the premium credit cards have the highest credit limits.

Credit Cards Special Features

Credit cards, especially the premium cards discussed above, can come with special features to benefit customers and entice borrowers to use the credit card more.  Although there are hundreds of different features out there, here are a few of the more common features you will see.

  • Air Miles – Credit cards often offer air miles for every dollar spent, which can be redeemed for airline tickets to fly around the world.  Usually for every $1 spent you receive 1 mile.  Some cards or certain usages of cards will give you 2 miles for every dollar spent.  For example a credit card from a specific airline will offer you double the miles if you purchase your airline ticket through them, using their card.
  • Rebates – Rebates are a popular feature.  You can receive money back for every purchase you make.
  • Warranties – Credit card warranties will help protect the purchases you make using the credit card.
  • Rental Car Benefits – Many credit companies will provide rental car insurance or special offers, like upgrades, if you use their card to rent the car.
  • Travel Insurance – Protect your travels with insurance from some credit cards.

There are some other credit card features that can be purchased. These features are usually insurance type deals that will help pay your bill if you become unemployed.

Many of these features either cost money or come with cards that have annual fees.  Be sure you will use the features, otherwise you will just be throwing your money away.