Know the Terms
It’s not often that consumers bother to read the entirety of the fine print when applying for a credit card. At Dean Myerow Finance we are committed to making sense of creditors’ terms so you can focus on the more important things. In this article I am going to explain these terms so you know what to look for next time you apply for credit.
The interest rate of your credit card is usually listed as annual percentage rate (APR) on the list of terms. APR is your interest rate the creditor will charge you for any balance that is unpaid. If your credit history is young, this number will likely be in the 20’s. Interest rates in this range are considered high. It is important to keep the balance on these account relatively low as to not get slammed by the high amounts of interest every month.
Often, these companies will offer low introductory APR. This means your interest rate will be smaller for a number of months and increase after the introductory period. This practice is done to make applying more attractive. The longer you hold a credit card in positive standing, the more incentive the creditor has to reduce your interest rate.
Your interest rate will effect you depending on how much you pay towards your balance every month. If you pay your entire balance off every month you can avoid incurring any interest. If you decide to pay only the minimum amount or less than your total balance the remainder of your balance will carry over to next month’s bill with interest added.
Your credit limit is the maximum amount of credit available to you on the account. When you first establish credit you will most likely be limited to $300 – $1000 of credit . As your credit history grows older and remains positive, greater amounts of credit will become accessible. Maintaining positive credit history is the key to increasing you credit-worthiness. For tips on improving your credit, read this article on Dean Myerow Finance.
Accounts in Good Standing
Many times credit companies will use this term: “good standing.” An account is in good standing when you are paying your bill on time regularly and you do not exceed your credit limit. If you do not adhere to these fundamental rules and your account falls out of good standing your creditors will report this behavior to the credit bureaus and damage your credit. Your payment history makes up 35% of your FICO score. Neglecting payments will undoubtedly cause your scores to drop dramatically. Generally, minimum payments (although not ideal) are low and should be met every month to avoid damage to your credit.
Additional Fees and Penalties
Depending on the credit card you are applying for you may be susceptible to incurring additional fees. A common additional fee is the late payment fee. When you refuse or forget to make your monthly payment you are risking a number of undesired penalties. You are at risk of damaging your credit, being charged late payment fees and increased interest rates. Added benefits like rewards points and cash back may also be revoked if your accounts are not in good standing.
When applying for credit your intentions should be to keep your account in good standing. If you are considering applying for credit for any other reason you should rethink your strategy completely. As long as you keep these beneficial guidelines in mind when applying for credit you will be in good shape. To reiterate best credit practices here are some rules you should follow:
- Pay as much of your balance as possible every month
- Keep your balances low. Utilization below 30% is ideal.
- Choose your credit cards wisely. Avoid high interest rates where possible.
- Minimize your amount of credit applications per year. Too many accounts in a short amount of time is a bad sign to potential lenders.
- Keep track of your credit usage. Mobile apps are available for most popular credit cards.