Credit cards allow you to buy goods and services and pay for them over time, or in a lump sum after your statement arrives. Most credit cards work the same, but they can be very different because of their features. The Federal Trade Commission says you should review all the terms of a credit card agreement before applying, and watch for hidden costs that may make the card less appealing than you thought.
Annual Percentage Rate
The FTC describes the annual percentage rate (APR) as a measure of the cost of credit, expressed as a yearly rate. The APR determines how much you will pay in finance charges if you elect to carry a balance on your card. The APR must be disclosed before you apply for the cad and must appear on your statement each month. In August 2010, the standard APR on credit cards ranged from around 12 percent for full-featured bank credit cards such as a MasterCard or Visa to more than 20 percent for some department store cards. You should seek the lowest interest rate possible if you plan to carry a balance on your card.
Fees
Credit card companies also earn money from fees, and you should compare all fees before applying for a card. There are numerous fees, including monthly maintenance fees, activation fees, annual membership fees and even inactivity fees. On its website, the FTC sites one example of a card being issued with a $250 credit limit---and $150 in fees the first month.
Credit Limits
Credit limits vary depending on the type of card and your credit report and score. A recent college graduate applying for credit for the first time might qualify for a $300 credit limit. Someone else with an excellent credit history for 30 years might qualify for a $15,000 credit limit. Bank credit cards generally offer higher credit limits than department store cards.
Specialty Cards
Virtually all credit card companies target different markets for their cards. For example, there are secured credit cards for people trying to establish or rebuild their credit. These cards require you to place cash in a savings account, which acts as collateral for the card. The amount on deposit becomes your credit limit. There are also high-end credit cards marketed to people with high incomes. These cards are often marketed as "black" or "platinum" cards and generally offer very high credit limits, along with expensive annual fees.
Balance Transfers
Some cards offer balance transfers, which allow you to move debt from one or more credit cards to another. People typically use balance transfer options to transfer high-interest credit card debt to a card with a lower interest rate. Some credit cards with balance transfer options will waive finance charges on balance transfers through a promotional period of up to a year. However, after the promotional period the interest rate could skyrocket, and you could be subject to additional fees as well.
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