Credit Cards: Types of Credit Card Accounts
Credit grantors generally issue three types of accounts. The basic terms of
these account agreements are:
Revolving Agreement - You may pay in full each month or choose to make a partial payment based on the
outstanding balance. If you make a partial payment, you will be charged interest
(a "finance charge") on the portion of the balance you do not pay. Department
stores, gas and oil companies, and banks typically issue credit cards based on a
revolving credit plan.
Charge Agreement -
You promise to pay the full balance each month, so you do not have to pay
interest charges. Charge cards and charge accounts with local businesses often
require repayment on this basis.
Installment Agreement -
You sign a contract to repay a fixed amount of credit in equal payments over a
specific period of time. Automobiles, furniture, and major appliances often are
financed this way. Personal loans usually are paid back in installments, too.
Choosing a Credit Card
Credit card issuers offer a wide variety of terms. Consider and compare all the
terms, including the following, before you select a card:
Annual Percentage Rate
(APR) -
The cost of credit as a yearly interest rate.
Free or Grace Period -
Allows you to avoid any finance (interest) charge by paying your balance in
full before the due date. If there is no free period, you will pay a finance
charge from the date of the transaction, even if you pay your entire balance
when you receive your bill.
Fees and Charges - Many issuers charge an
annual fee for granting credit to you ($15 to $55 for most cards, and from $75
on up for premium gold and platinum cards); many also charge a fee for a cash
advance or if you fail to make a payment on time or if you go over your credit
limit. Some charge a flat monthly fee whether or not you use the card.
If you pay bills in full
each month, the size of the annual fee or other fees will be more important. If
you carry a balance, the APR and the method of computing your balance are key
terms to consider.
- Obtain all terms and
fees in writing, including whether a deposit is required.
- Apply directly to the
card issuer. Do not give money to a company that offers to get you a credit
card for a fee - you may not get a card or your money back.
- Beware of "credit
cards" that only allow you to buy from their own catalogs.
- Beware of companies
that promise instant credit, or that guarantee you a credit card "even if you
have no credit history." No one can guarantee you credit in advance.
When shopping for a credit
card, you probably will want to look at other factors besides costs -- such as
whether the credit limit is high enough to meet your needs, how widely the card
is accepted, and what services and features are available under the plan. You
may be interested, for example, in "affinity cards" -- all-purpose credit cards
that are sponsored by professional organizations, college alumni associations,
and some members of the travel industry. Frequently, an affinity card issuer
donates a portion of the annual fees or transaction charges to the sponsoring
organization, or allows you to qualify for free travel or other bonuses.
Next ==>>
Precautions for Choosing or
Using a Credit Card
Table of Contents:
-
How to establish
credit
-
Types of Credit Card Accounts
-
Precautions for Choosing or
Using a Credit Card
-
When You Receive Your Card
- Your Rights and Protections
-
What is a Credit Report (and How Do I Get Mine)?
-
How to Dispute Credit Report Errors
-
Unauthorized Use of Your Account: (What to Do if Your Identity
is Stolen)
-
Help and Resources
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