Credit Card Information: A Complete Guide for Beginners

What are credit cards?

Types of credit cards

• Rewards credit cards. These cards give you something in return for your spending, like cash back or points you can redeem for travel, merchandise, or gift cards. It's like getting a little thank-you gift each time you spend.
• Travel credit cards. Perfect for jet-setters, these cards offer travel-related perks. You can earn miles for flights, get free checked luggage, or enjoy access to luxurious airport lounges. Some even help you avoid costly fees when you use your card abroad.
• Student credit cards. These cards are designed for college students, so they often have lower credit requirements and limits. They're a good way to start building a credit history as you learn to manage your finances and build a credit score.
• Secured credit cards. Secured cards require a cash deposit that typically becomes your credit limit. They're great for people building or rebuilding their credit scores because the application process is less strict than for traditional cards.
• Business credit cards. Designed for company expenses, these cards often offer rewards for business-related purchases like office supplies and work-related travel. They also set up a barrier between personal and business expenses, which is useful for accounting and tax purposes.
• Balance transfer credit cards. These cards let you move debt from one card to another, also known as a balance transfer, often with a low or even 0% interest rate for a certain length of time. They're a very handy tool for paying off debt faster.

Understanding credit card information

• Credit card number. This is your card's unique 16-digit identifier. It's like your card's fingerprint, used to process transactions and link them to your account.
• Cardholder name. A cardholder name is exactly what it sounds like: the name printed on your card. Make sure it matches your ID when making purchases in person or traveling.
• Expiration date. This is the month and year your card expires. After this date, you'll need a new card to continue making purchases. Most lenders send you a new one automatically, so you don’t have to worry.
• CVV or security code. Your CVV is a three or four-digit number on the back of the card. It's an extra security measure for online or phone purchases.
• Magnetic strip. That black stripe on the back contains your card info. When you swipe your card, the reader accesses that information and uses it to make a transaction.
• EMV chip. This is the small metallic square on the front of your card. It creates a unique code for each transaction, making your card more secure.
• Contactless symbol. If your card has this icon, you can tap it for payments instead of swiping or inserting it. Most cards these days allow contactless payments.

6 important credit card terms to know

1. APR. This stands for annual percentage rate. It's the yearly interest rate you pay if you carry a balance on your card. The lower the APR, the less interest, but keep in mind that most credit card APRs are relatively high.
2. Credit limit. The limit is the maximum amount you can charge to your card. If you go over this limit, you might face fees or get declined.
3. Minimum payment. This is the smallest amount you need to pay each month to keep your account in good standing. It's usually a small percentage of your balance, but paying only the minimum can lead to racking up a lot of interest charges over time.
4. Billing cycle. The billing cycle is the time between your monthly credit card statements, usually about 30 days. All the purchases you make during this time will show up on your next statement.
5. Grace period. This is the time you have to pay your balance in full without being charged interest, typically around 21 days after your billing cycle ends. If you pay the whole bill during this time, you can avoid interest charges on purchases.
6. Cash advance. This is when you use your credit card to get cash, either from an ATM or a bank. While it might seem handy, it's usually not a great option, since cash advances usually have very high interest rates with no grace period.

An overview of common credit card fees

• Annual fee. An annual fee is a yearly charge just for having the card. Some cards waive this fee for the first year or don't have one at all. Others, especially rewards cards, might charge $100 or more each year.
• Balance transfer fee. If you move debt from one card to another, you might be charged a small percentage of the amount you're transferring. Even with this fee, a balance transfer can save you money if the new card has a lower interest rate.
• Cash advance fee. Using your credit card to get cash is expensive. You usually pay a percentage of the amount you withdraw, plus a higher interest rate that starts accruing right away.
• Foreign transaction fee. Planning to use your card abroad? Some charge an extra percentage on purchases made in foreign countries. Look for one with no foreign transaction fees if you travel internationally.
• Late payment fee. If you don't pay at least the minimum amount by the due date, you could be hit with a late fee. By law, the typical fee is no higher than $8, but you don’t want to throw away money you don’t have to.

Should you get a credit card?

Keep track of your credit score and control your finances