Credit Cards: What You Need to Know

You may already know what a credit card is, but you may not realize the vast array of types of credit cards issued by credit card companies. You may also not quite realize all the differences between credit cards and debit cards. 

Let’s go over the information you need to know about credit cards and what they can offer you. Furthermore, we’ll discuss whether they actually make sense for your needs.

What is a Credit Card?

A credit card, issued by a financial institution such as a bank, allows you to borrow money (with interest) from a bank using a line of credit. All credit card companies have specific terms that you, as a cardholder, must follow. When you use a credit card, you agree to repay the credit card company the amount you borrow in addition to any interest charges you incur.

It’s a good idea to understand the following about credit cards: 

  • Annual fee: The amount you pay to a credit card company on a yearly basis.
  • Late fees: Your credit card company may charge you late fees if you don’t pay at least the minimum required amount due. 
  • Annual percentage rate (APR): When you carry a balance from month to month, you’ll pay a fee in the form of an APR. Some cards also carry penalty APRs, which means you pay extra if you don’t make your payments on time.
  • Foreign transaction fees: You may have to pay foreign transaction fees when you use your credit card outside of the country.
  • Perks: Know what types of perks a particular card offers, such as travel points. 
  • Introductory interest rates: Many credit card companies lure you with a low interest rate, then raise the interest rate later on! (Check into this possibility.)
  • Grace period: A grace period is a small amount of time between the end of your card’s billing cycle and the date your payment is due.
  • Credit limit: Knowing your card’s credit limit beforehand will help you stay well below it. Regardless of how you plan on using your credit card, it’s important to stick to a level below your credit limit to achieve the best credit score possible. 

You also want to dig into the right type of credit card that fits you. Let’s get into that next.  

Types of Credit Cards

Did you know that you can tap into several different types of credit cards? Take a look at the following:

  • Standard credit cards: Think of standard cards as the simplest cards available. They extend a line of credit, balance transfers and/or cash advances. They often carry no annual fee.
  • Premium credit cards: Premium cards offer specific perks like exclusive benefits but they usually have higher annual fees.
  • Rewards credit cards: Customers can get rewards, such as cash back, travel points or other benefits based on how they spend.
  • Secured credit cards: Secured credit cards are backed by a cash deposit you make when you open your account. You can usually put down a deposit equal to your credit limit. In other words, if you put down $300, you’ll have a $300 limit. A secured credit card works well for those who have had credit issues in the past. 
  • Charge cards: You can make purchases on a charge card. You must repay the purchases in full by the due date, usually on a monthly basis. Otherwise, you’ll have to pay late fees and face restrictions on further card use. 
  • Balance transfer cards: Usually used to transfer credit card amounts from one credit card company to another, a balance transfer credit card involves the transfer of outstanding debt to another credit card company. 

Credit Cards vs. Debit Cards

What’s the difference between a credit card and debit card? Just to get clear about the differences between the two (because they look so similar!), bank debit cards link to your bank accounts when you open up a checking account. Prepaid cards don’t link to your bank account. You can load money on them ahead of time and use them for purchases.

Take a look at these differences between credit cards and debit cards: 

  • Debit cards keep your spending in check. A debit card can help you keep your spending in check by only allowing you to spend up to the amount of money in your bank account. A credit card allows you to charge up to your credit limit, which can end up being dangerous if you can’t pay the full amount back.
  • No interest on your purchases with debit cards. You won’t pay interest on your purchases with a debit card. However, credit cards require you to pay interest when you don’t make your payments on time.
  • You can use your debit card to withdraw cash from ATMs or get cash back when you make a purchase. Credit cards do not allow you to get cash back through stores when you make a purchase. However, you can get cash back rewards on your purchases or when you withdraw from an ATM or a bank teller. This is called a cash advance. Banks charge a fee when you convert part of your credit limit into cash.
  • No credit history options with a debit card. You can’t build your credit history with a debit card like you can with a credit card.

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Disclosure

College Savings Calculator is a hypothetical tool that demonstrates how monthly contributions, age-based asset rebalancing, and tax savings may impact the long-term value of your account, and do not take into account a portfolio’s underlying investment management fees. Calculations assume the private institution cost inflation is 2.8%, public out of state cost inflation is 3.9%, public in state cost inflation is 2.7%. Portfolio is assumed to have only stocks and bonds. Monthly equity returns are based on the historical data from the 10-year track record of the stock market (SPY). Monthly fixed income returns are based on the historical data from the 10-year track record of the bond market index (AGG). The current college expenses are provided by the collegeboard.org. Actual account performance may differ due to market fluctuations, changes in recurring investments, and asset allocation. The information provided here is for illustrative purposes only and does not represent actual or future performance of any investment option and is not intended to predict or project the investment performance of any security or index.

Ksenia Yudina, CFA, MBA

Founder and CEO

Ksenia is the Founder and CEO of U-Nest, the first mobile app that makes it easy for families to save for college. As an entrepreneur and finance professional, Ksenia has focused on alleviating the impact of student debt on families across the economic spectrum. Previously, Ksenia was a Vice President atCapital Group/American Funds, the largest 529 provider in the U.S. In this role, she played a leadership role in helping parents plan and manage their finances, with a focus on the future well-being of their children. Prior to Capital Group/American Funds, she was founder of a residential real estate company. Ksenia earned her bachelor’s degree in finance from CaliforniaState University Northridge, and an MBA from UCLA’s Anderson School of Management.

Mike Van Kempen

Chief Operating Officer

Mike joined U-Nest in September 2019 as COO. He was previously at Acorns, a financial wellness platform, where he spearheaded the analytics and growth initiatives. Mike successfully expandedAcorns’ paid acquisition strategy, adding over 4.5 million investment accounts. Mike began his career in strategy & analytics at Belly, a Chicago-based loyalty startup in 2012. At Belly, Mike led projects that fueled growth across all aspects of the business, growing the customer base from1,000 to over 11,000 merchants, and accumulating a membership of over 2 million customers.Mike holds a B.B.A. in Finance from Loyola University of Chicago.

Steve Buchanan

Chief Technology Officer

Steve has over 20 years of experience in delivering digital innovations in the financial sector. Steve previously orchestrated product architecture and innovation as a Solutions Architect/ Fintech consultant at Union Bank. Prior to Union Bank, he was Chief Architect and Director of Engineering at Calypso, a Silicon Valley startup, where he architected and built multiple financial solutions. He was also Head of Global Integrations at Globe One in Vietnam where he integrated its Peer-to-Peer lending products into core banking solutions. Steve also built the first ever electronic Equities &Equity Options trading systems for Scottish stock brokers Wood Mackenzie (acquired by CountyNatWest). He is a graduate of Edinburgh University.

Peter Mansfield

Chief Marketing Officer

Peter has built an impressive track record in multiple financial industry segments including payments, credit/prepaid cards and lending. He has played an instrumental role at a succession of financial industry leaders, co-founding companies such as Brand3 (acquired by American Express) and PropertyBridge (acquired by Moneygram), and, as the early stage marketing lead at Marqeta (where he was team member number two), BillFloat and WallabyFinancial (acquired by Bankrate).He has helped fast-growth companies reach an aggregate market value of close to $8 billion. Peter holds a bachelor’s degree in economics from the University of Angila, UK.

Sonya Kidman

Client Relationship Manager

Sonya Kidman is a Customer Success professional with a decade of experience in advocating for consumer through user research and genuine empathy. Sonya specializes in user behavior and regularly attends national and global training sessions in wellness and people analytics tools. Sonya is a true global citizen was born in Russia, grew up in Israel, lived and worked in Canada and NewZealand. That global expertise along with an undergraduate degree in Sociology from Tel AvivUniversity have helped to shape a bullet-prof Sonya's framework to develop a winning customer strategy.

Frank Mastrangelo

Board Member

One part banker and one part technologist, Frank spent his early days with the Annenberg Foundation and PNC Bank. His career path led him to Jefferson Bank, where he led the build-out of its electronic banking platforms, and where he would forge a powerful alliance with The Bancorp co-founder Betsy Z. Cohen. As President and COO of The Bancorp from its inception in 1999 Frank played a critical role in helping the organization become an industry bellwether for branchless financial services and a global leader in payments. For this, he has become a widely respected fintech expert, and thought-leader. Frank was recognized in 2013 by Banking Innovation, a leading industry journal, as an “Innovator to Watch.” and as one of the innovators shaping the future of banking. Frank is a graduate of West Chester University of Pennsylvania.