What you should know about Credit Card Costs

In the last three decades credit cards have moved from a rarely used status symbol for the rich to a ubiquitous part of society. Every major bank will issue one if you have good enough credit, sometimes they will even offer you more than one. Since there is so much unused credit available, often times credit card issuers will even issue one without looking at your credit report!

So just what is a credit card? Physically speaking, A credit card is a small plastic card, with a magnetic strip which will provide information to a merchant who swipes a card in a magnetic card reader when you want to make a purchase. The merchant’s computer system will take that information, and the computer will contact your bank through a computer network (such as the VISA transaction system), and add a charge on the account corresponding with your credit card as long as your card is active. Your card can be deactivated if Visa thinks your card has been stolen or if you are over your credit limit. If the charge is approved, the merchant will have you sign a receipt indicating that it is you are agreeing to the charge, and then you will be given your goods and a receipt.

You can make charges throughout the month, and at the end of the month you will receive a statement in the mail. The statement will contain several important pieces of information. It will provide you with a list of all of your charges, you should look through them and compare them to the receipts you were given. If there are unknown charges, chances are your credit card information was stolen and you need to call your bank immediately and inform them of that fact.
Other than the list of charges on your card, you will see a minimum payment, which is the minimum amount of money the bank will accept as a payment without putting you in default. You will also overall balance, which is how much money you owe the bank. If you are in default, the bank will often raise your interest rate and charge you a number of additional fees which can be quite steep.

If you had a balance carry over from the previous month, then there will be what is called a finance charge. A finance charge is the amount of interest that the bank charges you to borrow their money. The finance charge is calculated based on the interest rate in your cardholder agreement. For example, if your annual percentage rate was 16%, and you had a balance of $1000 on your credit card, you would be charged for one month’s worth of interest on your statement, which would be about $10.