Everyone pretty much knows how a credit cards work. You borrow money from your credit card company, buy the things you want and pay the money back later. It's the perfect setup, but if you aren't careful and aware of all of the facts, you can find yourself in a bit of financial trouble.
Making your first purchase with your credit card is a great feeling. Instead of having to save up to buy the items you want, you can get it right away and don't have to think about actually paying for it until your credit card payment is due. Before you go and sign up for that shiny, new piece of plastic that can buy you anything you want, or before you continue to use it, you may want to double check your knowledge to ensure you know all of the important facts about credit cards and your responsibilities as a cardholder.
1. Your annual percentage rate can increase.
When you first get a credit card, your rate will typically stay the same the first year you have it. Once that year ends, your credit card company will likely increase your rates. This can be done without your permission and they can increase the rate as much as they want.
2. You can negotiate your rate.
Just because your credit card company has decided to increase your rate, doesn't mean you have to pay it. You can try to negotiate with them and get them to agree to keep your rate the same or close your account. Since they probably want to keep you as a customer, they will agree to keep your rate the same, but find something else to change, like your minimum payments.
3. It can negatively impact your credit.
Source: U.S. News
Some people decide to get a credit card because it can help build their credit. Of course, that is only if you make your payments on time and pay the full amount instead of the minimum. Failing to be responsible with your card can lead to your credit going down and future creditors being reluctant to take you on as a customer.
Related Article: 3 Things You Didn't Know Could Hurt Your Credit Score
4. Interest is calculated using the average daily balance.
Credit card users have often been under the impression that they only pay interest on the amount left after they have made a payment. Unfortunately, this is inaccurate. When you are charged interest, this amount is based on the average daily balance of the month. This is why it is best to pay the amount in full before you are even charged interest.
5. Closing a credit card account isn't always a good idea.
Source: Nerd Wallet
If at any point you decide that you no longer need a credit card, you may be tempted to call up your credit card company and close your account. While it makes sense that you want to close your account it can negatively impact your credit score if it is one of your oldest lines of credit and/or you don't have very many forms of credit currently open. If that's the case, you're better off with cutting up the card, but still keeping the account open.
6. Credit limit is not the only thing you should be comparing.
Ideally, when people sign up for a credit card, they are looking for one with a high limit. Being able to charge hundreds of dollars at a time may sound like a good idea, but if you don't really have the money you should be looking at something with a smaller limit. Also, checking out the APR, rewards programs and cashback offers associated with the card would be a good idea, too.
7. Balance transfers doesn't eliminate debt.
If you've transferred your balance from one card to another in hopes of getting out of debt, this won't exactly solve the problem. The interest rate may be lower on this card, but you still have to pay this debt.
8. Your statement isn't always accurate.
Have you ever looked at your bank statement and seen a charge that shouldn't be there? The same thing can happen with your credit card statement. Be sure to look over your statements every month, so you can report any activity or charges you didn't authorize.
9. Avoid cash advances.
Cash advances may seem like the perfect solution to your lack of cash flow, but there are fees you are charged for this. For example, you might withdraw $100 from your account, but there may be a $50 fee tacked on plus the interest you'll have to pay on top of that.
10. Limit the number of cards you have.
Having a lot of cards can be tempting. There's always a new sign-up bonus, rewards points, and other incentives to chase. However, it can also get to be very confusing to keep track of them all, making you more likely to forget about a balance and incur interest. Be sure to have everything organized and avoid opening up too many accounts.