Credit Cards

A Guide to Credit Cards

What's a Credit Card

Before we can get started, you need to understand what’s a credit card. A credit card is used to purchase items with the promise of pay later. Everything that’s charged on a credit card is compiled into a bill at the end of the month. You have the option to pay it all off at once or incrementally with interested included.

Credit cards are one of the best ways to improve your credit rating. This is because your credit rating will improve if you pay off your credit card debt quickly and on time. The key is to not miss a credit card payment because that can severely hurt your rating.

Let Finance Guru help you choose the credit card that’s right for you.

Credit Cards vs Debit Cards

Many people confused credit cards and debit cards but they’re a huge difference. Debt cards are attached to a checking account and draws the funds immediately when it’s used. If you have no money in the checking account, the card will be declined or overdraw.

On the other hand, the credit card doesn’t take any money from you when it’s swiped. When your credit card is used, your bank pays for the purchase. At the end of the month, you’ll receive a bill with all your charges. If you don’t pay it in full, interest is added to the bill.           

Before Signing Up for a Credit Card...

Next, you’ll need to know how to sign up for a credit card. You can sign up for a credit card at a bank where they use your credit history and income to come up with the perfect card for you. Below are a few terms and ideas associated with signing up for a credit card that you need to know more about.

Credit Limit

A credit limit is the max amount of money you can owe the bank (before interest) at any time. This is to prevent you from defaulting on your loans and the bank never being paid back.

Your credit limit is determined by your credit history, the amount of loans you have and your income. The better your debt to income ratio is, the more available credit you will be given on your credit card.


It costs money to borrow from a bank and that’s what APR is. APR, or annual percentage rate, is your interest rate as a yearly rate. It gives you an idea of what you’re going to pay on your loan over a year.  The way this is figured is using this formula:

(((fees + interest paid over life of loan/loan amount)/number of days in loan term) x 365) x 100 = APR

Does Your Card Have an Annual Fee?

One thing that many people don’t consider when applying for a credit card is the annual fee. While many credit cards don’t have a yearly fee, there are a select few that do. You need to be aware of what you’re getting into before you sign up.

The question is, why do some credit cards have an annual fee in the first place? Wouldn’t people avoid that credit card and choose one without a fee? What attracts people with credit cards with annual fees are the incentives offered with those cards. There are specific rewards that you can only get if you choose a credit card with an annual fee.

Grace Period

Credit card payments can be overwhelming, especially around heavy spending months like December. Thankfully, credit cards offer a grace period to help you pay for these expenses. When you charge something on your card, you have until the end of the billing cycle to pay for that charge. Depending on when you make the purchase, that can be as much as 30 days.

While this makes sense and has already been stated above, it can’t be overlooked. Having this grace period allows many people to accrue money from their pay checks after making the purchase However, you need to be careful when charging on your credit card. It’s very easy to forget or ignore how much you’ve spent and you can build up a lot of debt.

What’s a Minimum Payment?

While we recommend that you pay off your credit card debt as quickly as possible, if not immediately, you should know what a minimum payment is. The bare minimum payment you can make on a credit card bill is called a minimum payment. Only making minimum payments is how you end up paying more for a purchase than its value because each month, interest is added to the payment.

Types of Credit Cards

Not all credit cards are the same. There are several different types of credit cards that have different benefits. We’ll go over each type of credit card and what they offer you.

Secured Credit Cards

Secured credit cards are often offered to borrowers with very little credit history or poor credit history. These cards are secured for the bank, so they don’t miss out on being paid back for their loan. There’s collateral of deposited money into the bank rather than it being a straight loan like a typical credit card.

Unsecured Credit Cards

The opposite of a secured credit card is an unsecured credit card. This is the most common type of credit card available. There’s no collateral for the bank – you borrow the money and then pay it back over time with interest.

Retail Credit Cards

Many stores such as Best Buy, Target, Walmart and GameStop offer retail specific credit cards. These are credit cards that can only be used at that specific retail stores. This is an easy way to build a credit score for people new to owning a credit card. They tend to have lower credit limits and can only be used at one location.

These credit cards are, however, issued through a bank. Many of these stores partner with a specific bank where their credit cards are from. When you need to pay your bills, you’ll need to send the payments to the specific bank (some stores like Best Buy allow you to pay in store, but the money ends up going to the bank).

Since the stores partner with a bank, certain stores offer a credit card that can be used anywhere but offers specific perk with that specific store. One example of that is Best Buy. You can get the Best Buy credit card which can only be used in store and the Best Buy MasterCard which can be used anywhere. Make sure you’re signing up for the correct retail credit card.

Rewards Credit Cards

Rewards credit cards aren’t much different than a typical unsecured credit card. The only difference is that there’s a loyalty program attached. These loyalty programs are to entice people to sign up for their credit card.

Rewards credit cards are a great option but be sure to look past all the great offers that are part of their loyalty program. Sometimes, these loyalty programs are flaunted to hide some negatives such as traditionally high APRs and poor customer service.

Balance Transfer Credit Cards

Balance transfer credit cards are a unique type of card. They allow you to transfer your debt from one account to another at a different bank. You need to find a bank and second credit card that allows you to transfer the debt to it.

What’s the benefit of doing this? If you find a bank with no transfer fee and lower interest rates, it would benefit you to move the debt to that account. You’ll accrue less interest over time if you can’t pay the debt for a while.

Zero Percent Credit Cards

Zero percent credit cards offer a credit card that has 0% APR for a specific amount of time. Usually it’s about one year but it can be up to 18 months. This is a great option for people looking to consolidate their debt into a single payment. It also helps with long term loans (ones that are over a year) because you won’t have to worry about interest for a significant amount of time.

Benefits of Having a Credit Card

While credit cards can be risky if used too frequently, there are many benefits to using a credit card. The most obvious benefit of having a credit card is that you’re able to make purchases for products and services you need immediately. They allow you to get larger purchase such as appliances, furniture and outside fixtures without worrying about having large sums of money saved up in the bank. Just make sure you make your payments on-time.

The other huge benefit of having a credit card is that it can improve your credit rating if used properly. If you pay off your debts in a timely matter, never miss a payment and never have too many debts at once, your credit score will be great. It sounds simple but the allure of buying now and paying later has hurt many users in the past. Be diligent and pay off your debts before using your card again – don’t accrue interest on your purchases.

What to Look Out for with a Credit Card

When using your credit card, be sure to always know how much you’ve spent in the month. Make sure it’s a manageable amount. You want to pay the bills each month without accruing any interest on the purchase – you don’t want to pay more than it’s worth.

If you can’t pay off your credit card payment entirely at the end of the month, make sure you pay more than the minimum payment and that it’s on time. Even if the debt isn’t fully paid off, your credit score will improve by paying on time (it helps your credit history knowing that you’ve never missed a payment).

Find the Best Credit Card with Finance Guru

As you can see, choosing a credit card isn’t easy. There’s a lot to consider and poor usage could put your credit score at risk. Finance Guru can help you make an educated decision. Our comparison tool will help you find the perfect credit card for you. Get started now!

Credit CardsLevon Mock