Credit cards are generally the easiest way to borrow money. Credit cards are accepted around the world by millions of businesses (estimated about 9 million businesses in the U.S. alone that accept credit cards). Given how easy credit cards are to use, their role in personal finance is important. Responsible personal finance dictates that people live within their financial means -- credit cards can encourage excess spending.
In addition to the interest you'll pay on your credit card balances, there are other fees to consider when you use a credit card. Here are a few of the most common:
Application fee: Some credit card issuers charge you to apply for a credit card.
Yearly fee: Some card companies charge holders a yearly fee. This fee can range from $25-$300 -- there are some elite cards that are higher -- and can be waived if requested. This can also be called a subscription fee, membership fee, or participation fee.
Cash-advance fee: Many charge cards allow you to withdraw cash from your credit limit. To do this, they may charge a set fee (say, $3) or a percentage of the cash advance (say, 3%).
Balance transfer fees: To encourage new people to sign up, credit card companies generally encourage balance transfers from competitors onto their cards. This can either be a flat fee or a percentage of the transfer depending on the card.
Late payment fee: If you're late making a payment to your credit card company, you'll likely be assessed a late payment fee.
Over-the-limit fee: If you max out your credit limit and attempt to charge even more to your card, the transaction may be rejected and you may be subject to an over-the-limit fee (like an overdraft fee on a savings account).
Sources: Federal Reserve
With the popularity of credit cards, competition for your business has heated up. One way credit cards compete with one another is by offering rewards for using their cards. These rewards programs can benefit you by giving you cash back or other cash-like rewards such as airline miles or credits towards groceries. Click here to learn more, and compare rewards cards to see which one is right for you.
Creative Card Hacks:
Optimize your rewards programs: Different credit cards offer vastly different rewards programs. Try to mix up your usage of the different credit cards to carry to take advantage of the benefits each card offers. For example, various airlines offer credit cards offering incentives towards future flights when you use their cards to pay for airfare.
Protect yourself against theft/loss by using different cards: Use one credit card to automatically pay recurring monthly charges while using another to pay for in-person transactions. This way, if one card is lost or stolen, it's easier to handle and manage setting up a new one and transferring payments to that card.
Use a zero interest card to pay off other cards: If your credit score is respectable, you can get approved for a zero interest card (generally, a special rate for 18 months). Transfer your existing balance on a higher interest rate card over to the zero interest card and get to work paying off your balance. The nice thing is that you won't be paying 20+% interest rates while you do. Check the fine print -- there's generally a fee to transfer a balance (around 3%) which would be worth it if your outstanding balance is big.
No credit? Bad credit? You still have options:
The credit system rewards good credit. That means it's easier to get approved for credit cards once you have a good credit rating. But what if you have bad credit? Or you don't have any credit history yet?
Here are a couple of ways to get a credit card even with bad or no credit:
Prepaid and secured credit cards: The easiest way to start building (or, rebuilding) credit is to get a prepaid credit card. Prepaid cards require you to load them first with money. When you use a prepaid card, you spend down this balance (with no worries of overspending). Secured credit cards require you to deposit collateral first before you start using the card. Make sure you check that the prepaid card company reports your credit -- some cards do, others don't. After around 6 months of using a card like this, call your credit card company and request to be approved for a standard card.
Find a co-signer: Someone with poor/no credit could be approved for a credit card if they find a co-signer with good credit history. This is a tricky relationship: while you can use the stability and good credit of your co-signer to get approved for your loan, the co-signer can be impacted if you don't borrow/spend responsibly.
Compare Cards Now!
Looking for the best credit cards? You'll find some of the top cards right here, whether your "best" means low interest rates, low annual fees or high rewards.
If it's low interest rates you love, simply click or select the "Regular APR" column to sort by percentage rate. Looking for rewards points instead? Do the same thing — click or select the "Rewards" column and find the card that's perfect for you. Comparing card offers has never been easier!