by: John Mussi
As important as credit cards are in the modern world, you might be surprised how many people don't know as much about them and how they operate. This isn't necessarily because of any shortcomings of the individuals, but instead because of the ease of using credit cards without having to understand all of their subtleties.
Should you wish to learn more about how credit cards work and the terminology associated with them, read on the information contained below doesn't cover the entire subject of credit cards and how they work, but it should provide you with some additional information and help you to understand a little bit more about these common cards that seem so essential and so mysterious at the same time.
Periodic Rate
The periodic rate of a credit card is the amount of interest that is charged for a single period of the year, usually the span of a single payment. The periodic rate can fluctuate from month to month, particularly in times of economic turmoil or when national interest rates are changing rapidly.
Annual Percentage Rate (APR)
The annual percentage rate (APR) is an average of the rates that are charged over the course of a year, and is usually based upon national interest rates with an additional percentage added which may vary from one card provider to another. By looking at the annual percentage rate (APR), individuals can estimate approximately how much they will have to pay in interest on the balance that they carry throughout the year.
Rewards Programs
A variety of different credit card rewards programs exist, which are additional incentives that are designed to convince individuals to apply for a specific card instead of those that are offered by rival banks or companies. The rewards offered can be just about anything, though the most common types of rewards programs involve receiving cash back from purchases (either instantly or once per year), receiving free airline miles that can be exchanged for airline tickets, instant discounts on purchases (especially large purchases), and even specialized services related to travel, hotel stays, or automotive rentals.
Grace Period
The grace period on a credit card is a brief window of opportunity that a cardholder has to allow them to pay off the card balance before interest is applied. Generally, the grace period on most cards is between 25 and 30 days some cards offer slightly longer or shorter periods, however, and others offer very little in the way of a grace period at all. Any balance remaining on the card after the grace period expires will be charged interest at the current rate.
Introductory Rates
Introductory rates on credit cards serve much the same function as rewards programs, offering a much lower interest rate on the card for a period of a few months so as to get people to take out one company's card over another. Once the introductory term expires, the interest rate of the card returns to the card's standa
rd rate.
Preset Credit Limits
Most but not all cards have preset credit limits, meaning that when an individual receives the card they already have a limit on how much money they can charge to the card before the credit card server declines the transaction. For cards that do not have a preset credit limit, a limit is usually given to the card within a few months of the card being issued. Unlimited cards also tend to require the entire balance to be paid at the end of each month, not allowing a larger and larger balance to be built up over time.
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