7 Basic Credit Card Features

Pieces of several credit cards
© Mark Viker / Creative RF / Getty

Credit cards differ in the terms they offer, but most credit cards share some basic features. Understanding these features not only helps you choose a credit card, it also helps you use your credit car wisely once you have one.

Credit Card Type

Many credit card users, beginners and even experienced users, are unaware that there are several types of credit cards.

Here are just a few of the most well-known types:

  • A standard or plain-vanilla credit card has no extra perks or benefits, but may offer a low interest rate to attract customers.
  • A balance transfer credit card offers an introductory interest rate and sometimes a low fee on balance transfers.
  • A rewards credit card pays rewards on the purchases you make.
  • A premium credit card has lots of perks and benefits like concierge services, sometimes for a higher annual fee.
  • A retail credit card can only be used at the store associated with the credit card.
  • A secured credit card requires you to make a deposit against the balance and is a good option for rebuilding bad credit.

Credit Limit

Your credit card may come with a credit limit which is the maximum amount you can charge on the card. This includes purchases, balance transfers, cash advances, finance charges, and fees. When you go over your credit limit, your creditor may charge a fee, an over-the-limit fee.

Some credit cards do not have a present spending limit, but instead allows you to spend an amount it thinks you can pay off based on your income, credit history and spending factors. The spending limit isn't set in stone and can change from month to month based on your purchasing and payment habits.

Balance

The balance on your credit card at any given time is the total amount you owe including purchases, finance charges, and fees. The higher your credit card balance, the lower the available credit you have to make additional purchases. Higher balances raise your credit utilization and lower your credit score.

You can check your most recent credit card balance online or by calling your credit card customer service via the number on the back of your credit card.

APR

The annual percentage rate, or APR for short, is the interest rate applied to balances carried beyond the grace period. Credit cards can have different APRs for different types of balances, e.g. balance transfers or purchases. Balance transfers and cash advances often have higher APRs than for purchases.

Your APR may increase when you're late on your payment to a particular creditor, and other creditors if your card agreement includes a universal default clause.

APRs can be fixed or variable. A fixed APR can change, but the creditor must inform you in writing before changing the rate. A variable APR changes from time to time based on changes to the underlying index rate.

Grace Period

The grace period is the amount of time you have to pay your balance in full before a finance charge is applied.

If you carried a balance from the previous month, you may not have a grace period for your new purchases. In addition, balance transfers and cash advances typically do not have a grace period.

When balances don't have a grace period, interest is applied right away.

To find out the length of the grace period refer to the credit card application or your credit card agreement. Your monthly statements should also include the number of days in the grace period.

Rewards and Perks

Some credit cards offer rewards and incentives for using their credit card. Credit card rewards come in several different forms: cash back, miles points to redeem, and discounts on future purchases.

You can earn rewards on some or all of your purchases and redeem once you've accumulated a certain amount depending on the rewards program. Not all credit cards offer rewards on purchases.

Credit card perks vary by credit card and may include things like rental car insurance, extended warranty, purchase and price protection, and rental car insurance. 

Credit Card Fees

There are different situations that you might incur credit card fees. Annual fee, finance charge, late fee, and over-the-limit fee are some of the most common fees. You may be able to avoid some fees based on how you use your credit card. For example, you can avoid paying a late fee by making your credit card payment on time each month.