The Balance's Guide to Credit Cards
Frequently Asked Questions
How do I apply for a credit card?
You can complete a credit card application in several ways: online, on a paper application, or on the phone. Applying for a credit card online is convenient, and you can get a decision almost immediately. Be prepared with personal details like your date of birth and Social Security number, details on income and housing costs, and information on any authorized users you want to add to the account.
How many credit cards should you have?
The “right” number of credit cards to carry depends on your spending habits, your income, and how you manage your credit. But according to the credit bureau Experian, the average American credit cardholder has 3.84 of them, which may be a useful baseline. Whatever the number, the most important thing is not to let them blow up your budget.
Can you withdraw money from a credit card?
Most credit cards allow you to access cash using your card account. It’s called a “cash advance,” and generally, it’s very expensive. You’ll pay fees for the advance, a high interest rate on the amount you withdraw, interest begins to accrue immediately, and you will reduce the amount of credit you have available to you.
Can you get cash back on a credit card?
Yes, if your credit card is a cash-back rewards card. These cards offer a small percentage of cash back on most types of purchase transactions. The best cash-back cards return 2% on every purchase. Some may offer a lower base rate (like 1%) but a higher one in specific categories, like gas or dining out (as high as 5%).
Does closing a credit card hurt your credit?
Closing a credit card can hurt your credit score. This is because a key part of your score is the “credit utilization ratio.” That’s the amount of total available credit you have spent or used. By closing a credit card, you reduce the amount of credit available to you, which worsens this ratio.
A credit card is a small plastic or metal card issued by a financial company. It allows you to make purchases by borrowing money up to an established limit.
Revolving credit is a type of credit that can be used repeatedly up to a certain limit as long as the account is open and payments are made on time. With revolving credit, the amount of available credit, the balance, and the minimum payment can go up and down depending on the purchases and payments made to the account.
Credit Utilization Ratio
Your credit utilization ratio compares your credit card balances to your credit limits. In other words, it's how much you're currently borrowing compared to how much you could borrow.
Annual Percentage Rate (APR)
The annual percentage rate (APR) of a loan is the total amount of interest you pay each year. This is calculated before compounding interest is taken into account. APR is represented as a percentage of the loan balance.
Credit Card Debt
Credit card debt is a type of revolving debt. You can keep borrowing month after month as long as you repay enough that you never owe more than your credit limit.
Most credit cards allow for a grace period, which is the amount of time you have to pay your balance in full without incurring a finance charge. The grace period usually starts on the first day of the billing cycle and ends a certain number of days later.
Cash back is a bonus paid to credit cardholders who make qualifying credit card purchases.
Variable Interest Rate
A variable interest rate is one that can fluctuate over time, causing your loan payments to change. Variable rates are common on credit cards and home equity lines of credit (HELOCs).
An EMV chip card is a payment card that’s equipped with a secure computer chip that is all-but-impossible for thieves to copy.
Co-Branded Credit Card
Co-branded credit cards are credit cards backed by a credit card network, card issuer, and a consumer brand such as Delta, Target, or Marriott.
Credit Card Network
A credit card network authorizes, processes, and sets the terms of credit card transactions, as well as transfers payments between shoppers, merchants, and their respective banks.
Consumer Financial Protection Bureau. "Will Closing Credit Cards I Already Have Increase My Credit Score?"
The Office of Financial Readiness. "Understand The Ins And Outs Of Credit."