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Business 242 views Aug 28, 2018
What You Need to Understand About Credit Cards before Applying

As with any financial decision, applying for a credit card isn’t something you should take lightly. While a credit card may just seem like a little piece of plastic that offers a quick payment method, if used properly this type of card can improve your credit rating while also offering great rewards.

If you’re considering applying for a credit card, there are some things you’ll want to know before signing the dotted line. Keep reading to learn the ins and outs of being a credit card holder.

Secured vs. Unsecured

Not all credit cards are equal as you will find that lenders offer both secured and unsecured credit cards. A secured credit card is backed by a cash deposit that's usually equal to the card's credit limit. This deposit acts as collateral and ensures the creditor doesn't lose money in the event of nonpayment. This type of card is ideal for those who don't yet have a solid credit history and therefore may not get approved for an unsecured card.

On the other hand, an unsecured credit card isn’t backed by any type of collateral. Instead, your credit limit is based on your credit history along with your income. Because card issuers don't have collateral, there's much more risk associated with an unsecured card. If you’re applying for your first unsecured credit card, you'll likely need a cosigner.

Have a Sound Reason to Get One

Many people get credit cards for the wrong reason. You never want to apply for a credit card because you need to make a large purchase or because you’re looking for ways to afford items you can't afford with your paycheck alone. To start off on the right foot with using a credit card, it's important to ensure that you’re applying for the right reasons.

One of the best reasons to get a credit card is to build your credit. Having good credit makes it much easier when applying for loans in the future, especially large loans like a car or a mortgage. The better your credit, the more favorable loan terms and interest rates you'll be approved for.

Having good credit is also beneficial in that you may be able to:

  • Get lower insurance premiums
  • Get approved for an apartment
  • Avoid high security deposits

Applying for a credit card to build your credit is a great way to secure yourself financially.

How Cash Advances Work

Have you ever heard of someone taking out cash on a credit card? Are you wondering what is a cash advance on a credit card? A cash advance allows you to borrow cash against your card's credit limit. It's about the same as withdrawing money from an ATM except the cash comes out as part of your credit limit. Most creditors allow cash advances but charge a set interest fee.

Before taking out a cash advance on a credit card, you’ll want to think about if you can repay the amount in a month and if there's another way to pay for your purchase. Since you'll pay interest twice on a cash advance, it should be a last resort option.

Understand How Interest is Calculated

There are all sorts of misconceptions as to how credit card interest is assessed on the card. Some people think that interest is only charged on the remaining balance after payment is due. But, if you don't pay off your entire balance in full, you will accrue interest on the daily balance throughout the month.

The best way to avoid having to pay interest is to pay off your credit card balance in full each month. While paying the minimum payment will keep your credit in decent standing, you can end up paying hundreds of dollars in interest by keeping a balance on the card.

Grace Period

One of the biggest benefits of using a credit card to pay for a purchase is that you have between 21 to 25 days interest-free before you have to pay off the balance. This means that every purchase you make is pretty much a short term interest free-loan. This is definitely beneficial when you want to make a large purchase but don’t have the cash at the time of purchase. What’s important is that you know when your grace period is, how long it lasts, and to be committed to paying off your charges before you’re hit with interest fees.


While it’s exciting to apply for a credit card, there are many details you’ll want to know before making the decision reality. Be sure you fully understand the topics above so that you can make a wise financial decision when applying for a credit card.

Tags: #Credit Cards