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The Differences Between a Credit Card and a Charge Card

by Allan Guzman Chinchilla Saturday June 1, 2019

Last updated on August 15th, 2023

Although most credit cards have the same fundamental components – a revolving line of credit through which individuals can make purchases and carry balances month-to-month at the cost of an interest charge – there is another, now-lesser-known type of credit card that functions differently. It is the charge card, and while it is a much less popular form of payment than it used to be, it is still offered by card issuers. Read on below to learn more about the difference between charge cards and credit cards.

What is a Charge Card?

A charge card is a particular type of credit card. It is like a credit card in that a person can use it as a form of payment and accumulate purchases as part of a singular balance, but it differs from a credit card in that said balance must be paid in full every month. There is no revolving credit in a charge card – which are sometimes referred to as cards with no preset spending limit – credit card issuers typically do not impose strict spending limits on them – and because each monthly balance must be fully paid, there are no charged interest rates or minimum payment due options.

The concept of a charge account has existed for over 100 years, but charge cards only began to make an appearance during the mid-20th century. Charge accounts were associated with department stores, and customers were only allowed to charge purchases to their accounts within the specific store that offered them.

In 1950 the charge card was born with the founding of a company named Diners Club. The achievement was also momentous in that said card offered the first type of charge account that could be used with multiple merchants. Over time other companies began offering their own charge cards, and the concept eventually led to the creation of the multipurpose revolving credit card, which is what most of us use today to make purchases.

Common Charge Cards

Arguably the largest issuer of charge cards remaining today is American Express. Their popular Platinum Card and Gold Card are established names in the industry and commonly associated with high status and purchasing power. Since charge cards require that customers pay their account balance in full each month – lest they face penalty fees and restrictions – applicants usually must have above-average credit scores in order to be approved for one.

Another well-known issuer of charge cards is the company that started it all: Diners Club. Though smaller in scope than American Express, Diners Club issues consumer and corporate charge cards that can be used around the world. Other examples of charge cards include the Amex Centurion Card (the vaunted Black Card), the Capital One® Spark® Cash Plus for Business, and the BILL Divvy Corporate Card.

Advantages of Using a Charge Card Over a Credit Card

One of the biggest benefits of owning a charge card is the fact that they often lack a preset spending limit. Since charge card issuers require that you pay back the full amount that you owe by the due date, the assumption is that no matter how much you spend, you will pay it back. Hence, no credit limit.

Failure to do so results in costly penalty fees and eventually cancellation of your account. As such, charge cards are commonly owned by individuals with disciplined financial habits and above-average wealth.

This leads to the next advantage of opting for a charge card: It keeps you responsible with your finances. Whereas a credit card allows you to be “looser” with your spending, a charge card forces you to purchase what you can afford to pay back within the required time period. Because of this caveat, charge cardholders also usually have higher credit scores than most credit cardholders.

Charge cards also come with ample perks. American Express’s charge cards, for instance, allow customers to earn rewards and also offer them features such as concierge service, travel credits, and access to exclusive airport lounges.

Advantages of Using a Credit Card Over a Charge Card

Charge cards offer some benefits vs. credit cards, but suffer in other areas. They are less popular and less abundant than they used to be, and that’s because credit cards offer much more flexibility across multiple factors. There are several types of credit cards that target more focused consumer groups, such as students, business owners, travelers, or retail store loyalists. Charge cards, on the other hand, are for general-purpose use, skewing slightly towards travel enthusiasts.

Credit cards also offer more options when it comes to the benefits of owning one. Depending on the credit card, consumers can earn rewards points or miles with a singular or multiple airlines or hotel brands, cash back, discounts at specific retail merchants, or exclusive access to events and experiences.

Credit cards are much better for building credit versus a charge card. Because credit cards feature revolving credit, meaning the card doesn’t require the entire balance be paid each month, building a positive credit score with a credit card is much easier.

Charge cards, on the other hand, can actively hurt a person’s credit file (when not sued correctly). Running-up a huge balance on a charge card can dramatically sink your credit score. This is because the credit bureaus will note the balance on the charge card, but not the credit limit (as there is none, per se). This quirk means a charge card can significantly increase your credit utilization – even if you aren’t using your credit cards.

Then there’s accessibility. It’s easier to apply and get approved for a credit card simply because there are so many of them. Plus, there are credit cards that cater to consumers from anywhere in the credit score spectrum; charge cards are typically aimed at individuals with higher credit standings.

And charge cards are less widely accepted worldwide. Even the industry giant that is American Express is not accepted as widely internationally as credit card payment networks like Mastercard and Visa. Finally, many charge cards feature an annual fee, with the very best options featuring fees rising as high as $695 per year.

Bottom Line

Credit cards and charge cards are closely related, but they have clear distinctions. Should you apply for a charge card? There are certainly enticing advantages to owning one, but you must be the right kind of consumer for it.

You should take the time to identify your spending habits – what you purchase, how often, and how readily you can pay back what you owe – as well as the health of your credit before making a decision, as such factors will dictate how well you can manage the type of plastic in your wallet. Be sure to also read fully through a card’s terms and conditions – be it credit or charge – as there may be differences in the obligations and fees associated with each card.

Types of Credit Card Fees

by Allan Guzman Chinchilla Saturday June 1, 2019

Last updated on April 25th, 2023

Owning a credit card can cost you in more than just interest charges. Most cards include a variety of additional credit card processing fees, although when and why they apply varies. Some fees are charged as a consequence of your actions, while others are collected simply for having a particular credit card. Knowing what you can expect to be charged is always a wise move, and it’s easy to find such information – read on to understand what each individual charge means and when it applies.

Annual Fee

Annual fees are charged once a year in exchange for owning a credit card. Not all credit cards include an annual fee, though, and the amount varies on those that do. You’ll typically encounter them on cards that offer numerous perks or those that can earn you rewards. Secured credit cards may also carry an annual fee (or even monthly fees) as additional protection for issuers from customers with damaged or insufficient credit history.

Depending on the card’s exclusivity and quantity of benefits included, an annual fee may range from less than $30 to over $400. Some credit card companies, however, waive their annual fee during your first year as an incentive. Annual fees are one of the first factors you should evaluate before you apply for a credit card. If the extras are worth it – you may often be able to offset the cost – the fee can be a tolerable price to pay.

Balance Transfer Fee

These fees apply when you request to transfer an existing balance from one credit card to another. Usually balance transfer fees are between 3% to 5% of the amount that is being moved, with a minimum charge of $5 to $10. Naturally, the higher the balance, the higher the transfer fee. Some credit cards offer introductory grace periods in which no interest is accrued on balance transfers, but most of the time you’ll still have to pay a fee for conducting the transaction.

Cash Advance Fee

Cash advances incur fees when you carry one out at an ATM or via a convenience check from your card issuer. Like balance transfers, these fees are charged as a percentage – usually between 3% and 5% – or as a flat dollar amount of around $10 as a minimum.

In addition, you may be subject to ATM fees. Unlike balance transfers, credit cards generally do not offer promotional APRs for cash advances, and interest rates for the latter can be considerably higher. Plus, you are immediately charged interest when you take out a cash advance.

If you’re in need of cash, opt for a savings account instead. Because of the high cost associated with them, you should stay away from cash advances unless you have no other resort.

Finance Charge

Finance charges are only levied if you carry a balance on your statement from one billing period to the next. In other words, it’s the interest that is charged on any outstanding balance. The larger the balance – and the higher the APR – the larger the finance charge.

Finance charges also vary based on how the interest is calculated. You can avoid these fees if you pay your full statement balance every month, which is something you should do regardless.

Foreign Transaction Fee

If you use your credit card in another country, or make a purchase in a foreign currency, you may be subject to a foreign transaction fee. The charge is normally 3% of the total transaction amount (with some bank accounts charging different fees depending on the type of transaction – ATM, purchase, etc.), so while a small purchase like a souvenir won’t be too painful, going on a shopping spree abroad can end up costing you more than you anticipated.

Most travel rewards credit cards waive foreign transaction fees because it’s expected that they’ll be used internationally often. Thus, look for a card with no foreign transaction fees if you voyage frequently, or consider paying with cash when possible.

Late Payment Fee

If you do not make at least the minimum payment on your statement balance by the due date, you’ll be charged a late payment fee. Late fee amounts can vary, but the first time you miss a payment you’ll be charged a flat fee of up to $28. Being late again means up to a $39 fee. The late fee cannot be more than your minimum payment amount, however.

Some issuers, like Discover, do not penalize you if you’re late once, but it’s best to try and never miss a due date anyway. Being late multiple times will considerably hurt your credit score, and eventually, your debt can be charged off. Setting up automatic payments can ensure that you’ll always be on time. If you anticipate being unable to make a payment, or at least the minimum amount, you can contact your card issuer and inquire about making a payment arrangement.

Over-the-limit Fee

These fees are charged when you charge more to your credit card than your spending limit allows. However, after the CARD Act of 2009, over-the-limit fees are not charged automatically; you can opt into the policy and give the card issuer permission to approve you going beyond your credit limit in exchange for being charged the fee. Otherwise, you won’t be charged a fee, but any transaction that puts you over your limit will be automatically declined.

Returned Payment Fee

When your payment is not accepted or bounces, a returned payment fee may apply. Not having enough funds in your account at the time that the issuer processes your payment is a common scenario in which a returned payment fee is applied. The fee amount varies by issuer and card, but you can expect it to be above $35. Make a habit of checking that you have enough money in your account before you submit your credit card payments.

Other Types of Fees

There are other, less common, fees associated with credit cards. While you may not encounter them, you should nevertheless be aware of what these credit card transaction and processing fees are:

Replacement card fee: If you need to replace your card soon after you receive it, you may be charged a fee. Typically, you won’t have to pay if your card is stolen, or even lost, but the decision varies on a case-by-case basis.
Credit limit increase fee: Asking for a higher credit limit could include an additional charge. If your issuer decides to grant you an increase without you having requested it, however, a fee should not apply. And if your request is denied, you won’t have to pay.
Application and processing/maintenance fees: You may have to pay a one-time fee when you apply or open an account for a credit card, and thereafter the card may have monthly maintenance fees. These charges are most common in cards aimed at individuals with poor credit, though, such as secured cards.
Additional card fee: Almost exclusive to business credit cards, if you need additional cards from the same account for your employees, there may be a fee applied to each extra card. Multiple issuers offer products without this fee, however.
Expedited payment fee: If you need to pay down your balance at the last possible moment, you may be charged an expedited payment fee. Naturally, this cost can be avoided if you pay your card well ahead of its statement due date. But even if you must pay an expedited payment fee, it’ll almost always be lower than a late fee.

Conclusion

The bottom line is that fees associated with a credit card are printed in its terms and conditions or in your cardmember agreement. You can visit the credit card issuers website or give them a call to learn which cards include which fees. Alternatively, if you’re a recently minted cardholder, the documents enclosed with your new card will also include a breakdown of all applicable fees. Additionally, some fees are negotiable, but this varies from issuer to issuer.

How a Credit Card Purchase Works

by Cory Santos Wednesday March 20, 2019

Last updated on March 22nd, 2023

When you make a purchase with a credit card, the entire process, from swiping your card at the register to receiving a receipt – or inputting the card’s information to receiving a confirmation screen, if you’re making a purchase online – takes only a few seconds. In that short span of time, however, multiple electronic platforms are conducting a complex series of steps. Here is a comprehensive guide to how the credit card purchase process works.

Who’s Involved in the Process?

Before discussing the credit card purchase process, it is essential to first identify the key players involved:


① Cardholder	The cardholder is the customer wishing to make a transaction. The cardholder initiates the purchase process by swiping their credit card or handing it to the cashier (or inputting the credit card’s information if shopping online).
② Merchant	The merchant is the business selling its goods or services to the cardholder. The merchant is responsible for capturing the cardholder’s credit card information and beginning the authorization process via a Point of Sale (POS) terminal.
③ Acquiring bank	Also known as the acquirer, this is the merchant’s bank. As the name implies, it acquires the credit card information from the merchant and sends it to other parties involved in the process. Some merchants use third-party entities known as acquiring processors, which perform the same task – receiving an authorization request from the merchant and passing it along for approval – while forwarding the final decision to the acquiring bank.
④ Credit card processor	Best known to people by the companies’ names, such as Visa or Mastercard, credit card networks are responsible for keeping the order between acquiring and issuing banks, as well as handling the fees that are collected in exchange for the service of completing a credit card transaction. These associations, which also include American Express and Discover, oversee the financial institutions that make up their networks.
⑤ Issuing Bank	This is the cardholder’s bank, as well as the institution that issued their credit card. The credit card issuer is responsible for checking that the credit card in question can indeed be part of the requested transaction. This means checking for sufficient funds, verifying the legitimacy of the purchase, and either approving or declining the authorization request after said checks are completed.

How the Credit Card Payment Process Operates

The credit card purchase process is composed of three distinct steps: acquisition, authorization, and clearing (or settlement). Here’s a quick breakdown of those steps and how the credit card purchase process works:

① Authorization	Credit card network clears the payment and requests payment authorization from the issuing bank.
	Issuing bank sends approval code if transaction was successful.
	Merchant provides a receipt to customer.
② Authentication	Merchant collects all credit card transactions as a batch.
	Merchant sends the batch to acquiring bank.
	Acquiring bank forwards batch to the credit card network
③ Clearing	Credit card network routes each transaction to issuing banks.
	Credit card network pays the acquiring bank
	Acquiring bank pays the merchant the purchase price, minus a “merchant discount rate.”
	Issuing bank posts the transaction to the cardholder’s account.

The Steps

As noted, the credit card purchase process can be broken down into several steps. Here is a more detailed look at each step in the process:

Cardholder makes a purchase. The credit card purchase process begins when the cardholder makes a purchase. The cardholder gives their credit card to the merchant, who initiates the transaction process.
Merchant processes the transaction. The merchant uses a payment terminal or an online payment gateway to process the transaction. The payment gateway sends the transaction details to the merchant’s acquiring bank for authorization.
Acquiring bank authorizes the transaction. The acquiring bank checks the cardholder’s account to make sure they have enough available credit to complete the transaction. If enough credit is available, the bank authorizes the transaction and sends an approval message to the payment network.
The payment gateway sends transaction details to the issuing bank. The payment gateway sends the transaction details to the cardholder’s issuing bank for confirmation. The issuing bank will verify the cardholder’s account information and check for fraud or suspicious activity.
Issuing bank approves or declines the transaction. If the issuing bank approves the transaction, it sends an approval message to the payment gateway. If the bank declines the transaction, it sends a decline message to the payment gateway, and the transaction will be rejected.
The payment gateway sends an approval or decline message to the merchant. The payment gateway will send the approval or decline message to the merchant. If the transaction is approved, the merchant will complete the sale, and the cardholder will receive their purchase. If the transaction is declined, the merchant cancels the sale, and the cardholder will not receive their purchase.
Issuing bank sends the bill to the cardholder. The issuing bank adds the transaction amount to the cardholder’s account balance and sends a credit card statement to the cardholder at the end of the billing cycle.
Cardholder pays the credit card statement. The cardholder pays the bill in full or in installments, depending on the card’s terms and conditions. If the cardholder does not pay the bill in full, interest charges are added to the balance.

Summing It Up

The credit card purchase process is a complex-but-important part of our daily lives. Understanding the steps involved in the process and taking steps to protect oneself can help you ensure a smooth and secure transaction experience.

How to Understand Credit Card Terms and Conditions

by Allan Guzman Chinchilla Wednesday March 20, 2019

Last updated on April 26th, 2023

Unlike when you update your favorite music streaming service, you should definitely read and understand your credit card terms and conditions before agreeing to anything. Like any contract though, you may get anxious just thinking about all of the legal jargon that will be loaded into your credit card terms. All it takes is a little knowledge to unravel the word jumble that is your T&Cs, as you soon will see.

What are the terms and conditions?

If you know what you’re looking at, there’s no reason to be intimidated by the terms and conditions that your credit card company has put together. Sometimes known as a cardmember agreement, disclosure, or your cost information page, terms and conditions are simply the guidelines that are agreed upon by a credit card issuer and you, the credit card user. Your T&Cs include all of the important information needed to understand how your credit card works, including details on fees and any rewards program tied to your card. While it may appear like a lot of data to digest all at once, the key things that you need to know about your credit card can be found in what is known as a Schumer Box.

What is a Schumer Box?

Though you may not know it by name, if you’ve ever quickly glanced at the terms and conditions of any credit card, then you’ve seen a Schumer Box. A Schumer Box is a table in the terms and conditions document of your credit card that clearly shows the rates and fees associated with it. Though it didn’t come into effect until the year 2000, under federal law, the 1968 Truth in Lending Act standardizes the formatting in which credit card info is presented so that it is easy to read and understand. The Schumer Box is named after New York Senator Charles Schumer, who was responsible for the legislation. In a Schumer Box, you will find information such as:

A credit card’s annual fee
Annual percentage rate (APR) on purchases, balance transfers, and cash advances
Introductory rates for interest charges on purchases, balance transfers, and cash advances
The number of days that are included in your interest-free grace period for new purchases
The minimum amount that must be paid to avoid being past due on your billing cycle’s due date

Other finance charges are listed in the Schumer Box as well, so it benefits you to both be able to identify them and actually know what they mean.

What do these terms mean?

Now that you know what a Schumer Box is, the next step in understanding your credit card’s terms and conditions is learning what the terms used mean. While they may sound alike, knowing the difference between your credit scores and credit reports, for instance, can eliminate a lot of the confusion associated with reading T&Cs. Some basic terms to keep in mind include:

Annual Fee – A fee charged every calendar year to cardholders by credit card issuers for owning and using a credit card. Annual fees are most common on secured cards and credit cards that offer multiple incentives, such as rewards programs.
Annual Percentage Rate – Also known as “APR”. A rate in which interest charges for a credit card or a loan are calculated annually and applied to a consumer’s account each month he/she carries an outstanding balance. This rate is calculated as a percentage and combines payable interest as well as other fees and charges.
Balance Transfer Fee – A fee charged when transferring a balance from one credit card to another. Issuers generally charge a percentage of the transferred amount when said transfer is made.
Prime Rate – Also known as the “prime lending rate”. The interest rate that preferable customers not likely to default are charged by banks. The prime rate is 3% above the federal funds rate as determined by the Federal Reserve.
Returned Payment Fee – The fee that an account holder pays to a financial institution, such as a bank, when a check they have written has bounced while trying to pay for goods or services at a merchant point of sale.
Variable Interest Rate – Also known as a “floating rate”. A fluctuating interest rate calculated using an index that can go up or down, in turn increasing or decreasing interest payments on your loan or credit card.

If you come across a word in your terms and conditions that you don’t understand, we’ve put together a comprehensive glossary of all credit card terms.

Should I still read the fine print?

Credit cards offer you a way to pay for goods and services without immediately using your personal funds. Over time, responsible use of these financial tools can build up your creditworthiness, which is the trust that institutions (such as banks) require in order to increase your credit limit, giving you the ability to make bigger and bigger purchases. Because this process affects your likeliness of acquiring loans for big-ticket buys like houses and vehicles, you should absolutely read the fine print each and every time you consider applying for a new credit card. Aside from the fees you may be charged, reading the fine print surrounding the Schumer Box on your terms and conditions page will also give you insight into the card rewards that you may have been earning with your purchases… as well as those you’ve missed out on. If the thought of reading pages filled with financial text doesn’t get your attention, the free trip to Europe that you may have earned through accumulated airline points surely will.

Family Finances – 7 Ways to Save at Your Wedding with Credit Cards

by Allan Guzman Chinchilla Wednesday March 20, 2019

Last updated on August 14th, 2020

Though the average cost of a wedding ranges from a few thousand dollars to six-figures and beyond, the clever use of credit cards can save you money on wedding expenses at any budget. You may have your heart set on a specific dress or destination for your big day, and if you do, using a credit card can help keep some of those wedding costs down. Here are seven ways to save at your wedding with credit cards:

1. Buying the Ring

Finding the right wedding ring to impress your partner is nearly as intimidating as popping the question. Whether spending three months’ salary or going the more modest route, using a 0% intro APR credit card to buy your engagement ring and wedding bands gives you the opportunity to pay for these accessories over an extended period of time. Buying your rings with a 0% intro APR credit card will give you the opportunity to stay within your budget during the initial parts of the wedding planning process, which is also helpful as it’s likely you’ll have a host of other essential expenses to purchase. Such as…

2. Dress to Impress

It’s likely that the wedding dress or tuxedo you’ll wear on your wedding day will be worn more than once. Aside from the main ceremony itself, these fine garments may be worn for wedding pictures or saved with the intention to renew your vows years from now. When you finally say yes to the dress, you have multiple credit card options to minimize the immediate impact of these purchases. You can opt for a 0% introductory APR credit card as you would for a ring in order to pay it off over time or use a credit card with high cash back rewards to funnel some of those funds right back into your wedding budget. For fashion accessories and wedding party gifts, rather than paying premium prices at a bridal shop, consider credit cards from department stores to maximize rewards points that can help cut down on other costs. Every penny counts!

3. Flower Power

Flowers can account for a sizable portion of your budget and are an industry onto their own. The nation’s largest home improvement stores offer credit cards that can save you money on initial purchases and earn you points to save on household supplies in the future. Couples planning on making renovations to their home following the wedding may want to make as many purchases with these in-store cards as they can to save on material costs, as updating even the smallest of bathrooms doesn’t come cheap. Many flower vendors require deposits of up to 50% or more for wedding arrangements. This makes sense to put on a credit card.

4. Reserving the Venues

Slashing your guest list is a tough but effective way to save on your wedding spending. So is finding a venue that doesn’t completely derail your personal finances. Perhaps you and your partner want to keep things local and intimate at a small chapel with your closest friends and family or go big and organize a destination wedding. Either way, it’s a budget-friendly move to choose a less popular day to say your vows. This is especially if it’s not during the season where other couples tend to set their wedding dates. It’s a good idea to reserve the venue for your wedding with your credit card just in case bad weather or illness suddenly strikes. By reserving your venue using your credit card, depending on the contract you sign, you may be able to recoup some of those costs if something unexpected happens.

5. A Reception to Remember

Many people need to get paid on your wedding day to keep everything running smoothly. Caterers and bands need to get paid whatever their deposits didn’t cover, as do photographers and videographers in charge of photo booths and capturing memories. Select rewards credit cards offer higher cash back percentages on dining and entertainment purchases, as well as a hefty sign-up bonus and additional points if a certain spending threshold is met within a specific time.

6. The Wedding Planner

Let’s say you want to delegate the organizational aspect to a professional wedding planner. And you rather than taking the responsibility upon yourself or trusting a well-meaning relative. wedding planners often require a deposit before they get to work. By charging the fees required by your wedding planner on your card, as you should with all the other vendors that have a role in your big day, you’ll be granting yourself protection if their services fall through. Likewise, those charges on your credit card can also turn into rewards points and redeemed for a few extravagant expenses, including…

7. Heavenly Honeymoon

Of all the credit card options you went with when planning your wedding, choosing to use a travel rewards credit card for those décor, vendor, and fashion purchases can lead to huge savings once the ceremony itself is over. Nearly all of the expenses you’ll be making leading up to your wedding can cover the cost of your honeymoon. Most travel rewards credit cards also offer features like travel insurance, which is great if a questionable seafood paella at the reception leads to an emergency trip cancellation. You shouldn’t have to plan for trouble in paradise on your honeymoon and won’t need

Credit Cards 101

by Cory Santos Wednesday January 30, 2019

Last updated on April 3rd, 2024

Owning a credit card offers a convenient way to pay for purchases of all varieties, and, if used wisely, it can reflect favorably on your financial reputation. But how well do you know credit cards? Whether you are a beginner thinking about applying for your first credit card, or a seasoned cardholder with several years’ worth of experience, it is crucial to have a firm understanding of what a credit card is and does. Welcome to credit cards 101.

Credit Cards 101: What is a Credit Card?

A credit card is a payment method in the form of a plastic or metal card. It can be used to pay for goods or services in the same way one uses cash or a personal check. Credit cards are issued by financial institutions, such as banks and credit unions. They offer customers a line of credit that they can borrow money from, and for which a credit card serves as physical proof.

While a credit card is primarily used for buying, it can also be effective in shaping how you look as a borrower of money. When you use a line of credit, you develop a credit score: a number that financial institutions use to judge how much of a risk they take when lending you money. As you borrow and pay back money responsibly, your credit score increases. Likewise, if you pay back what you have borrowed late, or not at all, your credit score will decrease. Having a high credit score will make it easier for you to get approved for high-end credit cards or loans with the lowest interest rates.

How Do Credit Cards Work?
Infogram

When you use a credit card, you are paying for something with the issuing bank’s money. All purchases that you make with a credit card will grow the balance owed for that card’s account, and you are responsible for paying back what you have borrowed. You will have a grace period – about a month – to pay off your balance. your bill in full, you will incur a finance charge. Finance charges are usually a percentage of interest added to the amount that you owe. Credit card issuers also require that you make a minimum payment if you are going to carry a balance.

Credit Cards 101: Types of Credit Card

Understanding the different types of credit cards is essential;l to passing credit cards 101. Credit card companies offer multiple types of credit cards. Although all serve the same purpose – to act as a form of payment – they differ in the additional benefits they offer as well as who can use them. Some credit cards are better for making purchases in a certain category, while others are aimed at specific types of borrowers.

Business Credit Cards: Business credit cards are offered to companies of all sizes, from fledgling startups to multinational enterprises. Issuers restrict customers from using these cards solely for business expenses, but they also include incentives like cash back or points reward programs. In addition, cardholders can usually request multiple additional cards for their employees to use under the same account.
Rewards Credit Cards: Rewards cards are some of the most attractive in the market and for obvious reasons. In addition to giving customers all the features of a traditional credit card, they also feature perks in exchange for making purchases. Rewards credit cards usually have a trade-off for all the benefits they offer, however; you will see this in the form of higher interest rates or fees to own the card.
Travel Credit Cards (Airline/Hotel): Travel rewards cards allow you to earn points or miles that you can later redeem for rewards such as free flights or hotel stays. As such, they are some of the most popular credit cards. There are general travel rewards cards as well as cards that are co-branded with airlines or hotel companies. The latter also net you rewards, but only for use with the specific carrier or hotel chain linked to the card.
Retail Credit Cards: Like airline and hotel cards, retail credit cards are offered in partnership with specific stores or brands and feature retailer-specific rewards programs. Some retailers offer cards that can only be used at their locations (or their online stores), while others also issue more accessible cards that are accepted at other locations.
Cash Back Credit Cards: Cash back credit cards give you more freedom when you want to redeem your earned rewards. When you use a cash back credit card, you earn back a small percentage of each transaction. Some cards earn cash back at a flat rate for all purchases, while others multiply rates when used in specific categories like groceries or gas stations. You can redeem the cash back you have accumulated for gift cards, credits toward your credit card statement, or even to make entertainment bookings.
Student Credit Cards: As you might guess, student credit cards are aimed at high school and college students. Since students are usually just starting to build their credit history and test the waters with their first credit card, they will not be the most favorable candidates for issuers. As such, student credit cards usually have low credit limits and a limited set of additional perks.
Secured Credit Cards: Issuers offer secured credit cards to individuals looking to improve or rebuild their credit standing. Since these persons may be risky borrowers, issuers take an additional safeguarding step and require cardholders to make a security deposit. By depositing their own money and using that as a line of credit, cardholders are forced to be more responsible with their finances. Over time, if customers manage their spending wisely, issuers may raise their cards’ credit limit. Secured credit cards are also a good choice for first-time borrowers.

Other Uses for a Credit Card

Credit cards do more than just let you make purchases. If you have a credit card account with an existing balance and a high-interest rate, you can apply for another credit card at a lower interest rate and transfer the balance from the first card. This is known as a balance transfer, and it is a popular method of paying less when it comes to interest rates. This is credit cards 1010.

You can also use a credit card to withdraw cash if you need to. This is known as a cash advance. Just like paying with a credit card, the amount you borrow through a cash advance has to be paid back. While cash advances can get you out of a jam, they often have higher interest rates that will make it costlier to pay them back over the long term.

Other Types of Cards

Credit cards are not the only piece of plastic you could carry in your wallet. Though they are the most flexible in terms of spending power, other options exist to suit your needs or preferences.

Charge Cards: Charge cards are similar to credit cards, with the major difference being that charge cards require you to pay off your balance in full every billing cycle. Charge cards are not as common as they used to be, and nowadays they signify borrowers who are very responsible with their finances and avoid paying interest charges.
Prepaid Cards: A prepaid card allows you to deposit money into its account so you can use it repeatedly to make purchases. Prepaid cards will most likely not raise your credit score, but they can still be a convenient payment option.
Debit Cards: A debit card is linked to a bank account, and so it uses a cardholder’s own funds when making a purchase. Debit cards will not raise your credit score.

Credit Card Terms You Need to Know:

APR

APR, or annual percentage rate, is one of the most critical terms to understand when it comes to credit cards. The APR is the total yearly charge for carrying a balance on a credit card. The APR includes more than just the card’s interest rate; it also ties in fees and other charges.

Average Daily Balance

Average daily balance is one aspect of the APR. The average daily balance is how credit card issuers determine how much a borrower owes in interest. To calculate the average daily balance, add the balance from each day in a statement billing period, and divide by the total number of days in that period.

Grace Period

The grace period is the time from the closing of a credit card’s billing cycle to the due date of the minimum statement balance. The CARD Act of 2009 requires banks to provide a grace period of at least 21 days.

Minimum Payment

The minimum payment is the smallest amount a cardholder must pay on their credit card balance. Most lenders calculate a minimum payment as one percent of the current statement balance and interest and fees. Failure to pay the minimum payment due will result in late fees and negative credit score impacts.

Credit Score

A credit score is a three-digit number that allows lenders to gauge the creditworthiness of an applicant. The higher the credit score, the more reputable the borrower and the better their approval odds are. Credit scores are calculated by organizations such as FICO and VantageScore, and they are based on various factors like payment history and credit utilization.

Credit Utilization

Credit utilization is one of the most important factors in calculating a credit score. The credit utilization, or credit usage, refers to the amount of available credit a cardholder uses. Lenders like to see borrowers use 30% or less of credit being used.

Balance Transfer

A balance transfer is a process of moving one credit card balance to another card. Consumers use these transfers to take advantage of lower interest rates, which end up saving money. Many banks charge a fee for a balance transfer, typically around 5% of the amount migrated.

Cash Advance

Cash advances are transactions where a credit cardholder can receive a cash loan from their credit card. These advances are completed through ATM withdrawals or checks from the card issuer. Cash advance limits are typically lower than a user’s overall credit limit and come with additional fees and high interest rates. Interest from a cash advance accrues immediately – there is no grace period – making them costly.

Prime Rate

Also known as the prime interest rate, the Prime Rate is the interest rate at which money is borrowed commercially. The Federal Reserve sets the federal funds rate, which the Prime Rate is based on, and is tracked through the Wall Street Journal.

Annual Fee

Some credit cards come with a yearly charge for membership. These yearly charges are almost universally known as annual fees. The most common cards to feature an annual fee are rewards credit cards, which offer impressive perks and bonuses in exchange for a fee. Fees vary depending on the credit card, and they can be as low as $50 and range up to several hundreds of dollars.

Dispute

A credit dispute is the process of raising concerns about an unauthorized transaction on your credit card statement. Credit card charge disputes involve the card issuer and typically must occur within two billing cycles. Most payment networks offer zero fraud liability, protecting consumers from fraud.

Secured Card

A secured credit card is a type of credit card that requires a cash security deposit to open. Because secured cards require a refundable deposit, they are easier to receive than other types of cards for those with poor credit scores or no credit history.

Schumer Box

A Schumer Box is a common feature of credit card terms and conditions agreements. A standardized box, the Schumer Box shows all the important credit card terms and figures, including interest rates and fees. Schumer Boxes are named after Charles Schumer, the senator who was the spearhead for the federal Truth in Lending Act.

Cardmember Agreement

The full terms and conditions of a credit card that the applicant must agree to before a card is issued. Federal law requires lenders to provide this disclosure. It also serves as a legally binding contract between the card issuer and the cardholder, or lender.

Authorized User

Cardholders can add an authorized user to their credit card account. An authorized user is a person whom the cardholder grants account access to for purchases. Authorized users are not responsible for paying the balance due, however, even though they receive a credit card in their name.

Cover photo by Nathan Dumlao on Unsplash

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Credit Basics

Types of Credit Cards: Hotel Credit Cards

by Cory Santos Tuesday January 29, 2019

Last updated on March 22nd, 2023

Looking for a credit card to accompany you in your travels? It can be difficult to choose from the many available, especially if you’re not familiar with the types of travel cards out there. One of these types is the hotel credit card, and, depending on your lifestyle and preferences, it can become one of your closest friends when journeying away. Read on to learn more about hotel credit cards and how to get the most out of them.

Hotel Credit Cards at a Glance

A hotel card is a co-branded credit card between a card issuer and hotel brand. Hotel cards are like general travel cards in that they both offer rewards programs that earn customers points for purchases made. They both also attract consumers with signup bonuses and additional perks that are usually either not available to the general public or acquired at a cost. Unlike general travel cards, however, hotel cards will feature benefits that are unique to the partnered hotel brand, and rewards redemption is restricted to the hotel’s products or services. As such, these cards are mainly targeted at loyalists or individuals who wish to establish a preference towards a singular hotel chain.

Credit Required

Due to the number of included incentives and rewards possibilities, hotel cards typically have higher interest rates than other credit cards. It’s common to see APRs starting in the mid- to upper teens and capping at the mid- to upper twenties. These cards will also require you to have at least “good” credit in order to be approved.

Fees

Also as a trade-off for the amount of bonuses offered, hotel credit cards will often charge annual fees. Depending on the card’s status, these fees can start at around $50 and shoot all the way up to $400+. In many cases, however, the annual fee is offset by the card’s perks. For example, a free stay for one night at most hotels can easily be worth the value of a $95 annual fee. In addition, some cards will waive the annual charge for the first year, giving you even more value during your initial 12 months as a cardholder. The general rule of thumb with these cards is to take advantage of every possible benefit included in order to erase the annual fee’s sting and raise the overall value.

One aspect in which you won’t have to worry about fees is when you make purchases abroad. Hotel cards are logically designed to be used around the world – since major hotel chains have locations worldwide their cards are accepted globally. Whether you’re booking a stay overseas or splurging on souvenirs, foreign transaction fees are generally not associated with hotel cards.

What to Look for in a Hotel Credit Card

As mentioned, hotel credit cards differ from general travel credit cards in that they offer more tailored benefits, with the card’s partnered hotel as the focal point. Learn more about the main features of these cards so you can make a more informed decision when browsing options.

The Most Important Things to Look for:
Rewards	The main add-on you should consider when shopping around for a hotel card is the rewards program it includes, as well as its long-term value for you. Most hotel cards have an earning rate of at least 1 point per $1 spent on all purchases. This rate multiplies when shopping in specific categories like dining or booking travel, and the highest earning potential lies in making purchases with the card’s hotel brand. In some instances, you can earn as much as 12X the number of points per $1 when booking a stay directly with the hotel. If the card’s hotel brand operates a portfolio of chains, you’ll most likely be able to earn multiplied rewards when booking at those locations, too. Therefore, it’s in your best interest to book frequent stays – even if for a staycation within your hometown – so you can earn the most points possible.
Redemption options	The most popular option when redeeming earned rewards is free nightly stays. You can use your points to book an entire stay, or to pay for a partial number of nights. And in the same way that you can earn points at the hotel company’s family of brands, you can usually also redeem points for stays at those locations. One important thing to keep in mind regarding rewards is the potential for points to have different values depending on the location and hotel you’ll be redeeming them at. For instance, a room at a four-star hotel in Paris will most likely be worth more points than a more economical option in Denver. Keep these variables present before applying – and, more importantly, before redeeming your rewards – for a hotel credit card.
	Most hotel cards hook customers with a big, juicy signup bonus. You’ll often see offers of 50,000, 70,000, or even 100,000 bonus points earned after meeting a spending threshold during the initial months from opening an account. While this enticement is huge and is equal to at least one or two free nights, it can be easy to forget about the goal that must be met to receive it. Typically, you’ll have to spend between $3,000 and $4,000 within the first three months as a cardholder to qualify for the signup bonus, so if you can’t realistically reach that number without digging yourself into a pit of debt, you’d be wise to consider other options. The best time to apply for a hotel card with a signup bonus is when you’re already preparing for a big purchase that will eat up most, if not all, of the required spending goal.
Loyalty tiers	Most hotel brands will likely feature a loyalty program with several status tiers and accompanying features. While you don’t need a hotel card to become a member of a loyalty program, having one often grants you automatic enrollment and even enhances your member status. Among the amenities common to these memberships are special rates, early check-in/late check-out, room upgrades, and concierge services. You may even get bonus points in conjunction with what you would already earn with your card
Other Things to Look for:
Free nights	Many hotel cards will gift you a free night award simply for being a cardholder – no spending required. This is one of the most best perks simply because you hardly have to do anything to take advantage of it..
Amenities	In addition to free night stays, a hotel credit card gives you the power to enjoy a number of complimentary services, such as daily breakfast, Wi-Fi, and access to the property’s spa or lounge facilities.
Points transfers	If your hotel is partnered with other loyalty programs, you may be able to transfer your earned rewards for flights, car rentals, or other options to consider around the world.