Once you are approved for a credit card with a revolving credit limit like from $2,000 to $10,000, you will start using the credit card for all your small and major purchases. You may use the credit card in buying food, groceries, prescription medicines, personal attire, and household appliances and furniture. Then later, you will notice that you have already used the entire credit limit of let's say, $10,000.
Credit card companies make money from its millions of cardholders by charging one or more of the following charges:
1. Interest Charges. Credit card companies apply your payment first on the balance with the highest interest rate. For example: if you owe one credit card with the following balances and interest rate:
Purchases - $6,500 – 19.75% APR
Cash advances – $2,000 – 24.95% APR
Balance transfers - $1,750 – 7.5% APR
your payment will be applied first on cash advances with 24.95% APR, then on purchases with 19.75% APR and the rest on the balance transfers with 7.5% APR
2. Interest Charges on Average Daily Balance. This means that the credit card balances for a 30-day period are added and divided by 30 days to get the average balance subject to interest computation. So the higher the average daily balance, the higher interest that will be charged to you.
3. Annual Fee. Some credit card companies charged its cardholders an annual fee ranging from $25 to $125 a year. There are some that waive the annual fee if you make at least one purchase using the credit card every 12-month period. And there are some that do not charge any annual fee whether you use the credit card of not.
4. Raising the Annual Interest Rate. The credit card companies will raise the interest rate when a cardholder violates some of the credit card agreement. For example: if you have a credit card with 14.99% APR, the credit card company will raise the APR to let's say, 28.99% APR when you violate the following conditions:
Make payments 5 calendar days late twice or 30 calendar days late once; or
Make a payment that is returned; or
If you exceed your credit limit 2 times in 12 consecutive months.
5. Transaction Fees. Credit card companies may assess you transaction fees for the following:
Balance transfer fee – either 3% of the amount of each transfer or $5 minimum, whichever is greater
Cash advance fee – either 4% of the amount of each advance or $10 minimum, whichever is greater
Foreign transaction fee – 2% of each foreign purchase transaction or foreign ATM advance transaction in U.S. Dollars and 3% on each foreign purchase transaction or foreign ATM advance transaction in a foreign currency other than U.S. Dollars
6. Penalty Fees. Credit card companies also make money from penalty fees such as:
Late payment fee - $19 on balances up to $99.99; $29 on balances from $100 up to $249.99; and $39 on balances of $250 or more
Over limit fee – up to $39
Returned payment fee – up to $35
If you are a good customer and you commit one violation, you may call the credit card company representative to waive some of the fees. And if your credit history is very good to excellent, you may request the credit card company representative to lower your APR.
Quote for the Day :
“He who gives to the poor will never want, but he who shuts his eyes will have many curses”. ( Proverbs 28:27)
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