The 5 Most Important Factors of Credit Cards

For any new credit card owner, the different terminologies surrounding credit cards can get rather confusing. From cash advances to balance transfers and interest rates to rewards rate, it's important to be aware of all the components of a credit card in order to be financially educated about your expenses. In order to help both new and seasoned credit card owners and clarify any complicated terminology, we have compiled a list of five credit card factors that you should be aware of. In order to help you understand the factors, we will use the Chase Sapphire Preferred card as an example to look at.

Welcome Bonus

Welcome bonuses are offers made to entice customers to sign up for the credit card. Although not that common with beginner credit cards, welcome bonuses have become standard with travel and rewards cards. These welcome bonuses usually come in the form of points or cash that are earned after spending a set amount in the first three months or year. The points can usually be redeemed for merchandise, rewards, or cash. For example, the Chase Sapphire Preferred card gives 60,000 bonus points to new cardholders if they spend $4,000 on purchases in the first 3 months upon account opening. Those points can then be redeemed for $750 or other items. 

APR

One of the most important numbers to look at when applying for a credit card is its APR for purchases, balance transfers, and cash advances. APR for purchases refers to the interest rate you’ll have to pay on the balance when you miss payments. Cash advances are loans taken out using the balance on the credit card. Finally, balance transfers allow you to move debt onto the credit card from another card. Some cards have a 0%intro APR for the first year. The Chase Sapphire Preferred card has a 15.99% to 22.99% variable rate for purchases and balance transfers and a 24.99% variable rate for cash advances. This card does not have an intro APR period. The APR rate you receive will vary depending on your credit history, but the lower, the better. It’s important to remember that cards usually have balance transfer and cash advantages fees as well.

Annual Fee

An annual fee is exactly what it sounds like --  a fee to use the card. Annual fees are much more common for higher tier cards than intro cards. Similar to APR, many cards offer a $0 annual fee for the first year. Annual fees can easily be overlooked when you’re caught up using the card. The Chase Sapphire Preferred has an annual membership fee of $95.

Minimum Interest Charge

A minimum interest charge is the least amount of interest a credit card owner has to pay the credit card owner if a balance has accumulated. The charge is usually a set dollar amount rather than a fixed percentage. Many cards out there have a minimum interest charge of $1.00 but the Chase Sapphire Preferred card has no minimum interest charge.

Penalty Fees

Lastly, penalty fees are charges issued by the bank onto the account for penalties like late payments. Some common penalty fees include a late payment penalty fee, a return payment penalty fee, and a return check penalty fee. Most banks have a variable fee that changes depending on the size of the penalty. For Chase, the late payment and return penalty fee go up to $39.

Conclusion

All of these factors to consider when applying for a credit card can be found in the card’s terms and conditions. It’s important to know these terms when applying for a card so that you’re not later ambushed by hidden penalties or fees. The more aware you are of the attached strings, the more financially responsible you can be about your debts.