• Kavya Ravikanti

What You Need to Know Before Getting A Credit Card

Image: Hloom via Flickr / CC BY-SA, 401(K) 2013

Okay so you want to get your first credit card, or maybe you already have one and want to get a card with better perks. Regardless of where you are in your credit card journey, we got you covered with our NEW mini-series on Credit Cards.

We’ve already broken down what credit (read this before you go further) is but before we go any further, we gotta learn the lingo, so here’s what you need to know:


While credit cards can be great financial tools, from improving your credit score to discounted flights they also come with a lot of pesky fees if you aren’t careful.

APR% aka Annual Percentage Rate

Simply put, the interest rate charged on the balance you carry from month to month. This means that if you don’t pay off your card in full each month, this interest rate will take effect on the amount you borrowed!

For example, if my credit card balance is $500 with an APR of 20% and I carry that balance for 12 months, I’ll owe $600 (20% x $500 = $100). However, the next month I will have accured some of that interest. Not to mention you’ll have a late fee for not paying your credit card bill on time!!

Different cards will have different APRs. You can also have multiple APRs, one for your purchases, one for cash advances, and one for balance transfers. APRs can also be fixed or variable. Credit cards will also have introductory APR rates that could be as low as 0%*.

*no interest charged if you carry a balance month to month

Finance Fees

The actual amount charged based on the interest rate on the balance you are carrying. Some credit cards have a grace period before they actually charge interest. If you do have a grace period it can vary between 21–45 days.

Annual Fee

Some cards will have annual fees you have to pay just for the privilege of owning that credit card. Typically this is common among extremely coveted credit cards with lots of perks. One example of this is the Chase Sapphire Reserved Card with an annual fee of $550. Before you sign up for a card with an annual fee, make sure the perks outweigh the cost of having the card. (More on this in the future!)

Foreign Transaction Fees

Some credit cards charge an extra fee on your purchases for transactions that occur outside the United States. Typically between 2–3%, this can be avoided if you get a credit card with no foreign transaction fees. If you never leave your home country, this is nothing to worry about!

Cash Advance Fees

Some credit cards will allow you to use them to withdraw cash in an ATM. This is something you should avoid doing as the amount you withdraw will be added to your balance and you will be charged a high-interest rate on it. Typically the cash advance APR is higher than the purchase APR.

Best way to avoid this? Never ever use your credit card in an ATM machineexcept in an emergency of course. (Use your debit card in an ATM always!)

Late Payment Fees

This is the fee* you will be charged if you miss your credit card payment. The worst part is after a certain period of time you’ll have the late fee along with finance fees to pay.

Best way to avoid this? Put your credit card on an auto-payment plan.

*For the nerds: By law, these fees are capped at $29 and $40. These are renewed each year so these are the fees for 2020. $29 is what you are charged the first time you miss a payment and $40 is what you will be charged on subsequent late payments.


Minimum Payment

This is the lowest amount of your balance you have to pay each month to avoid the late fee. This must be paid by the due date on your credit card statement. The value is calculated as a percentage of your credit card balance plus any fees you might have. So the higher your balance, the higher your minimum payment will be.

The important thing to remember is that you will still be charged interest on the balance that you carry to the next month.

That means if you have a balance of $500 and the minimum payment is $50, with an APR of 20%, if you only pay the minimum balance, you’ll owe $90 in the interest the following month!

So it’s usually best practice to pay your balance statement in full each month! This way you’ll have no late fees, no interest building up, and it makes keeping track of your spending a lot easier.

Credit Limit

Your credit limit is the max on how much money you can borrow from your credit card company. So while it’s really tempting to keep swiping, keep track of your credit limit. Your credit card company can increase your balance if you make payments on time.

Remember that 30% of your credit score is based on how much of your credit you are using at a time. So if you are using 90% of your credit limit it’s going to negatively impact your credit score. A good benchmark is staying within 30% of your credit limit.

Take Action 💪

  1. If you have a credit card, log into your account and take a look at the fees you have agreed to. Make sure you understand the terms you have signed up for!

  2. Check your statements to see if you’ve racked up any interest.

  3. Set your credit card payments on autopay and set it to either pay the statement balance or at least your minimum payment.


Phew! That was a lot of fees and jargon. Think of credit cards like financial superpowers: they can be used for great good (discounts, improve your credit score, travel points, etc.) but also have the potential for great evil if you’re not careful (fees, interest payments, and credit score hits).

In the next edition on credit cards, we’ll help you find the credit card that fits your needs.

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Disclaimer: The content on Young, Not Broke is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor.

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