How does a credit card work?

[incompetent]

hi,

i am an incoming international student in US. I have just applied for student credit card at bankofamerica and have been approved of a Platinum Plus student Visa card with a credit of $1000.

I have never used a credit card. I am already doing fine with my visa debit cards which have worked well at almost all places so far and only got a credit card because I hear people speaking of the need to establish a good credit history. As a matter of act, I was denied a postpaid mobile and asked to keep a deposit because I had no credit history at that time. So i would like to ask how a credit card actually works.

What is a credit balance? Is it the amount due that I have to pay for the purchases I have made with a credit card?

What is a grace period? Is it the time that if I pay my balance by then I won't be charged a penny by the credit card provider? When does APR come into equation, after the grace period only?

Who is the credit card provider for me? Is it the bank or is it some other body?

What is a late fee and when is it application?

When do I have to make a payment? Do I get a notification via mail or I can make payment at any time without any notification?

How do I make a payment? Do i deposit my money into the bank that gave me the credit card? Can I just pay with my debit card from my online banking?

What is a balance transfer?

I may be asking trivial questions. But I couldn't get a clear view even after going through all the resources of this forum.

Hope somebody can help me.

with regards.

[rising_star]

What is a credit balance? Is it the amount due that I have to pay for the purchases I have made with a credit card?

The balance is how much you owe.

What is a grace period? Is it the time that if I pay my balance by then I won't be charged a penny by the credit card provider? When does APR come into equation, after the grace period only?

The grace period is how long you have after the billing date to send them a payment. It ends on the due date.

Who is the credit card provider for me? Is it the bank or is it some other body?

The company that issued the card.

What is a late fee and when is it application?

It's what you owe when you don't pay at least the minimum payment by the due date.

When do I have to make a payment? Do I get a notification via mail or I can make payment at any time without any notification?

You should get a notification in the mail or online. After the bill has been generated (on the billing date), you can pay any time up until the due date without penalties (though this can vary).

How do I make a payment? Do i deposit my money into the bank that gave me the credit card? Can I just pay with my debit card from my online banking?

Payment options vary. You could go to a Bank of America branch and pay with cash or check. You could go online and pay directly from your bank account. Generally you can't use your debit card per se. Instead, you give them the routing and account information on your account online and authorize payments.

What is a balance transfer?

Don't do one. It's transferring one debt balance to another place.

As a side note, Bank of America can be sketchy and may hold your check for upwards of 8 days before posting it, if you mail it, which can then trigger a late fee and interest.

[anese]

also--don't ever be late on a payment. A lot of credit cards have fine print where if you miss one payment or are late they hike your interest rate up so high you'll be indebted up to your ears. Be very careful about your payments and keep hard copies of EVERYTHING.

[incompetent]

Thanks both of you guys. That was a great help.

[incompetent]

I got one more question.

i see that the grace period is provided only for purchases. But no grace period is provided for cash advance? Now what exactly is a cash advance?

For most of the times I would probably be using my credit card to pay for shopping and online transactions, housing and utilities bill. Do these transactions count as purchases or any other transaction on which no grace period is provided?

[rising_star]

I'm not sure how you'll pay housing on a credit card since many landlords aren't equipped to accept them. Shopping and online transactions are definitely purchases. I think utility bills count as a purchase but I'm not sure as I've never done it.

A cash advance is when you use an ATM (or the checks they send you in the mail) to get cash on your credit line. There's a fee for doing the cash advance, a higher APR, and, as you already mentioned, no grace period on the transaction.

[sunshine6]

Cash advances usually come with exorbitant interest, also beware that the bank will send you blank checks and encourage you to use them. Avoid it at all costs. The best way to build your credit is to charge a small balance each month and then pay it off before the due date to avoid any fees or interest. I wouldn't recommend using it for housing, as noted most landlords are not companies don't have a way to process the payment. Since you are just starting out, use the card wisely, because once you accrue debt, it is difficult to keep afloat. Many people our age are already seriously in debt, because they didn't understand all the fine print.

Keep in mind the bank that issued you the card is essentially lending you money. The only way they profit is if you mess up, and they like to profit. Also, you will receive a number of credit card offers, it doesn't mean you should take them...

[psi*psi]

You're better off using a checking account to pay rent and utility bills...usually you don't even have the option of paying rent by credit.

(This is a summary of what I did as an undergrad...my credit score is now officially awesome.) If you're looking to establish a good credit history, start off slowly...buy something like one load of groceries a month if you're apprehensive starting out, and then pay the bill off in full every month before the due date. When you get more comfortable, you can maybe start putting all your groceries on credit and paying the card off in full every month. On a rare occasion, if you're very short on cash, you can take advantage of some of those introductory 0% APR-for-six-months offers, and get a new card in time to buy textbooks. (Then make sure you make at least the minimum payment each month during the intro-zero-interest time, and make sure there's no balance on the card by the time the regular APR kicks in.) I wouldn't advise doing anything with cash advances or those stupid blank checks the companies send you. As other posters have said, never ever ever make a late payment--they charge a fee and it looks bad on your credit report. Likewise, it can reflect positively on your score if you make sure to pay all your utility bills on time.

Go for a card with no annual fee, and a fixed APR under 15% if you can find it.

[cardnav]

One more thing to note. As you pay off your credit card, the company will raise your limit (usually very quickly at first then it slows down). By raising the amount you can charge to the card, they are hoping you will put more on it and go into debt (so they can charge you late fees etc.).

It sounds pretty basic, but just because you can charge a lot to it, doesn't mean you should.

If you haven't signed up for online banking, you may want to do so. It allows you to keep track of all your current charges and will make it easier for you to know when they have received your monthly payment.

[synthla]

And you're probably wishing you had never asked, what with all the advice, but I'd recommend getting Microsoft Money or Quicken or some other personal finance software to keep track of your spending. When I was in college and first using credit cards, I used to literally be kept awake at night worrying about how much I owed. Then I got Microsoft Money and kept track of all of my credit cards and bank accounts through that. It made it much easier to keep my spending under control because it was always right there in front of me. There's probably free software out there that does the same thing, but I still use it today.

[Inspekt]

Pay off your credit card every month and never charge more than you can afford. If you make the minimum payments on your accounts it will take you nearly 25 years to pay it off, so always pay the balance in full and never pay the minimum!

Never exceed your credit limit, you'll get hit with tons of fees. Never pay late, you'll get hit with tons of fees and your interest rate will go up significantly. If you do get ONE late fee, try calling the bank and politely them to remove it. You may need to speak with a manager, but usually they will remove your first late charge should this happen. It is better to pay your card early every month to avoid this scenario.

After a few months of using your card and paying on time call the bank and ask for 1. a Lower interest rate 2. a higher credit limit. They will usually oblige.

Also, you should not have to pay a yearly fee for your card. There are great cards available where you can get cash back for free and no fee for having them. Look into those options.

[micrograd]

This may also help http://www.federalreserve.gov/Pubs/shop/

[redpen]

How do I make a payment? Do i deposit my money into the bank that gave me the credit card? Can I just pay with my debit card from my online banking?

[cardnav]

How do I make a payment? Do i deposit my money into the bank that gave me the credit card? Can I just pay with my debit card from my online banking?

Every month you will get a statement that will tell you a) how much you charged how much credit you have left on the card and c) a minimum payment due

Always pay in full otherwise you'll be charge interest. On the statement it will tell you how to write and send the check.

Also, if you have online banking through your bank that issues the credit card, you can set it up with online bill pay to have the credit card company take money out of checking account.

[dramanda]

Hi everyone,

I've been in touch with Bank of America regarding getting a US credit card. I'm a Canadian citizen and will be starting school in the US in the fall. They keep trying to tell me that I cannot apply for any of their credit cards because I am not a US citizen or permanent resident. I'm hoping that I'm just dealing with an ill-informed customer service agent.

It seems that the OP was successful in qualifying for a credit card with Bank of America, and I assume that he/she is not a permanent resident or citizen of the US. Does anyone else have experience with which banks give you a harder/easier time with getting a US credit card?

Since I'm sure it will come up: I have a credit rating from within Canada, but after reading through several forums of Canadians in the US, it seems that your Canadian credit rating does not carry over when you enter the US, so I'll be starting from scratch.

Thanks in advance!