Credit cards have become a way of issuing payments. Life without them may be possible but will be very challenging. While it is your choice, you should learn a few basic things about credit cards and how they work.
What better way to learn about them than the credit cards FAQ? You’ll learn everything you need to know about plastic money.
Table of Contents
What is a Credit Card?
A credit card is the purchasing power of an individual stored in plastic, metal, or digital card. It gives you credit for buying things you need and paying for them later. You’d usually have a month to pay it back before it starts incurring interest.
How do Credit Cards Work?
Credit cards work just like a loan from a financial institution. The issuing bank will cover the items you purchase, and you’ll pay them later. It removes the necessity of having to carry cash.
With every swipe, tap, or dip, the merchant’s payment gateway receives the customer’s credit information. It submits a request for payment to the credit card issuer’s bank. The bank then issues the payment after verification.
What is a Secured Credit Card?
A secured credit card is similar to a regular credit card but with a cash deposit. The cash will act as collateral to receive credit for the purchases.
Burrowers use a secured credit card when they have a low or no credit history. With poor credit history, credit card companies do not have any guarantee over the borrowed money. Therefore, they’ll issue secured credit cards with low credit limits up to the cash deposit.
Secured credit cards are good options for anyone trying to build credit.
How to Get a Credit Card?
You can only get a credit card from the issuer by applying if you’re eligible and getting approved. The minimum age to qualify for the application is 18 years of age. The application can be submitted online, in person, or over the phone. The results come through within a few minutes.
You need a legal name, birth date, address, social security, and annual income to apply for a credit card. The issuer can pull your information through social security.
What is APR on a Credit Card?
APR stands for Annual Percentage Rate. It is the yearly interest rate on your credit card balance.
You don’t pay any interest for your on-time payment during each billing cycle.
The issuers provide this rate as annual. That does not mean you’ll pay interest only once a year. Most issuers assess interest rate compounding daily. You can convert it to monthly by dividing it by 12. For example, if your APR is 25.7%, the monthly interest rate is 2.14%.
What is a Good APR for a Credit Card?
Ideally, zero% APR is the best APR. But everyone knows that’s not possible. Although there are credit cards with zero introductory APR, their interest is higher after the introductory period.
According to the Federal Reserve’s data, the average interest rate on a credit card is 15.13%. Anything less than 20% is a good APR credit card. However, you should never use a credit card as a loan. Credit card debt is the worst due to its higher interest rate.
What Credit Cards Should I get?
You should get a credit card based on your needs, not your wants. Everyone’s financial situation is unique. Therefore, a general credit card recommendation may not work. You should consider the following scenario while deciding what credit card you should get:
- If you’re a small to medium wage earner focused on saving money, you should stick with a no-annual-fee credit card.
- You should consider a free balance transfer and an introductory zero percent APR credit card if you have substantial debt. You should also make plans to pay it off within the introductory period.
- Credit cards with a big signup bonus are tricky but can help offset your expense considerably. You have to be careful with the use and not become a credit card churner. Credit card churning is a red flag to the issuers.
- A co-branded store credit card works best for you if you’ve extended family or spend a lot of money on groceries and supplies. Store credit cards save you the best on purchases at the card issuer’s business location and their partners.
- If travel is a part of your life and you fly frequently, it’s worth signing up for a travel credit card. Credit cards with annual fees have the best travel perks.
What is a Cash Advance on a Credit Card
A cash advance is money borrowed against a credit card. It acts just like any other loan. You can make the cash advance at an ATM or the bank.
Credit cards usually have a limit to cash advances along with hefty interest and fees. You don’t get a monthly billing cycle to pay it back. The interest clocks start ticking after cash is withdrawn.
What is a Balance Transfer on a Credit Card?
A balance transfer is a credit card transaction to transfer debt from one account to another.
A balance transfer can save money on high-interest cards if done strategically. For example, shifting debt to a 0% introductory APR gives you ample time to pay it back interest-free.
What is a Cash Back on a Credit Card?
Cash Back on a credit card is a reward or rebate for every dollar spent. It can either be in the form of dollars or points.
The dollar cash backs are easily redeemable into a paycheck or statement credit. The points are either redeemable to an expense category, cash or gift card, or all with variable redeemable value.
Credit card issuers charge fees to businesses for processing. A portion of this help covers the cash back to the customers using credit cards.
How Many Credit Cards Should I have?
The number of credit cards you have does not impact your credit score. Therefore you can have as many credit cards as you want, as long as you can manage them.
Carrying multiple credit cards helps increase your credit line and reduce the utilization rate. It will improve your credit score. However, you should avoid credit card debt as much as possible. Too many credit cards will not push you towards debt but not managing them will.
How to Get Cash From a Credit Card?
You can get instant cash from a credit card through the ATM. It is a cash advance.
Unlike other personal loans, you don’t need approvals or documentation to get the cash. However, you are responsible for a cash advance fee. Every card issuer has different fees and should be available in your credit card agreement.
Cash advance interest rates are much higher than the regular APR. The interest accrues daily. It also impacts your credit score.
You should be careful when using a credit card to get cash. A debit card is a more practical way to withdraw money.
Can you buy a car with a Credit Card?
It depends on the price of the car and at the dealership’s discretion. Car dealerships must pay processing fees for every card transaction, which gets expensive. However, some dealers allow it to attract customers. You can search for those dealers online.
Depending on your credit limit, You may only be able to pay a down payment. If you’re purchasing a used car, you might as well pay it off with your credit card. Overall you can buy a car with a credit card.
How to Pay a Credit Card with a Credit Card?
Paying a credit card with another credit is not advisable. At times, we don’t have any other option. You have two options to pay a credit card with another credit card.
You can perform a balance transfer from one credit to another, which means you’re using a credit card to pay another. Balance transfer comes with a fee ranging from 3% to 5%.
A cash advance is a way of taking cash from a credit card. You’re borrowing money against your line of credit, with a steep fee and charges. With cash, you can pay off your credit card. A cash advance may cost you more than credit card debt if not done carefully.
Can you Pay rent with a Credit Card?
Paying the rent with a Credit Card might get tricky as it requires your landlord to accept it. Some complexes have online payment portals that allow you to link your card. While others only accept direct deposits from bank or debit card payments. Therefore, it’s worth checking with your landlord.
Some third-party payment platforms like RentTrack, RadPad, or Plastiq allow paying rent via credit card. They charge about 2-3% convenience fee.
Using a credit card for rent helps maximize your cashback. At the same time, your credit utilization ratio would go. Therefore, you can be cautious about using a credit card to pay rent.
Can you Pay Taxes with a Credit Card?
Yes, you can pay taxes with a credit card. The IRS uses third-party payment processors to process debit and credit cards. You will incur a processing fee.
The fees you incur as per IRS are as follows:
| Payment Processor | Fee | Minimum |
|---|---|---|
| ACI Payments, Inc | 1.98% | $2.5 |
| Pay1040 | 1.87% | $2.5 |
| PayUSAtax | 1.96% | $2.69 |
Can you Use a Credit Card at an ATM?
Yes, you can use a credit card at an ATM. Usually, credit card issuer banks provide the facility to withdraw money from ATMs. However, there is a limit on withdrawal amount, which incurs specific fees. The banks set a certain credit limit and percentage of fees to be deducted for each withdrawal from the ATM.
Can You Use a Credit Card at Venmo?
You can link a credit card as a payment method at Venmo. The peer-to-peer payment app allows linking your credit card as a payment method. However, credit card usage comes with few restrictions.
Venmo charges a 3% fee for issuing payments using credit cards. You can’t pay friends and family through Venmo using a credit card without additional costs. This transaction is a cash advance. Therefore, you’ll end up spending cash advance fees and interest.
Venmo also does not allow linking the same credit card to multiple accounts. You can’t send money from your Venmo account to a credit card. You must have a debit card on file.
How Long Does it Take to Get a Credit Card?
On average, it takes 7 to 10 days to get a credit card once approved. The credit card issuer mails your credit card through regular mail. However, some issuers also have expedited shipping for a fee.
The following table shows how long it takes to get your credit card.
| Card Issuer | New Card Delivery time | Replacement time | Service Number |
|---|---|---|---|
| American Express | 7-10 business days | Free next day shipping | 1-800-297-8500 |
| Bank of America | 7-10 business days | 4-6 business days | 1-800-732-9194 |
| Capital One | 7-10 business days | 4-6 business days | 1-800-227-4825 |
| Chase | 7-10 business days | 3-5 business days | 1-800-432-3117 |
| Citi | 7-10 business days | 4-7 business days | 1-800-950-5114 |
| Discover | 7-10 business days | 3-7 business days | 1-800-347-2683 |
| Wells Fargo | 7-10 business days | 5-7 business days | 1-800-642-4720 |
Some credit cards like American Express make it easy to use credit cards immediately once qualified. When approved, American Express allows customers to set up an online account. You can log into your account through an app and use virtual cards through Apple Pay or Google Pay.
Can you Get a Money Order with a Credit Card?
Most businesses do not issue money orders if you’re paying through a credit card. Money order issuer wants to secure funds before they give a money order. However, Western Union and 7-Eleven allow you to get a money order with a credit card.
You must be very careful about paying for a money order through a credit card because they’re cash advances. Cash-out through a credit card comes with a fee, usually over $30, plus a hefty interest. Since the interest clock starts immediately, you don’t have a one-month grace period to pay it back.
Can You Pay a Mortgage With a Credit Card?
You can’t pay off a loan with another loan. Therefore most banks offering mortgages don’t allow direct credit card payments.
However, a third-party payment platform like Plastiq.com makes it easy. If cash is tight, you can use these platforms to avoid late fees and foreclosure.
Can You Use a Credit Card on a Cash App?
Yes, you can use a credit card on a Cash App. You need to connect your debit card or bank account to connect your credit card. Like Venmo, sending money through Cash App also incurs a 3% transfer fee.
How to Build Credit without a Credit Card?
Credit makes it very easy to build credit. You buy everything using credit and pay it off at the end of every month.
But is it possible to build credit without a credit card?
The answer is yes. You can use anything and everything that consists of borrowing money and paying it off to build credit as long as the lender reports it to the credit bureau. Some of the ways to build your credit without a credit card are:
#1 Paying for a Loan
Any loan like a mortgage, federal student, auto, or personal loan is credit. Timely payments to these loans are your points towards good credit. The lenders report the payments to the major credit bureaus, which helps to boost your credit score.
# Become Authorized User
Many, if not all, credit card issuers allow adding authorized users besides the cardholder. Once added, you’ll receive a credit card with your name but without any credit check. You can start building your credit with each purchase. It’s like piggybacking credit history from the cardholder.
# Secured Credit Card
Although it requires applying for a credit card, you have a high chance of getting approved for a secured credit card if you do not have a good history. Your credit limit depends on your cash deposit. A secured credit card is worth it if you’re building your credit.
#Utility Bill Payment
The utility companies like rent, water, phone plans, internet, and electricity should all report your payment history to the credit bureau. You should get a free credit report to review the reported information. The on-time bill payment helps build your credit score.