Credit Karma Guide to Credit Cards

Credit cardsImage: Credit cards
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What’s a credit card?

Credit and debit cards may look similar, but they work differently. With a debit card, when you make a purchase, the money comes right out of your checking account.

With a credit card, when you make a purchase, you’re borrowing money with a promise to repay it later. If you don’t repay the loan in full, you’ll have to start paying interest on the money you borrow.

If you do carry, or revolve, a balance — meaning you don’t pay off your balance in full by your due date — you’ll have to pay interest on the amount you revolve and your new purchases will start to accrue interest immediately (you won’t be within your grace period anymore).

Sometimes you might not be able to afford to pay the entire bill. When this happens, you can pay part of your balance and revolve the remainder.

Your statement will show your minimum payment amount, which is the amount you need to pay by the due date to avoid late charges. Late payments can also hurt your credit, so it’s important to always make at least minimum payments on time. It’s best to pay more than the minimum if you can afford it.

Types of credit cards

Secured cards

Secured credit cards can be a good option if you’re new to credit or had credit trouble in the past. When you open a secured card, you give the issuer a refundable security deposit that it can use to pay your bill if you don’t repay your balance for an extended period.

Retail cards

Retail credit cards — or store cards, as you might know them — are co-branded credit cards such as a Macy’s or Best Buy card. Retail cards may be easier to qualify for than other types of credit cards, but they also may have lower credit limits and higher interest rates. And sometimes you can only use the card at the associated retailer.

Rewards cards

Rewards credit cards give you rewards when you use the card to make a purchase. Depending on the program, you can redeem your rewards for a variety of things, including travel, merchandise, statement credits or a check.

Balance transfer cards

If you’re carrying a credit card balance, you may be able to save money by transferring that balance to a new credit card that has a lower interest rate. These are called balance transfer credit cards.

Zero percent cards

Some credit cards offer new cardholders a promotional 0% interest APR on purchases. The promotional periods often last between 12 and 21 months, giving you time to pay off a large purchase without accruing interest.

Important credit card charges and fees

Interest rates and charges

  • APR for purchases — The APR you’ll pay when you carry a balance from purchases you made with the card.
  • APR for balance transfers — The APR on balance transfers may be different than your purchase APR.
  • APR for cash advances — You may be able to withdraw cash with a credit card, and the balance could have a separate APR.
  • Penalty APR — A higher APR that can be applied to future balances if you make a late payment or your payment is returned.
  • Grace period — How long you have between the end of your billing cycle and your due date.
  • Minimum interest charges — The card issuer might have a minimum charge if you don’t pay off your balance in full.


  • Annual fee — Some cards charge you an annual fee each year to keep the card.
  • Balance transfer fee — The fee you pay when transferring a balance to your credit card.
  • Cash advance — A fee you’ll pay to take out cash. It may be the greater of a percentage of the amount you take out or a specific dollar amount.
  • Foreign transaction fee — Some cards have a foreign transaction fee, an extra few percentage points on top of your purchase amount if you buy something outside the U.S. or if it’s sold in a currency other than U.S. dollars.
  • Late payment fee — The fee you’ll pay if you don’t make at least your minimum payment by the due date.
  • Returned payment fee — The card issuer charges this fee if you tried to make a payment, but it’s returned.

What’s next?

Find a card that works for you

One person’s amazing credit card offer or rewards program could be a dud for someone else. Start by examining your spending habits, setting a goal for how you’ll use the card (perhaps for rewards or a major purchase) and then choose a card that fits your needs.

Monitor your credit

You can take steps to spot errors or signs of identity theft. Sign up for Credit Karma’s free credit monitoring, and you’ll get a notification if there’s a significant change in your Equifax® or TransUnion®credit reports — a potential indication that someone is trying to open an account in your name.

About the author: Louis DeNicola is a personal finance writer and has written for American Express, Discover and Nova Credit. In addition to being a contributing writer at Credit Karma, you can find his work on Business Insider, Cheapi… Read more.