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Understanding Credit Cards

What is a Credit Card?

A credit card is essentially a means of borrowing money that is accompanied by interest and sometimes fees. It is also a revolving line of credit, meaning you can repeatedly borrow money on one account up to a set limit. Before applying for a credit card, you should first consider the advantages and disadvantages of using one.


  • Use for emergencies

  • Buy now, pay later

  • Purchase protection

  • Helps establish good credit if used wisely                                                 


  • Overuse

  • High interest/annual fees

  • Increase your debt

  • Establish poor credit if not used wisely

Tips to Stay in Control of Your Credit Card

  • Use only one credit card

  • Shop for the best credit card

  • Consider a secured card- a type of credit card that requires a cash collateral deposit that becomes the credit line for that account 

  • Don’t charge anything you can’t pay for

  • Pay your monthly bill on time and in full

Warning Signs

It’s often easy to miss a payment due date or unknowingly build up an exorbitant amount of debt, leaving you in bad standing with your credit card company. Be sure to actively track your expenses and bills, and watch out for warning signs of uncontrolled credit usage. This may take the form of paying off one credit card with another or only making the minimum payment.If you are having trouble making your credit card payments, call your credit card company, they may be willing to work out a payment plan with you.


If you are uncertain about getting a credit card, or want to adjust your credit usage, there are some convenient alternatives, including cash, a debit card, a secured credit card, a prepaid card, or a loan (for larger purchases).

Getting a Credit Card

There are many important elements to consider when reading a credit card offer. Every credit card company is required to outline the fine print of their credit cards in what is called a Schumer box. The Schumer box standardizes all of the pertinent information you will need to know to compare credit card offers. Each Schumer box will include:


As with other bank cards, a credit card comes with several different types of fees. Some of the most common fees include late fees, which are imposed when minimum payments are not paid on time, and over-the-limit fees that are charged when you exceed the credit limit.

Interest Rate

This is the rate at which credit card companies charge you for using their card. Rates can vary widely and range from 6% to 36%, depending on the credit institution and the borrower's credit history. You will not be charged interest if you don't carry a balance on your card from month to month and instead pay off your full credit card balance each month.


An APR is offered by a credit card company as a single sum of the total price of borrowing money . It is calculated on an annual basis and generally cannot be changed for the first 12 months unless it is a promotional or variable rate.

Grace Period

A grace period is the time you have before you’ll be charged interest on your purchases - generally between 20 days to a month.To receive a grace period, you need to meet these two conditions:

  1. Pay your new balance in full for the billing period

  2. Pay the balance in full before the payment due date

No grace period is given if you only make the minimum payment, meaning that you’ll be charged interest on your future purchases starting on the date you make the purchase.

Tip: Easily compare credit offers through websites like NerdWallet, Mint, Bankrate, Credit Card Insider, and Credit Karma

Learn More

To schedule a one-on-one appointment with a Bears for Financial Success peer mentor, email bffs@berkeley.edu or request a financial literacy presentation for a student group.