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What Are Credit Cards & How Do They Work?

Fulfilling your financial goals not only takes time but also requires careful planning. Milestones like buying a new home, buying a car, or taking up an entrepreneurial venture can carry hefty price tags. 

Credit cards can help you achieve your goals and open up new opportunities, but for many young adults, taking on credit card debt can seem a tad scary.

However, if used properly, credit cards can be a powerful tool for building credit, and once you know how they work, there’s really nothing to be afraid of at all!

Credit Union of Southern California (CU SoCal) is here to help you understand what credit cards are and how they work. We've been in the banking business for more than 60 years, so we have a lot of experience and knowledge to share with our Members. Eighty percent of our members willingly refer us to their friends and family

If you are interested, why not go through our range of credit cards and apply online?

Get Started on Your Credit Card Today

What is Credit & Why is It Important?

Credit is essentially an agreement with a lender to let you purchase products and services now so you can pay for them at a later date.

Additionally, credit also refers to your credit history, which a lender will typically refer to before approving a loan, credit card, or lease. Thus, you can view credit as a significant part of your financial clout.  

Now that you know how available credit works, it's time to learn how credit cards are different from debit cards.

Credit Cards vs. Debit Cards

While credit cards and debit cards may look identical, they are different in the services they offer.
Debit cards allow you to make purchases by drawing on funds you’ve deposited in your checking account. It may also come with an overdraft line of credit, which is connected to your checking account to cover any overspending.

However, credit cards allow you to borrow money from your bank (up to a limit) to make purchases and withdraw cash. When you use a credit card, the amount is automatically added to your outstanding balance.

Since there is a spending limit, your card will automatically be declined if you spend beyond the credit limit.

Do I Need a Credit Card?

Although powerful, credit cards are not an absolute necessity.

But if you can use it responsibly and pay your bills on time, then getting a credit card can be great for building credit quickly and efficiently.

When Is My Credit Card Payment Due?

By making timely payments, you can avoid late payment penalties and build a solid credit score. How does paying off a credit card work then? Typically speaking, a newly opened credit card account starts the first billing cycle with a zero balance.

During your billing cycle, any purchases, fees, and credits are posted to your account and adjusted to your balance.

By the end of the billing cycle, you're billed for all unpaid charges made during the cycle. Your payment due date will generally be around 21-25 days after your billing cycle ends.

How Does Credit Card Interest Work?

Of course, credit cards aren't free. Generally, banks charge cardholders monthly interest for their loans.

Purchases made through the card are subject to an Annual Percentage Rate (APR). The APR varies from the cardholder to cardholder depending on factors like your credit score, which is why it’s so important to have a good score!

Credit Card Fees

Banks can charge you several types of fees – from interest charges to late payment fees – based on how well you manage your account. Here are some standard credit card fees that you will want to consider before applying for one:

Purchase APR

This interest is added to your monthly outstanding balance. The fee typically kicks in when you carry over a balance month to month.  

Balance Transfer APR

This is the interest rate on balances you transfer to your credit card. Some credit cards offer an introductory balance transfer APR, so when you transfer debt from a pre-existing credit card to your new one, it reduces your interest rate.

Balance Transfer Fee

Most cards that permit balance transfers charge a fee (usually 3% or 5%, though our CU SoCal Topaz Visa credit card charges only 2% on balance transfers) for each transfer, with a minimum fee of $5-$10.

Cash Advance APR

Cash advances allow you to cash out a loan rather than using your credit card. However, cash advances typically carry a high-interest rate and don’t have a grace period, which means banks can initiate the APR from the day of the advance.

Cash Advance Fee

Most cash advances come with a fee (usually 3%-5%) for each advance, with a minimum fee of $5-$10.

CU SoCal charges a cash advance fee of only 2%.

Annual Fee

This is what some banks charge you to let you maintain your credit card.

While many banks don't charge one, those that do tend to offer additional benefits. A travel credit card, for example, will offer perks like priority boarding and airport lounge access in exchange for an annual fee.

Fortunately, CU SoCal does not charge any annual fees for its CU SoCal Platinum Rewards Visa and its CU SoCal Topaz Visa credit cards.

Penalty APR  

The penalty APR is an interest rate on late payments. Some banks provide a grace period to clear the bill. Generally, a penalty APR interest is charged at 29.99%, but it can be lower. 

Foreign Transaction Fee

Some lenders charge foreign transaction fees on purchases made outside the U.S. (or any purchase made in another currency). While these are typically 2%-3% of your purchase amounts — the fee can add up, especially if you travel often.

Late Fees

Banks will charge you a late payment fee whenever you make a payment post due date (or if the amount paid back is less than the minimum requirement). Most issuers determine the fee depending on how often you've let payments slide past due.

However, some credit cards have tiered late fees based on your account balance.  Check our CU SoCal rates.

Types of Credit Cards

How do you know which credit card is right for you? Let's look at the different types of credit cards and how each of them can help you reach your financial goals:

Standard Credit Cards

Standard credit cards offer no rewards but allow you to have a revolving balance up to a limit. Every time you make a purchase, more credit is made available to you once you've made a payment.

Cash Back Credit Cards  

These allow you to earn cash rewards as you use the card for your purchases. This money is directly deposited to your account on monthly or yearly terms. The standard rate typically ranges from 0.25% to 2% of your spending.   

Rewards Credit Cards

Reward credit cards allow you to earn redeemable points against products/services you purchase.  There are three types of rewards you can avail of: cashback, travel, and points.

CU SoCal Credit Cards

We offer generous credit limits up to $50,000, along with personalized dispute assistance, Visa purchase alerts, auto rental insurance, and much more. Customers can even avoid interest on their purchases if they complete payments in full within 25 days of their due date.

CU SoCal offers two credit cards:

CU SoCal Platinum Rewards Visa

Earn points every time you make a purchase!

You receive 15,000 dream points on spending at least $2,500 within 90 days1, and also earn CU SoCal Dream Points for every purchase, whether in-store or online. Moreover, if you have a Rewards Checking account, you Visa debit card Dream Points are pooled with your CU SoCal Platinum Rewards Visa points, allowing you to earn points twice as fast.

Apply Online

CU SoCal Topaz Visa

Move high-interest revolving debt to this card and get 2% APR!

Not only can you reduce your debt with the CU SoCal Topaz Visa card, but you can also use it to make daily purchases, in-store and online.

Moreover, we only charge you a minimal transfer fee of 2%, which equals $100 for every $5,000 you transfer.

Apply Online

Apply Online For a CU SoCal Credit Card Today!

CU SoCal is Southern California’s fastest-growing credit union, and with 30,000 free ATMs, low-interest loans, and excellent Digital Banking services. Using our Mobile App, you can manage every aspect of your CU SoCal Visa credit cards!

Hopefully, our credit card guide has helped you understand everything there is to know about credit cards. Now that you're ready to take one on, let us be your financial guide on how to apply for a credit card today!
Get Started on Your Credit Card Today

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Building Better Lives

Credit Union of Southern California (CU SoCal) is a leading financial institution empowering those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County to reach their goals and build strong financial futures. CU SoCal provides access to convenient money management services and offers competitive rates and flexible terms on auto loans, mortgages, and VISA credit cards—turning wishing and waiting into achieving and doing.


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