US Credit Card Guide: American Credit Cards Explained

Credit cards are a big part of American personal finance. For those new to credit cards, there is a lot to learn. So we created this USA credit card guide to help! We'll explain the difference between credit and debit cards, the rates and fees credit cards commonly come with, different categories of credit cards, the pros and cons, best practices, and how to determine if you should apply for a credit card. 

Credit card vs. debit card

You're typically given a debit card when you open a checking account. A debit card looks similar to a credit card and, like a credit card, can be used to make purchases and pay bills. 

The difference is where the money comes from. When you use a debit card, the money comes from the attached bank account. You're spending your money. When you use a credit card, it's like getting a short-term loan. The money comes from the credit card issuer. Each month, you pay the money back. 

You can pay the entire balance of the credit card, which is ideal, pay just the minimum due, or any amount in between. Ideally, you will pay off the entire balance each month. That way, you can avoid paying interest on the statement balance and possibly late fees.

Credit card rates and fees

Credit cards come with various rates and fees: 

• Annual percentage rate (APR): The interest rate charged for the year. There are various types of APR, including purchase, cash advance, balance transfer, and penalty. Purchase APR is the most common; it's the interest rate charged on your monthly balance if you carry one. 

• Cash advance APR: The APR you're charged if you withdraw cash from an ATM or bank with your credit card.

• Balance transfer APR: The APR you're charged if you transfer one credit card balance to another.

• Introductory APR: A reduced, sometimes 0%, APR for a set period.

• Penalty APR: The interest rate you pay when you don't pay at least the minimum required payment by its due date. 

• Annual fee: The cost of simply having a credit card. Not all cards charge an annual fee; it's typically seen in premium credit cards that offer a lot of perks. 

• Foreign transaction fee: The amount charged when you pay with a foreign currency when you use your card outside of the US or order something online from a site outside the US. A foreign transaction fee is usually around 3%, and not all cards charge it. 

• Late payment fee: The amount you're charged on top of the penalty APR when you don't make at least the minimum payment by the due date.

• Over-the-credit-limit fee: A charge when you exceed your set credit limit.

• Returned payment fee: A charge when your payment method fails due to insufficient funds, account closure, or freeze. 

Types of credit cards

Credit cards in America come in a variety of categories:

• Travel credit cards: Travel credit cards offer points and perks for things like airline tickets and charges, hotel rooms, rental cars, airport lounge access, lost luggage, and canceled or delayed trips. These cards can be general, where the points can be transferred to various travel-related partners or specific to an airline or hotel brand. Travel credit cards often have some of the highest annual fees, but there are travel cards that don't charge that fee. 

• Cash-back credit cards: These credit cards offer a percentage back on each purchase. Some cards offer a flat percentage on all purchases; some offer a higher percentage back on specific categories (groceries, gas, travel, etc.). Some cards have rotating categories that offer a higher percentage back that typically change quarterly. 

• Secured credit cards: For those with little credit history or a poor credit score, it can be challenging to get a traditional credit card. Secured cards are an alternative. Users provide a deposit which typically acts as their credit limit. You make monthly payments as you would with a traditional card, but if you don't make payments, the issuer has the deposit, so they're not taking on risk by issuing a secured credit card. The right secured credit card can help build and repair credit. 

• Student credit cards: These are cards aimed at college students. The cards have lower credit standards as students typically don't have much credit history and usually don't have an annual fee. Student credit cards can be a great way to build a credit history.