Credit Cards

Credit cards use electronic payment processing to facilitate convenient, secure purchases in seconds. When you use a credit card, you’re borrowing money from the credit card’s issuer to make the transaction, and then repaying that loan at the end of each billing cycle, either in part or in full. By paying the bill in full each month, you’re essentially getting a free loan, because you will be avoiding interest charges. If you can’t pay your balance in full, at least make the minimum payment required by the due date. Interest will still be applied to the remaining balance, but you won’t damage your credit score.

Many credit cards reward cardholders with cash back, points or miles for every purchase made. Plus, the best credit cards often come with signup bonuses that cardholders can earn after meeting a minimum spending requirement in the first few months. Some credit cards offer low introductory interest rates, too.

Generally, credit cards with the best rewards, rates, and benefits go to people with high credit scores, a lot of income, and little-to-no debt. Essentially, the most proven and creditworthy individuals get the best credit cards. But if you’re new to credit, credit cards are the best credit-building tools around. If you use the card responsibly and pay the bill on time every month, or never make purchases with the card at all, the issuer will report positive information to the credit bureaus every month. And it’s very easy for someone with no credit to get a credit card, especially a secured card where your credit limit is based on how much you put down as a security deposit.

This isn’t charity, though. Credit cards offer short-term loans and give rewards because it’s profitable for credit card issuers. If a cardholder decides to pay off a credit card balance over time, they’ll have to pay interest. And if they have the chance to earn rewards, they’re likely to spend more than they would otherwise.

Credit cards also work for transactions other than purchases, including balance transfers and cash advances, which have the potential to be even more profitable for issuers. Balance transfers give people the chance to repay existing debt with a lower interest rate, for a fee – usually 3% to 5% of the transferred amount. Cash advances let you withdraw cash from your credit line, but a high fee and interest rate apply right away.

How Credit Cards Work:

• Credit cards allow users to buy now and pay later, even over the course of months.
• If cardholders don’t pay their full balance by the due date each month, interest charges are added to the balance each day.
• Credit cards allow cardholders to build credit, unlike debit cards. Having good credit is extremely important when it comes to renting an apartment or buying a home, and can get cardholders better rates on things like insurance and mortgages.
• Some credit cards reward cardholders for making purchases. Some cards charge annual membership fees.
• Credit card approval depends on an applicant’s overall creditworthiness. Credit history, income and debt obligations are important factors.

That’s how credit cards work, in a nutshell. That said, many of the finer details of credit cards – including all the types of credit cards available and how credit card interest works – don’t exactly fit in a nutshell. That doesn’t make them any less important to learn about, however, especially if you’re considering getting a credit card for the first time.

The Discover price protection benefit was discontinued on October 31, 2018. When it was still available, Discover price protection reimbursed cardholders for the difference between the price they paid for an item and a lower price they found advertised within the next 90 days. Discover offered up to $500 per item and $2,500 per account. All purchases made before October 31, 2018 still received their 90 days of coverage even after the program ended.

In case Discover price protection ever comes back, you should know a few more things. Certain items were ineligible, like services, gift cards, jewelry, used items and more. And some sales didn’t count, like going out of business sales, low prices from employee discounts and more.

Discover also got rid of some other benefits. They axed travel insurance, rental car insurance, purchase protection, extended warranties and return protection. But that doesn’t mean Discover cards are bad now. They still offer excellent rewards and low fees.

You can pay a mortgage with a credit card – just not directly. Lenders typically prohibit people from paying off debt with more borrowed money because it’s a risky practice that can’t be sustained for long. For all your mortgage provider knows, you might be paying with plastic because you don’t have enough money in your bank account, not because it’s a great opportunity to earn rewards. And if you were to rack up more credit card debt than you can afford, the mortgage payments would stop, too.

So it’s understandable that mortgage servicing companies don’t allow credit card payments. But the fact that homeowners still want to make mortgage payments with a credit card creates an opportunity for other companies to fill the void and facilitate such transactions.

The easiest way to pay your mortgage with a credit card is through a third-party service such as Plastiq. They’ll turn your credit card charge into either an electronic payment or a check, and deliver it to your mortgage provider. But you’ll have to pay a fee to use a service such as Plastiq to pay your mortgage with a credit card. Plastiq charges 2.5% of each transaction.

If you’re earning rewards at the market-average rate of roughly 1% cash back, this is a money-losing proposition. But it could work out if you’re targeting a big initial bonus – say, $400 for spending $3,000 in three months. A 2.5% credit card fee on $3,000 in mortgage payments would amount to just $75, meaning you’d be up $325 overall.

It’s also worth pointing out one other way to pay your mortgage with a credit card, but it’s really only applicable to your final payments. You could transfer your remaining mortgage debt to a 0% balance transfer credit card. Most major credit card companies allow you to transfer home loans to their credit cards. You just have to find a card with a reasonable transfer fee and make sure you can pay off your balance before regular rates take effect. Credit card interest rates are several times higher than mortgage rates, after all.

All of that might be tough to take in. So for your convenience, we’ll summarize the main points below.

Here’s how to pay a mortgage with a credit card:

• Use a third-party service. You’ll need a go-between because lenders don’t directly accept mortgage payments by credit card. Plastiq is a popular service that converts credit card charges into a payment method accepted by your lender. A money-sharing service such as Venmo could be an option, too. But lenders aren’t likely to accept this type of payment, and there’s a 3% credit card fee.
• Transfer a balance. You shouldn’t do this until you’re in the home stretch and can pay off your remaining balance before the end of a credit card’s 0% introductory period. Nine of the 15 largest credit card companies allow you to transfer mortgage debt to a credit card.
• Watch out for fees. Either balance transfer fees or the credit card convenience fees charged by third-party services could throw off the value of paying your mortgage with a credit card for points, miles or cash back.

Interestingly, paying rent with a credit card is much easier than using plastic to pay your mortgage. Many landlords accept credit card payments directly. And if yours doesn’t, there are a variety of services that can help. Not only can you rack up rewards by paying rent with a credit card, but you can also build credit. Some of the same services that facilitate rent payments with credit also make sure the payments are noted on your credit report.

The current balance on a credit card is the amount you owe on your account, minus any pending purchases or payments. All of the purchases you’ve made that have been processed by your credit card company since you last paid your bill are included in the current balance.

On a credit card account summary, you’ll likely see “Current Balance,” “Pending Balance,” and “Available Credit.” Pending balance refers to transactions that are being processed and may not be reflected in your current balance yet. Available credit refers to your total credit limit minus your current and pending balances. Essentially, available credit is how much of your credit you can still spend before making a payment.

To make it simpler, picture it like this:

Credit Limit - Current Balance - Pending Transactions = Available Credit

For example, let’s say you have a credit limit of $5,000, your current balance is $1,500, and there’s a pending balance of $500. Your current and pending balances add up to $2,000. Subtract that from $5,000, and you have your available credit: $3,000.

Every time you make a purchase, the amount will be subtracted from your available credit. Every time you make a payment, your available credit will increase by the amount of the payment once it processes.

Another type of balance you’ll see on your account summary is a “Statement Balance.” The statement balance is what you owe as of the date each billing period ends. This is when your monthly account statement gets generated. Your current balance will be higher than your statement balance if you make additional purchases but no extra payment between the end of the billing period and your due date. You must make at least the required minimum payment by the due date to keep your account in good standing.

“Too many” credit cards could be anywhere from 2 to 5 or more, depending on the individual. Everyone should have at least 1 credit card for credit-building purposes, even if they don’t use it to make purchases. But it’s hard to say exactly how many credit cards is too many because the number of cards you should have differs from person to person. It depends on how well you can manage 1 credit card, then 2, and so on.

So while 3 credit cards could be too many for one person, someone else might be able to comfortably manage 6. The average adult has 4 credit cards, according to a 2019 Experian report.

If you’re not sure how many credit cards is too many for you, there are a number of factors you can think about when making your decision. In particular, consider your recent spending and payment history. If you’re having trouble paying the full statement balance by the due date on each account you already have open, think twice about applying for another credit card account.

How to determine how many credit cards is too many for you:

1. Look at your credit report and score. If you have a history of financial mistakes, such as missed payments, you probably don’t want to get more than one card until you prove yourself to be a responsible borrower. Besides, it may be hard to get more than one worthwhile cards with damaged credit, anyway.
2. Review your utilization and payment history. If you’re maxing out all the cards you have, credit card companies probably won’t want to give you more spending power. Plus, credit card debt can be very expensive, and you don’t want to rack up balances that exceed what you can repay comfortably.
3. What does the credit card company think? Some issuers have unofficial rules regarding how many credit cards is too many for an applicant to have. If you have too many cards – either overall, or with that specific card issuer – they may deny your application. There are lots of rumors floating around that Chase will deny a credit card application if you have too many credit cards, for example.
4. Determine how well you’re keeping track of your credit cards. Even if your credit is good and you’ve never forgotten to pay a bill, that doesn’t mean you never will. Having too many open accounts to keep track of can lead to forgotten due dates, interest charges from simply forgetting to pay a credit card in full, and other issues. If you have trouble listing your credit cards from memory, you’re likely to forget to pay one at some point.

There are benefits to having more than one credit card account. Having several credit cards can help you save money by allowing you to get the best collection of rates and rewards for your biggest transactions. For example, you could get a flat-rate cash back credit card for everyday expenses, a bonus rewards card for travel, and a balance transfer card to reduce the cost of existing debt. Having multiple cards can also help your credit score if you keep your utilization low and your payments on time.

What you should watch out for is applying for too many credit cards too quickly. It’s best to not apply for more than one or two per year, as each application puts a hard inquiry on your credit report and temporarily hurts your credit score.

The more data that’s at your disposal, the easier it will be to decide how many credit cards you should have. WalletHub can help with free daily credit score updates and personalized credit-improvement advice.

You can get cash back from a credit card by earning cash back rewards on purchases or taking out a cash advance. But most credit cards do not allow you to get cash back at the register when checking out at a store. That’s more of a debit card thing, though there are a few exceptions. For example, Discover cards have a feature called “Cash Over” that allows cash back at some store registers.

Cash rewards credit cards give you a percentage of your purchases back as a statement credit, check or a deposit into your bank account. Cash advances, on the other hand, allow you to withdraw money from your credit line. Cash back rewards essentially have zero drawbacks, as long as they don’t lead you to overspend, but cash advances usually come with very high interest rates and fees.

For either option, it’s good to know what you’re getting into so you can maximize the pros and dodge the cons.

Here’s how to get cash back from a credit card:

• Cash back rewards. Cash back is one of three major credit card rewards currencies, along with points and miles. And cash back is the simplest of the trio. You’ll generally earn at least 1% cash back on every purchase, or 1 cent for every $1 you spend. Some cards also offer higher rates in specific bonus spending categories.
• Mobile payment app. Applications such as Venmo and Cash App allow you to add your credit card for funding, and both charge a 3% fee every time you send a payment with a credit card to a person you’re connected with on the app. So it’s possible to make a payment to a friend or family member in the app via your credit card and have the person give you that money in return, either as cash or as credit through the app. If you link your checking account to the app, you could then transfer the funds there and make an ATM withdrawal. This method could potentially allow you to get cash from your credit card without paying a cash advance fee or a cash advance APR. That said, the Venmo website suggests that your card issuer could see this as a cash advance, so it’s best to call your card issuer and find out before trying this.

• Cash advance. A cash advance lets you use your credit card like it’s a debit card and take money out of an ATM. But there’s a huge catch. First, you’re going to have to pay a fee, often 3-5% of the amount you take out. And then on top of that, the credit card company immediately starts charging you interest on both the balance and the fee, at a rate usually above 20%. That interest compounds daily, too, meaning interest applies each day to your principal balance and any unpaid interest and fees from previous days. In other words, cash advances are expensive.

To do a cash advance, you’ll either need to call the number on the back of your card to set up your PIN (which will make the card usable at an ATM), or go to a bank location associated with your credit card company and ask the teller in person, with your valid photo ID. You can also request credit access checks from your card issuer, which operate like normal checks except the funds come out of your credit line.

Cash advances in general are a pretty undesirable option, and you should only do one if you’re in an emergency and need cash right away.

On the other hand, cash back credit cards are everywhere, and there’s no financial risk involved in using one responsibly. Plus, they’re available to people of all credit levels. And they’re also the only type of reward that can’t be devalued by the credit card company, because you’re just earning money - $1 will always be $1.

The American Express extended warranty benefit adds up to 2 years to the warranty on items purchased with an American Express credit card or with Amex rewards. Amex matches the original warranty if shorter than 2 years, and adds 2 years to any original warranty of between 2 and 5 years.

Amex’s extended warranty covers cardholders for up to $10,000 per item and $50,000 per year. Amex will pay to repair or replace an item, whichever is less expensive. All American Express cards have the extended warranty benefit, and the coverage is the same for all of them.

Keep in mind that some items are excluded. The list is in your benefits guide.

It is possible to pay a credit card with a credit card by doing a balance transfer or a cash advance, for example, but you cannot make a credit card the regular payment method for another credit card account. Accepted payment methods for monthly credit card bills generally include bank transfers, checks, and money orders.

You cannot consistently pay a credit card’s bill with another credit card for several reasons. For one thing, credit card companies won’t let you. Credit card transactions are also more expensive to process than bank transfers, which means accepting credit card payments would eat into credit card companies’ profit margins. Besides, if you could pay credit card bills with credit cards, it could be possible to keep shifting debt around without ever actually paying it. But with some maneuvering, there are ways to make a one-off transaction work.

4 ways you can pay a credit card with another credit card:

1. Do a balance transfer: If you’re unable to pay your credit card bill in full and are paying a high interest rate, you may want to consider a balance transfer. This allows you to transfer your credit card balance to a different card with better financing terms (perhaps an introductory period with a 0% APR for a set number of months). That way, you can pay off your credit card bill over time without worrying about as much interest being applied. This does amount to paying your credit card bill with a credit card, but it’s more of a one-off way to save money on interest than a viable recurring option.
2. Use a mobile payment service: One way to pay a credit card with another credit card is to use a mobile payment app such as PayPal or Venmo as a middleman. These apps allow you to transfer money from user to user, and you can fund them with a credit card. In other words, you could use your credit card to pay a friend or family member through the app, and they can then make your credit card payment for you or give you the money to do it yourself. You can earn rewards with this method, but there may be fees to contend with. In addition, be aware that some person-to-person credit card transactions on Venmo will show up as cash advances on Mastercard and Visa credit cards, which typically come with high fees and APRs.
3. Purchase a money order: Companies like MoneyGram and Western Union allow you to send money to a particular phone number or email address, or pick up cash from a physical location, and fund the transaction with a credit card. However, this is usually treated as a cash advance, which means expensive fees and interest charges would apply, in addition to the fees charged by the service.
4. Do a cash advance: You could take out a cash advance at an ATM, deposit the money into your checking account, and then pay your credit card bill from there. However, considering the high fees and interest rates that accompany cash advances, not to mention the low limits on such transactions, that’s unlikely to work very well. It would be a very expensive way to pay one credit card bill, let alone recurring bills over time. The same generally goes for the various other ways you can transfer money from a credit card to a bank account, too.

Despite the availability of these options, the best way to pay your credit card bills still is to set up automatic deposits from a checking or savings account. As long as you have enough money in your bank account, you won’t miss any payments.

You can get cash from a credit card through rewards redemption or by doing a cash advance. Rewards are the better option because they actually save you money. Cash advances have very high fees and interest, so they’re more of a last resort than anything else. If you do get one, you’ll want to pay it back as quickly as possible.

Here’s how to get cash from a credit card:

• Earn and redeem rewards: There are lots of cash back credit cards. Typically, they’ll give you at least 1% cash back on all purchases, and sometimes higher rates on specific categories of purchases.
• Do a cash advance: You can make an ATM withdrawal with your credit card to turn some of your available credit into cash. You just need to get a PIN from the card’s issuer. You can withdraw up to the “cash advance limit” listed on your statement. But cash advances are expensive – you can expect a hefty fee and a high APR that starts costing you right away. There’s no grace period. Store credit cards generally do not allow cash advances.
• Get cash back at the register: Most credit cards don’t work like this, but Discover has a feature called Discover Cash Over which allows you to get cash from the register when you check out at 70+ different chains nationwide with any Discover card. The Cash Over feature is limited to $120 every 24 hours, with no monthly limit. The cash you take out will be treated as a purchase, and won’t be subject to any transaction or ATM fees. Another option is the Walmart® Store Card which allows you to withdraw up to $20 each time you make a purchase at a Walmart store location. This is also treated as a purchase, not a cash advance.

So cash advances are not an attractive option, but there are a ton of attractive cash rewards credit cards on the market. For good or better credit, try Citi® Double Cash Card – 18 month BT offer. If your credit isn’t so great, you can apply for Discover it® Secured.