10 Credit Card Rules You Should Know by Heart

By Matthew Frankel Markets Fool.com

When it comes to credit cards, as with any other area of personal finance, the more informed you are, the better equipped you'll be to make smart decisions. With that in mind, here are 10 principles that all consumers who have, or are planning to get, credit cards should be aware of.

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1. You don't need good credit to get a credit card with reasonable costs

If you have poor credit, or are just starting to establish credit, there are "bad credit" credit card products designed for you. The problem is that they tend to be very expensive.

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A better choice is known as a secured credit card. A secured card works just like a standard credit card, except you're required to make a deposit equal to the card's credit limit. Because you're pledging this deposit as collateral, secured cards tend to have interest rates and fees comparable with standard credit cards.

2. Your cash advance APR can be much higher

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Many credit card holders are unaware of this, but the APR you're charged on purchases and the APR you pay for cash advances are often two very different things. Just taking a quick look at one of my own credit cards, my purchase APR is 17.99%, while my cash advance APR is a much-higher 25.99%. Next time you're tempted to use your credit card for quick cash at an ATM, be sure you know how much it costs.

3. So can your "penalty APR"

Your credit card also is likely to have a higher "penalty APR," which kicks in if you pay your bill late or exceed your credit limit. And the difference can be even more dramatic than with your cash advance APR. With my card that I referred to, my penalty APR is 29.99%, and it can be enforced for at least six months if I'm even a day late with my payment. Some credit cards have no late fees or penalty APR, and others do but will forgive a single late payment, so if you have a tendency to forget to pay your bill by the due date, it may be a good idea to look into a card that's designed for those situations.

4. You might be surprised how much negotiating power you have

You have more room to negotiate with your credit card issuers than you may think. For example, 69% of customers who call and request a lower interest rate get it, as do 89% of people who ask for a higher limit, according to a report by CreditCards.com. Cardholders also have an 82% success rate when requesting annual fee waivers, and the worst your card issuer can say is no, so why not give it a shot?

5. A balance transfer can literally save you thousands

If you have high-interest credit card debt, a balance transfer credit card can help you pay down your debt quicker, and save money on interest charges. Thanks to intense competition in the credit card industry, there are some pretty generous offers out there right now. Think of it this way if you have $10,000 in credit card debt at 18% interest, you'd pay $1,658 in interest by paying the balance off over 21 months. There are balance transfer cards with 0% APR periods of up to 21 months, so you can literally save thousands if you have a lot of debt.

6. Play the rewards game right

Cash back and travel rewards are excellent reasons to get a specific credit card. In full disclosure, the American Express Delta SkyMiles Platinum card is my go-to-credit card, simply because I fly Delta rather often. However, don't charge purchases just to rack up miles or cash back. Credit card rewards only work in your favor if you don't carry a balance or make purchases you otherwise wouldn't.

7. Read your statement every month

The good news is that credit cards have excellent fraud protection, and consumers are not held liable for fraudulent activity. However, there is a time limit -- you can't just call your credit card company and claim that a purchase from last year wasn't yours. Specifically, the Fair Credit Billing Act says you should report the charges to your card issuer within 60 days after the statement was mailed. Be sure to check your statement each month to make sure all of the purchases you're paying for were authorized by you.

8. Always pay more than the minimum

As a credit card customer, it's important to avoid the "minimum payment trap." While the exact calculation depends on your interest rate and your credit card's minimum payment, it can easily take a decade or more to pay off your balance if you pay only the minimum each month. Plus, you'll end up paying your debt twice or three times over when you factor in the interest.

9. Use less than 30% of your credit limits

The amounts you owe (or don't owe) on your credit cards can have a big impact on your credit score. Specifically, the amounts you owe relative to your credit limits are a major credit scoring factor. Lower is better, and experts generally advise that you keep your credit utilization at less than 30% of your overall credit limit to maintain a strong credit score.

10. Don't sign up for too many credit cards in a short time period

Every time you apply for credit, it creates something called a "hard inquiry" on your credit report. While a single credit inquiry is unlikely to drop your score by more than a few points, a bunch of credit inquiries that take place in a short period of time can cause a pretty substantial drop. The main rule to know is that inquiries from the past 12 months affect your credit score, so try to limit the amount of times you apply for credit in any one-year period.

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Matthew Frankel owns shares of American Express. The Motley Fool recommends American Express. The Motley Fool has a disclosure policy.