If you’re looking for the definitive best credit card, know that credit cards are not one size fits all. There’s no single credit card that can truly be the best option for everyone simply because we all have different needs. If you’re a family looking to earn cash back on your high grocery bills or a globetrotter looking to earn rewards and get comprehensive travel insurance, your best cards are going to differ.
How Credit Cards Work
Essentially, a credit card is a payment method that allows you to use credit provided by the issuing financial institution. Every time you swipe or tap your credit card to pay for something at a retailer that accepts it — whether it be a Mastercard, Visa or American Express — you are effectively borrowing money from the amount of credit you have qualified for with that financial institution.
When you make a purchase with your credit card, your credit limit decreases by the amount of that purchase. You have until the release of your next credit card statement, an accounting of everything purchased with the card, to pay back your purchase amounts, known as paying your credit card bill. If you are unable to pay off your credit card before the payment deadline and within the included grace period, typically 21 days, you will be charged interest on your purchases. Any unpaid balance carries over into the next month.
Purchases and interest payments aren’t the only thing you’re on the hook to pay when using a credit card: If your payment is late, you will pay a late fee and if you go over your credit limit with your purchases, you will pay an overlimit fee. And, if you don’t pay your credit card balance off, your ability to get more credit will shrink as your credit score goes down. Ultimately, a collection agency will be tasked with collecting your overdue debt. If you still do not pay your debt, the collection agency can take legal action against you and you may find yourself in court.
For most people, it never comes to that. Instead, cardholders will pay off their bill by the deadline (the best case scenario) or pay off their balance over time, as interest accumulates. In this case, it takes even longer to get their balance down to zero, especially if they add more purchases and continue to accumulate interest. However, carrying a balance into the next month, while only making incremental payments, is common.
Still, those cardholders that get the most benefits and rewards from their credit cards are the ones that are able to pay off their bill within the grace period before any interest is accumulated. These cardholders receive the full value of the rewards or cash back offered by their card, since their debt never outpaces their payments. Plus, their credit remains in the best shape possible, helping them build or maintain a good credit score, which in turn makes it easier to get bank loans, car loans or qualify for a mortgage.