Flexible spending credit cards may provide attractive choices in account terms. However, before you decide to proceed, you might first want to know and understand the differences of standard credit cards and credit cards with more flexible terms on spending terms. The specific types of credit cards you own and how you use them can affect your credit score as a whole.
How Do Standard Credit Cards Work?
For you to understand how flexible spending credit cards work, it will help a lot if you try to understand first the typical credit cards.
Once your credit is approved, you will be given a credit card that lets you use the preapproved credit limit that the lender has provided. A credit card company might charge your account with an annual fee although most cards don’t have any fee at all.
There might also be extra fees for other occurrences just like when you make a late payment and go beyond your limit.
You won’t incur any interest charge as long as your balance is fully paid every cycle of billing. If you have a balance, your credit card company is going to charge you the predetermined rate of interest for the unsecured loan or the so-called APR or annual percentage rate.
What Makes Flexible Spending Credit Cards Different?
Most account terms are the same with a flexible spending credit card with one key difference and that is none other than the spending limit. Flexible spending credit cards provide varying flexible spending limits, often up to a certain monetary amount based on your credit score, income, and successful payments history. Fees including late fee penalties and annual fees typically mirror those of a standard credit card. The only difference is that with flexible spending credit cards, no penalty is incurred if you go beyond the limit of your credit.
Always Read the Fine Print
Don’t forget to go through the fine print of flexible spending credit cards to be sure that you will really understand how this works. These cards commonly have special terms involving the individual evaluation of each charge that goes beyond a specific line of credit.
It means that once the credit card company has determined that your performance history and account usage are acceptable, there will be an approval. However, the charge will not go through if there is something in the account history that is not up to par.
The Flexible Spending Card Effect on Your Credit Report
Your ratio of credit utilization makes up 30% of your overall credit score. This credit utilization ratio is a representation of the amount of your currently used credit compared to the available credit amount you have through your credit card accounts.
In the case of accounts for flexible spending credit cards, credit card companies usually don’t report the limit of credit to the credit bureaus and this can have a negative effect on your credit utilization ratio. Your credit utilization ratio might appear bigger than it actually is in the end since your credit limit is much closer to the credit you used.