If you expect to always pay your monthly bill in full--and other features such as frequent flyer miles don’t interest you--your best choice may be a card that has no annual fee and offers a longer grace period.
If you sometimes carry over a balance from month to month, you may be more interested in a card that carries a lower interest rate (stated as an annual percentage rate, or APR).
If you expect to use your card to get cash advances, you’ll want to look for a card that carries a lower APR and lower fees on cash advances. Some cards charge a higher APR for cash advances than for purchases.
The annual percentage rate--APR--is the way of stating the interest rate you will pay if you carry over a balance, take out a cash advance, or transfer a balance from another card. The APR states the interest rate as a yearly rate.Multiple APRs A single credit card may have several APRs:
One APR for purchases, another for cash advances, and yet another for balance transfers. The APRs for cash advances and balance transfers often are higher than the APR for purchases (for example, 14% for purchases, 18% for cash advances, and 19% for balance transfers).Tiered APRs. Different rates are applied to different levels of the outstanding balance (for example, 16% on balances of $1–$500 and 17% on balances above $500).
A penalty APR. The APR may increase if you are late in making payments. For example, your card agreement may say, “If your payment arrives more than ten days late two times within a six-month period, the penalty rate will apply.”
An introductory APR. A different rate will apply after the introductory rate expires.
A delayed APR. A different rate will apply in the future. For example, a card may advertise that there is “no interest until next March.” Look for the APR that will be in effect after March.If you carry over a part of your balance from month to month, even a small difference in the APR can make a big difference in how much you will pay over a year.
Fixed vs. variable APR
Some credit cards are “fixed rate”--the APR doesn’t change, or at least doesn’t change often. Even the APR on a “fixed rate” credit card can change over time. However, the credit card company must tell you before increasing the fixed APR.
Other credit cards are “variable rate”--the APR changes from time to time. The rate is usually tied to another interest rate, such as the prime rate or the Treasury bill rate. If the other rate changes, the rate on your card may change, too. Look for information on the credit card application and in the credit card agreement to see how often your card’s APR may change (the agreement is like a contract--it lists the terms and conditions for using your credit card).
The grace period is the number of days you have to pay your bill in full without triggering a finance charge. For example, the credit card company may say that you have “25 days from the statement date, provided you paid your previous balance in full by the due date.” The statement date is given on the bill.The grace period usually applies only to new purchases. Most credit cards do not give a grace period for cash advances and balance transfers. Instead, interest charges start right away.
If you carried over any part of your balance from the preceding month, you may not have a grace period for new purchases. Instead, you may be charged interest as soon as you make a purchase (in addition to being charged interest on the earlier balance you have not paid off). Look on the credit card application for information about the “method of computing the balance for purchases” to see if new purchases are included or excluded. Information on methods of computing the balance is in the section “How is the finance charge calculated?”
The finance charge is the dollar amount you pay to use credit. The amount depends in part on your outstanding balance and the APR.
Credit card companies use one of several methods to calculate the outstanding balance. The method can make a big difference in the finance charge you’ll pay. Your outstanding balance may be calculated
Over one billing cycle or two,
Using the adjusted balance, the average daily balance, or the previous balance, and
Including or excluding new purchases in the balance.Depending on the balance you carry and the timing of your purchases and payments, you’ll usually have a lower finance charge with one-cycle billing and either
The average daily balance method excluding new purchases,
The adjusted balance method, or
The previous balance method.
Minimum finance charge
Some credit cards have a minimum finance charge. You’ll be charged that minimum even if the calculated amount of your finance charge is less. For example, your finance charge may be calculated to be 35¢--but if the company’s minimum finance charge is $1.00, you’ll pay $1.00. A minimum finance charge usually applies only when you must pay a finance charge-that is, when you carry over a balance from one billing cycle to the next.
Balance-transfer fee. Charged when you transfer a balance from another credit card (Your credit card company may send you “checks” to pay off the other card. The balance is transferred when you use one of these checks to pay the amount due on the other card.)
Late-payment fee. Charged if your payment is received after the due date
Over-the-credit-limit fee. Charged if you go over your credit limit
Credit-limit-increase fee. Charged if you ask for an increase in your credit limit
Set-up fee. Charged when a new credit card account is openedReturn-item fee. Charged if you pay your bill by check and the check is returned for non-sufficient funds (that is, your check bounces)
Other fees. Some credit card companies charge a fee if you pay by telephone (that is, if you arrange by phone for payment to be transferred from your bank to the company) or to cover the costs of reporting to credit bureaus, reviewing your account, or providing other customer services. Read the information in your credit card agreement to see if there are other fees and charges.
Some credit cards let you borrow cash in addition to making purchases on credit. Most credit card companies treat these cash advances and your purchases differently. If you plan to use your card for cash advances, look for information aboutAccess. Most credit cards let you use an ATM to get a cash advance. Or the credit card company may send you “checks” that you can write to get the cash advance. APR. The APR for cash advances may be higher than the APR for purchases. Fees. The credit card company may charge a fee in addition to the interest you will pay on the amount advanced.
Limits. Some credit cards limit cash advances to a dollar amount (for example, $200 per cash advance or $500 per week) or a portion of your credit limit (for example, 75% of your available credit limit).
How payments are credited. Many credit card companies apply your payments to purchases first and then to cash advances. Read your credit card agreement to learn how your payments will be credited.
The credit limit is the maximum total amount--for purchases, cash advances, balance transfers, fees, and finance charges--you may charge on your credit card. If you go over this limit, you may have to pay an “over-the-credit-limit fee.”
Secured cards, which require a security deposit. The larger the security deposit, the higher the credit limit. Secured cards are usually offered to people who have limited credit records--people who are just starting out or who have had trouble with credit in the past.
Regular cards, which do not require a security deposit and have just a few features. Most regular cards have higher credit limits than secured cards but lower credit limits than premium cards.
Premium cards (gold, platinum, titanium), which offer higher credit limits and usually have extra features--for example, product warranties, travel insurance, or emergency services.
Many credit card companies offer incentives to use the card and other special features:
Rebates (money back) on the purchases you make
Frequent flier miles or phone-call minutes
Additional warranty coverage for the items you purchase
Car rental insurance
Travel accident insurance or travel-related discountsCredit card registration, to help if your wallet or purse is lost or stolen and you need to report that all your credit cards are missing Credit cards may also offer, for a price,
Insurance to cover the payments on your credit card balance if you become unemployed or disabled, or die. Premiums are usually due monthly, making it easy to cancel if the payments are higher than you want to pay or you decide you don’t need the insurance any longer.
I nsurance to cover the first $50 of charges if your card is lost or stolen. Under federal law, you are not responsible for charges over $50.
Before you sign up to pay for any of these features, think carefully about whether it will be useful for you. Don’t pay for something you don’t want or don’t need.
You can find lists of credit card plans, rates, and terms on the Internet, in personal finance magazines, and in newspapers. The Federal Reserve System surveys credit card companies every six months. You’ll need to get the most recent information directly from the credit card company--by phoning the company, looking on the company’s web site, or reading a solicitation or application.Under federal law, all solicitations and applications for credit cards must include certain key information, in a disclosure box similar to the one shown.2.9% until 11/1/06after that,14.9%Annual percentage rate (APR) for purchases
Cash-advance APR: 15.9%
Balance-Transfer APR: 15.9%
Penalty rate: 23.9% See explanation below.*
Your APR for purchase transactions may vary. The rate is determined monthly by adding 5.9% to the Prime Rate.**25 days on average