|
When you're looking for a credit card, be sure to consider the terms and costs associated with the card. They can make a difference in how much you pay for the privilege of borrowing. The following are some important terms to consider that must be disclosed in credit card applications or in solicitations for credit cards. You may also want to ask about these terms when you’re shopping for a card.
Annual Percentage Rate (APR):
The APR is a measure of the cost of credit, expressed as a yearly rate. It must be disclosed before you become obligated to a credit account.
Some credit card plans allow the issuer to change your APR when interest rates or other economic indicators -- called indexes, change. Because the rate change is linked to the index’s performance, these plans are called "Variable Rate" programs.
If you’re considering a variable rate card, the issuer must also provide information that discloses to you: how the rate is determined, which index is used, and what additional amount ("margin") is added to determine your new rate. You will also receive information about how much, and how often your rate may change.
"Fixed Rate" plans are not subject to adjustment like variable rates. They remain at the disclosed level indicated upon opening the account.
top
Grace Period:
Also called a "free period," a grace period lets you avoid finance charges by paying your balance in full before the due date. Knowing whether a card gives you a grace period is especially important if you plan to pay your account in full each month. Without a grace period, the card issuer may impose a finance charge from the date you use your card or from the date each transaction is posted to your account.
Annual Fee:
Many issuers charge annual membership or participation fees. They range from $25 to $50, sometimes over $100 for "gold" or "platinum" cards.
* Many credit cards at ASAP Credit Card have No Annual Fee!
Transaction Fees and Other Charges:
A card may include other costs. Some issuers charge a fee if you use the card to get a cash advance, make a late payment, or exceed your credit limit. Some charge a monthly fee whether or not you use the card.
Balance Computation Method:
If you don’t have a grace period, or if you expect to pay for purchases over time, it’s important to know what method the issuer uses to calculate your finance charge. This can make a big difference in how much of a finance charge you’ll pay -- even if the APR and your buying patterns remain relatively constant.
Examples of balance computation methods include the following.
- Average Daily Balance: This is the most common calculation method. It credits your account from the day payment is received by the issuer. To figure the balance due, the issuer totals the beginning balance for each day in the billing period and subtracts any credits made to your account that day. While new purchases may or may not be added to the balance, depending on your plan, cash advances typically are included. The resulting daily balances are added for the billing cycle. The total is then divided by the number of days in the billing period to get the "average daily balance."
- Adjusted Balance: This is usually the most advantageous method for card holders. Your balance is determined by subtracting payments or credits received during the current billing period from the balance at the end of the previous billing period. Purchases made during the billing period aren’t included. This method gives you until the end of the billing cycle to pay a portion of your balance to avoid the interest charges on that amount.
- Previous Balance: This is the amount you owed at the end of the previous billing period. Payments, credits and new purchases during the current billing period are not included. Some creditors also exclude unpaid finance charges.
- Two-cycle Balances: Issuers sometimes use various methods to calculate your balance that make use of your last two month’s account activity. Read your agreement carefully to find out if your issuer uses this approach -- and, if so, what specific two-cycle method is used.
If you don’t understand how your balance is calculated, ask your card issuer. An explanation must also appear on your billing statements.
top
Today's consumers are presented with a wide array of credit card choices -- cards with low annual percentage rates, cards with no annual fees, rebate cards, gold cards, platinum cards, etc. So, how do you choose the right card?
Here are some factors to consider:
- Your Credit History: This is the most important factor in determining whether or not you will receive a credit card. If you have excellent credit, it is likely you will be approved for any credit card you apply for. But if your credit is 'so-so', or poor, you must be more careful in your credit card selection.
As a rule of thumb, Platinum and Titanium cards are normally reserved for individuals with excellent credit. If you have good credit, you may be able to qualify for these offers, but you are more likely to be approved for a Gold or Classic card. With increasing levels of status, individuals receive increased benefits such as and higher credit limits and lower APR's.
For individuals with poor credit, or no credit, several types of credit cards are available. These cards are an effective way to establish and improve your credit history.
Secured credit cards are available to most individuals. They require a security deposit (normally between $150 and $300) to receive approval. Unsecured credit cards, on the other hand, do not require a security deposit. Both normally have higher rates and additional fees as compared to standard cards.
Prepaid cards are also available as an alternative for those with poor credit. They operate on a 'pay as you go' basis and boast Guaranteed Approval!
* Tip: Apply for an unsecured credit card first!
How is your credit? Please visit our credit report section for more information on credit reports and find out how to get a * FREE copy of your credit report online. >>>
- Your Spending Habits: When choosing a credit card, consider how your will use the card. Will you pay off the outstanding balance in full each month, or will you carry a balance?
If you carry a balance, you'll probably be more interested in a low APR credit card. On the other hand, if you always pay your monthly bill in full, and reward offers 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.
- Your Specific Interests: Do you do significant amounts of traveling, use a specific brand/service, or shop at a specific chain of retail stores?
Many credit card issuers will allow you to earn rewards for your devoted service.
Travelers: If you are a frequent traveler, many companies allow you to earn bonuses to benefit you. Frequent Flyer cards allow individuals to earn free air travel with every purchase. Other offers allow you to earn free gasoline, or earn credit towards automobile purchases.
Shoppers: If you are a frequent shopper, or prefer a certain retail store or brand of products, many companies allow you to earn cash rebates when you make purchases. Cash Rebate offers allow individuals to earn cash back on all purchases made. In some cases, they offer increased incentives for purchases on certain products or brands.
Before selecting a card, be sure you know which credit terms and conditions apply to the account. Consider the annual fee, finance charges, balance computation method, and whether or not there is a grace period for purchases. See our Credit Card Terms (above) for more information on these and other important credit card terms.
top
Interest Backdating
Most card issuers charge interest from the day a charge is posted to your account if you don't pay in full monthly. But, some charge interest from the date of purchase, days before they have even paid the store on your behalf!
Remedy: Find another card issuer or always pay your bill in full by the due date.
Two-Cycle Billing
Issuers which use this method of calculating interest charge two months worth of interest for the first month you failed to pay off your total balance in full. This issue arises only when you switch from paying in full to carrying a balance from month to month.
Remedy: Switch issuers or always pay your balance in full.
The Right To Setoff
If you have money on deposit at a bank and also have your credit card there, you may have signed an agreement when you opened the deposit account which permits the bank to take those funds if you become delinquent on your credit card.
Remedy: Bank at separate institutions or avoid delinquencies.Fees Are Negotiable
You may be paying up to $50 a year or more as an annual fee on your credit card. You may also be subject to finance charges of over 18%.
Remedy: If you are a good customer, the bank may be willing to drop the annual fee, and reduce the interest rate -- you only have to ask! Otherwise, you can switch issuers to a lower- priced card.Interest Rate Hikes Are Retroactive
If you sign up for a credit card with a low "teaser" rate, such as 7.9%, when the low rate period expires, your existing balance will likely be subject to the regular and substantially higher interest rate.
Remedy: Pay in full before the rate increase or close the account.Shortened Due Dates
Most card issuers offer a 25 day grace period in which to pay for new purchases without incurring finance charges. Some banks have shortened the grace period to 20 days--but only for customers who pay in full monthly.
Remedy: Ask to go back to 25 days.Eliminating Grace Periods
That fabulous offer you received in the mail for a gold card with a $10,000 credit limit and lots of features may not be so great. The most common "string" attached is the card has no grace period. You are charged interest on everything from the day you buy it, even if you pay on time.
Remedy: Throw the offer out!Disappearing Benefits
Many banks enticed you to sign up with extra benefits such as a lifetime warranty, a 5% discount on all travel, or protection if an item purchased is lost. Now, some banks have cut back on these extras without the fanfare that launched them.
Remedy: Read all notices regarding changes to your account and switch cards if need be.Double Fees On Cash Advances
Most credit cards impose both finance charges and a transaction fee on cash advances. Interest starts from the day of the advance, and the transaction fee can be up to 2.5% of the amount taken. Beware of cards advertising "no finance charges." Transaction fees may still apply.
Remedy: Limit cash advances.Fewer Rights With Debit Cards
Some cards with Visa and MasterCard symbols are not credit cards and will have payments deducted directly from your checking account. These are debit cards. Under federal law, you do not have the right to "charge back" problem purchases to a debit card as you do with a conventional credit card. Also, if a debit card is lost or stolen, you can have unlimited liability for losses if you do not report the problem within 60 days, which is different from the $50 maximum liability on credit cards. (Exception: the $50 limit applies to debit cards as well as to credit cards in Massachusetts.)
Remedy: Know your card. Is it a credit cards or debit cards? They can look alike.Misleading Monthly Minimums
You may think it is beneficial to have a card where you only need to pay 2%-3% of your balance monthly. It is just the opposite. The bank stands to make far more money from finance charges the longer you carry out payments--and you foot the bill.
Remedy: Pay all you can monthly.Interest From Day One
When you carry a balance from month to month, there is no grace period on new purchases on most cards. The 20-25 day grace period where no finance charges accrue does not apply when you don't pay in full each month.
Remedy: Find cards that exclude new purchases when calculating interest.
|
