|Annual Fee: Some credit card issuers charge an annual fee for the privilege of using their card and carrying a balance – typically between $15 and $100 a year. Sometimes this fee can be waived if you use your card frequently, or if you transfer a certain balance to the card or even for asking! If you are planning on paying your bills within a month or two from the date you make purchases, you should probably be looking for a card with
. The total annual cost (interest charges + annual fee + any other charges) is ultimately what matters. If you have good credit there is no reason you should be charged an annual fee unless you are earning miles or rewards that offset the fee.
Annual Percentage Rate (APR): APR can be either “fixed” or “variable rate” interest (“floating rate”). Fixed rate APR’s are usually a little higher, but you know exactly how much you will be charged each month. With a variable rate credit card the interest is based on a published index + an adder – for example, “prime rate + 2.9%”. If you expect to be carrying a balance, you want to look for a credit card with the lowest rate. As of November 15, 2003, the prime rate (the most common published index) is 4.0%.
Introductory Rate: Various credit cards offer a low “intro rate” or 0% APR that switches to a higher variable or fixed rate. You should know how long the introductory rate is applicable and what APR the card will carry after the introductory period elapses. Be aware that the introductory rate for some cards will be terminated if you are late with a payment, also watch closely when the low or 0% APR ends.
Grace Period: A credit card grace period is the time between the day you make a purchase and the day when interest begins to be charged. For most, it is 25 days from the billing date. If you carry a balance, many cards have no grace period and you will be charged interest from the day you make a purchase.
Other Fees: How much is the penalty for being late? How much do you pay if you go over the credit limit? How much does your bank charge you for an ATM withdrawal (cash advance fee)? Is the interest rate for cash advances the same or is it higher than the card’s “regular” APR? Many of these questions can be answered in our smart credit tips and credit card fees.
Benefits such as frequent flyer miles, rebates, etc: A number of issuers offer additional benefits to card members. Rebate cards allow you to earn cash back and discounts on goods and services based on card usage. Frequent flyer cards allow you to earn miles for each dollar charged. With special interest cards (e.g. golf and ski) you receive discounts and accumulate points towards purchases. Banklady.com offers severalon our credit cards page.
How are Finance Charges Calculated? Most issuers use the Average Daily Balance method for calculating interest. This means that if you don’t pay your bill in full, interest will be charged from the day a charge is posted to your account. Some issuers charge two months of interest when you switch from paying in full each month to carrying a balance. This is called Two Cycle Billing. The other two methods for computing charges are Adjusted Balance and Previous Balance. Normally, the exact formula for interest calculations can be found on your bill.
How do Issuers evaluate my Credit? Issuers determine credit worthiness by what are called the three C’s of credit (capacity, character and collateral). Capacity refers to your ability to pay given your income and existing debt. Collateral refers to any assets you have that can secure payment (e.g. bank accounts, home ownership). Character refers to factors such as your payment history and length of employment. The criteria for accepting applicants vary between issuers and credit card products.
How do I evaluate my credit? You can get a very good idea by looking at your credit report. Three separate bureaus maintain a different snapshot of your financial history and provide copies of this report to creditors upon request. It is important to make sure information on these reports are accurate, especially if you have been turned down for credit and don’t know why.
It has never been more important to know where you stand financially. Take charge and find out your credit score now. Don’t become a victim of identity theft–monitor your credit today! Worried about managing your debt? Look here forcredit repair and debt consolidation.