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 NO annual fee.
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 cards, 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
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 several rewards
cards on 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 for
repair and debt