Choosing A Credit Card
Even though the rules of the credit card industry are changing, it's still important to understand what comes with having a credit card. Here are some of the more important terms.
- Annual percentage rate (APR): the cost of credit as indicated by a yearly (fixed or variable) interest rate. This rate and the periodic rate (the APR expressed as a daily or monthly factor) must be disclosed to you before you become obligated on the card.
- Balance computation method: the formula used to determine the outstanding balance on which you're charged interest for the billing period.
- Finance charge: the cost of credit for the billing cycle, expressed as a dollar amount and determined by multiplying the outstanding balance by the periodic rate.
- Fees: charges (other than the finance charge) that may be levied against your account. Common examples include an annual fee, cash advance fees, balance transfer fees, late payment fees, and over-the-limit fees.
- Grace period: the length of time prior to your payment due date during which you may pay off your account without incurring any finance charge.
Things To Consider:
- There are tons of credit cards out there. How do you pick the right card for you?
- What's the interest rate? Is it fixed or variable? If variable, how is it calculated?
- Are there charges for balance transfers? The balance transfer rate may look great, but some cards charge you a percentage or flat fee on the amount you wish to transfer.
- Be on the lookout for hidden fees. While credit card companies are becoming more diligent about disclosing fees, be sure to read the fine print. You don't want to be surprised later.
- How long after making purchases do you have before you start to incur finance charges?
- What you should look for depends in part on how you'll use the card.