CREDIT CARD TERMS

When selecting a credit card, the following credit terms and conditions are important because they affect the total cost of credit:

"Annual Fee" A flat, yearly charge similar to a membership fee, usually $25 to $50 A flat, yearly charge similar to a membership fee, usually $25 to $50

"Annual Percentage Rate" The APR is the measure of the cost of credit expressed as a yearly rate. The APR is the measure of the cost of credit expressed as a yearly rate.

"Finance Charge" The dollar amount you pay to use credit, includes interest costs and all charges associated with the transaction. The dollar amount you pay to use credit, includes interest costs and all charges associated with the transaction.

"Grace Period or Free Period" The grace period is the number of days you have before a credit card company starts charging interest on new purchases. Not all credit cards have a grace period. The grace period is the number of days you have before a credit card company starts charging interest on new purchases. Not all credit cards have a grace period.

"Periodic Rate" The interest rate the card issuer applies to your outstanding account balance to figure the finance charge for each billing cycle. The interest rate the card issuer applies to your outstanding account balance to figure the finance charge for each billing cycle.

"Transaction Fees" Some credit card issuers charge a fee for a cash advance, a late payment or going over your credit limit. Sometimes there is a monthly fee if you did not use the card. Some credit card issuers charge a fee for a cash advance, a late payment or going over your credit limit. Sometimes there is a monthly fee if you did not use the card.

"Calculation of Finance Charges" It is very important to know how the interest rate is calculated to compare and select the best credit terms. The credit card issuer will use one of three methods. You can decide which method is best suited to your payment style. The method used can make a big difference in the total amount of money you pay in finance charges. This is especially important when the APR's are identical for several credit cards. There can be a significant difference in the total amount of finance charges depending on the balance computation method used. It is very important to know how the interest rate is calculated to compare and select the best credit terms. The credit card issuer will use one of three methods. You can decide which method is best suited to your payment style. The method used can make a big difference in the total amount of money you pay in finance charges. This is especially important when the APR's are identical for several credit cards. There can be a significant difference in the total amount of finance charges depending on the balance computation method used.

"Average Daily Balance Method" This is the most commonly used method. You are given credit for your payment from the day the credit card issuer receives it and the interest is calculated on the basis of the average amount owed during the previous month.

"Adjusted Balance Method" This method is the most beneficial to the consumer and produces the lowest finance charges. The balance is calculated by subtracting the payments and any refund credits from the balance you owe at the end of the previous billing period.

"Previous Balance Method" This is the most expensive method. The finance charge is calculated on the balance owed at the end of the previous billing cycle. Payments, credits and new purchases made in the current billing cycle are not included.

source: http://www.in.gov/dfi/education/choosecd.htm

EVALUATING CREDIT CARDS

When you evaluate various credit card options, consider the following factors as well:

• Compare the credit card interest rates. Look for a low interest rate card but remember the interest rate is not fixed so it can be adjusted either quarterly or by written notice by the bank or company. You may be able to negotiate with your bank for a lower interest rate.
  
• Compare how finance charges are calculated to help determine the total cost of credit.
  
• Look at all charges for each card. Some companies add other fees, such as late-payment fees if your payment arrives after the due date, or transaction fees every time you use the card. Grace periods vary as well. Companies generally start the grace period at the time the purchase is posted to your account. However with some cards, the grace period can start on the day of purchase.
  
• Decide what credit limit is appropriate for you. Determine the amount of money you can charge each month based on your income.
  
• The credit card you choose should be widely accepted to accommodate the majority of purchases you make. Fewer credit cards will make it is easier to keep track of your credit spending.
  
• Compare services and features, such as travel insurance, rebates, purchase protection plans, cash-back incentives or extended warranties. Evaluate these features in terms of the extra credit costs to you.
  
• Make sure the annual fees are reasonable. Not all credit cards require an annual fee. It is worth shopping around to get the lowest fee or no-fee, especially if you pay off your balance each month.

Read each contract carefully before you sign so that you understand all the costs and conditions. Shop for a credit card the same way you would shop for any good or service. Try to negotiate for the options and conditions you want at the lowest cost available.

source: http://www.in.gov/dfi/education/choosecd.htm