Credit Card Terms

A credit card is a form of borrowing that often involves charges. Credit terms and conditions affect your overall cost. So it’s wise to compare terms and fees before you agree to open a credit or charge card account.

The following are some important terms to consider that generally must be disclosed in credit card applications or in solicitations that require no application. You also may want to ask about these terms when you’re shopping for a card.

Annual Percentage Rate. The APR is a measure of the cost of credit, expressed as a yearly rate. It also must be disclosed before you become obligated on the account and on your account statements.

The card issuer also must disclose the “periodic rate” – the rate applied to your outstanding balance to figure the finance charge for each billing period.

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. Rate changes raise or lower the finance charge on your account. If you’re considering a variable rate card, the issuer must also provide various information that discloses to you:

that the rate may change; and
how the rate is determined – which index is used and what additional amount, the “margin,” is added to determine your new rate.

At the latest, you also must receive information, before you become obligated on the account, about any limitations on how much and how often your rate may change.

Free Period. Also called a “grace period,” a free period lets you avoid finance charges by paying your balance in full before the due date. Knowing whether a card gives you a free period is especially important if you plan to pay your account in full each month. Without a free 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. If your card includes a free period, the issuer must mail your bill at least 14 days before the due date so you’ll have enough time to pay.

Annual Fees. Most issuers charge annual membership or participation fees. They often range from $25 to $50, sometimes up to $100; “gold” or “platinum” cards often charge up to $75 and sometimes up to several hundred dollars.

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 for the Finance Charge. If you don’t have a free 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. Some creditors exclude prior, unpaid finance charges from the previous balance.
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.

Other Costs and Features

Credit terms vary among issuers. When shopping for a card, think about how you plan to use it. If you expect to pay your bills in full each month, the annual fee and other charges may be more important than the periodic rate and the APR, if there is a grace period for purchases. However, if you use the cash advance feature, many cards do not permit a grace period for the amounts due – even if they have a grace period for purchases. So, it may still be wise to consider the APR and balance computation method. Also, if you plan to pay for purchases over time, the APR and the balance computation method are definitely major considerations.

You’ll probably also want to consider if the credit limit is high enough, how widely the card is accepted, and the plan’s services and features. For example, you may be interested in “affinity cards” – all-purpose credit cards sponsored by professional organizations, college alumni associations and some members of the travel industry. An affinity card issuer often donates a portion of the annual fees or charges to the sponsoring organization, or qualifies you for free travel or other bonuses.

Special Delinquency Rates. Some cards with low rates for on-time payments apply a very high APR if you are late a certain number of times in any specified time period. These rates sometimes exceed 20 percent. Information about delinquency rates should be disclosed to you in credit card applications or in solicitations that do not require an application.

Shopping Tips

Keep these tips in mind when looking for a credit or charge card.
Shop around for the plan that best fits your needs.
Make sure you understand a plan’s terms before you accept the card.
Hold on to receipts to reconcile charges when your bill arrives.
Protect your cards and account numbers to prevent unauthorized use. Draw a line through blank spaces on charge slips so the amount can’t be changed. Tear up carbons.
Keep a record – in a safe place separate from your cards – of your account numbers, expiration dates and the phone numbers of each issuer to report a loss quickly.
Carry only the cards you think you’ll use.

Effective Ways Of Getting the Best Rates for Your Credit Cards

How many times a day do you receive offers through email or phone for free credit cards with money back schemes, low introductory rates and other perks of credit cards? All banks and financial institutions vie for maximum customers by pouring umpteen perks to tempt you, the customer, in one way or the other.

Remember that a credit card is just a form of borrowing money that has to be paid later. However, it is better to choose a credit card with good rates to avoid ending up paying too much interest to the banks. Make it a point to compare credit card terms and fees before opening a credit or charge card account. Once you find the credit card that has an interest rate that best fits your needs and budget, you can then open an account with that bank.

The annual percentage rate is the measure of the cost of credit the bank offers and is expressed as a yearly rate. Make sure you are aware of this rate before accepting a credit card as some credit card plans have interest rates that change when other economic indicators change. This plan is called a variable rate program. In such a case, when you first get the credit card, you may be offered 5% interest, but in case of index changes, the interest rate may go up to 8%. This means you will later have to pay more interest with the increased interest rate! So confirm if the credit card offers a variable rate program or ‘fixed rate’ program where there is no change in the annual percentage rate, even when economic indicators change.

It is beneficial for you if the credit card you have has a ‘grace period’. This is the period where you can avoid finance charges by paying your balance before due date. This is because with a free period, you will be sent your bill at least 14 days before the due date, thus giving you enough time to pay. Check if the credit card charges annual membership or participation fees or any other costs like transaction fees. It is better to choose the credit card company offering the least ‘extra costs’! This is because the more extra costs there are, the more money you have to pay the company!

When applying for a credit card, it is better to first consider if the credit limit is up to your requirements. Then only is it beneficial for you to apply for the credit card. To get the best rate for your credit card, make sure you understand all terms and condition of the card before accepting it. This is to avoid any future misunderstandings and misconceptions with the credit card company.

Of course, the main point that is taken into consideration to get the best rate for your credit card is your credit score. The better the credit score you have, the better will be the rates the credit card company offers you! This is the reason it is always advisable to have, and maintain a good credit score!

We allow the credit card industry to make fools of us and we do nothing about it. If someone told you that you were being made a fool of, wouldnt you address the issue? I know I would.

Credit card companies have revenue of $76.03 billion dollars and the majority of this revenue comes from late penalties and over limit and cash advance fees. $29.2 billion came from late penalties, $15.2 billion from over credit limit fees and $3.04 billion from cash advance fees. This amount is 62% of the credit card companies revenue and this does not include finance charges. Nice profit!

The above is the reason why credit card companies can afford to mail over 5 billion credit card offers per year. This equals to 6 offers per household per month. Maybe the $2 billion in postage alone is a reason why our government does not look into the credit card industry seriously.

Every bank and retailer wants you to have their credit card. Having their credit card enables them to make huge profits. In 2001 both Sears and Circuit City reported that over half of their corporate profits were from finance related revenue. Do you think this could be the reason why retailers always have an employee at the front door of their store offering you to sign up for their credit card and in return you receive a special gift or extra so called discount? Most special gifts and extra discounts end up costing you more than the original purchase due to finance charges.

I may not be able to confront these institutions that are trying to make a fool of me, but I can fight back by believing that Cash is King and using cash instead of credit will save me money in the end.

Its a New Year and personal money management should be on the top of your list for 2006.

If you have received a pre-approved credit card offer in the mail make sure you read everything. There are good and bad offers and you need to know which credit card offer is for you.

Look for:

* The Annual Percentage Rate (APR). If the interest rate is variable, how is it determined and when can it change?
* The periodic rate. This is the interest rate used to figure the finance charge on your balance each billing period.
* The annual fee. While some cards have no annual fee, others expect you to pay an amount each year for being a cardholder.
* The grace period. This is the number of days you have to pay your bill before finance charges start. Without this period, you may have to pay interest from the date you use your card or when the purchase is posted to your account.
* The finance charges. Most lenders calculate finance charges using an average daily account balance, which is the average of what you owed each day in the billing cycle. Look for offers that use an adjusted balance, which subtracts your monthly payment from your beginning balance. This method usually has the lowest finance charges. Stay away from offers that use the previous balance in calculating what you owe; this method has the highest finance charge. Also don’t forget to check if there is a minimum finance charge.
* Other fees. Ask about special fees when you get a cash advance, make a late payment, or go over your credit limit. Some companies charge a monthly fee regardless of whether you use your card.

The Fair Credit and Charge Card Disclosure Act require credit and charge card issuers to include this information on credit applications. The Federal Reserve Board provides a free brochure on choosing a credit card and a guide to credit protection laws at their web site.

Comparing Cards

* Bank Rate web site provides free credit card tips and information.
* Consumer Action web site has a site that features credit card surveys of interest rates, fees and other terms from dozens of credit cards, as well as free brochures and guides on choosing and using credit cards.
* Card Web lists credit cards and offers e-mail newsletters, frequently asked questions and online credit card calculators.
* Card Ratings lists and reviews credit cards, and offers tips and credit card calculators.

Lost and Stolen Credit Cards

Immediately call the card issuer when you suspect a credit or charge card has been lost or stolen. Many companies have toll-free numbers and 24-hour service to deal with such emergencies.

By federal law, once you report the loss or theft of a card, you have no further responsibility for unauthorized charges. In any event, your maximum liability under federal law is $50 per card.

Complaints

To complain about a problem with your credit card company, call the company first and try to resolve the problem. If you fail to resolve the issue, ask for the name, address and phone number of its regulatory agency.

If the word national appears in the name or the letters N.A. appear after the name, the Office of the Comptroller oversees its operations.

To complain about a credit bureau, department store or other FDIC-insured financial institution, write to the Consumer Response Center.