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Choosing a Credit Card

The truth is, most consumers forget to ask the most important questions because they're so concerned with how much credit they can get approved for. Before applying for a credit card you should fully understand the features of a credit card by comparing credit cards and the costs associated with each individual credit card.



Credit cards can be your best friend, or your worst enemy. Familiarize yourself with the small print and make a long-lasting, valuable relationship before choosing one.

Fee galore

Most credit cards charge fees under certain circumstances. Annual fee's are very normal, this is the act of charging consumers for having a credit card. Cash advance fee, are usually charged when you use the card for a cash advance; may be a flat fee (for example, $5.00) or a percentage of the cash advance (for example, 5%). Balance-transfer fee, charged when you transfer a balance from another credit card. Your credit card company may send you checks to pay off the other card. The balance is transferred when you use one of these checks to pay the amount due on the other card. Late-payment fee, charged if your payment is received after the due date. Over-the-credit-limit fee, charged if you go over your credit limit. Credit-limit-increase fee, charged if you ask for an increase in your credit limit. Set-up fee, this fee is charged when a new credit card account is opened. Return-item fee, yet another fee which is charged if you pay your bill by check and the check is returned for non-sufficient funds in the event your check bounces.

More fees, some credit card companies charge a fee if you pay by telephone but only if you arrange by phone for payment to be transferred from your bank to the company. Cover the costs of reporting to credit bureaus, reviewing your account, or providing other customer services.

Read the information in your credit card agreement to see if there are other fees and charges.

What is the annual percentage rate (APR)

An introductory APR is a different rate that will apply after the introductory rate expires.

The annual percentage rate is the way of stating the interest rate you will pay if you carry over a balance, take out a cash advance, or transfer a balance from another card. The APR states the interest rate as a yearly rate.

A delayed APR is when a different rate will apply in the future. For example, a card may advertise that there is “no interest until next October.” Look for the APR that will be in effect after October.

Tiered APR. Different rates adhere to different levels of the outstanding balance (for example, 16% on balances of $1–$500 and 17% on balances above $500). If you carry over a part of your balance from month to month, even a small difference in the APR can make a big difference in how much you will pay over a year.

What happens to my APR if i'm late on the payment

Most consumers we speak with did not know that if they default on one credit card, all of their credit cards interest rates are subject to rise, so it's of great significance to either stay current on your payments, or be sure that your credit card doesn't fall under the Universal Default Terms practiced by the majority of financial services within the industry. A penalty APR may increase if you are late on payments. For example, your card agreement may say, “If your payment arrives more than fifteen days late three times within a twelve-month period, the penalty rate will apply.

What happens if i exceed my limitation

Normally, a standard fee applies to the consumers bill statement notated as an over the limit charge.

Fixed verse variable interest rates

Some credit cards are “fixed” in this case the APR does not change, or at least does not change unless printed elsewhere. Even the APR on a “fixed rate” credit card can change over time. However, the credit card company must tell you before increasing the fixed APR.

Most credit cards are “variable” these APR changes from specified times. The rate is usually tied to another interest rate, such as the prime rate or the Treasury bill rate. If the other rate changes, the rate on your card may change, too. Spot out information on the credit card application and in the credit card agreement to see how often your card’s APR may change.

Your grace period duration

The grace period is the number of days you have to pay your bill in full without acquiring a finance charge. For instance, the credit card institute may say that you have “30 days from the statement date, provided you paid your previous balance in full by the due date.” The statement date is given on the bill.

The grace period usually applies only to new purchases. Most credit cards do not give a grace period for cash advances and balance transfers. Instead, interest charges start right away.

If you carried over any part of your balance from the past month, you may not have a grace period for new purchases. Instead, you may be charged interest as soon as you make a purchase (in addition to being charged interest on the earlier balance you have not paid off). Look on the credit card application for information about the “method of computing the balance for purchases” to see if new purchases are included or excluded. Information on methods of computing the balance is in the section “How Is the Finance Charge Originated?”

How is the finance charge originated

The finance charge is the dollar amount you pay to use credit. The amount depends in part on your outstanding balance and the APR.

Credit card companies use one of several methods to calculate the outstanding balance. The method can make a big difference in the finance charge you’ll pay. Your outstanding balance may be calculated over one billing cycle or two, using the adjusted balance, the average daily balance, or the previous balance, and including or excluding new purchases in the balance. Depending on the balance you carry and the timing of your purchases and payments, you’ll usually have a lower finance charge with one-cycle billing and either the average daily balance method excluding new purchases, the adjusted balance method, or the previous balance method.

Credit card cash advances

Some credit cards let you borrow cash in addition to making purchases on credit. Most credit card companies treat these cash advances and your purchases differently. If you plan to use your card for cash advances, look for information about Access. Most credit cards let you use an ATM to get a cash advance. Or the credit card company may send you checks that you can write to get the cash advance.

Beware though, often the APR for cash advances may be higher than the APR for purchases. The credit card company may charge a fee in addition to the interest you will pay on the amount advanced. Also watch for limits, some credit cards limit cash advances to a dollar amount (for example, $300 per cash advance or $600 per week) or a portion of your credit limit.

How payments are credited back to your account

Many credit card companies apply your payments to purchases first and then to cash advances. Read your credit card agreement to learn how your payments will be credited.

How much is the credit limit

The credit limit is the total amount for purchases, cash advances, balance transfers, fees, and finance charges you're able to charge on your credit card. If you go over this limit, you may be subject to over-the-limit fees so spend with caution.

What type of credit card is it

Most credit card companies offer several kinds of cards from secured cards, which require a security deposit. The bigger the deposit, the higher the credit limit. Secured credit cards are usually offered to consumers who have limited credit records, and individuals who are building credit, or who have had problems with credit in the past. Regular cards, do not render a security deposit and have little features. Most regular cards have higher credit limits than secured cards but lower credit limits than premium cards.

How do credit card companies lure consumers into applying for high interest rate credit applications

Aside from cool television advertisements, many credit card companies lure consumers by offering incentives such as: Rebates on the purchases you make, Frequent flier miles or phone-call minutes, Additional warranty coverage for the items you purchase, Car rental insurance, Travel accident insurance or travel-related discounts, Credit card registration, to help if your wallet or purse is lost or stolen and you need to report that all your credit cards are missing, Credit cards may also offer, for a price, Insurance to cover the payments on your credit card balance if you become unemployed or disabled, or die. Premiums are usually due monthly, making it easy to cancel if the payments are higher than you want to pay or you decide you don’t need the insurance any longer. Insurance to cover the first $50 of charges if your card is lost or stolen. Under federal law, you are not responsible for charges over $50. Before you sign up to pay for any of these features, think carefully about whether it will be useful for you. Don’t pay for something you don’t want or don’t need.

How do i find information about credit cards

You can find lists of credit card plans, rates, and terms on the Internet, in personal finance magazines, and in newspapers. The Federal Reserve System surveys credit card companies every six months. You’ll need to get the most recent information directly from the credit card company by phoning the company, looking on the company’s web site, or reading a solicitation or application.

Bad products, worse service

If you were charged for a service, and feel as if the service was not rendered then The federal Fair Credit Billing Act allows you to withhold payment on any damaged or poor-quality goods or services purchased with a credit card, even if you have accepted the goods or services as long as you have made an attempt to figure out the problem with the merchant.

The sale must have been for more than $50 and must have taken place in your home state or within 100 miles of your home address. You should notify the credit card company in writing and explain why you are withholding your payment. You may withhold the payment while the credit card company investigates your claim. If you pay the charges for the goods on your credit card bill before the dispute is resolved, you will lose your right to make a claim.

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