The terms and fees associated with a credit card
will affect the overall charges you pay. Its important to compare
terms and fees prior to applying. The terms listed below are
important and should be reviewed.
Annual Percentage
Rate
The APR is a calculation of the cost of credit, measured
as a yearly rate. The APR must be made known to you prior to
committing to the card and must always be present on your
statements.
Period Rate
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.
Variable Rate
Some credit card plans permit the issuer to
alter your APR when interest rates or other economic markers,
otherwise known as indexes, change. These type of programs are
called "variable rate programs". Rate changes cause the finance charge on your
account to fluctuate up and down.
Free Period
Also known as "grace period," a free period allows you to
evade finance
charges by settling your credit card balance in full prior to the
due date. You can be charged a finance charge each month if the
credit card does not have a "free period". If your card comprises a
grace period, the issuer is obligated to
mail your statement a minimum of 14 days prior to the due date so
you have ample time to pay.
Annual Fees
Many reward, cash back and airmiles credit cards have annual membership or participation fees. They
often vary from $25 to $50 but can sometimes be as much as $100 if
the card is a "gold" or
"platinum" offer.
Transaction Fees and
Other Charges
A card may include other costs. You may be charged a fee
if you request a cash advance, make a late
payment, or surpass your credit limit. Many credit cards have a monthly fee
regardless if you use the card or not.
Balance Computation
Method for the Finance Charge
It is important to determine how your finance charge is
calculated if your credit card does not have a grace period or if
you do not utilize the grace period.
Average Daily Balance
This is the most common method of determining the balance
computation for the finance charge. 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. 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
Your
balance is calculated by subtracting payments or credits received
during the current billing cycle from the balance at the end of the
previous billing cycle. Purchases made during the billing period
aren't included. This is usually the most advantageous method for
card holders.
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
Amount you owed from previous billing cycle. Payments, credits and new purchases during the current
billing period are not included. Some creditors also exclude unpaid
finance charges.
Special Delinquency
Rates
If you do not pay your credit card bill on time, you may receive
a special delinquency rate. This is a higher APR imposed directly
because of late payments. These rates sometimes exceed 20 percent.
Information about delinquency rates should be disclosed to you in
the 'terms and conditions' of the
credit card applications.
Prompt Credit for
Payment
Your account must be credited the day payment is
received.
