Credit Card Terms

Category: Finance.

Credit Card Terms.

Credit terms and conditions affect your overall cost. A credit card is a form of borrowing that often involves charges. So it s wise to compare terms and fees before you agree to open a credit or charge card account. You also may want to ask about these terms when you re shopping for a card. The following are some important terms to consider that generally must be disclosed in credit card applications or in solicitations that require no application. Annual Percentage Rate. It also must be disclosed before you become obligated on the account and on your account statements.

The APR is a measure of the cost of credit, expressed as a yearly 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. Because the rate change is linked to the index s performance, these plans are called" variable rate" programs. Some credit card plans allow the issuer to change your APR when interest rates or other economic indicators- called indexes- change. Rate changes raise or lower the finance charge on your account. And. how the rate is determined- which index is used and what additional amount, the" margin, " is added to determine your new rate. If you re considering a variable rate card, the issuer must also provide various information that discloses to you: that the rate may change.

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. Also called a" grace period, " a free period lets you avoid finance charges by paying your balance in full before the due date. Free Period. Knowing whether a card gives you a free period is especially important if you plan to pay your account in full each month. 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. 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. Annual 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. Most issuers charge annual membership or participation fees. Transaction Fees and Other Charges. Some issuers charge a fee if you use the card to get a cash advance, make a late payment, or exceed your credit limit. A card may include other costs. Some charge a monthly fee whether or not you use the card.

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. Balance Computation Method for the 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. Average Daily Balance. Examples of balance computation methods include the following. This is the most common calculation method. 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.

It credits your account from the day payment is received by the issuer. While new purchases may or may not be added to the balance, depending on your plan, cash advances typically are included. The total is then divided by the number of days in the billing period to get the" average daily balance. " Adjusted Balance. The resulting daily balances are added for the billing cycle. This is usually the most advantageous method for card holders. Purchases made during the billing period aren t included.

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. 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. Previous Balance. Some creditors exclude prior, unpaid finance charges from the previous balance. This is the amount you owed at the end of the previous billing period. Some creditors also exclude unpaid finance charges.

Payments, credits and new purchases during the current billing period are not included. Two- cycle Balances. Read your agreement carefully to find out if your issuer uses this approach and, what specific two, if so- cycle method is used. Issuers sometimes use various methods to calculate your balance that make use of your last two month s account activity. If you don t understand how your balance is calculated, ask your card issuer. Other Costs and Features.

An explanation must also appear on your billing statements. Credit terms vary among issuers. 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. When shopping for a card, think about how you plan to use it. 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. Also, if you plan to pay for purchases over time, the APR and the balance computation method are definitely major considerations. So, it may still be wise to consider the APR and balance computation method.

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. 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. 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. Special Delinquency Rates. These rates sometimes exceed 20 percent. 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.

Information about delinquency rates should be disclosed to you in credit card applications or in solicitations that do not require an application. Keep these tips in mind when looking for a credit or charge card. Shopping Tips. Shop around for the plan that best fits your needs. Hold on to receipts to reconcile charges when your bill arrives. Make sure you understand a plan s terms before you accept the card.

Protect your cards and account numbers to prevent unauthorized use. Tear up carbons. Draw a line through blank spaces on charge slips so the amount can t be changed. 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.

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