Choosing A Credit Card: The Deal is in the Disclosures
A credit card lets you buy things and pay for them over time. Using a credit card is a form of borrowing: you have to pay the money back.
When you are choosing a credit card, there are many features — and several kinds of cards — to consider: fees, charges, interest rates, and benefits can vary among credit card issuers. As a result, some credit cards that look like a great deal at first glance may lose their appeal once you read the terms and conditions of use and calculate how the fees could affect your available credit.
Fees: Many credit cards charge membership and/or participation fees. Issuers have a variety of names for these fees, including “annual,” “activation,” “acceptance,” “participation” and “monthly maintenance” fees. These fees may appear monthly, periodically, or as one-time charges, and can range from $6 to $150. What’s more, they can have an immediate effect on your available credit. For example, a card with a $250 credit limit and $150 in fees leaves you with $100 in available credit.
Transaction Fees and Other Charges: Some issuers charge a fee if you use the card to get a cash advance or make a late payment, or if you exceed your credit limit.
Annual Percentage Rate: The APR is a measure of the cost of credit, expressed as a yearly rate. It must be disclosed before your account can be activated, and it must appear on your account statements.
The card issuer also must disclose the “periodic rate.” That’s the rate the issuer applies to your outstanding balance to determine the finance charge for each billing period.
Some credit card plans let the issuer change the APR when interest rates or other economic indicators — called indexes — change. Because the rate change is linked to the index’s performance and varies, these plans are called “variable rate” programs. Rate changes also can raise or lower the finance charge on your account. If you’re considering a variable rate card, the issuer must tell you that the rate may change and how the rate is determined.
Before your account is activated, you also must be given information about any limits on how much your rate may change — and how often.
Grace Period: A grace period, also called a “free period,” lets you avoid finance charges if you pay your balance in full before the date it is due. Knowing whether a card gives you a grace period is important if you plan to pay your account in full each month. Without a grace 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.
Balance Computation Method for the Finance Charge: If you don’t have a grace period — or if you plan to pay for your purchases over time — it’s important to know how the issuer calculates your finance charge. Which balance computation method is used can make a big difference in how much of a finance charge you’ll pay — even if the APR and your buying patterns stay pretty much the same.
Balance Transfer Offers: Many credit card companies offer incentives for balance transfers — moving your debt from one credit card (Card Issuer A) to another (Card Issuer B). All offers are not the same, and their terms can be complicated.