Series: Spending Money

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Credit Card Shuffle Terms of Use:

Credit card companies like Visa and MasterCard don’t issue credit cards -- banks and credit unions do -- so the types and terms on credit cards are as varied as the tens of thousands of card issuers and their deals.

Depending on how you use the card, you can save money by comparing fees, rates and terms in order to find the best deal for you.

First, look at the annual fee, which is the fee you pay for having use of the card. Many cards have no annual fees, and this is naturally the best option. Other issuers charge fees ranging from $15 on up.

Some cards have monthly instead of annual fees. Caution: even a $7 monthly fee adds up to $84 a year.

Second, look at the annual percentage rate (or APR). The APR is the best way to measure the cost of credit and must be expressed as a yearly rate. It also must be disclosed when you apply and again when you open the account and on your account statements.

According to the Truth in Lending Act, the APR must be printed in 18 point type so that you can readily see it, especially if a low introductory rate is being used to entice you.

The card issuer must also disclose the periodic rate which is the rate the card issuer applies to your outstanding account balance to figure the finance charge for each billing period.

About 70% of all credit cards have variable rates, which go up or down according to an index, usually The Wall Street Journal prime rate. These rates can change monthly or quarterly. Minimum APRs (or floors) are sometimes part of a variable rate credit card’s terms. This means if the index drops, your rate will only go down so far.

Even if you have a fixed APR, it still can go up. Legally, the issuer has to give you only fifteen days’ notice before it’s raised.

You can also get a tiered interest rate which has different rates for different balance amounts (for example, 16% on balances of $1 - $500, 17% on balances above $500, etc).

An introductory rate (or teaser rate) is a very low APR designed to lure you into getting a new card. The low rate usually lasts only six to nine months. Be careful you understand the rules of the new card before you transfer balances from an old card with a higher APR. The new card may charge “balance transfer fees.”

Series: Spending Money

Page 2 of 2

Credit Card Shuffle Terms of Use:

In addition, there may be no “grace period,” and it may actually end up costing more than the old card.

The grace period is the time between the date of the transaction and the date interest starts being charged. If your card has a standard grace period (about 25 days), you can avoid finance charges by paying your current balance in full.

Even if you do not pay your balance in full every month, some issuers allow a grace period for new purchases.

If there is no grace period, the issuer charges interest from the date you used your card or from the date each purchase is posted to your account.

Cash advance fees (often either a flat dollar amount or a percentage of the cash advance) may get added if you use your credit card (or handy checks sent to you by the card issuer) to borrow money.

Since cash advances are loans, there won’t be a grace period before interest starts accruing. You’ll usually be charged a higher rate, and you could also pay a transaction fee.

If you have late payments or go over your limit, you may get charged a penalty rate – a higher APR in addition to any fees charged. You can be charged an over-limit fee or a late payment fee, usually about 2% of your balance. The card issuer may even cancel your card.

A late payment affects more than just your credit card account. It can affect your credit report, too. A late payment on your record can affect the interest rate you pay on other loans, too.

A closer look at the fine print of your credit card agreement may reveal a few other surprises. You can actually be charged "inactivity fees" for not using your card, or penalties for paying off your balance. Some cards levy an extra 3% on purchases made in foreign countries.

Some issuers offer gold, platinum, and titanium level cards. For Visa and MasterCard, the difference between them is the amount of the credit line. For American Express, the difference is the annual fee. You can also get bronze and silver, too. Sound like credit card Olympics?

Some cards offer free airline miles, shopping discounts, free travel insurance and other such enhancements, but find out about costs and terms before signing up.

Instead of going for a credit card offer in the mail or from the Internet, try negotiating a better deal with the issuer of your current card directly. Tell them you don’t want to pay an annual fee and you want your interest rate lowered. According to a study done by a consumer group, this worked 56% of the time.

So how do you pick the card that’s right for you? If you pay your balance in full every month, pick a card without an annual fee. The APR is irrelevant since you won’t be carrying a balance as long as you pay in full and on time.

If you tend to pay the minimum but not the entire balance each month, pick a card with the lowest APR. But look closely at how the issuer computes your balance and the grace period to get the lowest cost.

The Federal Trade Commission has information on choosing and using credit cards.

See the Federal Reserve Board information in “Shop – The Credit Card You Pick Can Save You Money.”

See what you learned.

Check out "Credit Cards: Say Charge It!" and "Comparing the Cost of Loans"