Shopping for a Credit Card

Shopping for a Credit Card

Shopping for A Credit Card Comparison shop credit cards, don t take the first offer that comes to you: Pre-approved: Have passed a preliminary credit-information screening to qualify for a credit card. Does not automatically give you any special rates or deals Small print can give your company the opportunity to change the deal you were pre-approved for

Card Holder Agreement Written statement that gives the terms and conditions of a credit card account. Look here for all info before signing up Required by Federal Reserve Card issuers can change terms at any time with 15 days notice

Billing Statement The monthly bill sent by a credit card issuer to the customer. It gives a summary of activity on an account. Important changes to a credit card account are included in small-print fliers that are sent with the statement.

Annual Percentage Rate (APR) Annual Percentage Rate (APR) - A yearly rate of interest that includes fees and costs paid to acquire the loan Interest - Money paid for the use of money F (Fixed) rate - the interest rate is fixed and not subject to change V (variable) rate - the interest rate is variable and subject to change. Prime + Won t go below floor - minimum rate possible on a variable-rate loan or line of credit Introductory rate - The low rate charged by a lender for an initial period to entice borrowers to accept the credit terms How long? What will the rate go to afterwards?

Grace Period Interest-free time between: Transaction date Billing date Usually 20 30 days No grace period if: Carry a balance No stated grace period

Billing Methods: Average Daily Balance Determined by: Adding each day s balance Dividing by total number of days in the billing cycle. Multiplying by monthly periodic rate (APR/12) Example Day 1: Charge $100 Day 2: Charge $200 Avg. Daily Bal $150 30 days in billing cycle = $5 average daily balance Card with 15% APR has a 1.25% monthly periodic rate (15% / 12 months) $5 daily balance = $.063 finance charge

Billing Methods: Two-cycle Billing If you don t pay your balance off it: Charges you interest based off of the current and previous month Interest starts the day you make the purchase.

Credit Limit The maximum amount you can charge on a credit account. You're approved up to $25,000! Up to is the key phrase Enticement offer Actual credit limit based on credit score Recommended limit 20% of net income

Default and Universal Default Default A designation that indicates a person has not paid a debt that was owed. Universal default If you are more than 30 days late on a payment to anyone, your credit card company can raise your interest rate.

Payment Allocation How your payments will be applied when you have differing rates Matters when you: Use card during and after promotional period Purchases and cash advances Payments will pay off lower rate first Costs you money. Makes the bank money.

Annual Fees on Reward Cards Paying for the privilege of using a credit card Many cards offer rewards without an annual fee Weigh cost of annual fee to value of reward Mileage Avoid annual fees

Late-Payment Fee Charge imposed for not paying on time Know your payment due date & time 9 a.m. 12 noon 5 p.m. 11:59 p.m.? Pay via U.S. mail, phone, online, automatic bill pay, etc.

Over-the-Credit-Limit Fee You can exceed your credit limit but it will cost you Fee Higher interest rate

Currency-Exchange Fee Amount charged for the convenience of using your credit card to convert US dollars to foreign currency. Credit Cards have replaced traveler's checks. Fee will be 1 3% Important only if you travel internationally frequently

Cash-Advance Fee & Interest Don t take cash advances Fee Flat amount Percentage of withdrawal Cash advance interest rate is always higher and has no grace period Payments are applied to lower-interest balance first

Balance-Transfer Fee Balance Transfer The process of moving an unpaid credit card debt from one issuer to another Balance Transfer Fee Charge to transfer balance to or from one card to another. Usually a set percentage and minimum dollar amount Ex 3% and $10 minimum Balance Transfers typically have 0% or low interest for a set amount of time. However, if you don t pay it off or make a late payment, you will be charged the higher interest and back interest.

Returned-Check Fee Your check bounces at the bank because: Not enough money in your account You don t have a cash-advance line at the bank to cover the check

Minimum Finance Charge Also called No Balance Fee Fee charged for using the credit card even when you pay off the balance in full every month. Don t select this card $1.50 * 12 = $18 Similar to an annual fee