Choosing a Card
If you are searching for a new credit card, it makes sense to shop around and compare different ones. There is a wide variety of interest rates, fees and benefits offered by credit card companies and you should investigate your options before making a final decision. Some credit cards that look like a great deal at first glance turn out to be not-so-great upon closer inspection.
Credit card issuers must disclose their terms of agreement to consumers before any contract is signed. The following information is important to keep in mind when looking for a new credit card:
- Fees. Most credit card companies charge an annual membership fee and/or participation fees. These fees are sometimes called "annual", "acceptance", "activation", or "monthly maintenance". You can be charged monthly, periodically, or just one time. The amount can be anywhere from $6 to $150. This can have an immediate effect on your available credit. If you sign up for a card with a $300 credit limit and you are charged a one-time fee of $125, you are left with only $175 in available credit.
- Annual Percentage Rate. This measures the actual cost of the credit, stated as a yearly interest rate. You must be notified of the APR before your account is opened and activated and it must be shown on your monthly statements. Credit card issuers also must inform you of the "periodic rate". This is the rate applied to your outstanding balance which determines your finance charges for each billing cycle.
- Transaction Fees and Other Charges. Some credit card companies charge a fee if you take a cash advance, go over your credit limit, or make a late payment.
- Grace Period. A grace period allows you to pay your outstanding balance in full by a certain date, thereby avoiding any finance charges. If you don't have a grace period, the card issuer is allowed to impose a finance charge either from the time you make a purchase or from when the purchase posts to your account.
- Balance Computation Method for the Finance Charge. If the credit card you are considering doesn't allow for a grace period, find out how the issuer calculates the finance charge. This can make a big difference in how much you will pay in finance charges over time.
- Balance Transfer Offers. Many credit card companies try to lure new customers with the idea of transferring an existing credit card balance to their new one. Some offer a low introductory APR to transfer a balance, but often this is only for a short amount of time and then the APR balloons to a much higher rate. These offers vary greatly and can be very complicated. Be sure to read and understand all the fine print before agreeing to any offer.