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Credit Card Facts
Curious about Credit?
Curious about Credit Cards? Credit Card FAQ's is devoted to providing
information to aid in the proper decision making regarding personal loans
and credit cards in the UK and in the US. Below, you will find answers to
many Credit Card FAQ's. Credit Card FAQ's does also provide the general
public with links to the Credit Card vendors. For an application, please
click on one of the links below.
* Shop around for credit card terms that are best for you
* Make sure you understand the terms of a credit card plan before you
accept the card.
* Pay bills promptly to keep finance charges as low as possible.
* Keep copies of sales slips and promptly compare charges when your
bills arrive.
* Draw a line through blank spaces above the total when you sign
receipts.
* Keep a list of your credit card account numbers and the telephone
numbers of each card issuer in a safe place in case your cards are
lost or stolen.
Bureau of Consumer Protection
Office of Consumer & Business Education
(202) 326-3650
Choosing a Credit Card
Credit card offers may
seem attractive, but remember a credit card
is a form of borrowing that usually involves a "finance charge" -- a
charge for the convenience of borrowing -- and often other charges as
well.
Credit Card Terms
Before selecting a
credit card, learn which credit terms and
conditions apply. Each affects the overall cost of the credit you will
be using. Under the Fair Credit and Charge Card Disclosure Act, you can
compare terms and fees before you agree to open a credit card or charge
card (no interest) account. Be sure to consider and compare the
following terms that direct-mail applications and pre-approved
solicitations must reveal.
Previous Balance. As the
name suggests, this balance is simply the
amount that you owed at the end of the previous billing period.
Payments, credits, or new purchases made during the current billing
period are not taken into account. Some creditors also exclude unpaid
finance charges in computing this balance. If you do not understand how
the balance on your account is computed, ask the card issuer. (An
explanation of how the balance was determined must appear on the billing
statements the card issuer provides you and on applications and
pre-approved solicitations the card issuer may send you.)
Annual
Percentage Rate. The "annual percentage rate," or APR, is
disclosed to you when you apply for a card, again when you open the
account, and it is also noted on each bill you receive. It is a measure
of the cost of credit, expressed as a yearly rate. The card issuer also
must disclose the "periodic rate" -- that is, the rate the card issuer
applies to your outstanding account balance to figure the finance charge
for each billing period.
Some credit card plans
allow the card issuer to change the annual
percentage rate on your account when interest rates or other economic
indicators (called indexes) change. Because the rate change is linked to
the performance of the index, which may rise or fall, these plans are
commonly called "variable rate" plans. Rate changes raise or lower the
amount of the finance charge you pay on your account. If the credit card
you are considering has a variable rate feature, the card issuer must
tell you that the rate may vary and how the rate is determined,
including which index is used and what additional amount (the "margin")
is added to the index to determine your new rate. You also must be told
how much and how often your rate may change.
Free Period. A free
period -- also called a "grace period" --
allows you to avoid the finance charge by paying your current balance in
full before the "due date" shown on your statement. Knowing whether a
credit card plan gives you a free period is especially important if you
plan to pay your account in full each month. If there is no free period,
the card issuer will impose a finance charge from the date you use your
credit card or from the date each credit card transaction is posted to
your account. If your credit card plan allows a free period, the card
issuer must mail your bill at least 14 days before your payment is due.
This is to ensure that you have enough time to make your payment by the
due date.
Annual Fees. Most credit
card issuers charge annual membership or
other participation fees. These fees range from $25 to $50 for most
cards, and from $75 on up for premium "gold" or "platinum" cards.
Transaction Fees and
Other Charges. A credit card also may involve
other types of costs. For example, some card issuers charge a fee when
you use the card to obtain a cash advance, when you fail to make a
payment on time, or when you go over your credit limit. Some charge a
flat monthly fee whether or not you use the card.
Balance Computation
Method for the Finance Charge. If your plan has
no free period, or if you expect to pay for purchases over time, it is
important to know how the card issuer will calculate your finance
charge. This charge will vary depending upon the method the card issuer
uses to figure your balance. The method used can make a difference,
sometimes a big difference, in how much finance charge you will pay --
even when the APR is identical to that charged by another card issuer
and the pattern of purchases and payments is the same.
Average Daily Balance
(including or excluding new purchases). The
average daily balance method gives you credit for your payment from the
day the card issuer receives it. To compute the balance due, the card
issuer totals the beginning balance for each day in the billing period
and deducts any payments credited to your account that day. New
purchases may or may not be added to the balance, depending on the plan,
but cash advances typically are added. The resulting daily balances are
added up for the billing cycle and the total is then divided by the
number of days in the billing period to arrive at the "average daily
balance." This is the most common method used by credit card issuers.
Adjusted Balance. This
balance is computed by subtracting the
payments you made and any credits you received during the present
billing period from the balance you owed at the end of the previous
billing period. New purchases that you made during the billing period
are not included. Under the adjusted balance method, you have until the
end of the billing cycle to pay part of your balance and you avoid the
interest charges on that portion. Some creditors exclude prior, unpaid
finance charges from the previous balance. The adjusted balance method
usually is the most advantageous to card users.
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