Wednesday, October 31, 2007

What you should know when you are applying for credit.

Whether you apply for a card, ask a phone representative to send you information, hook up with a card company's online applications or receive an uninvited application through the mail, don't sign up until you have asked some key questions. Article from
Find out:

Is there an introductory rate? What is it and how long does it last?

After that, what will my rate be?

Is there an application fee?

Are there processing fees?

Is there an annual fee?

Is there a late fee?

Is there an over-the-limit fee?

Are there any other fees, like account termination fees or balance-transfer fees?

When and how can a variable rate be changed?

What is the grace period before interest is applied?

How will you inform me of any changes in my contract?

Will the company inform me if I am about to go over my limit?

If I go over my limit, what happens?

What is the company policy if I have trouble paying my bill?

May I pay my bill online?

15 must-know credit card terms
If you don't understand the language, credit card offers and statements could lead you to deep debt -- or at least furious frustration. For the big scoop on the fine print, here's what these frequently used credit card terms mean.

Average daily balance -- This is the method by which most credit cards calculate your payment due. An average daily balance is determined by adding each day's balance and then dividing that total by the number of days in a billing cycle. The average daily balance is then multiplied by a card's monthly periodic rate, which is calculated by dividing the annual percentage rate by 12. A card with an annual rate of 18 percent would have a monthly periodic rate of 1.5 percent. If that card had a $500 average daily balance it would yield a monthly finance charge of $7.50.
Annual percentage rate (APR) -- A yearly rate of interest that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average compound interest rate over the term of the loan, so borrowers can compare loans.
Balance transfer -- The process of moving an unpaid credit card debt from one issuer to another. Card issuers sometimes offer teaser rates to encourage balance transfers coming in and balance-transfer fees to discourage them from going out.
Cash-advance fee -- A charge by the bank for using credit cards to obtain cash. This fee can be stated in terms of a flat per-transaction fee or a percentage of the amount of the cash advance. For example, the fee may be expressed as follows: "2%/$10". This means that the cash advance fee will be the greater of 2 percent of the cash advance amount or $10.
The banks may limit the amount that can be charged to a specific dollar amount. Depending on the bank issuing the card, the cash advance fee may be deducted directly from the cash advance at the time the money is received or it may be posted to your bill as of the day you received the advance. The cost of a cash advance is also higher because there generally is no grace period. Interest accrues from the moment the money is withdrawn.
Cardholder agreement -- The written statement that gives the terms and conditions of a credit card account. The cardholder agreement is required by Federal Reserve regulations. It must include the Annual Percentage Rate, the monthly minimum payment formula, annual fee if applicable, and the cardholder's rights in billing disputes. Changes in the cardholder agreement may be made, with written advance notice, at any time by the issuer. Rules for imposing changes vary from state to state, but the rules that apply are those of the home state of the issuing bank, not the home state of the cardholder.
Finance charge -- The charge for using a credit card, comprised of interest costs and other fees.
Floor -- The minimum rate possible on a variable-rate loan or line of credit, after any initial introductory rate period. For example, on a credit card with the Prime rate as its index, no matter how low the Prime rate drops, the rate on the line may never decrease below the stated rate floor.
Grace period -- If the credit card user does not carry a balance, the grace period is the interest-free time a lender allows between the transaction date and the billing date. The standard grace period is usually between 20 and 30 days. If there is no grace period, finance charges will accrue the moment a purchase is made with the credit card. People who carry a balance on their credit cards have no grace period.
Minimum payment -- The minimum amount a cardholder can pay to keep the account from going into default. Some card issuers will set a high minimum if they are uncertain of the cardholder's ability to pay. Most card issuers require a minimum payment of two percent of the outstanding balance.
Over-the-limit fee -- A fee charged for exceeding the credit limit on the card.
Periodic rate -- The interest rate described in relation to a specific amount of time. The monthly periodic rate, for example, is the cost of credit per month; the daily periodic rate is the cost of credit per day.
Pre-approved -- A credit card offer with "pre-approved" only means that a potential customer has passed a preliminary credit-information screening. A credit card company can spurn the customers it invited with "pre-approved" junk mail if it doesn't like the applicant's credit rating.
Secured card -- A credit card that a cardholder secures with a savings deposit to ensure payment of the outstanding balance if the cardholder defaults on payments. It is used by people new to credit, or people trying to rebuild their poor credit ratings.
Teaser rate -- Often called the introductory rate, it is the below-market interest rate offered to entice customers to switch credit cards or lenders.
Variable interest rate -- Percentage that a borrower pays for the use of money, and which moves up or down periodically based on changes in other interest rates.
For a complete list of credit card terms, check out our glossary.

Note from Lucy: Read the fine print and pay your credit card bills on time....


At 12:58 AM, Blogger Diane J. said...

I circumvent those issues by not having any credit cards. Hubby and I learned some bitter lessons as young marrieds and don't even want credit cards now. Makes life a lot simpler for us!

Hope you and yours are doing well, Lucy. ;o)



At 4:34 AM, Blogger OldOldLady Of The Hills said...

This is great advice and information, Lucy.....I pay my bill on time every time and pay it "In Full"...! Better to avoid all the problems that come with building up debt!

At 5:27 AM, Blogger LZ Blogger said...

Lucy ~ The SECRET is always in those FINE details (read small print) isn't it? ~ jb///

At 11:26 AM, Blogger Big Dave T said...

We always pay our credit card bill in full. I think the only time we didn't was after we visited Disneyworld on vacation.

You never realize how long a month can be until you get a credit card bill. Then, with us anyway, it's always, "I don't remember charging that, it seemed like so long ago."

At 3:51 PM, Blogger Rachel said...

Your very last line says it all!!

At 9:56 PM, Blogger BarbaraFromCalifornia said...

The one that gets me is whether or not your interest rate will go up if you miss a ayment. Often, it can climb up to 22 percent or more.

Thanks for the tips.

At 7:21 AM, Blogger Jim said...

Ever since I got the bills from my first life paid off I don't charge any more than I can pay off when the bill comes.
This isn't what the card companies had in mind but it works. And save lots of money.
BTW, can you tell I'm back?


Post a Comment

<< Home