Credit Card Quick

Your Guide to Understanding Your Credit Card’s APR

Introduction

You see it, you know it costs you money, but you’re not sure exactly what it is. It’s the APR on your credit card, and it pays to understand the ins and outs of this acronym.

What is an APR?

APR stands for Annual Percentage Rate, or the amount of interest charged by the credit card company for your purchases each year. To figure out how much interest your credit card company would charge you for your purchases is to divide your APR by 365. However, the amount in interest you end up paying if you fail to pay off your balance each month is much more because of the concept of compound interest. If you want to always avoid paying finance charges and not worry about your APR, simply pay off your balances in full, before the due date each month.

What is an introductory APR?

An introductory APR is a special, “teaser” APR designed to attract new credit card customers. You will often find introductory APRs last between 6 and 12 months. After that, the card’s default APR will set in. Beware of introductory APRs because they can give you a false sense of security that you have a card with a great APR. Although a credit card company may offer you a zero percent introductory rate, the default APR may be quite high. Therefore, it is important to pay close attention to the card’s default rate and not just the introductory rate.

Will my credit card’s APR ever change?

Perhaps. However, due to the CARD Act legislation, your credit card company must inform you of the change, in writing, 45 days in advance of the APR change. When applying for a credit card, look for one that has a “fixed” APR, not a “variable” one, as a variable APR will change according to the prime rate.

How important is my card’s APR?

Although most people look just at card’s APR, it is important to also look at other features of the credit card when determining whether the card is right for you. In short, thoroughly read the card’s terms and conditions so you can fully understand all features of the card, including the card’s APR.

Common Terms for Balance Transfer Credit Cards

Introduction

Balance transfer credit cards are becoming increasingly popular in the credit card sector, as many individuals are searching for easy ways to consolidate their higher-interest credit cards into one, easy-to-manage credit with a lower interest rate.

However, balance transfer credit cards may be a bit more confusing to understand, based merely upon the fact that the entire balance transfer process will vary greatly from one credit card to the next. Because of the differences in terms and features between balance transfer credit cards, it is important to thoroughly read the cards’ terms and conditions.

And in order to understand the balance transfer credit cards’ terms and conditions, you must first have a good understanding of the terms commonly used:

• Annual Percentage Rate (APR) – The APR is essentially the cost of using the credit card; it is commonly expressed using a yearly interest rate. The credit card company simply charges a fraction of the annual rate (for every 30 days) when figuring out the finance charges on the outstanding balance. This calculation is often referred to as the “periodic rate.”
• Balance Transfer – Balance transfer is essentially the process of transferring debt from one credit card account to another.
• Balance Transfer Fees – Many balance transfers come with a fee that is charged by the credit card company for completing a balance transfer request. The balance transfer fee is either a flat fee or a percentage of the balances transferred.
• Credit Limit – A credit card’s credit limit is the maximum that you can borrow on a credit card.
• Default APR – The default APR on a credit card is an APR that is imposed by the credit card company when a customer fails to uphold his or her credit card agreement. Default APRs can be imposed on customers who fail to pay just one of their credit card payments on time.
• Introductory APR – Many balance transfer credit card offers come with an introductory APR, which is the APR that is charged during the introductory period. Once the introductory period has ended, the credit card company will change the APR.
• Purchase APR – The purchase APR will be the APR imposed for purchases; this will often differ from the introductory period for the balance transfer APR.

Making Your APR Work for You

Introduction

There is no doubt that one of the most complicated and frustrating aspects of having a credit card is the annual percentage rate (APR). Some people don’t quite understand that the APR is simply the calculation of the interest on your credit card at a yearly rate. Once you know that, it makes things a little easier to understand. However, don’t be fooled. It is so easy to get in over your head! Interest rates can add up quickly, so spending wisely is always advised.

Interest Rates

Depending on your credit score, your interest rate can range anywhere from 11.99% to just above 23%. There is a big difference there, and the higher the interest, the more it’s going to cost you. Interest does add up, so spending frivolously can easily wind up costing you way more in the long run. In a nutshell, you don’t want to still be paying for something you bought a year from now because of interest rates.

Some credit cards can be so alluring, offering an introductory APR 0%. However, this rate will change within 6-12 months, so if you are unprepared, the hike in your credit card bill might catch you of guard. Interest rates can be either fixed or flexible. If you’re on a budget or don’t particularly care for surprises in your credit card bill, it might be wise for you to choose a card with a fixed-rate APR. However, whether your interest rate is fixed or flexible, you still need to be in the know about what you are being charged. Check the terms and conditions on your card. You might have an interest rate that is set on standard  purchases, however, if you get a cash advance or use another feature of your card, the interest rate is most likely to vary per feature.

How to Make Your APR Work to Benefit You

Having a credit card can be very beneficial, and in an ideal world, we would be able to find the perfect card; one that let’s us set our own limits, choose our own APR, etc. However, we live in the real world, knowing this is not likely to happen.

While it would be nice to have a low APR, few of us will get a rate that is truly minimal. Even the slightest blemish on your credit report can affect your interest rate when getting approved for a credit card. Still, even if you can’t have the perfect APR, you can still make it work for you.

Key Factors

One of the most important keys with credit card interest can not be emphasized enough. Spending. Watch your spending closely. That interest can add up quickly and you’re the one who is going to have to pay the bill.

Another important factor is how much you pay on your bill every month. If you can, it is always best to pay off the balance with each billing cycle. Unfortunately, this won’t always be possible for everyone. Still, don’t just pay the minimum balance. Sure, it is an option, and an enticing one at that, especially when your cash is tight. Nevertheless, if you only pay the minimum balance every month, you’re really getting nowhere, and the bill will just keep adding up. The more you can pay on it every month, the less interest you will pay in the long run. So, pay the maximum you can afford, as opposed to the minimum balance due. You’ll thank yourself later on.

If you are forced to only pay the minimum once in a while, curb that spending until you are back on track. If you pay the minimum, but keep spending as usual, your debt is only going to increase.

If you follow these guidelines and pay close attention to your credit card use, you’ll see that credit card Credit card APR does not have to be intimidating, and your debt can be minimized by making your APR work to befit you.

The Four Terms to Pay Close Attention to when Applying for a Credit Card

Introduction

Applying for a credit card involves more than looking for the best interest rate. In fact, it is often the other terms and conditions on the credit card that make the most difference when it comes to managing your credit.

Your credit card can be incredibly valuable, or it can be incredibly detrimental; in other words, your credit card is only as useful as the behavior that accompanies it. And that means starting with a good understanding of your credit card and the important terms to study when applying for a credit card.

1. Annual percentage rate – The annual percentage rate on a credit card, otherwise known at the APR, is usually the best place to start when comparing credit cards. Pay close attention to the APR, as well as the APR should you become delinquent on a payment. New credit card legislation states that a creditor can raise your APR if you are more than 60 days delinquent on a credit card payment, so make it a top priority to get your credit card payment in on time, or else you could be faced with an astronomical APR.
2. Grace period – The grace period on the card is the time frame during which you must pay your credit card’s minimum balance. Although the new credit card legislation has forced creditors to allow customers adequate time to pay their credit card bills, you should still pay very close attention to the due date on the card, as well as a the grace period, and allow yourself plenty of time to get your payment in on time, each and every month.
3. Credit limit – Your credit limit should never, under any circumstances, be disregarded. In addition to incurring hefty over-the-limit fees, your credit score will inevitably become damaged, as your debt-to-income ratio will soar. In other words, make a great effort to keep your balance paid down and to not come close to maxing out your credit card.
4. Introductory rate – Many cards offer introductory rates to court customers. As they say, all good things must come to and end and this goes for introductory rates, as well. Pay close attention to the length of your introductory rate, as well as the APR once the introductory rate has ended.

Have you Read your Credit Card Notice Lately?

News

If you’ve recently received a notice from your credit card company and you haven’t read it, you may want to think about digging it out of the trash and taking a look at it.

Many credit card companies are beginning to send out notices to customers regarding changes in their accounts. Mainly due to the changes taking place because of the new credit card regulations, credit card companies have started sending out notices detailing changes in interest rates, fees and other terms and conditions.

For many credit card customers, these notices are little more than an inconvenience, filled with difficult-to-understand language that really doesn’t affect how they spend on their credit cards. But in reality, these notices can contain very important information that many greatly affect how credit card customers handle their credit card spending.

The federal Credit Card Accountability, Responsibility and Disclosure Act of 2009, which is set to take effect on February 22, 2010, includes sweeping restrictions on everything from interest rates to over-the-limit fees.

Changes to look out for:

• Annual Percentage Rate (APR)- Your card issuer can raise your interest rate, but can only do so if they give you at least 45 days notice of your rate increase. Many times, individuals do not take time to read their credit card notice, thereby catching them off guard when they notice that their rate has increased. It is therefore in your best interest to check your statement each and every month so you can be aware of any changes in your card’s APR.
• Minimum Payments – If you have different APR on different balances on the same card, your creditor is now required to apply any payments over the minimum payment to the highest rate APR. Now is the time to add more money to your credit card balance each month.
• Over-the-Limit Fees – Over-the-limit credit card fees are now being highly restricted by the new credit card legislation, which is good news for consumers. However, as a result, many creditors are therefore declining transactions that exceed your credit limit, so remain aware of your credit card balance at all times.

How to Determine which Type of Credit Card is Right for you

Choosing Credit Card

Finding a credit card that provides you with the services and terms that fit your budget and your lifestyle is not difficult to do, but it certainly requires a little research and planning.

It is up to you to educate yourself on the terms and conditions of your credit cards so that you can use the card responsibly and secure your credit score.

If you are in the market for a new credit card, there are three questions you should ask yourself:

• What do I need in a credit card?

Just as there are loan programs for different needs, there are certainly different credit cards for different needs, budgets and lifestyles.

Credit card reward programs, for example, may be ideal for individuals who use their credit cards regularly, or for business travelers who use their credit cards for hotel stays and meals. Credit cards with high credit limits may be ideal for big spenders, while basic cards with no frills may suit individuals who use their credit cards for emergency purposes only.

Whatever the case, decide which kind of credit card you are, and find the card that meets your needs.

• Do I understand the terms of the credit card?

Although recent changes in credit card laws have made it easier to decipher the cardholder’s agreement, it still may prove quite difficult to read and understand the fine print.

Before you accept a credit card offer, read the entire agreement and make sure you fully understand what it says. If you don’t understand something, ask the company for an explanation.

Some important terms to pay attention to include: annual percentage rate, finance charges, grace period, late payment fees, minimum payment, over-the-limit fees and periodic rate.

• Do I really need this credit card?

If your credit is overextended, and you are merely looking for another source of open credit, then it may be time to reevaluate your credit situation.

It is also important to note that many credit card companies are tightening their belts regarding to whom they will offer credit, so make sure your credit score is strong and your debt is manageable before applying for a new credit card.