Credit Card Quick

Calculations: Breaking Down Your Credit Card APR

Introduction

When you have a credit card, you know that you are going to pay a certain amount in interest every year, This equates to some percentage of your credit card balance. It can be fairly low (9%-12%) for those with excellent credit or mid to high (13%-23% or more) for others. Everyone knows that carrying a balance on your credit card, combined with the APR can really add up. However, do you know how to break it all down and find out exactly what you are paying over a shorter period of time?

Calculating Your APR

Under the Truth in Lending Act, your credit card company is required to inform you of the APR that you are paying by ensuring that the rate is visible on your bill. Unfortunately, they are only required to tell you the yearly rate. They do not have to break it down for you into monthly and daily rates. No problem. You can still figure this one out on your own.

Look at your billing statement. Your credit card company either lists your finance charges at a monthly or daily rate, also called a periodic rate. To calculate your monthly rate, multiply your interest by 12. Then, to determine your monthly finance charge, take your average daily balance and multiply it by the monthly rate. If your company is in the habit of conveying your charges as a daily rate, you will need to divide your APR by the number of days in the year.

Something to Keep in Mind

Your APR is, by no means, set in stone. You might have an introductory APR that lasts a certain term or your credit card company might change your rate at their discretion. Credit card companies can change their policies, with or without reason. All they have to do is give you some short notice that the change is coming. Sometimes, it is as simple as the company trying to rescue themselves from the bad customers they have encountered, raising good customers’ rates to make up the difference. Often, however, it is because of your own situation.

If you think the credit card company is not watching you, think again. Just because you pay your credit card balance on time does not mean a thing. credit card companies periodically check customer credit reports. If you have had any difficulties in some other financial area, they will find out. The red flag goes up and now you are a high risk customer, causing your rates to soar. Fair? No, not really. Reality? Yep.

The best way to protect yourself is to pay all of your bills on time each and every month, so as to have nothing negative reflected in credit report. If you find yourself in difficulty, contact your creditors beforehand to see if you can work out a deal. Often, this will result in cooperation and will leave the difficulties unreflected on your credit report.

Are Retailer Credit Card Rewards Worthy of Your Interest?

Credit Card Rewards

You know the holidays are upon us when retailers begin pulling out all the stops with their credit cards. Great deals for opening a retail credit card; great deals for using your retail credit card; and special bonuses, coupons and shopping events for being a cardholder are just a few of the things that retailers use to entice us into using a retail credit card.

However, are retail credit cards all they are really cracked up to be?

You may find it all a bit too tempting when you go to make a purchase and a store associate tells you that you can open a store credit card within minutes and save as much as 20 percent on your purchase. This is usually the time when you must make a decision regarding the advantages and disadvantages of owning a retail credit card.

Weighing a Discount vs. a High Interest Rate

If you know, unequivocally, that you will pay off your credit card purchase when your first statement comes then it may be worth your while to open a retail credit card account. However, if you even have the smallest inkling that you may not be able to pay the balance in full then you are probably better off passing on using a store credit card.

This is because retail credit cards come with notoriously high interest rates. In other words, any discount that you may have received for opening a new account will likely be erased the first time you are unable to pay your bill in full.

Too Much Temptation

Another factor to consider is your spending habits. Many times, individuals armed with retail credit cards are likely to spend more than if they were using another form of payment.

You may find yourself making more frequent purchases, purchasing more expensive items or simply purchasing more than you otherwise would have if you were paying with cash, for example.

Consider your Credit Score

Although a nice payment history on a store credit card may bode well for your credit score, missing even one payment may have a strong impact on your credit score, in a negative way. Plus, retail credit cards have lower credit limits, which may just not make much sense when you have a perfectly good major credit card with a low, fixed interest rate.