Wednesday, June 24, 2009

Choosing The Best Credit Card Tips and Advice

This is a very basic but important tips written by Barbara Cooper, a Consumer and Family Economics Educator at Springfield Extension Center, University of Illinois. I hope this can help or give you some important details in terms of choosing the best credit card that suits your needs.

Here is the start of Barbara's great advice. The free credit card reports blog find this one extremely useful.

By law, credit card companies must tell consumers the interest rate and other costs of using their credit cards. This information is in a disclosure statement and is set up in a table format. You’ll find disclosure statements on credit card applications. If a card offer is made by phone and the card has an annual fee, the caller must verbally give you the disclosure information. If the card has no fee or the fee doesn’t go into effect until the card is used, the caller can mail you the information.

Understand Credit Card Terms
Annual percentage rate (APR) - The annual interest rate that the card issuer charges on the unpaid balance of the credit card. Some credit cards have set rates; for other cards with variable rates the interest rate changes. The disclosure statement gives the guidelines used to decide what variable interest rates will be. If a credit card offer has an unbelievably low rate, it probably is an introductory rate. After the introductory period is over, the rate will increase. A
low rate would be 5% while 21% would be high.

Grace period - The length of time you have to pay your bill before interest is charged on the purchases. Most companies offer 20 - 25 day grace periods. Even though companies have grace
periods, most charge interest from the day you make a purchase if you already have a balance on the credit card.

Annual fee - A charge you pay once a year for the right to use a credit card.

Minimum finance charge - The least you’ll have to pay if you have a balance on a credit card.

Transaction fees - Fees you have to pay for cash advances, late payments, or charging over your credit limit.

Periodic rate - The APR divided by 12

Compare credit card terms.
Call three banks, credit unions, or savings and loan institutions to find out about the terms offered on a Visa or MasterCard. Or compare the terms on three credit cards you have now or on credit card offers you’ve gotten in the mail. Read the disclosure statement to find this information.

Analyze the offers.
Issuers of credit cards use different methods to compute the monthly finance charge. Most companies use the average daily balance method to figure finance charges. They add the new purchases to any old debt after the end of the grace period and divide by the number of days in the billing cycle to compute the balance on which you pay interest. Beware of a “two-cycle” average daily balance method. It uses the total of the average daily balances for two billing cycles even if you paid the balance off the previous month.

Credit card choice depends on how you use your creditcard.
For example, if you always pay your monthly bill in full, the best type of card is one that has no annual fee and gives you a grace period so you don’t pay interest if you pay your balance each month. If you carry a balance on your credit cards, look for a lower annual percentage rate and the average daily balance method of computing the finance charge If you carry a balance on your credit card, use the information below to estimate how much you pay each year to use your credit card. You’ll find your average monthly balance on your credit card statements.

Calculate Finance Charges
Average monthly balance you carry on card ______ x the periodic rate of ______ = interest paid ______ x
12 months = ______ + annual fee of ______ = Total yearly cost of ______.
(If you get cash advances, pay late, or go over your credit limit, add the transaction fees to your total.)

Average monthly balance of $1250 x periodic rate of 1.5% (1250 x .015) = interest paid $18.75
x 12 months = $225 + annual fee of $20 = Total yearly cost of $245

Hope the above article/piece of advice enlightens you up. More of the great tips regarding credit cards will be posted soon here at the Free Credit Card Reports blog.


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