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Compare credit card
offers online; understand key terms before you apply
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In order to compare
credit card offers it is important to first understand the different
terms used by credit card providers. Fortunately, FTC has provided some
simple definitions to understand these terms. This article makes an
attempt to present a few important terms that you should be familiar
with in order to compare credit card offers. The content was modified
in order to suit the requirements of this page.
Annual Percentage Rate (APR). The
APR, a required disclosure, is a measure of the cost of credit,
expressed as a yearly rate. This rate must be disclosed to consumers.
The "periodic rate" - the rate applied to your outstanding balance must
also be disclosed. This rate helps determine the finance charge for
each billing period.
A lot of credit card plans allow the issuer to change your APR based on changes in interest rates or other key economic indicators -- called indexes change. Such rate is linked to the index's performance. These plans are also known as "variable rate" programs -- due to the inbuilt variation feature. The finance charge will be raised or lowered based on rate changes. Variable plan providers must also disclose additional information, such as the way the rate would change and how the rate is determined (which index is used, what additional amount, the "margin" used, etc.)
Free Period (Grace Period). Also
known as "grace period," simply stated, it is a period which lets you
avoid finance charges by paying your balance in full before the due
date. When you compare credit card, be sure to understand terms of the
grace period. If your card includes a free period, the issuer must mail
your bill at least 14 days before the due date.
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Annual
Fees. You must know whether your issuer charges an annual
membership fee. This is an important term to pay attention to when you
compare credit card offers as such fees can range from $25 to $100 or
upwards.
Transaction fees and other charges.
Issuers may be charging fees, such as cash advance fee, late payment
fee, or over-the-limit fees. Some card issuers may even charge a
monthly fee. Be sure to review these terms when you compare credit
cards.
Method for balance computation. When you compare credit card offers, pay careful attention to the method for balance computation. This can make a big difference in how much you will incur. There are several methods used for balance computation; these include "average daily balance," "adjusted balance," "previous balance," "two-cycle balances," etc. FTC has compiled a brief explanation of each of these methods.
If you don't understand how your balance is calculated, ask your card issuer. An explanation must also appear on your billing statements.
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Other Costs and Features. Other costs and features that you need also play an important role when you compare credit card offers. In addition, you may also consider if the credit limit is high enough. A credit card application's disclosure is the best place to research detailed information. The initial time spent to compare credit card offers will go a long way in saving you money.
This article was adapted (and modified) from:
1. http://www.ftc.gov/bcp/conline/pubs/credit/choose.htm
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