Importance of Credit Card Terms and Conditions
A credit card is a form of borrowing that usually involves charges and has terms and conditions of use attached. These affect the overall cost of credit to you. It always makes sense to compare terms and charges before agreeing to open a credit or charge card account. The following terms will appear on credit and charge card application and it is important you understand what they mean.
Annual Percentage Rate (APR)
The APR is the actual cost of credit expressed as a yearly rate. This has to be disclosed to you in advance of your signing up for an account and must always appear on account statements.
Some credit card plans allow changes to your APR when interest rates or other economic indicators (indexes) - change. These plans are called "variable rate" programs because the rate and changes to it are linked to the index's performance. Rate changes raise or lower the finance charges on your account. If you're considering a variable rate card you should be told at the outset the rate may change and how the rate is determined. You should be advised which index is used and the amount of the margin which is added when deciding your new rate. You should also check to see if there are any limitations on the frequency and amounts of rate changes before agreeing to open a particular account.
Grace Period (free period)
A Grace period lets you avoid finance charges if you pay the balance due on your account in full before the due date. Knowing whether a card gives you a free period is especially important if you do plan to pay your account in full every month. If there is no free period the card issuer may impose a finance charge from the date you use your card or from the date each transaction is posted to your account. If your card does include a free period, the issuer must mail your bill at least 14 days before the due date to ensure you have time to pay in full if you choose to do so.
Most card issuers charge an annual membership or participation fee. These generally vary between $25 to $50, but can be as high as $100 or even more for some Gold or Platinum cards. There are several card offers that have no annual fee attached.
Transaction Fees and Other Charges
There are a number of additional charges that might apply to your card. Some issuers charge a fee for late payment, use the card to get cash from an ATM, or if you exceed your credit limit. Some will charge a monthly fee regardless of whether or not you use your card.
Balance Computation Method for the Finance Charge
If your card does not have a Grace (free) period, or you intend to use it as a credit tool to pay for purchases over an extended time, it is important to know what method the issuer uses to calculate your finance charges. This can make a significant difference to the amount you are paying for credit even if the APR and your purchasing pattern remains fairly constant.
Special Delinquency Rates
Some cards with low rates for on-time payments apply a very high APR if you are late in payment a certain number of times in any specified period. These rates can be expensive sometimes exceeding 20 percent. Information about delinquency rates should be fully disclosed to you in credit card applications.
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