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Financial Education for Everyone

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July 7, 2006

You probably get numerous credit card offers every month. Many list terms that sound too good to be true, which often means they are: 0 percent interest, huge credit limits, free rewards — the list goes on.

Although good deals do exist (especially for people with a strong credit history), always carefully analyze all terms and conditions to know what you’re getting. By law, this information must appear in the card’s terms of agreement, but you have to know what to look for.

Make a chart to compare features for several cards side by side. Track fees and other charges, such as:

  • Annual fee — charged for using the card. Many cards have no annual fee, so shop around.
  • Cash advance fee — shown as either a per-use flat rate or a percentage of the advance amount.
  • Late payment fee — charged if payment is received after the due date. (Important: A few late payments could raise your interest rate dramatically.)
  • Balance transfer fee — sometimes charged to transfer balances from one card to another.
  • Over-the-limit fee — charged if you go over your credit limit. (Overages can also trigger rate increases.)
  • Minimum finance charge — imposed whenever you carry forward a balance.
  • Call each lender and ask them to spell out all other possible fees.

Here’s how to decode some other terms you’ll find in the card offers:

Annual percentage rate (APR): The interest rate you’ll be charged if you carry forward any balance due. Credit cards often have different APRs for purchases, cash advances and balance transfers, so make sure a low APR in one category isn’t offset by unreasonably high APRs in others.

If a low introductory APR is offered, note for how long and what the rate rises to afterward. Also ask whether the APR is “fixed” (may fluctuate, but only after you’re notified) or “variable” (can move unexpectedly, without prior notification).

Grace period: The number of days you have to pay your bill in full without being charged interest. Beware of short grace periods and note that there’s usually no grace period for cash advances, balance transfers or balances carried over from previous months — you begin paying interest immediately.

Cash advances: Although handy in emergencies, cash advances can become very expensive loans if you don’t pay them off quickly. Ask about each card’s cash advance APR, fees (whether per transaction or percentage of advance) and any other limits that may apply.

A few more tips:

  • Ask what other terms may change besides the teaser rate when the introductory period ends.
  • After conducting your research, call your current credit card issuer to see if they’ll match terms in order to keep your business.
  • Always read credit card mailing inserts for important terms changes.
  • A good place to comparison shop for credit cards is www.bankrate.com.
  • The Federal Reserve Bank offers a detailed guide to choosing a credit card (www.federalreserve.gov/pubs/shop).
  • Practical Money Skills for Life, a free personal financial management site sponsored by Visa Inc., features comprehensive information on how credit cards work (www.practicalmoneyskills.com/credit).
  • Consult a financial professional regarding your particular situation.

Credit cards are a way of life in the 21st century. Just be sure to read the fine print so you get the card whose features match your needs.


This article is intended to provide general information and should not be considered health, legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.