Credit card companies keeps pushing hard to get more customers daily by giving "pre-approved" card offers to would be clients through mail. Chances are you've gotten one of this offers in your mail in recent days. Such promotion has being in existences long before now. Though getting such card is good to some extent and getting one will be helpful however, you don't have to rush getting one without considering the plan terms associated very well.
There are lots of plan terms that you really need to study very well while shopping for credit card if you are not ready to put yourself in financial prison. These terms affect your overall cost. In this article we will take a look at some of this credit card plan terms you need to consider before choosing a company to deal with. Get a cup of coffee while we discuss each of terms you need to consider.
Consider a company that gives "free period" or grace period over others. Because without free period, the card issuer may impose finance charge from the date you use your card or from the date each transaction is posted to your account. Free period allow you to pay back your balance in full before due date in other to avoid finance charges and it's usually mail at least 14 days before the due date, giving you enough time to pay.
Another very important term to take note of is APR (Annual Percentage Rate) which is the measure of the cost of credit, expressed as a yearly rate. APR often changes when there is a change in interest rates or other economic indicators. Still companies must disclose this before you open the account and on your account statements.
Apart from the annual percentage rate, you need to consider how much the issuer's charges for membership fee. The annual membership or participation fees varies, it's often between $25 and $100.
You also need to know about method issuers will use in calculating your finance charge if you don't have a free period, or if you are expected to pay for purchases over time. Knowing this will help you keep your finance charge low by measuring your buying patterns and paying back on time.
Some card issuing companies charges transaction fees and other minor charges when you make late payment, get advance cash with the card or exceed your credit limit. As a matter of fact some even charge monthly fee whether or not you use the card.
Affinity card. This is a credit card that gives a certain amount to a charity of your choice, depending on how much you spend. It is generally best to avoid any charity that wants you to sign up for such a card - don't let guilt lead you to a high interest rate.
APR. Annual Percentage Rate. This is your overall interest rate, calculated yearly, and given as a percentage of your balance.
ATM. Automated Teller Machine. A cash machine. It will give you money when you put your credit card in, but will probably charge an extra fee.
Balance transfer. This is when you transfer your debt ('balance') from one credit card to another. The usual reason for this is to try and keep as much debt as possible on a lower-interest card.
Credit limit. Your credit limit is the maximum amount you can spend or withdraw from your card. Going over your credit limit will result in your card no longer being accepted, and you being charged an over-limit fee.
Fixed rate. A fixed rate card is one where you are given a rate when you sign up for the card and that rate, at least in theory, stays the same for the whole time you have the card. In practice, though, interest rates can be changed for almost any reason.
Grace period. Your grace period is the amount of time between when you spend money and when you start paying interest on it. Good cards can have a grace period of up to two months - bad ones might not have one at all.
Minimum payment. A minimum payment is the absolute lowest amount you can pay back to the credit card company each month - you should pay more, but you don't have to. Minimum payments are usually around 2% of your balance.
Sub-prime. This is a phrase used in the industry to describe customers who are a bad credit risk, but are seen as worth lending to anyway. If you are identified as sub-prime, you'll start getting offers for loans secured on your property - they know that if you can't pay, they'll get their money anyway.
Teaser rate. A 'special offer' low rate, usually written in enormous letters. You will see many offers with "LOW 4.9% APR" in inch-high letters, followed by "for first six months, 21.9% thereafter" in microscopic ones. Teaser offers can sometimes be worth taking, but not if they tie you in for longer than the period of the offer.
Variable rate. This is an interest rate that is worked out by adding a certain amount to the current base rate. Taking this option will allow your credit card to be affected by changes in national interest rates - a good idea if you think they might go down, and a bad one if they're on the way up.
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