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12 Credit Card Issues You Should Know

Apply For A Credit Card

When you apply for a credit card online there are six key factors you’ll want to pay close attention to.

	Intro APR - Introductory Annual Percentage Rate
	The introductory annual percentage rate is a starter rate offered by the card issuer. This rate is usually lower than the normal annual percentage rate or "Regular APR" and is offered for a limited time period to encourage you to apply for a credit card and balance transfers from your other credit cards if applicable.

	Intro APR Period - Introductory Annual Percentage Rate Period
	The introductory annual percentage rate period is the length of time the credit card issuer is offering the introductory APR. Typically the intro APR normally last from 3 to 15 months after you are issued the credit card. Once this period expires your interest rate will enter the "Regular APR" period.

Regular APR - Regular Annual Percentage Rate

This is generally the interest rate you will pay during the remaining life of your card. This rate may change if you default on your payments. The APR is a measure of the cost of credit, expressed as a yearly rate. It must be disclosed before you become obligated to a credit account. Some credit card plans allow the issuer to change your APR when interest rates or other economic indicators -- called indexes, change. Because the rate change is linked to the index’s performance, these plans are called "Variable Rate" programs. If you’re considering a variable rate card, the issuer must also provide information that discloses to you: how the rate is determined, which index is used, and what additional amount ("margin") is added to determine your new rate. You will also receive information about how much, and how often your rate may change. "Fixed Rate" plans are not subject to adjustment like variable rates. If you do not default in your payments, they remain at the disclosed level indicated upon opening the account. You'll want to select a credit card with a low fixed APR whenever possible.

	Annual Fee
	Many issuers charge annual membership or participation fees. The fees range from $25 to $50, sometimes over $100 for "gold" or "platinum" cards. This is a charge you will pay each year for holding the credit card regardless of the amount of the balance on your card. Typically the fees are higher on credit cards for people with bad credit or individuals whom have not yet established credit.

	Balance Transfers
	This indicates whether the credit card offers balance transfers. A balance transfer credit card gives you the ability to transfer balances from other credit cards to take advantage of lower interest rates. Often balances can be transferred while enjoying a lower APR for a limited time period.

	Credit Needed
	This section indicates the type of credit you will typically need to be approved when you apply for a credit card. Generally there are three categories of credit. Excellent credit, good credit, and bad credit / no credit / needs improvement.

Other Credit Card terms you should understand:

When you're applying for a credit card, be sure to consider the terms and costs associated with the card. They can make a difference in how much you pay for the privilege of borrowing. The following are some important terms to consider that must be disclosed in credit card applications or in solicitations for credit cards. You may also want to ask about these terms when you’re shopping for a card.

Grace Period: Also called a "free period," a grace period lets you avoid finance charges by paying your balance in full before the due date. Knowing whether a card gives you a grace period is especially important if you plan to pay your account in full each month. Without a grace 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.

Transaction Fees and Other Charges: A card may include other costs. Some issuers charge a fee if you use the card to get a cash advance, make a late payment, or exceed your credit limit. Some charge a monthly fee whether or not you use the card.

Balance Computation Method: If you don’t have a grace period, or if you expect to pay for purchases over time, it’s important to know what method the issuer uses to calculate your finance charge. This can make a big difference in how much of a finance charge you’ll pay -- even if the APR and your buying patterns remain relatively constant.

Examples of balance computation methods include the following.

Average Daily Balance: This is the most common calculation method. It credits your account from the day payment is received by the issuer. To figure the balance due, the issuer totals the beginning balance for each day in the billing period and subtracts any credits made to your account that day. While new purchases may or may not be added to the balance, depending on your plan, cash advances typically are included. The resulting daily balances are added for the billing cycle. The total is then divided by the number of days in the billing period to get the "average daily balance."
 
Adjusted Balance: This is usually the most advantageous method for card holders. Your balance is determined by subtracting payments or credits received during the current billing period from the balance at the end of the previous billing period. Purchases made during the billing period aren’t included. This method gives you until the end of the billing cycle to pay a portion of your balance to avoid the interest charges on that amount.

Previous Balance: This is the amount you owed at the end of the previous billing period. Payments, credits and new purchases during the current billing period are not included. Some creditors also exclude unpaid finance charges.

Two-cycle Balances: Issuers sometimes use various methods to calculate your balance that make use of your last two month’s account activity. Read your agreement carefully to find out if your issuer uses this approach -- and, if so, what specific two-cycle method is used.
If you don’t understand how your balance is calculated, ask your card issuer. An explanation must also appear on your billing statements.

Before selecting a card, be sure you know which credit terms and conditions apply to the account. Consider the annual fee, finance charges, balance computation method, and whether or not there is a grace period for purchases. See our Credit Card Terms (above) for more information on these and other important credit card terms.

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