Article: Understanding Credit Cards

Interest Rates: The interest rate charged on your credit card is known as the annual percentage rate or APR. The company that issued the card determines this amount. When you receive your monthly statement, it will be listed there along with this APR being on your credit application. Therefore, you should know exactly what the charge is prior to accepting the credit card.

Normally, you will not have this fee to pay if you pay your balance each and every month and leave nothing on your account balance. However, if you cannot pay the entire balance it will be added to your next monthly statement along with any interest payments that are due on the money you still owe.

Fixed or variable Interest: The interest rate can be either fixed or variable. With a variable interest card, the rate can change often but the issuer must let you know how often it is likely to change.

When you apply for a credit card you should understand how long you will be able to take advantage of the low APR the company is offering. Many times this low APR is used as an incentive to get you to apply and use their card and then raising the APR in just a few months up to one year.

The APR that you will be charged is figured very simply. Take the percentage of your APR and then divide it by 12 months. This is the percentage you will be charged monthly. Now, take your outstanding balance and multiply by this percentage and you will learn what your finance charge will be for that month.

Calculating your outstanding balance

Each credit card company used their own method to calculate your outstanding balance, which they then use to determine your finance charge. The most popular methods are below, with the ones with the lowest finance charges first and so forth.

Adjusted balance: Adjusted balance is the balance that you have at the beginning of your billing cycle with all your payments and credits made during the period.

Average daily balance excluding new purchases: This one can be confusing. This calculates your balance daily and then divides it by the number of days in your billing cycle. New purchases are not included but payments and credits are included.

Previous balance: This one is the balance that you have at the beginning of your billing cycle. It does not include new purchases nor reduce any of your payments during the billing period.

Average daily balance including new purchases: This is pretty much the same as average daily balance except you all new purchases are also included.

Two-cycle average daily balance excluding new purchases: With this method the average daily balance of two consecutive billing cycles are calculated and then divided by the number of days in the two cycles and it does not include any new purchases. However, any purchases made during the first cycle can incur interest on the second cycle on the purchase for both cycles if the balance was not paid by the end of the first cycle.

Two-cycle average daily balance including new purchases: The same as above, with the exception, that all new purchases are included.

Credit Cards with Rewards Earned

Reward credit cards offer you many wonderful things when you use your credit card such as merchandise, trips, and even cash back. The main thing to pay attention to when applying for a reward credit card is to learn how many points you must accumulate prior to receiving any benefits. Such as airline credit cards, if you are not a frequent flyer your points may expire before you ever benefit from the rewards.

The interest rates and annual fees are also normally higher so be sure to calculate if any rewards offered are worth the high fees that you will incur.

Other Features

• Some of the most popular services credit cards offer their consumers include:
• A toll-free customer service telephone number with 24x7 support.
• On-line account management.
• Itemized periodic statement to help you track your expenses.
• Credit insurance.
• Recourse against merchants for unsatisfactory purchases.
• Travel assistance to help you make airline and hotel reservations, provide free travelers checks and check cashing services, or offer travel insurance. Some even admit you to the VIP lounge at airport terminals.
• When you begin your search for a credit card the most important items to look at include the APR and the fee structure. Remember, you may not always use all the incentives they offer that you will be paying for in the long run.