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Chances are you've gotten your share of "pre-approved" credit card offers in the mail. Examine the fine print carefully before you accept any offer for a credit or charge card.
The Annual Percentage Rate (APR). If the interest rate is variable, how is it determined and when can it change?
The periodic rate. This is the interest rate used to figure the finance charge on your balance each billing period.
The annual fee. While some cards have no annual fee, others expect you to pay an amount each year for being a cardholder.
The grace period. This is the number of days you have to pay your bill before finance charges start. Without this period, you may have to pay interest from the date you use your card or when the purchase is posted to your account.
The finance charges. Most lenders calculate finance charges using an average daily account balance—this is the average of what you owed each day in the billing cycle. Look for offers that use an adjusted balance, which subtracts your payment from your beginning balance. The finance charges you will pay are usually lower. Stay away from offers that use the previous balance in calculating what you owe; this method has the highest finance charge. Also don’t forget to check if there is a minimum finance charge.
Other fees. Ask about special fees when you get a cash advance, make a late payment, or go over your credit limit. Some companies charge a monthly fee regardless of whether you use your card.
The Fair Credit and Charge Card Disclosure Act requires credit and charge card issuers to include this information on credit applications.
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Beware: Teaser Rates
Some cards are advertised with very low introductory interest rates called teasers. The rate is good for a short period of time. If you know you can pay what you owe while the low rate is in effect, it could be a good deal. But if the teaser time runs out and you still owe money, you could end up paying a higher rate than you might have without the special introductory rate. Just one late payment could also cancel the teaser rate.
Beware: Offers to Skip a Credit Payment
If your credit company invites you to skip a monthly payment without a penalty, it is probably not doing you a favor. You may still owe finance charges on your unpaid balance. And interest will probably be adding up on any purchases you make after the due date you skipped.
Beware: Credit Insurance
When you take out a loan for a big purchase, a salesperson may try to sell you credit insurance. Your credit card company may also encourage you to purchase credit insurance. The coverage may be promoted as a way for you to protect yourself if your property is damaged or lost. Other credit insurance offers promises to make loan payments if you are laid off, become disabled or die. It is almost always better to buy regular property, life or disability insurance instead of credit insurance.
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