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Credit Card Terms You Need to Know

Important Credit Card Terms & Conditions...Here are some important terms you should understand...


When searching for a new credit card, always be sure to factor in the special disclosures associated with the offer. If you don't understand the credit card's Terms and Conditions, you could end up making some costly mistakes. Below you'll find important credit card terms included in all online credit card applications. You should understand and consider each before you apply
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Credit Card Terms

Annual Percentage Rate (APR): An APR is the measure of the cost of credit, expressed as a yearly interest rate. There are two basic types of APR plans - variable and fixed rate plans. The rate, as well as the type of rate plan must be disclosed before you apply for a credit card.

  • A "Variable APR" allows the credit card issuer to change your APR when interest rates or other economic indicators; called indexes, change. These days, most credit card offers include variable rates. If youíre 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. They remain at the disclosed level indicated upon opening the account. But be aware: credit card companies often include disclosures which allow them to change this rate at any time. But they must provide a written notice at least 15 days prior to the change.

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.

Annual Fee: Many issuers charge annual membership or participation fees. They range from $25 to $50, sometimes over $100 for "gold" or "platinum" cards.

* Most credit cards at ASAP Credit Card have No Annual Fee!

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 donít have a grace period, or if you expect to pay for purchases over time, itís 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 youíll 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 arenít 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 monthís account activity. Read your agreement carefully to find out if your issuer uses this approach -- if so, what specific two-cycle method is used.

If you donít understand how your balance is calculated, ask your card issuer. An explanation must also appear on your billing statements. Or, find out more about credit card interest calculations...

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