Terms, Concepts and Fees Regarding Credit Cards

Annual Fee is the charge many credit card issuers will require for the use of their card. This is typically between $15 and $50. Some cards do not require an annual fee. This of course is nice, but you want to compare all the numbers before deciding. The annual fee can often be waived for you. Simply asking is one reason. Threatening to use another card company that does not have an annual fee is another. If you transfer a balance to this credit card often they will waive the fee. If you use your card frequently you may qualify for no annual fee. It doesn't hurt to ask, so go ahead and try to get it waived. Remember that the total annual cost is what matters — the annual fee is just one part.

Annual Percentage Rate (APR) is the interest rate at which you will be charged for any balance that you carry. If you plan to pay your card off each month this is not as much of an issue for you. You do still want to make the best choice as you never know what may happen to cause you to not be able to pay the balance in full. Be prepared in case of emergency. The APR will either be a variable or a fixed rate. A fixed rate APR may be a bit higher than a variable rate. But with a fixed rate you know exactly what interest you will be charged each month. A variable rate, or floating rate, is based on a published index plus an additional percentage. For instance your variable rate might be the prime rate plus 2.9%. If you typically carry a balance from month to month, you want to be sure you get the lowest rate possible.

Introductory Rate is the initial rate you will be charge when issued a credit card. This is often very low or even 0%. This introductory rate will switch to a higher fixed or variable rate after the introductory period is over. Be certain you know the conditions of this introductory rate. Know the length of the period and be certain what APR it will carry after that time is over. Note that this introductory rate may not be applicable if you are late with a payment. Know your spending habits and all the info before being lured into a great looking introductory rate.

The grace period is the time between the day of purchase and the day the interest begins to accrue on that purchase. For most credit cards this is 25 days from the billing date. Some cards will have no grace period if you carry a balance charging you interest from the day of purchase. Again, you need to know your spending habits and your ability to pay off monthly before the interest will grow quite quickly.

Other fees will apply on your credit card for various reasons. If you are late on your payment there will be a penalty fee — know what that is. There may be a charge for going over your credit limit — know your limit and the charge. ATM withdrawals will cost you as well. Such cash advances may have a different interest rate than a charged purchase. And such advances will have limits. It is important to know all this information to get the most out of your credit card.

The total annual cost is the most important number for you to consider. This is the annual fee plus the interest charges accrued and any other charges. You want to avoid as many charges as possible. This will require you to know the details of your card and to handle your credit responsibly.