Tips for Opening Credit CardsI probably receive one or two credit card offers per week in the mail, and typically just shred and recycle them. Recently, though, I've been considering getting an additional card. To really understand these offers (and determine if they're too good to be true), I turned to the Federal Reserve for help.
What I learned to look for:
This is the Annual Percentage Rate i.e. the interest (also called the "finance charge") that you'll be charged if you don't pay your bill in full every month. Some cards will waive this fee for six or 12 months as part of an introductory offer.
What they don't tell you: Offers don't list the average going rate for all credit cards, so you don't have any context for whether the offered interest rate is a fair deal. See bankrate.com, which updates these rates regularly.
2. Balance calculation method
This is how the credit card issuer determines the balance on your card, upon which it charges interest. Most use "average daily balance (including new purchases)."
What they don't tell you: This is the most advantageous method for the company (and most costly if you carry a balance), because new purchases immediately become part of the debt (meaning you're immediately paying interest on them). Cards that use the "adjusted balance" method are the best deal - interest is based on the balance at the beginning of the billing cycle. To see some numbers crunched and a few other balance calculation methods, click here.
3. Grace period
This is the amount of time you have past your due statement date to make a payment before you're hit with finance charges and late fees. If a card offers one, by law it must be at least 21 days long.
What they don't tell you: If the due date falls on a weekend or holiday, you have until 5 p.m. the next business day to pay up and avoid a late fee.
Related: How to Avoid Credit Card Late Fees
4. Cleverly named fees
If buzzwords like "annual," "activation," "acceptance," "participation," "monthly maintenance," and/or "account set-up" precede the word "fee," you'll be paying simply to own the card.
What they don't tell you: These charges are deducted from the credit line - if a card has a $400 limit and a $100 fee, your available credit is $300.
For more smart advice about credit cards, check out our 4 Credit Card Rules You Need to Know.
When it comes to credit card offers, what confuses you most? Let me know in the comments!
- by Amy Roberts
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