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Whether you already have a credit card or are shopping for one don’t just skim over the disclosure. Don’t get caught up by the fancy advertising and enticing wording of the overview or the simple terms located on the front of your statement, dig deeper.
Thoroughly research the offers. What they aren’t telling you up front may be very important. The reason there is so much information in a disclosure is because the Fair Credit and Charge Card Disclosure Act, designed to protect you, requires creditors to provide you with certain data on a regular basis. You should understand why the information is provided to you and how valuable it is when you can make decisions about using credit.
When you receive credit card statements from banks and retailers, you will find interest rate and fee schedule information in an obvious location. By looking at the disclosure statements you also should find:
- Annual fee – the yearly charge for having the credit card
- Annual percentage rate (APR) – the yearly interest rate charged
- Monthly periodic rate – APR divided by 12, or the rate at which monthly interest is calculated
- Daily periodic rate – APR divided by 365, or the rate at which daily interest is calculated
- Finance charge – the total cost of having the credit card, including interest and fees
- Transaction fee -charges to use various services, such as receiving a cash advance or using an ATM
- Late payment fee – the charge for when payment is not received by the due date
- Over the limit fee – the charge placed on the account when the credit limit has been exceeded
- Grace period – the time between transaction date and the due date where interest can be avoided
- Minimum payment – the minimum monthly amount accepted by the creditor for the payment
If you are shopping for a credit card there are more things you need to consider and compare before you decide. Card companies put all the features and benefits where it is easily found. The features and benefits of cards that offer rewards are especially emphasized. However, there are other details that should be considered. Additionally, if you already have a credit card you should read the disclosures on every statement and check for changes, you also should pay special attention when you receive a disclosure statement sent to you on its own. If it comes by itself then there are important changes.
1. Annual Percentage Rate (APR): In addition to the APR on the balance of any amount borrowed, credit card issuers must also disclose the APR on balance transfers, cash advances and defaults. These charges are normally higher than your balance APR. Other APRs you should look for include tiered APRs, which charge higher interest rates on balances above a certain amount; and introductory APRs, which are raised after a certain amount of time has passed. Both should be reviewed carefully. It’s also important to know if the APR is fixed or variable. If it is variable, you will want to know how often it can change and by how much.
2. Grace Period: This is the amount of time that you have to pay your bill in full if you want to avoid finance charges. Twenty-five days is fairly common, but some cards offer less time. Paying your balance on time and in full each month is the best way to avoid finance charges.
3. Method of Computing Balance for Purchases: Card companies use a variety of methods for calculating balances. Some base their numbers on the average daily balance, others on the account’s previous balance. Calculations may be done over one billing cycle or over two billing cycles. New purchases may be included or excluded from the calculations. Calculations based on a single billing cycle and the average daily balance generally result in lower finance charges.
4. Minimum Finance Charge: This is the finance charge that must be paid in the event your finance charge is lower than the specified amount. For example, if your finance charge comes out to $0.50 this month and the minimum finance charge for your card is $1, you will have to pay $1. However, if you pay off your balance in full each month, there is no finance charge
5. Annual Fee: Many credit card companies charge an Annual Fee for using the card. This is normally charged to consumers with lower credit scores. Sometimes it can be charged to cardholders that pay-off their balances each month.
6: Other Fees: This category includes transaction fees for balance transfers, cash advances and for over the limit fees. Returned-check fees, late-payment fees and other miscellaneous expenses also fall into this category. Another fee you may find in this area is a penalty rate wherein the card company can raise your interest rates because you are late with a payment or default on some other bills not directly related to them.
Read the Fine Print
Loans and credit are common components of every day life. They are tools that can be used to help you achieve your goals and cover emergencies. It may be a pain to read all that fine print but it could save you a lot of money and aggravation later. Even though the U.S. government has passed the Truth in Lending Act (TILA) requiring companies to disclose certain facts, the disclosures may be hidden in the fine print. However, knowing what to look for and then what to do with that information will help you make wise financial decisions and become an informed consumer.