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Credit Card Terms
Annual Percentage
Rate.
The APR is a measure of the cost of credit, expressed as a yearly rate.
The card issuer also must disclose the "periodic rate" - the rate
applied to your outstanding balance to figure the finance charge for each
billing period.
Some credit card plans allow the issuer to change your APR when interest rates
or other economic indicators - called indexes - change. Because the rate change
is linked to the index's performance, these plans are called "variable
rate" programs. Rate changes raise or lower the finance charge on your
account. If you're considering a variable rate card, the issuer must also
provide various information that discloses to you:
- that the rate may change;
and
- how the rate is determined
- which index is used and what additional amount, the "margin," is
added to determine your new rate.
Free Period. Also called a "grace period," a free period lets
you avoid finance charges by paying your balance in full before the due date.
Knowing whether a card gives you a free period is especially important if you
plan to pay your account in full each month. Without a free 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. If your card includes a free
period, the issuer must mail your bill at least 14 days before the due date so
you'll have enough time to pay.
Annual Fees. The amount
that the credit card companies charge for the card per year. Many offer no fee
cards.
Transaction Fees and Other Charges. 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 for the Finance Charge. If you don't have a
free period, or if you expect to pay for purchases over time, it's 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 you'll pay - even if the APR
and your buying patterns remain relatively constant.
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