University of Illinois Extension

Choose the Best Credit Card

By law, credit card companies must tell consumers the interest rate and other costs of using their credit cards. This information is in a disclosure statement and is set up in a table format. You'll find disclosure statements on credit card applications. If a card offer is made by phone and the card has an annual fee, the caller must verbally give you the disclosure information. If the card has no fee or the fee doesn't go into effect until the card is used, the caller can mail you the information.

Understand Credit Card Terms

Annual percentage rate (APR) - The annual interest rate that the card issuer charges on the unpaid balance of the credit card. Some credit cards have set rates; for other cards with variable rates the interest rate changes. The disclosure statement gives the guidelines used to decide what the variable interest rates will be. If a credit card offer has an unbelievably low rate, it probably is an introductory rate. After the introductory period is over, the rate will increase. A low rate would be five percent while 21 percent would be high.

Grace period - The length of time you have to pay your bill before interest is charged on the purchases. Most companies offer 20-25 day grace periods. Even though companies have grace periods, most charge interest from the day you make a purchase if you already have a balance on the credit card.

Annual fee - The charge you pay once a year for the right to use a credit card.

Minimum finance charge - The least you'll have to pay if you have a balance on a credit card, usually two percent to four percent of the balance.

Transaction fees - Fees you have to pay for cash advances, late payments, or charging over your credit limit.

Periodic rate - The APR divided by 12.

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