Credit Card Menu: Learn

Learn: The Basics

Most credit cards are open lines of credit that you can use to make purchases. You can borrow up to your credit limit and repay at the pace you choose. Card issuers charge you interest on any unpaid balance after the grace period (typically, 20-25 days). In addition to lending you money, some credit cards offer other benefits such as travel insurance, auto collision coverage, airline miles, shopping rewards, extensions of manufacturer warranty for certain products, and so on.

Credit cards differ widely in terms of their fees, interest rates, benefits, and so on. In addition, banks use very different criteria when considering your credit card applications. Some cards are only available to people with excellent credit history, and some are targeted at those trying to establish or re-establish their credit. Choosing the right one for your needs requires doing some research and analyzing your options. Our site compares credit card offers based on the most important variables, such as annual percentage rates (APR's), annual fees, introductory rates, and benefits.

Here are some brief explanations of what these basic parameters mean.

Annual Fee

Many issuers charge an annual fee for the privilege of using their card - typically between $15 and $50. Sometimes this fee can be waived if you use your card frequently, or if you transfer a certain balance to the card or even simply for asking! If you are planning on paying your bills within a month or two from the date you make purchases, you should probably be looking for a card with NO annual fee. However, the total annual cost (interest charges + annual fee + any other charges) is ultimately what matters.

Annual percentage rate (APR):

APR can be either "fixed" or "variable rate" (sometimes called "floating rate"). Fixed rate APR's are usually a little higher, but you know exactly how much you will be charged each month. With a floating rate credit card the interest is based on a published index + an adder - for example, "prime rate + 2.9%". Naturally, if you expect to be carrying a balance, you want to look for a card with the lowest rate. Currently the prime rate (the most common published index) is 3.25%.

Introductory rate (Intro APR):

Various credit cards offer a low introductory rate that switches to a higher variable or fixed rate. Make sure that you know how long the introductory rate is applicable and what APR the card will carry after the introductory period elapses. Be aware that the introductory rate for some cards will be terminated if you are late with a payment.

Grace period:

Grace period is the time between the day you a transaction is posted to your account and the day when interest begins to be charged. For most cards, it is 25 days from the billing date. If you carry a balance, many cards have no grace period and you will be charged interest from the day you make a purchase.

Other fees:

Credit card issuers may charge other fees, such as late fee (charged with you pay your bill late), over-the-limit fee (charged when you go over your credit limit), cash advance fees, and even account set-up fee (very few cards charge this fee).
If you're researching a card, you should take note of all these fees before you apply. Our site details this information (typically found in a "fine print" section on credit card application forms) in a clear, readable format. Click on the "Terms and Condition" link to view it.

Benefits such as frequent flyer miles, rebates, etc:

A number of issuers offer additional benefits to card members. Rebate cards allow you to earn cash back and discounts on goods and services based on card usage. Frequent flyer cards allow you to earn miles for each dollar charged. With special interest cards (e.g. golf and ski) you receive discounts and accumulate points towards purchases.

Balance Computation Method

Interest is computed on your balance - i.e. the charges you didn't pay in full. Most issuers use the Average Daily Balance method for calculating interest. This means that if you don't pay your bill in full, interest will be charged from the day a charge is posted to your account. A variation of this method excludes new purchases.
Some issuers charge two months of interest when you switch from paying in full each month to carrying a balance. This is called Two Cycle Billing. The other two methods for computing charges are Adjusted Balance and Previous Balance, but these are rarely used. If you feel ambitious the exact formula for interest calculations can be found on your bill.

To file a complaint or to get free information on consumer issues, you can call the FEDERAL TRADE COMMISSION at 1-877-FTC-HELP (1-877-382-4357). The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them.

If you can't find an answer to your question, please feel free to post it on our credit card discussion board (it only takes a few moments to create an account!) and we'll have an expert answer it.