ANATOMY OF A
CREDIT CARD OFFER
Credit card offers are likely coming at you from every angle. Most of these
offers try to persuade you to sign up for a card by focusing on the convience
and buying power a card can give you, while glossing over the responsibilities
that come with signing up.
Every credit card offer must provide some facts about the specific details of the
offer in a standard format. The fluffy letter about being able to take the vacation
of your dreams is meaningless. When you get a credit card offer, skip the letter
and look immediately for the information that really matters. This information
will appear in the table, like this one, and tell you exactly what you would
agree to if you were to get this credit card.
Example of a Credit Card Offer †
Annual Percentage Rate (APR) for
Purchases
4.99% until next January 2010,
then 17%
Other APRs
Cash advance APR: 18.99%
Balance transfer APR: 18.99%
Penalty rate: 23.99%*
Variable Rate Information
APRs may vary. Rates are determined monthly
by adding 5.9% to the Prime Rate.**
Grace Period for Repayment of
Balances for Purchases
At least 25 days after the close of the previous
billing cycle on new credit card purchases,
provided the previous balance was paid in full.
If the
interest
rate is more
than 14%,
throw the
offer away.
Method of Computing the Balance for Average Daily Balance (including new
Purchases
purchases) Method.
Look for
a zero $
annual fee
Annual Fee
$25
Minimum Finance Charge
$1.00 for each billing cycle in which a periodic
Finance Charge is payable.
Transaction Fee for Cash Advances
3% of the amount advanced
Balance Transfer Fee
3% of the amount advanced
Late-Payment Fee
$25
Over-the-Credit-Limit Fee
$25
Foreign Transaction Fee Finance
Charge
A Foreign Transaction Fee equal to 3% of the
U.S. dollar amount will apply to transactions
made in a foreign country.
Be wary of the
different fees
you may be
charged
*If your payment arrives more than 10 days late two times within a six-month period, the penalty rate will apply.
**The rate used to determine APR is the rate published in the Wall Street Journal on the tenth day of the previous month.
† Source:
www.federalreserve.gov
When a credit card offer arrives, look first at the APR and the annual fee. If the APR is low (0-7%) and
the annual fee is zero, then this might be a credit card to consider more carefully. If the interest rate is
more than 14%, throw the offer away.
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BE SAVVY A
Before you decide to apply for a credit card, be sure you understand what everything means. Credit
cards have a lot of small print that describes fees, penalties, and rates, which can cost you a lot of
money if you’re not careful. Here are some explanations of a credit card offer’s small print:
Annual Percentage Rate (APR)
for purchases:
This is the interest rate you pay each month on
any unpaid balance. In some ways, the APR is
the most important detail of the card. If the card
has a temporary introductory rate, the rate that
applies after the temporary rate expires will also
be listed. Also, know that any rate—even your
APR for purchases—may increase if you forget to
pay your bill. This is just one way a $15 CD can
cost you much more if you buy it on a credit card.
Other APRs:
These interest rates might be for a cash
advance, a transferred balance, or penalty rates.
Often the interest rate for a cash advance is
much higher than the interest rate for purchases,
while the balance transfer rate might be much
lower (at least temporarily). Again, these rates
may increase if you forget to pay your bill.
Variable-rate information:
If the card has a variable, or changing, interest
rate instead of a fixed rate, this information tells
you how the variable rate is determined.
Grace period for repayment of
balances for purchases:
The number of days you have to pay your bill to
avoid finance charges from interest. With most
credit cards, the grace period applies only to
purchases. Cash advances and balance transfers
may start accruing interest immediately. If you
already have a balance from previous months,
your grace period is usually suspended, even for
new purchases. The key is to pay off your card in
full within this grace period each month.
Method of computing the
balance for purchases:
The method used to calculate your outstanding
balance, which determines your finance charge.
Annual fees:
The annual fee (or other periodic fees) charged
for use of the card. You may have to pay this
fee even if you never use the card.
Minimum finance charge:
A minimum fixed finance charge that can be
imposed during a billing cycle, usually when
you have a balance.
Transaction fee for cash advances:
Any charge imposed when you use the card
for a cash advance. If the card charges
transaction fees for purchases, these fees will
also be listed here.
Balance-transfer fee:
A fee to transfer balances from other cards—
this fee might be waived as part of a special
balance transfer offer.
Late-payment fee:
A fee for a late payment.
Over-the-credit-limit fee:
A fee that you pay if your charges exceed the
credit limit set on the card.
The information provided is intended as general information and does not constitute financial
advice. You should not rely on any material provided to make (or refrain from making) any
decision or take (or refrain from taking) any action. For financial advice tailored to your situation,
please contact a financial professional.
©2009 Great Lakes Higher Education Guaranty Corporation. All rights reserved.