Get to Know Your Credit Card

Want to know all the features and terms of a credit card? Carefully read its disclosure box (a.k.a., Schumer box). In it you will find information about the following:

Annual Percentage Rate (APR)- Lenders must disclose all types of APRs (interest rates) including introductory “teaser” rates (e.g., 2.9% for six months), standard APRs, and penalty (default) APRs that are charged for specific infractions such as late payments.

Fees- Examples include late fees, over-the-limit fees, and fees for cash advances and balance transfers. These fees are not included in APRs because only some credit card users pay them.

Grace Period– This is the time period, typically 20 to 25 days, between the posting date of a transaction and the payment due date. It is only available to cardholders who paid the previous month’s balance in full and on time.

Balance Calculation Method– Two common methods are “daily balance” and “average daily balance.” New purchases are generally included. With both methods, the sooner in a billing cycle a credit card is paid, the lower the balance on which interest is charged.

Once you have read some Schumer boxes, select a credit card that’s right for you. Cardholders who are “convenience users” (i.e., they always pay their bill in full and do not pay interest) should look for a long grace period, no annual fee, low fees, and a good rewards program. “Revolvers” who typically carry a balance forward should look for a low interest rate, no annual fee, low fees, and a long “teaser rate” if the balance can be repaid before the introductory rate ends.

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