Choosing a Credit Card Text Size:

Chances are you've gotten your share of "pre-approved" credit card offers in the mail, some with low introductory rates and other perks. Many of these solicitations urge you to accept "before the offer expires." Before you accept, shop around to get the best deal.

Credit Card Terms

A credit card is a form of borrowing that often involves charges. Credit terms and conditions affect your overall cost. So it's wise to compare terms and fees before you agree to open a credit or charge card account. The following are some important terms to consider that generally must be disclosed in credit card applications or in solicitations that require no application. You also may want to ask about these terms when you're shopping for a card.

Annual Percentage Rate ("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 tell 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.

You also must receive information, before you become obligated on the account, about any limitations on how much and how often your rate may change.

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. Most issuers charge annual membership or participation fees. They often range from $25 to $50, sometimes up to $100; "gold" or "platinum" cards often charge up to $75 and sometimes up to several hundred dollars.

Transaction Fees and Other Charges. A card may include other costs. 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. Examples of balance computation methods include:

• Average Daily Balance. This is the most common calculation method. It credits your account from the day payment is received by the issuer.
• Adjusted Balance. This is usually the most advantageous method for card holders. Your balance is determined by subtracting payments or credits received during the current billing period from the balance at the end of the previous billing period.
• Previous Balance. This is the amount you owed at the end of the previous billing period. Payments, credits and new purchases during the current billing period are not included. Some creditors also exclude unpaid finance charges.
• Two-cycle Balances. Issuers sometimes use various methods to calculate your balance that make use of your last two month's account activity. Read your agreement carefully to find out if your issuer uses this approach and, if so, what specific two-cycle method is used.

If you don't understand how your balance is calculated, ask your card issuer. An explanation must also appear on your billing statements.

Other Costs and Features

When shopping for a card, think about how you plan to use it. If you expect to pay your bills in full each month, the annual fee and other charges may be more important than the periodic rate and the APR, if there is a grace period for purchases. If you plan to pay for purchases over time, the APR and the balance computation method are definitely major considerations.

You'll probably also want to consider:

• If the credit limit is high enough
• How widely the card is accepted
• The plan's services and features
• Special Delinquency Rates, a very high APR if you are late a certain number of times in any specified time period

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