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Things to Look Out for When Shopping for a Credit Card

Of all the credit card offers you receive, chances are you will read the ones boasting the lowest interest rates. Deciding on which credit card you should apply for can be a puzzling task. When shopping for a credit card, the interest rate is not the only thing you should consider. Many times, low rate offers may not be all that they seem.

It is always in your best interest to shop around and compare credit card offers by reviewing not only interest rates, but also the fees and other information in the marketing pieces. Knowing what lies in the fine print can save you money. Here are a few specifics you should become familiar with.

Penalty Rates

The rate you signed up for may not necessarily be the rate you end up with.  That is why it is always wise to read the fine print very carefully. Many credit card issuers impose stringent payment conditions that can increase your introductory Annual Percentage Rate (APR) to the regular APR. The regular APR can also increase to anywhere from 19.99%-26.99% if just two payments are late within a six-month period. And, if you think you are never late, consider this—“late” can mean by just one day.  Usually this adjustment is a permanent change. When shopping for a credit card consider one with an interest rate that does not vary based on payment history.

Shorter Grace Periods

On time payments are more important now than ever with shorter grace periods, higher fees and penalty rates. Many credit card issuers have reduced the minimum interest-free grace period from the traditional 25 days to 20. The shortened grace period, in effect, decreases the time you have to get your payment in before interest is charged, and increases your chances of being late on a payment. A few issuers have no grace period at all. You may want to consider choosing a credit card that offers a longer grace  period—this will allow more time for you to get your payment in before interest or a late fee is charged.

Higher Rates and Fees for Cash Advances

Cash advances can be a costly way to borrow money. Most issuers charge a fee of 2%-5%, with a minimum fee of $3-$10. But, be aware that many have no cap on the fees that they can charge. It is also important to note that cash advances can carry some hefty interest rates. The rate that you are charged for cash advances is often much higher than that for purchases—anywhere from 19% and up.

Two-Cycle Billing

Some issuers use the two-cycle average daily balance method when calculating finance charges. This can sometimes be a little complicated to understand, but basically it means that if the balance is not paid in full at the first billing, the interest becomes retroactive to the purchase date. In short, the average daily balance is calculated over two billing cycles instead of just one. Finance charges tend to be higher and the grace period is wiped out for those cardholders that carry a balance. Most issuers use single cycle billing, so it is possible to avoid those who do not.

These are just a few of the costs associated with credit cards that you should be aware of as a consumer. Be sure to compare the costs and features of similar cards in order to pick the one that's right for you. Don't just consider the fine print “gibberish.” If there is something you do not understand, question it. Remember that it is always in your best interest to read and examine the fine print carefully in order to obtain a card that will meet your needs.


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