Card solicitations and monthly statements don't have to read like mysteries. Here's how to understand the fees and rules... and avoid the pitfalls.
Card Solicitations
You're Pre-Approved: This doesn't mean you're guaranteed a card. It means that you have received a firm offer of credit based on criteria established by the company for what it wants in a customer. You must apply for the card and the company will conduct a full credit check. Tip: If you don't receive the card or the terms you were offered, ask the bank for the reasons.
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Some people want to be on marketers' lists for new product offers, but others don't. If you want to reduce the number of offers for credit cards and other financial products, call toll-free 888-5-OPTOUT (888-567-8688) to remove your name from marketing lists provided to creditors and other companies.
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APR (Annual Percentage Rate): The interest rate charged if you carry a balance on your card. Tip: If you usually carry a balance, shop around for a card with a low APR. If you pay off your balance in full every month, the APR is less important than a card's other costs or features. Also, find out if the interest rate is fixed or variable and whether different interest rates apply to different events (such as if you get a cash advance from a teller machine or pay your credit card bill late).
Introductory Rates: Also known as "teaser rates," these are very low interest rates offered to entice you to open a new account. But as explained in the fine print, the introductory rate may increase dramatically after six months or so. Tip: Understand the terms of the offer. That low introductory rate may only apply to balances you transfer to your card from other loans or cards you have and not to any new purchases.
Grace Period: The number of days before the card company starts charging you interest on purchases. Tip: If you plan to avoid interest charges by paying your balance in full most months, make sure your card's terms permit that. It's getting harder to find credit cards that give several weeks of interest-free purchases. Some cards have no grace period, meaning you'd always pay interest from the date of purchase.
Balance Computation Method: How the card company will determine the balance on which you may be charged interest. Tip: If you expect to carry a balance most months or if your card offers a short or no grace period, the balance calculation method could be a big factor in your finance charges. Perhaps the most common method is the "average daily balance" approach, where finance charges are calculated on the daily average for the billing period. Other calculation methods may be more costly, including one called the "two-cycle" system where, if you pay in full one month but only pay part of the bill the next month, you'll be charged interest for both months instead of just one.
Annual Fee: Yearly charge for use of the credit card. Tip: If you expect to pay your balance in full most months, look for a card with a full grace period and no annual fee. However, if you plan on carrying a balance or you're looking for club perks, then a card with an annual fee and low APR may be a better choice.
Other Fees: May include fees for late payments, charges above your credit limit, cash advances, balance transfers from another card, and certain purchases. Tip: Shop around for the features you want and for the lowest cost.
Rewards: Incentives for using the card, such as cash back or bonus points toward airline travel or the purchase of a car. Tip: Be aware of the rules and restrictions, including limits on how much you can earn or deadlines for taking advantage of a reward. Also, compare the likely value of the bonuses with the potential costs of the card.
Card Statements
Transactions: Open your bill immediately and check your transactions. If there is a mistake, you can dispute the charge and withhold payment for that specific amount. Tip: To be protected by the Fair Credit Billing Act, you must send a letter to the creditor that is received within 60 days after the creditor sent you the statement with the inaccuracy. Your letter also must be sent to the address the creditor has specified for billing inquiries.
Periodic Interest Rate: If you carry a balance, check the periodic interest rate on the statement, to make sure what you are being charged is what was disclosed to you. Tip: Pay close attention. Notice of a change is usually provided in your monthly statements, so read the fine print.
Records: Retain your credit card statements and any significant inserts received with your statement. You never know when you might need to refer to them. Tip: Note the date a payment was mailed, the check number and the amount paid. See "Your Bank Records: What to Keep, What to Toss... and When" for information on how long to keep these records.
