When you are shopping for a credit card, it’s wise to compare fees, charges, interest rates, and benefits.
Some credit cards that look like a great deal at first glance may lose their appeal once you read the terms and conditions of use and calculate how the fees could affect your available credit and your payment.
What You Need to Know
Credit card issuers generally must disclose the important terms of use regardless of whether they require you to complete an application.
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Fees. Many credit card issuers charge membership and/or participation fees. Issuers use a variety of names for these fees, including “annual,” “activation,” “acceptance,” “participation” and “monthly maintenance.” These fees may appear monthly, periodically, or as one-time charges: they can range from $6 to $150. What’s important is they can have an immediate effect on the credit that’s available to you. For example, a card with a $250 credit limit and $150 in fees leaves you with $100 in available credit.
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Transaction Fees and Other Charges. Some issuers charge a fee if you use the card to get a cash advance, make a late payment, or if you go beyond your credit limit.
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Annual Percentage Rate. The APR is a measure of the cost of credit, expressed as a yearly interest rate. The APR must be disclosed before your account can be activated, and it must appear on your account statements. Your card issuer also must disclose the “periodic rate” – the rate the issuer applies to your outstanding balance to determine the finance charge for each billing period.
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Grace Period. A grace period lets you avoid finance charges if you pay your balance in full by the date it is due. Knowing whether a card gives you a grace period is important if you plan to pay your account in full each month. Without a grace 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.
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Balance Computation Method for the Finance Charge. If you don’t have a grace period – or if you plan to pay for your purchases over time – find out how the issuer calculates your finance charge. Which method is used to compute your balance can make a big difference in how much of a finance charge you’ll pay – even if the APR and your buying patterns stay pretty much the same.
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Balance Transfer Offers. Many credit card companies offer incentives for transferring your balance – moving your debt from one credit card (Card Issuer A) to another (Card Issuer B). Each offer is different – and the terms can be complicated.
The FTC at Work
Most legitimate credit cards are issued by banks, which are outside the FTC’s jurisdiction. But the FTC can prosecute promoters who deceptively market credit cards. FTC enforcement actions typically deal with hard-core credit card frauds – for example, advance-fee credit card scams or scams marketing cards as general credit cards (like Visa or MasterCard) when the cards are good only for purchases from certain catalogues. In the last 10 years, the FTC has brought 50 cases alleging that fradulent marketers charged advance fees but didn’t provide consumers with credit as they had promised. In some cases, defendants promised credit cards; in others, they promised unsecured loans. Visit the Federal Reserve Board to find contact information for federal banking regulators.
