 |
 |
|
Home Categories Buying Guides Safety & Security Gift Giving Smart Finances - Debt Consolidation |
 |
Credit Card Primer
How long is the grace period?
The grace period is the number of days you have to pay your bill in full without triggering a finance charge. For example, the credit card company may say that you have “25 days from the statement date, provided you paid your previous balance in full by the due date.” The statement date is given on the bill.
The grace period usually applies only to new purchases. Most credit cards do not give a grace period for cash advances and balance transfers. Instead, interest charges start right away.
If you carried over any part of your balance from the preceding month, you may not have a grace period for new purchases. Instead, you may be charged interest as soon as you make a purchase (in addition to being charged interest on the earlier balance you have not paid off). Look on the credit card application for information about the “method of computing the balance for purchases” to see if new purchases are included or excluded. Information on methods of computing the balance is in the section “How is the finance charge calculated?”
How is the finance charge calculated?
The finance charge is the dollar amount you pay to use credit. The amount depends in part on your outstanding balance and the APR.
Credit card companies use one of several methods to calculate the outstanding balance. The method can make a big difference in the finance charge you’ll pay. Your outstanding balance may be calculated :
- Over one billing cycle or two,
- Using the adjusted balance, the average daily balance, or the previous balance, and
- Including or excluding new purchases in the balance.
Depending on the balance you carry and the timing of your purchases and payments, you’ll usually have a lower finance charge with one-cycle billing and either:
- The average daily balance method excluding new purchases,
- The adjusted balance method, or
- The previous balance method.
Minimum finance charge
Some credit cards have a minimum finance charge. You’ll be charged that minimum even if the calculated amount of your finance charge is less. For example, your finance charge may be calculated to be 35¢--but if the company’s minimum finance charge is $1.00, you’ll pay $1.00. A minimum finance charge usually applies only when you must pay a finance charge--that is, when you carry over a balance from one billing cycle to the next.What are the fees?
Most credit cards charge fees under certain circumstances:
- Annual fee (sometimes billed monthly). Charged for having the card
- Cash advance fee. Charged when you use the card for a cash advance; may be a flat fee (for example, $3.00) or a percentage of the cash advance (for example, 3%)
- Balance-transfer fee. Charged when you transfer a balance from another credit card (Your credit card company may send you “checks” to pay off the other card. The balance is transferred when you use one of these checks to pay the amount due on the other card.)
- Late-payment fee. Charged if your payment is received after the due date
- Over-the-credit-limit fee. Charged if you go over your credit limit
- Credit-limit-increase fee. Charged if you ask for an increase in your credit limit
- Set-up fee. Charged when a new credit card account is opened
- Return-item fee. Charged if you pay your bill by check and the check is returned for non-sufficient funds (that is, your check bounces)
- Other fees. Some credit card companies charge a fee if you pay by telephone (that is, if you arrange by phone for payment to be transferred from your bank to the company) or to cover the costs of reporting to credit bureaus, reviewing your account, or providing other customer services. Read the information in your credit card agreement to see if there are other fees and charges.
