Credit Card FAQs and Tips

What is an Annual Percentage Rate (APR)?

The APR is a measure of the cost of credit, expressed as a yearly rate. It also must be disclosed before you become obligated on the account and on your account statements.

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. This variable rate is usually some fixed percent number plus the prime rate.

What is the Prime Rate?

The Prime Rate used to determine your APR is highest rate published in The Wall Street Journal on the last business day of the prior month.

What is an Annual Fee?

A flat, yearly charge for having the credit card. Many issuers charge annual membership or participation fees.

Some credit cards provide good services and perks that justifies the Annual Fee but many times one can find a good credit card without the fees to meet his or her need. Make sure that the services or the perks that a credit card provides is worth the annual fee you must pay every year.

What is a secured credit card?

A secured credit card is a credit card that requires a security deposit. These types of credit cards are generally for people with damaged credit or no credit at all. Your credit line will represent a percentage of your security deposit or savings account balance. If you establish good credit with the card, the credit card issuer may extend your credit line or offer you an unsecured credit card.

What is an unsecured credit card?

An unsecured credit card does not require a security deposit. Such credit cards are intended for individuals with good or excellent credit. Most credit cards are unsecured.

What does a grace period (free period) mean?

A grace period is the amount of time the card holder has to pay the balance, before interest is charged to the balance.

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.

What is a balance transfer?

If you already have a credit card, you can transfer your existing balance on the previous card to a new card. Sometimes a balance transfer works like a loan where you can write a check to yourself. 

The APR on the balance transfers are usually different from the APR on the purchases. Also most credit card issuers charges a certain fee for balance transfers (usually 3%) so make sure if you actually consider this fee before making a balance transfer.

Will I be held accountable for Unauthorized Charges?

If your card is used without your permission, you can be held responsible for up to $50 per card.

If you report the loss before the card is used, you can't be held responsible for any unauthorized charges. If a thief uses your card before you report it missing, the most you'll owe for unauthorized charges is $50.

To minimize your liability, report the loss as soon as possible. Some issuers have 24-hour toll-free telephone numbers to accept emergency information. It's a good idea to follow-up with a letter to the issuer - include your account number, the date you noticed your card missing, and the date you reported the loss.

Many credit cards also have their own protection plan where you won't be help accountable for any unauthorized charge. But whenever you are unsure if a credit is lost or stolen, it's better to call it in to avoid any additional hassle you have to go through.

My credit is damaged. Can I still get a credit card?

Yes. Even if you have bad or damaged credit, you can still obtain a credit card. You will most likely have to apply for a secured credit card, which requires a security deposit.

Finance Charge

The dollar amount you pay to use credit. Besides interest costs, it may include other charges associated with transactions such as cash advance fees.

What additional fees should I be aware of when applying?

It is important to understand that card issuers are required by law to disclose any fees to customers. You must read all the fine print to discover  these disclosures. Some cards have an "over-limit" fee, which is usually $20 to $25 when you have charged something beyond your credit limit.

Another fee to be aware of is a late payment fee, which again ranges from $20 to $25, for payments made after the due date.

There is also often a transaction fee for cash advances. This fee may be a set rate, such as $2, or a percentage (commonly 2%-5% of the amount advanced), or a combination of the two. These fees are in addition to the regular interest rate.

What is the benefit of having a gold or platinum card?

The gold and platinum cards are set apart from other cards because of their higher credit limits and extra perks. They vary according to each card issuer, as well as the credit status of the customer. Various features that these cards offer include car rental collision insurance, travel accident insurance protection, and extended warranty insurance. Often, a higher household income is required.