Credit cards are more than a necessary evil. They can be, if used wisely, a great benefit allowing you to make purchases when the prices are best, spread out payments on needy purchases over several months, earn reward points and cash back to make your money go further, even take the sting out of travel with airline miles and hotel room bonuses. On the other hand, it's not all rainbows and roses when it comes to credit cards either. The companies that issue cards give you goodies like reward points and low interest rates because you help them make money. The gifts are enticements to get you to apply for and use their cards - but they protect their profits as well so there are often conditions that you need to watch for.
The good news is that they have to tell you about those conditions up front in the Summary Box that must appear on any adverts they display. In the Summary Box you'll find information on:
- APR - The annual percentage rate is a standardised way of estimating the interest rate that you'll pay on a credit card. When you compare credit cards it's one good comparison point, but it's only one point.
- Other interest rates - The annual percentage rate advertised generally applies to new purchases made on your card. That interest rate may not apply to many other parts of your balance. Be sure to check the interest rates for balances over 60 days old, balances over 90 days old, balance transfers and cash advances.
- Interest free period - Most cards have an interest-free period of up to 60 days after a new purchase. If you pay off the entire purchase amount during the interest free period you won't be charged interest.
- Interest charging information - General information on how interest is charged and when it is incurred. Some companies charge interest on your balance at the end of the month; others at the beginning of the month and others on the average daily balance. Knowing when and how interest is charged on your credit cards can help you time your payments to incur the least amount of interest.
- Allocation of payments - This section describes how your payments will be applied. In most cases, the credit card companies will apply your payments to the lowest interest balance first. For example, if you have a 0% balance transfer balance and new charges on your account that incur interest at 15.9%, your payments will be applied first to the balance transfer so that your new charges will continue to accrue interest at 15.9% until the balance transfer is completely paid.
- Minimum repayment - This section in the summary box explains how the minimum payment is decided each month. It will usually be a fixed amount OR a percentage of the balance, whichever is greater. Be aware that paying ONLY the minimum payment each month will have little effect on reducing your balance.
- Amount of credit - The amount of credit is your credit ceiling - the most that your balance can be.
- Fees - This section describes all penalties and fees that you may incur. These fees and penalties can boost your interest rates permanently for as little as one late payment, so be sure to read it carefully.
You can find all the information you need to compare credit cards for using tables where you can find everything you need to make good choices.
