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Shopping for Credit Cards
Before signing up for a credit card, learn about the key credit terms.
If you are in the market for a credit card, you can save yourself lots of money by shopping around. Credit card terms and interest rates vary -- and some of those variations can make a huge difference to your wallet. Before you sign up for a new card, make sure you understand that card's important credit terms. Then shop for the card with the best interest rate and terms.
Important Terms
The federal Truth in Lending Act (15 U.S.C. ยง 1601 and following) requires credit card companies to disclose the key terms of the credit card in the application or solicitation. The interest rate is a good start for comparison shopping. But don't ignore other terms -- they can cost you hundreds or thousands of dollars as well, depending on how you use your card. Here are the basic credit terms that must be disclosed and what you should look for in each one:
Annual percentage rate. The Truth in Lending Act requires credit card companies to disclose the interest rate as an annual percentage rate (APR). The APR is the cost of credit, expressed as a yearly rate, such as 7.99%. If different APRs apply (for example, to balance transfers or cash advances), they must also be disclosed. The APR is like the price tag for credit. Because federal law requires that the APR be calculated in a standard way, it allows you to compare the cost of credit among different credit card companies using a single yardstick. The APR is the best indicator of the actual interest you will pay.
If you never carry a balance on your credit card, then the APR is not important. You won't ever pay interest. But, if you don't pay your bill in full each month, the APR is crucial. Obviously, the lower the APR, the better. But, be sure to read the fine print. Some cards have a low "introductory rate" (also called a "teaser rate"). After a few months, the interest rate will go up. Also, sometimes the advertised rate only applies to certain people, such as those earning a high income. The card company charges a much higher rate to those who don't qualify -- which could mean an unpleasant surprise when your first bill arrives.
FAQs
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