Credit Card Features
APR (Annual Percentage Rate)
The APR is the way of indicating the interest rate consumers will pay if they carry a balance, take out a cash advance, or transfer a balance from another card for a 12 month period. It also takes other fees into account, and states the total cost of the account as a yearly rate. If the consumer carries over a part of the balance from month to month, even a small difference in the APR can make a big difference in total payments each year.
APRs can be “fixed” or “variable”. “Fixed” means the rate can still change, but it does not happen very often, and the Credit Card Company must inform the consumer before the APR increases. “Variable” means that the rate changes more frequently. It is usually tied to another rate, such as the prime rate. If the prime rate increases, the APR increases as well.
A single credit card can have multiple APRs:
- One APR for purchases, and another for cash advances and balance transfers. (The APRs for balance transfers and cash advances are typically higher)
- A penalty APR will come into effect if a consumer is late in making payments.
- An introductory APR is a lower than the regular APR, and only lasts for a specified time.
- A delayed APR means a different rate will apply in the future. (E.g. “No interest until next March”)
As a result of the 2009 CARD Act, there can be no interest rate and fee increases on outstanding balances. Interest rate increases is prohibited during the first year, and if there is an increase after that, there has to be a notification of the increase 45 days before it occurs.
A grace period is the number of days a consumer has to pay back the credit card bill in full without triggering a finance charge.
For example, the credit card agreement might be that a consumer has a 25 day grace period from the statement date, provided that the bill is paid in full. The statement date is given on the bill. The grace period usually only apply to new purchases and not cash advances and balance transfers. The consumer starts to pay interest on those transactions immediately.
A finance charge is the dollar amount consumers pay to use credit. The finance charge varies each month, and depends in part on outstanding balances, and the APR.
Some credit cards have a minimum balance charge. This means that the consumer will be charged AT LEAST this amount, even if their actual finance charge is less. For example, if a consumer agreed to a minimum finance charge of $1.00, and their finance charge is calculated at 35 cents for the month, the consumer will pay the $1.00. Typically minimum finance charges only apply if a consumer carries a balance from one month to the next.
Most credit cards charge fees under certain circumstances. Consumers should be aware of all types of fees that apply to the credit card before agreeing to open the account.
|Fee||Is paid when…|
|Annual Fee||Just for having the card. Sometimes billed monthly.|
|Cash Advance Fee||A consumer uses the card to get a cash advance. The fee can be a specified amount, or a percentage of the money advanced.|
|Balance Transfer Fee||A consumer transfers a balance from a different credit card to the current card. Sometimes the Credit Card company sends “Checks” to pay off other cards.|
|Late Payment Fee||A consumer sends a payment after the due date.|
|Over the Credit Limit Fee||A consumer goes over the agreed upon credit limit.|
|Credit Limit Increase Fee||A consumer asks for an increase in credit limit.|
|Set-up Fee||A new account is opened.|
|Return Item Fee||A consumer pays their bill by check, and the check bounces.|
|Other Fees||A consumer asks for a review of the account, or for the Company to cover costs of reporting to the Credit Bureaus.|
Some credit cards allow consumers to borrow cash in addition to making purchases on credit. Most Companies treat these cash advances different than regular purchases made with the card. Cash advances are expensive, and should be used very carefully. Consumers need to be aware of the following cash advance features:
- ACCESS: Most credit cards let you use an ATM to get a cash advance, or will send “checks” that the consumer can write to get the cash advance.
- APR: Is usually higher for cash advances than for regular purchases.
- FEES: Usually there is a fairly steep fee involved for cash advances.
- LIMITS: Some credit cards limit cash advances to a dollar amount, other limit it to a portion of the credit limit.
The credit limit is the maximum total amount, including purchases, cash advances, balance transfers, fees, and finance charges, that the consumer is allowed to charge to a credit card. Consumers now have to ‘opt in’ if they still want their transactions to be approved if they go over the limit. The card could then allow the transaction, but in that case the consumer must pay an over the credit limit fee. If they do NOT opt in to this service, the transaction will be denied if they attempt to go over the credit limit.
Different Kinds of Credit Cards
|Type of Card:||Definition:|
(Gold, Platinum, Titanium)
Incentives and Other Features
Some Credit Card Companies offer incentives for consumers to use the cards. Consumers must be aware which of these incentives or features will incur additional fees, and weigh whether it is worth the extra expense.
- REBATES – Money back on purchases
- FREQUENT FLYER MILES
- PHONE MINUTES
- ADDITIONAL WARRANTY COVERAGE – For items purchases with the credit card
- RENTAL CAR INSURANCE
- TRAVEL ACCIDENT INSURANCE
- TRAVEL DISCOUNTS
- INSURANCE TO COVER PAYMENTS – If the consumer becomes unemployed or disabled
- INSURANCE TO COVER THE FIRST $50 OF FRAUDULENT CHARGES – Consumers are NOT responsible for fraudulent charges over $50
The billing statements MUST explain the number of months to repay the balance, the total cost if only the minimum payments are made, and the amount that must be paid to repay the balance in 36 months. Payment due date must be the same each month.
HOW PAYMENTS ARE CREDITED: As a result of the 2009 CARD Act, payments more than the minimum amount due must be applied to the balance with the highest APR to pay down debt faster.