Get to Know Your Credit Card

Want to know all the features and terms of a credit card? Carefully read its disclosure box (a.k.a., Schumer box). In it you will find information about the following:

Annual Percentage Rate (APR)- Lenders must disclose all types of APRs (interest rates) including introductory “teaser” rates (e.g., 2.9% for six months), standard APRs, and penalty (default) APRs that are charged for specific infractions such as late payments.

Fees- Examples include late fees, over-the-limit fees, and fees for cash advances and balance transfers. These fees are not included in APRs because only some credit card users pay them.

Grace Period- This is the time period, typically 20 to 25 days, between the posting date of a transaction and the payment due date. It is only available to cardholders who paid the previous month’s balance in full and on time.

Balance Calculation Method- Two common methods are “daily balance” and “average daily balance.” New purchases are generally included. With both methods, the sooner in a billing cycle a credit card is paid, the lower the balance on which interest is charged.

Once you have read some Schumer boxes, select a credit card that’s right for you. Cardholders who are “convenience users” (i.e., they always pay their bill in full and do not pay interest) should look for a long grace period, no annual fee, low fees, and a good rewards program. “Revolvers” who typically carry a balance forward should look for a low interest rate, no annual fee, low fees, and a long “teaser rate” if the balance can be repaid before the introductory rate ends.