Choosing and Using a Credit Card Wisely

Credit drives our economy. Sure, there are still some cash-and-carry guys around, but most of us rely on credit and particularly credit cards. Shopping around for a credit card can save you money on interest and fees. You will want to find one with the features that match your particular needs, since not every one has the same financial situation.

The first step in choosing a credit card is determining how you will use it. If you expect to always pay your monthly bill in full--and other features such as frequent flyer miles don't interest you--your best choice may be a card that has no annual fee and offers a longer grace period.

ID you sometimes carry over a balance from month to month, you may be more interested in a card that carries a lower interest rate (stated as an annual percentage rate, or APR).

If you plan to frequently use your card to get cash advances (from the bank or an ATM), you'll want to look for a card that carries a lower APR and lower fees on cash advances. Some cards actually charge a higher APR for cash advances than for purchases.

Another major consideration in choosing a credit card is the APR--annual percentage rate--the way of stating the interest rate you will pay if you carry over a balance, take out a cash advance, or transfer a balance from another card. The APR states the interest as a yearly rate. A single credit card may have many APRs. For example, your card may have one APR for purchases, another for cash advances, and yet another for balance transfers.

There are also tiered APRs where different rates are applied to different levels of the outstanding balance. For example,, 16% on balances of $1-$500, and 17% on balances over $500.

A penalty APR is another possibility. The APR may increase if you are late in making payments. Your card agreement may say, "If your payment arrives more than ten days late two times within a six month period, the penalty rate will apply."

Then there is the infamous "introductory" APR. A different, and most certainly higher rate will apply after the introductory rate expires. Always find out how much the new rate will be before signing any agreement.

Finally there is the delayed APR. A different rate will apply in the future. For example, a card may advertise that there is "no interest until next July." Be sure to find out what the APR will be after July.

Still another consideration is the grace period--the number of days you have to pay your bill in full without triggering a finance charge. For example, the credit card company may say that you have "25 days from the statement date, provided you paid your previous balance in full by the due date." The statement date is written on the bill. The grace period usually applies only to new purchases. Most credit cards do not offer a grace period for cash advances or balance transfers.

Determine how the finance charge is actually calculated. The finance charge is the dollar amount you pay to use credit. And that amount depends on your outstanding balance and the APR. Credit card companies used several methods to calculate your outstanding balance, and the method can make a BIG difference in the finance charge you'll pay.

Your outstanding balance may be calculated over one billing cycle or two; using the adjusted balance, the average daily balance, or the previous balance; and it may include or exclude new purchases in the balance. Depending of the balance you carry and the timing of your purchases and payments, you will usually have a lower finance charge with one-cycle billing and the average daily balance method excluding new purchases.

Other concerns to take into account include the possibility of a minimum finance charge and additional fees which may be tacked on to your credit card. Fees such as annual fee, cash advance fees, late-payment fees, over-the-credit-limit fees, credit-limit-increase fees and set-up fees (charged when a new account is opened) are some examples of additional credit card charges. Read the information in your credit card agreement to see if there are other fees or charges.

You should also known your credit limit up front so you do not end up paying "over-the-credit-limit fees" and penalties. In addition you should know whether your card is a secured card (usually requiring a security deposit), a regular card which have few extra features and lower credit limits, or a premium card (gold, platinum, titanium) which offers higher limits and extra features like travel insurance or emergency services.

If your credit card is ever lost or stolen--and then used by someone without your permission--you are NOT responsible to pay more than $50 of those charges. This protection is provided by the federal Truth in Lending Act and you do not need to buy "credit card insurance" to cover amounts over $50.

Make a list of your account numbers and the companies' phone numbers. Keep the list in a safe place--not your wallet or purse. If you discover your card is lost or stolen, report it immediately to the credit card company by calling the toll-free number listed on your monthly statements.

FOne final tip--take the list of phone numbers (not the account numbers) with you when you travel, just in case a card is lost or stolen.