Need Money? Give Yourself a Credit Card Check-Up 1/21/04

MANHATTAN, Kan. – Consumers who compare credit card rates and billing practices can often trim expenses, said Esther Maddux, Kansas State University Research and Extension financial management specialist.

“Reading the fine print can pay off,” said Maddux, who answered these frequently-asked questions about credit cards:

Credit Card ABC’s

MANHATTAN, Kan. – Understanding the language can help consumers evaluate credit card offers, said Esther Maddux, K-State Research and Extension financial management specialist, who offered these explanations:

* APR is short for Annual Percentage Rate (of interest). Rates may be fixed, variable or tiered, which means that rates change with spending levels. (Example: There may be one rate applicable to the first $500 of purchases and another on anything over $500.)

* The grace period is the interest-free period between the time of purchase and payment date due, after which interest will be charged.

* To calculate the average daily balance, creditors add the balance for each day of the billing cycle and divide by the number of days in the cycle. The average daily balance is used to calculate finance charges.

Some creditors include new purchases when calculating average daily balances, while others compute finance charges from an adjusted or previous balance. Finance charges vary with the method of computation, so read the fine print carefully.

Finance charges also may include over-the-limit or late payment fees or penalties and charges for other transactions, such as a cash advance.

* An annual fee may entitle cardholders to benefits such as an annual summary of purchases. Weigh the cost versus any potential benefits.

A: Needs vary. Many people find one all-purpose bank card sufficient. Others choose two cards -- one for personal use and one for business use.

Having too much available credit may hamper a consumer’s ability to secure a loan. Review credit needs and availability periodically and also prior to a loan application or a major purchase.

A: The average current interest rate is 14.71 percent. Rates vary between cards and even on the same card.

A: Call the toll-free number on the back of your billing statement and ask. Customers who have a consistent payment history may be able to negotiate a lower rate, particularly when the card company becomes aware that a cardholder is considering a lower rate card elsewhere.

A: Maybe. A low introductory interest rate may result in a short-term savings. The length of time the introductory rate will be in effect, regular interest rate, and whether or not the balance on the card at the time of the rate conversion will remain at the reduced rate or be transferred to the higher rate (when the introductory rate expires) are factors.

Lower rate cards typically do not offer lesser introductory rates. Their consistent low rate may offer a greater savings long term, though.

Q: Is it advisable to add a rewards card that offers cash back, mileage or purchase points in addition to other cards?

A: Personal preferences and financial or other goals, such as travel, can influence this decision. Read the fine print to see if such a card may be advantageous to you.

A: When closing an account, notify the credit card company in writing and keep a copy of the notification.

Pay off the balance before closing an account. If unable to pay off a balance in full, wait to close the card until the balance has been paid off or transferred. Card companies sometimes raise the interest rate on remaining balances on accounts that have been closed. Pay off higher rate cards first, but continue to pay on lower rate cards to avoid late or non-payment charges.

Maddux advised consumers to consider spending habits and payment preferences when choosing and using a credit card. While interest rates and card policies may change, so may a consumer’s preferences. If, for example, a consumer is planning to buy a new car in a year or two, he or she may want to take advantage of a rewards card that will reduce the purchase price. If planning a family vacation, perhaps a mileage card could be beneficial, she said.

For more information on choosing a credit card, contact the local K-State Research and Extension office or visit the United States Federal Reserve Web site: http://www.federalreserve.gov .

K-State Research and Extension is a short name for the Kansas State University Agricultural Experiment Station and Cooperative Extension Service, a program designed to generate and distribute useful knowledge for the well-being of Kansans. Supported by county, state, federal and private funds, the program has county Extension offices, experiment fields, area Extension offices and regional research centers statewide. Its headquarters is on the K-State campus, Manhattan.