Compare Credit Card Offers

When you select a credit card you should make a comparison of the various plans offered. Refer to the credit card issuer's disclosure form in order to get more information on the characteristics of the particular credit. This is needed because the costs and terms of the credit card plan you choose can make the difference whether borrowing the money may have a positive or negative effect on your finances.

Variable vs. Fixed Interest Rate

One of the first things that you should check about a particular credit card offer is the nature of its interest rate.

A variable interest rate plan will usually use one of the following indexes:

• Prime rate
• One-, three-, or six-month Treasury Bill rate
• Federal Reserve discount rate

The index rate is then added to the margin, which represents a number of percentage points. The result is the final percentage that the client will be charged.

Another method of setting the variable interest rate includes the multiplying of the sum of the margin and the index rate by a multiple. See whether there are any caps that determine how low or how high the interest rate can move.

A fixed interest rate plan, on the other hand, usually has a higher interest rate than their variable-rate counterparts. However, it can turn out to be more beneficial since you know exactly how much you will be charged.

In reality, a fixed-rate plan can also change in interest rate as is with variable-rate plans. However, the Truth in Lending Article requires lenders to announce the potential increase in the rate at least 15 days in advance.

Fees and Charges

If you plan to make your payments in full each month it is better to select a credit card that has no annual fee. It should also include a grace period, because you would not like to incur a finance charge.

On the other hand, if you are not able to make your payments in full at the end of the month, check the periodic rate. The latter is used as a basis for calculating the finance charge that you will most probably incur.

Always check your credit card terms for specifics such as late charges and over-the-limit fees. Many credit card providers include penalty clauses in their credit card offers. Your good interest rate may be suddenly replaced by a penalty rate for a certain time period if for some reason you make a late payment on your account. Consider this factor in keeping with your way of paying bills each month.

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