Navigating the seemingly murky waters of credit cards comparison can be a daunting task if you’re new to the credit card game. It’s essential to understand these terms before undertaking a search for MasterCard credit cards that are right for you.
Annual Percentage Rate, or APR
The annual percentage rate is the industry’s standardized way of telling you how much interest they will charge you on your unpaid credit card balance. The better your credit score, the better rate you will likely receive. If you pay your bill in full each month, you will not accrue interest charges, which can sink you into debt quickly if you have a high interest rate and pay only the minimum amount due. The APR should be a major factor in your credit cards comparison.
Some cards charge customers an annual fee, especially if they offer such benefits as airline points and cash back, since these perks cost the credit card company money that they need to recoup. If the benefits of the card outweigh the annual fee, and you can afford to pay it on top of your monthly bill plus interest, an annual fee may not be a deciding factor in your choice of credit cards.
Your credit history is compiled into a credit report by agencies that gather information provided to them by your lenders and utility companies. Your credit report is an itemized document that shows your debts, your payment history and other information such as known addresses and phone numbers. Any inaccuracies on your credit report can damage your credit score, so it’s important to order your report every year and thoroughly examine it for incorrect information.
Your credit score is a three-digit number that is distilled from your credit report. Higher scores command lower interest rates, higher credit lines and fewer rejections of credit card applications.
This is the amount of money you have at your disposal on your credit card. Your credit line is determined in part by your credit score. Higher scores tend to glean higher credit lines.
Credit Utilization Ratio
The amount of your credit lines compared to the amount of your outstanding balances is your credit utilization ratio, which plays an important role in determining your credit score. The ideal ratio is between 30 and 50 percent, meaning you’re only using that much of your available credit at any given time.
The finance charge of a credit card is the total cost of borrowing money. It includes the interest and all fees associated with your card.
Minimum Finance Charge
Many cards have a minimum finance charge. If your balance is carried over each month but the interest accrued is less than the minimum charge, you will still be charged the minimum.
Believe it or not, credit card companies don’t want you to pay your full amount each month, because they don’t make money unless they charge you interest on your outstanding balance. The minimum payment is usually a small percentage of what you actually owe, and paying only the minimum can lead to debt as interest charges accrue and compound over time. It’s always best to pay your Mastercard credit card balance in full whenever possible.
Over The Limit Fees
Some credit cards will be declined if you try to spend above your credit limit. However, others will allow you to go over your limit at the cost of a hefty fee. Stay well within your credit limit unless there’s an emergency that requires you to go over the limit.
Card Member Agreement
The card member agreement is the document you will sign when you get your credit card. It outlines very specifically the annual percentage rate and any fees associated with your card. It also explains how the minimum payment is calculated and provides you with information on the process of resolving disputes. Read your card member agreement carefully so that you understand all of the terms and conditions attached to your card. Keep a copy in a safe place so you can refer back to it if necessary.
Kristen Bailey knows that when used properly she can use her credit card to save her money in the long term. Visit the uSwitch.com website and use the free information and advice there to learn how to use your credit card more efficiently.