Why Interest Rate Should Play A Role In Applying For A Credit CardJanuary 26, 2010 - 1:50 am
In today’s economy, the ability to budget money is more important than ever. Shopping for a credit card should be treated the same as shopping for a car or a home, especially since the cost of owning one can come with devastating, long-term costs if you are not careful. During the process of applying for a credit card, it is crucial to understand the interest rate, since it will affect how much you owe the card issuer for each purchase.
In May of 2009, President Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act. The bill defines credit card holder’s rights in order to protect the consumer. The CARD Act dictates that lending institutions must clearly state the cost of credit before a card is activated. There are two types of interest that all credit cards issuers charge. These rates add up significantly if you have a balance on a credit card, so it is important to shop for the best possible rate.
The APR, or Annual Percentage Rate, indicates how much you will pay for the cost of credit per year. These rates vary, but mostly, it is your credit score that will determine the cost of your individual credit. The APR may change if you chose a variable rate card. These credit cards have a lower introductory interest rate because as economic factors or indexes change, the issuer can raise the rate. A fixed rate APR credit card will not fluctuate but can often be slightly higher than the fixed rates, regardless of the cardholders credit score. The Periodic Rate is an additional interest rate that is based on your outstanding balance on a monthly basis. The Periodic Rate determines the finance charge for each billing period.
Remember that you will pay the interest rate on any balance that is carried over from one billing cycle to the next. Shopping for an interest rate can be done on line and is easy to do if you use one of many sites that compare rates and offer online application for a variety of cards. Just remember, if your credit rating changes or you miss a payment, you will be subjecting yourself to a rate increase. Excess was a tough lesson Americans learned last year. Using credit cards to maintain a lifestyle beyond one’s means is simply a bad idea. Whenever you use a credit card, please remember that you will sooner or later owe the card issuer for both the cost of your purchase, as well as the interest fee. The CARD Act will not protect you from bad credit habits and practices, so shop for an interest rate that you can afford and use your cards wisely.