Credit Card Watch

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Credit cards are like fast cars - they allow you to accelerate the pace of your consumption, but they bear risks of accidents if you don’t know your vehicle and drive too fast. Like driving a car, using a credit card must be done consciously and with caution. And like buying a car, shopping for a credit card requires the buyer to understand the advantages and risks of different options.

When shopping for a credit card, be sure to understand the terms and conditions before you choose:

Annual Percentage Rate (APR). How much are you paying to borrow money? The interest rate or Annual Percentage Rate (APR) is the percentage cost of credit on a yearly basis, plus any other finance charge. The higher the interest rate or APR, the more you pay for borrowing. Be aware that interest rates may increase when you pay past the due date or go over the minimum balance.

Annual Fee and Other Fees. How much does the credit card company charge you yearly for using the card? Annual fees are not included in the APR, and they can add substantially to the cost of credit.

Credit Card Minimum Payment. What is the minimum payment that you must pay each month? And if you do not pay your minimum payment, how high are the additional fees? You can establish good credit if you make regular payments and pay your balance in full each month. This will also help you avoid incurring additional fees due to late payments.

Grace Period. How much time are you given to pay off a purchase without paying interest? A grace period will allow you to avoid finance charges on current purchases by paying the statement in full on or before the due date. The longer the grace period, the higher your chances of avoiding interest charges.

Credit Limit. What is the maximum amount of money you can charge on your credit card? Generally, it is wiser to start with a lower credit limit. This helps you control your spending and is usually less costly.

If you know how your car works and how to drive it safely, it can take you places. The same is true for credit cards. If used responsibly, they also help you to establish your credit history. Use it wisely and maintain a good payment record - and you’ll be in the fast lane towards a healthy credit score.

TIP: Before you chose a credit card, compare fees and terms of various credit card offers. Avoid credit cards with an annual fee, a monthly fee or a fee for not using the card. Finally, be careful of introductory rates. A low introductory rate may become a very high rate after six months. Bottom line-learn how much the credit card will cost before you apply for one!

Andrea Stiles Pullas has written a series of finance related articles. For additional information on similar topics, visit http://yourmoney.accion.org

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