What is Credit Card APR?

Credit card APR is the actual percentage of interest you will be paying yearly on your credit card. APR stands for Annual Percentage Rate. This is an estimate, and can be changed any time by the credit card company if you make late payments on your credit cards.

The Annual Percentage Rate is what will determine how much interest you pay through a year, rather than just the first flat interest rate that they often advertise, that will only calculate the interest from month to month, which calculation may be quite different from the yearly payment. The APR calculates the actual cost of the loan. However, it is dependent upon conditions concerning the payment regularity of the credit card holder and other conditions unique to the company.

One thing the APR does is it does not allow credit card companies the right to any hidden fees. It prevents them from giving you a freakishly low interest rate and then socking it to you in fees. A few of the fees that they are restricted from charging on the Annual Percentage Rate are: Escrow fees, notary fees, appraisal fees, recording fees, and transfer taxes. That is just to name a few.

How Annual Percentage Rates are calculated is a process that differs from credit card company to credit card company. There are several factors that contribute to this complex calculation, and each factor depends on the individual credit card company. One company may give you a great interest rate, but the APR could be totally out of your payment ability, when another company may give you the same interest rate with a lower APR.

There are certain fees that may be included and taken into consideration when credit card companies calculate your Annual Percentage Rate. These fees can also differ from company to company based on that company’s policy and your credit eligibility. Here are a few of those fees and how they work:

Origination Fees

Origination fees are charged to you for the work that is done by the credit card company in your behalf. It basically pays their employers for the time they spend handling your account and working with you to straighten out mistakes. This type of work they do includes checking your credit and preparing the legal documents that have to do with your credit card account.

Loan Processing Fee

This is the fee they charge you when you open an account. This is charged to you for the work they do to gather information so that they can process the loan, and the actual processing itself. This is also something that will affect the Annual Percentage Rate.

Underwriting Fee

Another fee they have is called the underwriting fee. This takes care of any of their expenses when considering you for a loan. It also takes care of the expenses they have for lending you the money on credit.

How Do You Understand Credit Card Application Terminology?

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Applying a credit card is not easy to begin with, and the words they use that are difficult to understand are not helping any. The one thing you want most, when you are applying for a credit card, is to understand the details of the application and the terms and conditions of the credit card loan. But how could you possibly do that with all the seemingly foreign language they use in the advertisement alone, to say nothing of the actual details.

Knowing what you are reading on a credit card application is important. But sometimes, even talking on the phone with a representative from a credit card company, it can be difficult to understand and follow along. Here are a few words that may be useful to know, what they mean, and what they have to do with getting a credit card.

Collateral

Collateral is some sort of asset, or something that you own that is of value, that you are willing to secure a credit card loan with. It secures your loan so that if you do not pay your bills, whatever you put up for collateral will be taken by the credit card company. If you are applying for a secured credit card, you will be required to pledge something that you own that is worth a certain amount in case you fail to pay your bills, or if you take out bankruptcy.

Credit Scoring System

This refers to the complex equation and factors that are calculated into your credit score. Your credit score and your credit report will determine whether or not you will be approved for a credit card, and how much your interest will be.

Annual Percentage Rate

Usually this is written as APR. Annual Percentage Rate is the percentage of the principle you will be charged in interest per year. This amount compounds each month, so the APR should not be confused with the actual interest rate. They are two seperate calculations of interest.

Fixed Rate

A fixed interest rate is a rate that will not change unless you make late payments. A fixed interest rate basically stays the same if you pay your bills on time and do not incur other penalties on yourself. There are some fixed rates that only last for a certain period of time, but others last for the entire time that the credit card account is open and active.

Finance Charge

Basically, this is what they use to describe your overall interest. A finance charge is a charge or fee they require you to pay for borrowing money on credit. So when you see “finance charge” written on an application, that is the total amount estimated that you will pay in interest.

There are several things you may not understand when you are trying to apply for a credit card. Along with the hassle of applying, you should not have to worry about the terminology. Knowing what you’re getting into is essential, and can save you loads of money in the future.

The Best Credit Card Offers

Good credit cards are hard to come by. Even half descent credit cards are not easily found. You can get one that looks great when you apply, but down the road you learn that you could have had it better. Sometimes looking at the credit card advertisements alone will make it difficult for you to know just how good the card actually is. Here are some things to look for when you are searching for a credit card that will be of benefit to you when you use it to buy items on credit.

Interest Rates

Any credit card can offer you a great interest rate to start out with, but will that rate change after a certain period of time, and what will that rate change to once that time is up? Knowing what your interest rates are at the beginning, what they will be if they change, and what they could be if you make late payments is important. If you have a good idea about just how much you will be paying on interest, it is easier to shop for the best card and figure out what card will save you the most money because of their rates.

Credit Limits

What the credit card limit should be depends on what you want to buy, how punctually you will be able to make the monthly payment, and how long it will take you to pay it off. Many credit card companies will offer you sky high maximum credit limits, but the best thing is to determine yourself how high you can allow your limits can be. The credit limit will differ for each person according to their credit rating, but credit cards should give you a fair range of money in which you can spend.

The Companies

The credit card you get is only as good as the company it belongs to and the people that run it. They decide what the terms are when you apply for their credit card. You have to know what you’re getting into and who you are dealing with so that you can not only compare credit cards, but you can also compare the companies that make them.
Services

You need to be able to take advantages of certain services offered by credit card companies. You need to be able to do things such as cancel your credit card and cut it off from your account if it ever gets stolen. You need to be able to talk to someone who is willing to listen if you feel that there has been a mistake made by that company.

Rewards

Any kind of credit card you get should have some sort of rewards program. Not getting rewards on your credit card is like buying something at one place when you could have gotten the exact same thing somewhere else on sale. It’s a really good way to save money, and any credit card that saves you money should definitely be considered.

Can You Buy a Car With a Credit Card?

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Buying a car is a big step for most people. Whether you have done it once or a dozen times, buying and financing a car is an important issue because it determines where a lot of your money will be going for the next several months. It is kind of like having a credit card. You make monthly payments on something that you have, but that you have not paid for yet. Credit, in that aspect, is quite the same. But the kind of credit that you get is quite different.

So can you kill two birds with one stone and pay for your car with the credit card that you make monthly payments on? Yes. It is possible to buy a car with a credit card. For some people this may be the perfect solution, but it depends on the circumstances.

Buying a car with a credit card requires a much higher credit limit than it would if you were just using the card to make random purchases at a clothing or grocery store, depending on the price of the car. Getting high credit limits can be risky. This is because it could possibly hurt your credit score if creditors believe that you may buy something that expensive on a credit card and not be able to pay it back.

Interest rates

One advantage to financing your car on a credit card is lower interest rates. If you shop around and search for a good deal, you could get a credit card that would allow you to pay less for your car in interest than you would if you took out a loan. This, in the long run, will save you hundreds if not thousands of dollars in interest.

Still, the risk of increased interest rates are greater with credit cards if you make late payments, making it so that you may even spend more on interest. It all depends on the circumstances, and how you will be able to make your payments. It also may depend on the terms of the credit card. Make sure that you know what your introductory interest rates are, if they will change, and what they will change to if they do. Knowing the terms of your contract before you buy a car with that card will make a huge difference in whether or not you save money by taking this route.

Rewards

If you buy your car using a rewards card, you could get benefits that you also would not get by just paying for it by taking out a loan. Rewards cards give you benefits based on how much you spend. Since buying a car is such a huge purchase for a credit card, it would give you many more rewards than it would if you had just used the card to buy groceries. These kind of rewards can be cashed in for things like gasoline, travel, air miles, and cold hard cash. This is another way you can benefit from your purchase.

Will Canceling Old Credit Cards Hurt My Credit Score?

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So you have had a couple of credit cards for several years, and you have finally paid them all back down to a reasonable amount. You are thinking maybe you should close them out so that you never have the chance to spend on them again. But what are the consequences? Will it really help or will it hurt your credit score? One of the biggest misconceptions about closing out credit card accounts is that you should close your oldest ones first. Not true! Closing the accounts that you have had for the longest amount of time will not improve your credit score. In fact, it will most likely make your credit score go down.

Why will my credit score suffer just because I close my old accounts?

Having credit cards for a long time, whether or not they are active, actually help your credit score because it shows that you have long and healthy credit history. If you close those credit card accounts, it will lower your debt-to-available-credit ratio, making it appear that you have a shorter credit history than you actually do. So shortening your credit history makes it look like you have less experience buying things on credit cards, which puts you at a higher risk of being undependable with your payments. If it appears that you may not make your payments in full or on time, your credit score will not be as high as it should be.

Won’t closing my old credit card accounts erase all the late payments I made?

Maybe you had late payments on a few of those old credit cards, and you think that if you close them out they will be forgotten. This is false. Negative records, such as late payments, can remain on your credit report for up to ten years, whether or not you have paid off and/or closed out those accounts. So whether you have had negative reports on those credit card accounts or not, it is best to keep those accounts open, and allow time to erase any mistakes you made on those credit card payments.

Should I keep my accounts open even if I’ve paid them off?

Yes! Even if you do not plan to use those accounts anymore, it is best to keep them open to prove that you have a long credit history. The longer you have your credit cards and the older the accounts get, the more benefit they are to you. If you feel that there is too much of a temptation to spend the credit that is on those accounts after they are paid off, perhaps you should consider closing out the newer and more recently opened accounts. If all you have are new credit cards, even if they do have low interest rates, your credit score will not be as high because it will look like you have not used credit cards for very long, and have less experience using them and paying the bills on them.

Top 3 Myths About Paying Off Your Credit Cards

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So you have finally paid off all your credit cards. It took you a long time, and for a while it didn’t look like you were going to get it done, but you are finally at the point where you are debt free. It’s a great feeling, isn’t it? So you sit back in your easy chair, patting yourself on the back…but what happens now? Will this add or take away any points from your credit score?

Would it be better to just close your account so that you won’t be tempted to get into debt again? Since you paid off your debt, will your late payments and other negative records be forgotten on your credit report? Maybe you should know a little bit more about what is fact when it comes to paying off your credit cards, and what is fiction.

Myth: Your Credit Score Will Improve by At Least 50 Points Because You’re out of Debt

Fact: Some would like you to believe that just because you paid off your debt, your credit score is going to improve enormously… fifty points is the most popular belief. But because of the complex formula that is used to calculate your credit score, it is difficult to say just how many points exactly will be added to your score. Even if it isn’t fifty points, your credit score will, in actuality, improve.

Myth: Negative Records Will Be Taken from Your Credit Report Once You Pay Them Off

Fact: Whether or not you pay your credit accounts off on time or even early, your late payments and other negative records could stay on your credit report for up to ten years. Paying off your accounts early will improve your credit score, but it will not take away the mistakes you’ve made that hurt it. Eventually those mistakes will be erased from your credit report. It is just better to not make a late payment in the first place, keeping your credit report clean.

Myth: Your Credit Score Will Get Better If You Close Your Old Credit Card Accounts

Fact: The longer you have an account, the better. Having an old account, whether it is active or not, is good for your credit score because it shows that you have a long credit history. This is beneficial especially if you’ve paid all your bills for that account on time. Closing an old account can lower your score because it can make your credit history look shorter. If any accounts should be closed, it is best if you pay off and close the newer accounts rather than the old ones.
Getting out of debt is a big relief, but knowing how to pay off your credit cards can be beneficial when it comes to keeping a high credit score. The key things to remember are that it’s best to pay them off, but keep the old ones open, and pay the requirements on time so you can avoid negative records on your report.

Top 3 Myths Surrounding Your Credit Limits

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Credit card limits allow us to set a range of the amount of money we can spend on credit. When used appropriately, this limit will help keep us from spending beyond our means to pay back the amount owed plus interest. So why have so many people gotten into credit card debt by spending on a high credit limit when they knew that they would not be able to pay it back?

Sure, a high credit card limit can be alluring because it makes it look like you can spend all you want and have whatever you want. But a smart credit card holder would know the difference between what looks good, and what will save them money in the long run.

Top 3 Myths Surrounding Your Credit Card Limits

There are a few misconceptions that people often experience when they set their credit limit. Credit card companies can lead them into believing myths that will eventually get them into financial trouble. Here are a few of those myths:

• The Higher Your Credit Limit Is, The Better

Credit Card companies would like you to believe that it is good to have a high credit card limit, and that is true… it’s good for them. High credit limits increase the possibility of excess spending, or spending beyond your means. That leads to larger amounts of money to be paid on your bills, which may cause you to make late payments. Of course late payments result in higher interest rates, making it even harder to pay your dues. Eventually it will take you longer to pay off your credit card debt because you spent more than you can pay back.

• Going Over Your Limit Is Okay If Your Credit Card Company Approves It

Whether or not you pre-approve a purchase that will go over your limit with the credit card company, it will still hurt your credit score dramatically. Your credit score doesn’t depend on whether or not you have authorization to go outside your credit card boundaries, it depends on whether or not you can stay within your limit, no matter what it is, and efficiently pay back what you owe. So even if the credit card company says it’s okay, you still appear unreliable because you went over your set limit, therefore significantly lowering your credit score.

• A High Credit Limit Will Not Threaten Your Ability To Pay Off Your Credit Cards

The best way to stay out of debt is to not allow your spending opportunities to go beyond your reimbursement abilities. If you can easily see that you could not pay back the money you would owe if you spent up to the amount on your credit limit, you simply should not set your limit that high. Keeping your debt as minimal as possible is everyone’s goal, and the debt you incur is more likely to increase if your credit limits are high enough to tempt you to spend beyond your means.