Smart consumers comparison-shop for credit—whether they’re looking for a mortgage, an auto loan, or a credit card. Comparing credit card terms is important because differences in interest rates, fees, and grace periods can significantly affect how much you pay.

When evaluating credit cards, consider the APR for purchases, cash advances, and balance transfers, along with the annual fee, grace period, and other charges such as late fees, over-the-limit fees, and cash-advance fees. Think about your own payment habits as well—whether you typically pay your balance in full or carry a balance.

Credit Card Interest Rates

Credit card issuers may offer variable-rate, fixed-rate, or tiered-rate plans. Variable rates are tied to an index (such as the prime rate or Treasury bill rates) plus a margin. Fixed rates can still change, but issuers must notify you in advance. Tiered rates apply different APRs to different portions of your balance.

How Much Will You Pay?

Your finance charge depends on your outstanding balance and the periodic rate. Card issuers use several methods to calculate your balance, and the method used can affect how much you pay. Common methods include:

• Average daily balance (including or excluding new purchases)
• Two-cycle average daily balance
• Adjusted balance
• Previous balance

Depending on your balance and payment timing, some methods—such as average daily balance excluding new purchases, adjusted balance, and previous balance—tend to result in lower finance charges.

The Right Card for You

If you carry a balance, a lower APR may be most important. If you pay in full each month, you may prefer a card with no annual fee and a longer grace period. The grace period is the time between the statement date and the due date during which you can pay without incurring finance charges.

How Much Could You Save?

Switching to a card with a lower APR and no annual fee could save you $120 annually. Actual savings depend on your payment behavior and whether you incur late fees or other charges.

Credit Card Shopper’s Checklist

• List the features that matter most to you and rank them.
• Call issuers to verify advertised terms and ask about alternative plans.
• If you’re a current cardholder with good credit, negotiate for a lower rate or waived annual fee.

Review key plan features such as:

• Where the card is accepted
• Interest rate structure (fixed, variable, tiered)
• APR for purchases, cash advances, and balance transfers
• Balance calculation method
• Annual fee and grace period
• Enhancements such as rewards, warranties, or travel insurance

Understanding Credit Card Disclosures

Credit card solicitations must include a disclosure box summarizing key terms such as APRs, fees, grace periods, and balance-calculation methods. Review this box carefully before applying.

Glossary of Credit Terms

• Annual fee: A yearly charge for having the card.
• APR: The annual cost of credit.
• Finance charge: The dollar amount you pay to use credit.
• Grace period: Time during which you can pay without finance charges.
• Penalty rate: A higher APR triggered by late payments.
• Periodic rate: The interest rate applied each billing period.

For More Information

You can find credit card listings and rate comparisons online, in personal finance magazines, and in newspapers.

The following federal agencies enforce the Truth in Lending Act:

• National Credit Union Administration, Alexandria, VA — regulates federally chartered credit unions
• Federal Reserve Board, Washington, DC — regulates state-member banks
• Office of the Comptroller of the Currency, Houston, TX — regulates national banks
• Federal Deposit Insurance Corporation, Washington, DC — regulates state-chartered non-member banks
• Federal Trade Commission, Washington, DC — regulates finance companies, stores, auto dealers, mortgage companies, and credit bureaus