Friday, January 25, 2008

Applying for Credit Cards

Applying for credit cards is a fairly normal routine for most consumers. Banks, credit unions, and credit card companies often send mailers asking consumers to fill out applications and return them in order to get new cards.

For some people, this is a good way to get credit, but for many others, this can spell financial ruin. There are many things to consider when establishing new accounts but one of the most important is the APR.

APR stands for Annual Percentage Rate and by law it must be posted on all credit card offerings that are sent out to consumers. The APR will tell you how much you will have to pay when you use the credit associated with the account.

This amount of interest, however, only applies to that amount of money that you cover over into the next billing period. If you pay off the entire balance within the grace period you will not be assessed any interest. This is an important issue to keep in mind.

Common sense would dictate that when applying for credit cards that you apply for those with the lowest APR. You might be surprised at how much money this can save you over the life of the account. But do be aware that the APR can change depending on how you use the credit cards.

For instance, with nearly all credit cards, you will pay a certain interest rate when you purchase goods. These goods might be anything from food to music CD’s. Unless you pay off the full amount when due, you will have to pay an additional amount that corresponds to the stated APR for purchases.

However, if you use the credit cards to take cash, also known as a cash advance, you are most likely going to be charged a higher APR for that transaction. It is for this reason that you carefully read and understand the various percentage rates that are attached with each account. It is also important to remember that these percentage rates can change with each company. Nearly all credit cards will charge a much higher rate for cash withdrawals than for simple purchases.

Consumers are also advised to read very carefully to see if their credit cards allow any grace period for cash advances. Many companies do not allow any grace period at all when cash advances are taken.

What this means is that the interest rate for the cash advance will begin as soon as you make the transaction. This interest will have to be paid even if you pay off the full balance of the amount of cash withdrawn at the end of the month.

Lastly, it is a good idea when applying for credit cards to see if the company uses a tiered system for interest rates. Some companies will charge a certain rate up to a certain amount. If you go over that amount, a higher rate will apply to those new charges. This can become very expensive for consumers who are not paying attention to their current balances.


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