What To Look Out For When Shopping For Credit

The grace period on your credit card may be shortened, or erradicated. Commonly a credit card bill is handled in the following manner: You buy an item or service with your credit card.

The merchant reports the charge to the credit card issuer. The credit card issuer then pays the store and posts the charge to your account. If you do not pay off the account within the 25-day grace period, interest is charged, beginning on the date that the charge was posted to your account. However, some banks have shortened the grace period to 20 days -- only if you pay off your account in full each month! This amounts to a penalty for customers wh o always pay off their credit card debts. Some credit cards have eliminated the grace period entirely. You must pay interest on everything, from the day you buy it, even if you pay the full balance each month.

Low monthly payments have a high price tag. You may believe it is beneficial to have a card that only requires a monthly payment of two percent or 3% of the balance. Quite the contrary. The longer you carry out payments, the more of your money the card issuer stands to collect in "finance charges." Your best bet is to pay off your entire balance each month. If you cannot do that, pay off as much as you can afford.

You may pay interest twice in one month. If you paid off your full balance in January, but then failed to pay the total balance in February, some credit companies will bill you for two months' worth of interest. This is called 2 cycle billing.

Cash advances cost you extra. Most credit card companies impose both a finance charge and a transaction fee for cash withdrawls. Interest begins accruing from the day of the advance, and the transaction charge is often 2.5% of the amount advanced. Even credit card issuers that promote no finance charges often charge transaction fees.

The real deal is in the fine print. Don't fall for a "teaser" credit card offer. If you are offered a new credit card with a low introductory rate, such as 6%, be sure to read the small print. When the introductory period finishes, your full balance will in all likelihood be subject to a much higher rate such as twenty eight percent.

Your new credit card may also come with benefits such as a free lifetime warranty, discounts on travel, or protection if a purchased item is goes missing. If you sign up, be sure to read all notices of changes in the terms of your account as credit card companies commonly withdraw the special benefits while raising both the interest rate and the finance charges.

Some MC and Visa cards have payments deducted directly from your checking account. These debit cards look exactly like credit cards, but they offer less consumer protection. You don't have the same right to charge back problem purchases. These may be offered as checking account promotions.

If you miss payments, the bank may be able to withdraw funds from your checking account without your approval. If the card is lost or stolen, you must report the problem within 60 days or be responsible for all purchases made with the stolen card.

You can negotiate a better deal. If you are receiving a unfavorable deal on your credit card such as two cycle billing, finance charges of 18% or more, annual fees, and no grace period  you can contact the credit card company and ask for new terms. These fees are not requisite costs of doing business, and you can ask that they be reduced or eliminated.

Or change to a more affordable card and transfer the outstanding balance.