Credit Card Terms (continued)
Basic Credit Card Terms - Part II

The most important and powerful factor in determining
the true cost of your credit card is the Annual Percentage
Rate (APR). This is the amount of interest charged on the
card's balance expressed as an yearly rate. In order to
calculate your monthly finance charge, the APR is divided
into a periodic rate, usually daily.

In order to calculate the daily interest rate, simply
divide the annual rate by 365.

Example: 14.99% / 365 = .04106849315%

Your credit card's interest rate can be either variable
or fixed. A variable rate is linked to an economic indicator
such as the Prime Rate and it fluctuates with the economy.
A fixed rate does not fluctuate with the economy, but is
instead set by the credit card issuer. But don't let the
name fool you. The rate is anything but fixed. The issuer
can increase your rate whenever they want as long as they
give you advance notice.

Another way your interest rate can increase is if you miss a
payment or send one in late. The credit card company can use
this as an excuse to jack up your rate to obscene levels.

Balance Computation Methods

Credit card companies use different methods for calculating
your balance. Whichever method they use, it must be clearly
indicated on your statement and in the cardholder agreement.
The majority of credit card companies use one of the following
three methods:

Average Daily Balance. This is the most common calculation
method. The issuer simply takes your balance from each day
in the billing period, adds them all up, and then divides by
the number of days in the billing period. Any credits to your
account for the month are deducted, but purchases are usually
not included.

Adjusted Balance. This is the most consumer-friendly
calculation method. The issuer simply takes your outstanding
balance at the beginning of the billing cycle and subtracts
and payments or credits. For example, if your beginning balance
was $1,000 and you made a payment of $125, interest would only
be charged on the remaining $875. Purchases are always excluded
when using the Adjusted Balance method.

Two-Cycle Balance. This is the least advantageous calculation
method for consumers. It works just like the Average Daily Balance
Method but it uses the prior two billing cycles instead of just
the most recent.

Try to read the fine print on your credit card statements so you will no just
what the terms of your credit cards are.  Better yet, read the fine print
before you agree to accept a credit card and if you don't understand the
terms, don't get the card!

Ed Lathrop is a successful real estate investor and a series 3 commodities futures broker.
He has extensive knowledge of the credit/mortgage markets.  He has built the financial
calculator Website, ezcalculator which is free to use and includes the calculator, "Pay Your
Credit Card Debt Quick."  Ezcalculator can be found at Mortgage Calculator or by going to