Chooosing Your Card


Credit terms vary among issuers. When shopping for a card, think about how you plan to use it. Do you expect to pay your bills in full each month, or do you plan to pay off your purchases over time? Consider the Annual Fee, Finance Charges, balance computation method, and whether or not there is a Grace Period for purchases.

NOTE: Some student credit cards do not permit a grace period for the amounts due if you use the Cash Advance or Balance Transfer features, even if they have a Grace Period for purchases. It's also a good idea to look at the Credit Limit and how widely the card is accepted, as well as the plan's additional services and features. Consider and compare all terms, including the following, before you select a student credit card:

Grace Period
The Grace Period is the date by which, or the period within which, any credit extended for purchases may be repaid without incurring a Finance Charge. Knowing whether a card gives you a Grace Period for purchases and Cash Advances is especially important if you plan to pay your account in full each month. Without a Grace Period, the card issuer may impose Finance Charges from the date you use your card or from the date each transaction is posted to your account.

Annual Percentage Rate (APR) and Finance Charges
The APR (Annual Percentage Rate) is a measure of the cost of credit, expressed as a yearly rate. The card issuer must also disclose the "periodic rate," which is a rate applied to your outstanding balance to figure the Finance Charge for each Billing Cycle. Some student credit card plans allow the issuer to change your APR when interest rates or other economic indicators (called indexes) change. Because the rate change is linked to the indexes' performance, these plans are called "Variable Rate" programs. Rate changes raise or lower the Finance Charge on your account. If you're considering a Variable Rate card, the issuer must also provide information that discloses to you:

  • That the rate may change.
  • How the rate is determined, which index is used and what additional amount (the "margin") is added to determine your new rate.

NOTE: Most credit card plans allow the issuer to "reprice" your current APR if the account falls into poor standing or becomes delinquent. Re-pricing is the act of increasing the APR.

Annual Fee
Some issuers charge annual membership or participation fees. They often range from $25 to $50, and sometimes reach as much as $100. "Gold" or "Platinum" cards sometimes reach as much as several hundred dollars. These fees may be charged whether or not you use the credit card.

Transaction Fees and Other Charges
A student credit card may include other costs. Some issuers charge fees if you use the card to get a Cash Advance, make a late payment, or exceed your Credit Limit. Often an issuer will charge a fee to transfer a balance from another creditor's account to their account. Fees are disclosed to you in your Terms and Conditions as well as in your Account Agreement. It is important that you read these documents in order to understand your responsibilities as an accountholder.

Balance Computation Method for the Finance Charge
If you don't have a Grace Period or if you expect to pay for purchases over time, it's important to know what balance computation method the issuer uses to calculate your Finance Charge. This can make a big difference in how much of a Finance Charge you'll pay even if the APR and your buying patterns remain relatively constant. Examples of balance computation methods include the following:

  • Average Daily Balance: This is the most common calculation method. The issuer totals the beginning balance for each day in the Billing Period and subtracts any credits made to your account that day. While new purchases may or may not be added to the balance, depending on your plan, Cash Advances are typically included. The resulting daily balances are added for the Billing Cycle. The total is then divided by the number of days in the Billing Period to get the "Average Daily Balance."
  • Adjusted Balance: This is usually the most advantageous method for cardholders. Your balance is determined by subtracting payments and credits received during the current Billing Period from the outstanding balance at the beginning of the Billing Period. Purchases made during the Billing Period aren't included. This method gives you until the end of the Billing Cycle to pay a portion of your balance to avoid the Finance Charges on that amount. Some creditors exclude prior unpaid Finance Charges from the previous balances.
  • Two-cycle Balances: Issuers sometimes use various methods to calculate your balance that make use of your last two months' account activity. Read your agreement carefully to find out if your issuer uses this approach. This is the sum of the Average Daily Balances for two Billing Cycles. The Truth in Lending Act requires a lender to inform you of the cost to borrow, so that you can compare the cost and terms of credit offered by various lenders.