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Credit Card Smarts

Teenager holding a credit card and looking at her cell phone.

Have You Checked the Mail Lately?

Believe it or not, your mailbox will soon be bursting with credit card offers addressed to you. Having a credit card is a great way to establish credit and to build a good credit history.

Unfortunately, having a credit card and using it improperly can ruin your credit. It’s all too easy to be trapped in a spiral of escalating debt, high interest and excessive fees.

Choose the Right Credit Card

First, we’re going to show you how to choose a credit card by giving you the tools to compare apples to apples. 

DON'T focus only on the advertised rate.

A lot of people think that rate is all that matters in choosing a card. Sure, that’s important, but credit card companies make a hefty chunk of their profits in fees. Not only that, but your “low” rate is often sprung with traps that can send it soaring in the blink of an eye.

DO find the Schumer Box.

Who is Schumer and why does he have a box? 

He is the US Senator from New York, Charles Schumer. He was behind the 1988 legislation that made it easier for consumers to compare the costs of credit card offers by requiring lenders to use consistent disclosures.

After getting a general feel for the offer, you should locate the Schumer box. It often appears on the back page of your credit card offer and is usually at least a page long.

DO compare the features of each card you’re considering.

We’re going to discuss seven features that you should compare for every offer.

1. Compare Features: Rate

  • Find a rate that will stay competitive long term. Most super-low rates are temporary.
  • Determine if your rate is fixed or variable.
    A few credit cards have a Fixed Rate, or a rate that stays the same throughout your agreement.
    Most credit cards have a Variable Rate (meaning the rate will change along with market rates).
Important Tip! Rivermark and many other credit unions will always provide a competitive rate. It’s a good place to start for comparison.

To Compare Fixed Rates: Choose the lower fixed rate. Also determine if and when the rate may be subject to change.

To Compare Variable Rates: You’ll need to know the Index and the Margin. The Index is the starting point for the rate and is often based on Prime Rate or Treasury Bill rates. The Margin is the amount that you are charged above the Index.

Example: If your index is the Prime Rate and the Prime Rate is 5.00% and your margin is 13.00%, then your credit card rate would be 18% APR. The Schumer Box also tells you the current rate based on the quoted index and margin.

2. Compare Features: Annual Fees

  • Annual fees range from $0 - $149.
  • This is a fee that you pay once per year for the privilege of having a particular credit card.
  • It’s easy to find a card with no annual fee, although you’ll find them more often on certain “rewards” cards (cards in which you earn points toward travel or other discounts).

3. Compare Features: Grace Period

  • Grace period is the amount of time you have to pay off your new charges before incurring a finance charge.
  • Grace periods typically range from 20 - 25 days.
  • Be careful. Some card issuers may allow less time or no time!
Important Tip! Many people assume that grace period refers to the number of days between your payment due date and the date in which you will be charged a late payment fee. This is not true!

4. Compare Features: Cash Advance Costs

A cash advance is when you get cash from your credit line instead of making a purchase. Cash advances come in different forms:

  • When you get cash by using your PIN number at an ATM.
  • Having a bank or credit union give you cash by processing a cash advance transaction.
  • Often, balance transfers from another card are considered cash advances.
  • Using checks to access your credit line.
  • The cost of a cash advance comes in two forms: transaction fees and cash advance annual percentage rates. Some cards charge a fee, some just a cash advance rate—and some charge both.

Cash Advance Fee is typically 3% of the amount of your advance. At 3%, a $500 cash advance would incur a $15 fee. Sometimes, there is a flat fee such as $15 for any amount—or even in addition to the 3%. A Cash Advance Rate typically ranges from 19%-29% and applies to the balance of your cash advance amount. Be careful, most lenders apply your payments to the lowest rate portion of your balance first. That high-rate cash advance can stick with you for a long time.

Important Tip! Some cards (like Rivermark cards) do not charge for cash advances at all. Rather, you will just pay your regular annual percentage rate.

5. Compare Features: Late Fees

  • A late fee is charged when your payment is considered late.
  • Most late fees range from $15 - $39 (average is $30).
  • With most big-bank lenders, your payment must be received by noon in the payment processing center’s time zone. So if the mail carrier gets held up and your payment arrives at 1:00 pm on your due date—you’re paying the fee.
Important tip! Check to see what the credit card lender considers a late payment. Credit unions and local financial institutions are more likely to give you a few days after the due date before charging a late fee (although on-time is best!)

6. Compare Features: Over Limit Fees

An Over Limit Fee is charged when your account balance exceeds your credit limit.

  • Over limit fees range from $15 - $39.
  • Some lenders will charge a fee at $0.01 over the limit. Others will allow a few hundred dollars over. Others will charge a fee if you merely come close to exceeding your limit.
  • If you receive a late payment fee (or other fee) and it puts your balance over the credit limit—you will be charged the Over Limit fee.

7. Compare Features: Universal Default Rates (Penalty Rates)

A Universal Default Rate is a higher rate (typically 19% - 29%) that applies to all of your outstanding and future balances if you “break the rules.”

The “Rules”. These actions frequently trigger Default/Penalty Rates:

  1. You make any late payment.
  2. You go over your credit limit.
  3. Your payment is returned unpaid.
  4. You’re late on a payment with another lender.
  5. You open too many new credit accounts.
  6. You pay only the minimum payment for several months.
Important Tip! It’s difficult to find a card without penalty rates. Rivermark cards do not have penalty rates. Before agreeing to any card with penalty rates, be sure that you understand the rules and will be able to live by them every single month.