You have probably received unsecured credit card offers in the mail, or by phone calls from pushy telemarketers  asking if you would like to open a credit card account. Typically these credit card offers say that you have been "pre-approved".  Usually these credit card offers pressure you to accept the credit card offer over the phone, or complete and mail the credit card application  quickly "before the Credit Card offer expires".  However, before accepting a  credit card offer, understand the cards credit terms.  Compare the pros and cons of similar credit card offers, to get the features and terms you want.

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Credit Card Terms

* Annual Percentage Rate. The "annual percentage rate", or APR, is disclosed to you when you apply for a card, again when you open the account and it is also noted on each bill you receive. It is a measure of the cost of credit, expressed as a yearly rate. The card issuer also must disclose the "periodic rate" - that is, the rate the card issuer applies to your outstanding account balance to figure the finance charge for each billing period.

Some credit card plans allow the card issuer to change the annual percentage rate on their account when interest rates or other economic indicators (called indexes) change. Because the rate change is linked to the performance of the index, which may rise or fall, these plans are commonly called "variable rate" plans. Rate changes raise or lower the amount of the finance charge you pay on your account. If the credit card you are considering has a variable rate feature, the card issuer must tell you that the rate may vary and how the rate is determined, including which index is used and what additional amount (the "margin") is added to the index to determine your new rate. You also must be told how much and how often your rate may change.

* Free Period. A free period -- also called a "grace period" -- allows you to avoid the finance charge by paying your current balance in full before the "due date" shown on your statement. Knowing whether a credit card plan gives you a free period is  important if you plan to pay your account in each month. If there is no free period, the card issuer will impose a finance charge from the date you use your credit card or from the date each credit card transaction is posted to your account. If your credit card plan allows a free period, the card issuer should mail the bill about 7 days before your payment is due. This is to ensure that you have enough time to make your payment by the due date.

* Annual Fees. Secured credit card issuers charge annual membership or other participation fees. These fees range from $25 to $50 for most cards. However most "unsecured credit cards" do not charge a annual fee, but do require reasonably good credit history.

* Transaction Fees and Other Charges. A credit card can sometimes  involve other types of costs. For example, some card issuers charge a fee when you use the card to obtain a cash advance or when you fail to make a payment on time.

* Adjusted Balance. This balance is computed by subtracting the payments you made and any credits you received during the present billing period from the balance you owed at the end of the previous billing period. New purchases that you made during the billing period are not included. Under the adjusted balance method, you have until the end of the billing cycle to pay part of your balance and you avoid the interest charges on that portion. Some creditors exclude prior, unpaid finance charges from the previous balance. The adjusted balance method usually is the most advantageous to card users.

* Previous Balance. As the name suggests, this balance is simply the amount that you owed at the end of the previous billing period. Payments, credits, or new purchases made during the current billing period are not taken into account. Some creditors also exclude unpaid finance charges in computing this balance. If you do not understand how the balance on your account is computed, ask the card issuer. (An explanation of how the balance was determined must appear on the billing statements the card issuer provides you and on applications and pre-approved solicitations the card issuer may send you.)
 

Credit Card Tips

If you plan to pay bills in full each month, the size of the annual fee, and not the periodic and annual percentage rate, may be more important. If you expect to use credit cards to pay for purchases over time, the APR and the balance computation method are important terms to consider. In either case, keep in mind that your costs will be affected by whether or not there is a grace period.

When shopping for a credit card, you probably will want to look at other factors besides costs -- such as whether the credit limit is high enough to meet your needs, how widely the card is accepted, and what services and features are available under the plan.

Credit Card Protection

Federal law protects consumers when they use unsecured credit cards. The protections include the following items.

* Prompt Credit for Payment. A card issuer must credit your account on the day the issuer receives your payment, unless the payment is not made according to the creditor's requirements or the delay in crediting to your account does not result in a charge. To avoid delays that could result in finance charges, follow the card issuer's instructions about where to send payments. Payments sent to other locations could delay getting credit for your payment for up to five days. If you lose your payment envelope, look on the billing statement for the address for payments or call the card issuer.

* Refunds of Credit Balances. When you return merchandise or pay more than you owe, you have the option of keeping the credit balance on your account or requesting a refund (if the amount exceeds $1.00). To obtain a refund, contact the card issuer. The card issuer must send you the refund within seven business days of receiving your request. (Also, if a credit balance remains on your account for more than six months, the card issuer must make a good faith effort to refund the credit balance.)

* Unauthorized charges. Under federal law, if your unsecured credit card or secured credit card is used without your authorization, you can be held liable for up to $50 per card. If you report the loss before the card is used, federal law says the card issuer cannot hold you responsible for any unauthorized charges. If a thief uses your card before you report it missing, the most you will owe for unauthorized charges is $50. This is true even if a thief is able to use your unsecured credit card or secured credit card at an automated teller machine (ATM) to access your credit card account. To minimize your liability, report the loss of your card as soon as possible. Some companies have toll-free numbers printed on their statements and 24-hour service to accept such emergency information. For your own protection, you should follow up your phone call with a letter to the card issuer. The letter should give your card number, say when your card was missing, and mention the date you called in the loss.

* Errors on Your Bill. Federal law provides specific rules that the card issuer must follow for promptly correcting billing errors. The card issuer will give you a statement describing these rules when you open the credit card account and, after that, at least once a year. In fact, many card issuers print a summary of your rights on each bill they send you.

* Disputes about Merchandise or Services. If you have a problem with merchandise or services that you charged to a credit card, and you have made a good faith effort to work out the problem with the seller, you have the right to withhold from the card issuer payment for the merchandise or services. You can withhold payment up to the amount of credit outstanding for the purchase, plus any finance or related charges. If the card you used is a bank card, a travel and entertainment card, or another card not issued by the seller of the defective merchandise, you can withhold payment only if the purchase exceeded $50 and occurred in your home state or within 100 miles of your billing address.