Are you trying to compare credit cards? The first thing you will look at in determining how good (or bad) a deal you are being offered is the interest rate. Interest rates are expressed as annual percentage rates for comparison purposes, and are either fixed or variable. The annual percentage rate (APR) is the interest rate on any balance you carry, and is a standardized, tightly regulated way of comparing annual interests, so you can make apples-to-apples comparisons of interest rates. This rate is applied every month you carry a balance forward to the entire balance, with the exclusion of any purchases that are still within their “grace” period.
Interest rates are offered as either fixed or variable. A fixed interest rate is the easiest to understand, and the most predictable. A fixed interest rate means you will get the same interest rate all year. Introductory rates are typically fixed, but expire after a period of time, whereas fixed rates do not.
A variable interest rate credit card is a credit card where the interest rate is pegged to some economic indicator that changes as the economy at large fluctuates. For example, a variable APR can be pegged to the prime interest rate, the rate at which banks loan to their best customers. The prime rate is pegged at 3 points above the interest rate the Federal Reserve sets. It is usually expressed as the prime interest rate plus a certain additional percentage of APR. Lower is obviously better.
A fixed rate credit card at first may seem to be a better deal, but this isn’t necessarily the case. For example, if the fixed card has a relatively high fixed rate, and the Federal Reserve cuts its lending rates repeatedly, then a low interest variable APR credit card will outperform the fixed APR credit card. When you are comparing interest rates in choosing a credit card offer, you should take these things into account. If you are not yet good at using spreadsheet programs like Microsoft Excel, you may want to learn. Although the arithmetic involved in comparing these interest rates is simple, it isn’t something you’re going to be likely to be able to calculate in your head.
Using a credit card is almost too easy, but applying for a credit card and getting a favorable APR isn’t necessarily easy. You have to read the fine print and do the arithmetic if you want to get the best possible deal. Also, you may want to compare several different credit card offers in order to find the best price you can get. Although the application process has been simplified as credit card companies have used the Internet to make the application process more convenient, you still need to be aware of what information you need to give them and why you need to give it in order to complete a credit card application. Any inaccuracies in the information you give to the credit card company could delay the approval process or even lead to a denial of your application.
