Interest Rates Page 2

Other APRs
The interest rates you will pay, on an annual basis, if you get a cash advance on your credit card, if you transfer a balance from another credit card, or if the card issuer applies penalty rates. (More information on the penalty rate may be included outside the disclosure box--for example, in a footnote.)

Variable-rate information
If the card has a variable rate instead of a fixed rate, this section will tell you how the variable rate is determined. (More information may be included outside the disclosure box--for example, in a footnote.)

The variable rate is calculated by adding a fixed percentage (e.g., 9.9%) to the index rate listed for the week specified. Rate changes will raise or lower the finance charge amount paid on accounts. If a credit card has a variable rate feature, ask the card issuer whether there is a minimum and maximum APR and how often and by how much the rate can change. When the prime rate is decreasing, the variable rate is the best choice, but if it is increasing, the more stable fixed rate is generally best. Make a selection based on the risk you are willing to take. A consumer who consistently pays the total balance owed each month will find the APR not as important as other factors.

Grace period for repayment of balances for purchases
The number of days you have to pay your bill in full without triggering any finance charges. With most plans, the grace period applies only to purchases; cash advances and balance transfers may start accruing interest immediately.

Many cardholders mistakenly believe that if a 25-day grace period is provided, all new purchases will be free of finance charges until after that 25-day period. Under most plans, the only time a cardholder's new purchases escape all finance charges is when both of the following conditions are met:
1. There is no unpaid balance left over from the previous billing cycle. That is, either the entire "new balance" on the last month's bill was zero, or, if that new balance was greater than zero, the cardholder paid it in full by the due date.

2. The new balance of purchases made during the current billing cycle is paid in full by the current due date.

If the consumer does not pay the entire outstanding new balance due on the previous statement, any new purchases made in the current month will start accruing interest immediately. The consumer forfeits the grace period. If you have an outstanding balance on your credit card at the beginning of the new billing cycle, you will not benefit at all from the grace period. If your goal is to avoid paying finance charges, you must pay off your credit card balance in full each month.

Method of computing the balance for purchases
The method that will be used to calculate your outstanding balance if you carry over a balance and will pay a finance charge.

If your credit card plan has no "free" or "grace" period, or if you expect to pay for purchases over time, it is important to know how the card issuer calculates the finance charge. The finance charge, or the dollar amount you pay to use credit, will vary depending upon the method the card issuer uses to figure the balance. The method used can make a difference in the amount of finance charges a consumer will pay even when the APR is identical to that of another card issuer and the pattern of purchases and payments is the same. For consumers who never carry over a balance (always pay the balance in full), the finance charge computation method used by the credit card issuer is not as important as other factors. There are two basic ways card issuers calculate balances on which finance charges are computed:

Average Daily Balance (including new purchases or excluding new purchases). This method gives the cardholder credit for payment from the day the card issuer receives it. To compute the balance due, the card issuer first totals the beginning balance for each day in the billing period. Next, any payments credited to the account are deducted on the day received. New purchases may or may not be added to the balance, depending on the plan, but cash advances typically are added. The daily balances are summed for the billing cycle and the total is then divided by the number of days in the billing period. The result is the "average daily balance." Note the Schumer box reveals the most commonly used average daily balance method (including new purchases).

Two-Cycle Average Daily Balance (including new purchases or excluding new purchases). This balance is the sum of the average daily balances for two billing cycles. The first balance is for the current billing cycle, and is figured by adding the outstanding balance (excluding or including new purchases and deducting payments and credits) for each day in the billing cycle, and then dividing by the number of days in the cycle. The second balance is for the preceding billing cycle and is figured in the same way as the first balance. The two-cycle average daily balance is used primarily to back charge interest on a previous balance on which consumers did not pay finance charges (because their balance was zero), but neither did they pay off the current balance due in full. The method affects consumers who always or sometimes carry over a balance. More on Page 3.