Everyday Math

Math and the Consumer’s Money

What are some terms to know when getting a credit card?

There are several terms—many that include a bit of mathematics—one should know when getting a credit card. An important one is the annual fee, which is often charged by the credit card company and is a flat, yearly charge similar to a membership fee. A finance charge is the dollar amount you pay to use credit; it should be listed on your credit card statement. It usually includes the interest on the borrowed money and other charges associated with transactions, such as cash advance fees or exchange rate calculation fees when paying for an item in a foreign country.

As stated in the question above, the annual percentage rate (APR) is a measure of the cost (or relative cost) of credit on a yearly basis. With credit cards, APR commonly includes interest and other charges, such as a yearly rate. Credit cards often offer two types of interest rates, too. In the variable-rate plan, as the name implies, the interest is variable; it is usually tied to other interest rates, such as the Treasury Bill or prime rates. A fixed-rate plan is a rate not tied to changes in other interest rates; it remains steady, unless the credit company raises or lowers rates for everyone, which they can periodically do.



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