The 4-1-1 on That Credit Card Apr (cont.)
Contributed by Alix Mcmurray
Your once fixed rate may also vary in response to how promptly you pay your credit card bills. All of these factors contribute to the bottom line finance charge which is posted on your monthly statements. That finance charge is comprised of interest costs plus any special fees, such as those for balance transfers and cash advances.
The Building Blocks of Your Credit Card's APR
APR is composed of two things: prime rate plus an additional amount or "margin" that together comprise the actual rate of interest you pay on your purchases and outstanding balance.
Prime rate is the lowest interest rate that banks can charge for short-term borrowing -- such as that done by purchases through a credit card. The prime rate is reserved for customers with a good credit history, that is, customers who are credit worthy. The additional margin charged to you by your credit card company plus the prime rate make your periodic rate of interest. Periodic rate is your interest rate calculated as a function of time.
Thus, you can determine your monthly interest rate by dividing your APR by 12, and you can determine your daily interest rate by dividing your APR by 365.
Knowledge is Power -- and Good Credit Sense
It literally pays to be knowledgeable about how credit works. Don't be afraid to get the 4-1-1 on credit and other financial matters, because in the long run, you'll be a wiser -- and wealthier -- credit consumer.
