Credit Card Part 2- APR??? WHAAA?

<p>the Credit Card thread leads me to ask a question that I need help with. </p>

<p>What is APR? I know the lower it is the better; and that college student credit cards usually have HIGH APR (15.24% with most). </p>

<p>How does that high apr affect you're bill/credit history? </p>

<p>How does one lower the APR? </p>

<p>Which credit cards are the best with APR/interest...etc? </p>

<p>I remember trying to research this a while back, but it still left me confused. If anyone could explain this to me, it would be greatly appreciated.</p>

<p>APR = annual percentage interest</p>

<p>(this is how i understand it, I could very well be wrong, so someone pls correct me if so)</p>

<p>It's the total amount of interest you pay annual. So if your APR is say 12%, every month you'd be charged 1% interest for anything not paid fully.</p>

<p>I never bothered to pay too much to APR. I payoff my balance in full every month and have never had to pay interest. </p>

<p>If you already have some good credit history, that would lower your APR or if you have a co-signer on the card who has good credit history.</p>

<p>If you make the commitment to pay the bill off in full every month, APR isn't a big deal... if you can do that, look for a card with no annual fee, no other tacked on fees, and then you don't pay anymore than you actually spent for things... which is the way to go</p>

<p>i heard that if you pay your bill off in full every month, it doesn't help you in your credit raiting, because the point is so that credit card companies or whoever wants to offer you a loan in the future want to see you can always keep sending the same payment month to month and not like 40 dollars one month and then say 130 the next and so on and so on. Well that's what my econ teacher said.</p>

<p>Also I think it's all about applying to a credit card. If you look up low interest credit cards or somethign like that on a yahoo search and go to a website where you can submit your application online you'll get a list of different cards and they'll straight up tell your the interest rate and if theres an annual fee. If say you find something like with 7.99 APR no annual fee etc, and you apply, and they accept you than congradulations you'll probably have a small limit, but if they don't accept you then most likely you're going to have to look for a credit card company that has a higher APR because they'll probably take you. My mom applied for discover platinum and they started her off with 2500 which isn't that much because she got like 8500 somewhere else.</p>

<p>One thing to be aware of as well is how the interest is compounded.</p>

<p>Let's say the APR on your card is 15%, and your balance is $2000. Well the nominal rate would mean about $300 in interest after a year. But if the interest is compounded monthly, as many cards are, than the interest would be $321.50.</p>

<p>nominal interest: principal(1+interest rate)=nominal APR</p>

<p>effective interest: principal(1+(r/n))^n*t ; where r = interest rate, and n = number of days, weeks, or months depending on how the interest is compounded, and t = time, usually in years.</p>

<p>Of course this may not seem like a lot, but the more you charge the more you will pay especially if you just pay the minimum.</p>

<p>My recommendation to all students is to avoid credit cards like the plague. They are your worst enemy.</p>

<p>sorry exilio, i disagree - as i said in another thread, credit cards should be a student's best friend. They are absolutely necessary to build good credit, and good credit is absolutely necessary later in life.
You won't have to worry about APR (or any fees at all for that matter if your card has no yearly fee) if you pay in full each month, which is the only way I would have a credit card in college. You don't want to be carrying balances. Not only will you get screwed with the APR's they slap on young people, but it will begin to add up to a point that it gets out of control.</p>

<p>My recommendation is based on experience.</p>

<p>I have seen far too many well-intentioned and needy students go down the path of credit card hell.</p>

<p>Do students need to build credit? Yes. Do they do so responsibly? No. Is credit card debt an epidemic in the U.S.? You bet.</p>

<p>Self-control is key and too many people, especially students fresh out of the house, have none.</p>

<p>So I stand by my recommendation. Avoid credit cards with the single caveat that you know for a 100% fact, certainly, sure-bet, that you will pay it off EVERY month. not the minimum payment, the whole thing!</p>

<p>Building credit = good. Ruining credit = bad, very bad. Wait until you are gainfully employed and have learned a bit about life and money before you venture down the path of credit...it can turn uglier faster than a group of nekkid girls going down for a swim at the local spooky pond near the old Indian burial ground.</p>

<p>I agree with the intent of Exilio's post but not the specifics. Paying off a balance in full each month does not build credit. The ideal way is to make a purchase, pay it off over six months, then make another purchase, pay it off over six months, etc. </p>

<p>Where people slide into problems is coming to rely on the credit card for routine purchases: meals, Starbucks, etc., all things that contribute to a lifestyle. Whereas airline tickets, a piece of furniture, etc. are more defensible as long as you can and do pay the item off within the six-month period. If you do use it for Starbucks or the drugstore or whatever, pay the month's fraction of the major purchase plus <em>all</em> the routine incidental expenses you put on it. It might take you two minutes with a calculator to figure out the amount but everyone on this board is a whizz with a TI-89 and this takes only a dumb-dumb "10-key" calculator.</p>

<p>yeah, i think it's stupid how you build more credit by not paying in full though, i don't want to spend extra money to build credit... and while not paying in full may bring you a better credit report, the average sophomore in college is already something like $2000 in debt just due to credit card purchases (not education related expenses) So obviously, people aren't being responsible and taking care of their liabilities, which is why i still think it's just better to pay it off every month</p>

<p>All right exilio, fair enough - the majority of college students will not know how to responsibly handle a credit card. But for those that do, I stand by my post :)</p>

<p>And how does paying in full each month not help your credit report as much as carrying a balance? Of course it does...
Your FICO score is very dependant on many factors. One of the big ones is the amount of time you've had revolving credit accounts. Student loans are installment accounts, not revolving like credit cards, and don't help your score nearly as much. So if anything, having a card is great for building a history with an account. Another big thing is paying every month and not having any lates - having a late payment reported to the Credit Reporting Agencies is one of the worst things you can do to your credit - your scores will plummet with even one late.
But what FICO does not distinguish between is whether you paid in full each month or whether you carry a balance. You don't build credit any faster by carrying a balance. In fact, its best to pay in full each month even before the bill comes out (which is when the credit card will report your balance to the CRA), at least most months. I admit that it's best to allow a balance to show up on your reports several times a year, so it doesn't seem the account is inactive. The other good thing about paying in full each month before the statement is posted is that your utilization stays low (another huge factor in FICO scores). Utilization the percentage of your balance to your total revolving credit. ($100 balance with a card with a $1000 limit is 10% utilization) Most people agree that a 0% utilization results in the highest scores (although others say 1%-9% has worked best for them).
My scores are always highest when I dont' have a balance showing, mainly because the ages of my accounts aren't all that large yet. But when I get out of college, I will have several cards with flawless payment history and that have been open for four years, and my scores will (hopefully) be in the high 700's (850 is the highest score possible and mid 600s is the mean).</p>

<p>I have opened many lines of credit, and bought several cars, paid them off monthly and quickly...and my credit has become stellar.</p>

<p>What a credit reporting agency sees is a loan that has been opened and satisfied. You need not "carry a balance" to show your credit worthiness.</p>

<p>What works best is to to continually increase your credit line and only charge what you can pay off, preferably using a miles or other rewards kind of card.</p>

<p>I think Icarus summed things up nicely so there is no need for me to elaborate.</p>

<p>But since this board is frequented by younger people I will reiterate my point that the path of credit is fraught with danger...be educated, be careful. ;)</p>

<p>I pay off my credit card every month in full, and my credit rating is great. I didn't need a co-signer to buy my new car when i was 21. </p>

<p>and to thedad - i charge everything.. from meals, groceries, gas, 5 bucks at the college store, inspections, computers, presents, furniture, etc. my credit card payments per month range from about 100-700, pending on what i purchased (duh).</p>

<p>i will not put something on my credit card that i can't pay off by the end of the month - i just don't do it. things are overpriced enough as they are, yet alone if extra interest is tacked onto it.</p>

<p>i could pay for everything in cash, i have enough money in my accounts.. it's just easier to pay it with my card, and then pay my bill online at the end of the month than it is to go to the ATM and take out money. i also get my car payments automatically withdrawn from my checking account as well... the less trips to the bank/atm.. the better :) I make one trip to the ATM each month where i take out $20 cash.. which will normally last me all month, for things i need cash for. (a drink at the bar or a movie on a local campus.. etc).. </p>

<p>i think credit cards are great, as long as you dont overuse them. I know some people who charge their tuition, and pay off the minimum each month, and as a result end up paying 15% more in tuition than everyone else, because of their interest on the credit card..</p>

<p>ok.. I have a questiong about the whole credit card thing. I am paid every other week. Is it ok to divide up and send two payments each month or should I just set aside money and pay it once a month?</p>

<p>you get sent a bill like once a month, so i'd say just send one check, although i don't see why you couldn't send two. it just seems easier to pay it once a month. i personally just pay it all online.</p>

<p>Its fine to split up your payment, but if you want to do that, I would use an online method of payment. If you want to send in a physical check, then only do it once a month (although it really doesn't matter). I know I can only submit 4 online payments per billing period for my Citi card and I usually pay two to three times a month.</p>

<p>Pay as often as you like...the sooner the better...not necessarily for the sake of interest but because it offers peace of mind and you won't find yourself short by the time you want to send the full payment in.</p>