by Joseph Kenny | 02/14/08

The American Bankers Association has issued a handy guide to credit cards.  The guide notes that credit cards are valuable and convenient, but that they must be used wisely.  The online handbook also explains how credit cards work and the terms that apply to them.

The first section of the guide deals with annual percentage rates.  The annual percentage rate, or APR, is the interest rate which is applied to a credit card balance.  The calculated interest results in an amount known as the finance charge.  As the guide explains, it's possible for different APRs to apply to the same credit card.  A typical credit card bill will list not only purchase balances, but cash advance balances, and balance transfer balances.

APRs can change if a customer goes over their credit limit, pays late, or issues a bad check.  Meanwhile, variable APRs can change based on general market interest rate conditions.

The guide also explains grace periods, which are the periods between the date of a purchase and the due date.  In order to obtain a grace period, a customer must pay his or her balance in full each month.  Once you fail to pay in full for a month, you lose your grace period.  The Bankers Association advises consumers to pay as soon as they can, even if they cannot pay a balance in full.  The sooner you pay your bill, the lower the amount of interest you will owe.

In addition, the guide offers strategies to avoid paying credit card bills late.  These include scheduling payments online, setting up automatic payments, paying by phone, and mailing payments at least a week before the due date.

The Bankers' guide also enumerates the fees that a credit card customer may encounter.  These include late fees, annual fees, returned payment fees, cash advance fees, balance transfer fees, and the like.