What are some termsto 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 simi-
lar to a membership fee. A finance charge
is the dollar amount you pay to use cred-
it; 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 compa-
ny raises or lowers rates for everyone, which they can periodically do.
What are the ways credit card companiescalculate finance charges?
When the credit card issuer calculates the finance charge on a card, it applies a period-
ic rate to a balance. In order to calculate that balance, the company uses various
methods. The most common is the average daily balance method, in which the bal-
ance is calculated by taking the amount of debt in the account each day during a spe-
cific period and averaging it. The previous balance method uses the outstanding bal-
ance at the end of the period to compute the finance charges. The adjusted balance
method derives the balance by subtracting any payments made during the cycle from
the previous balance, with new purchases not being counted.
What is a mortgage?
A mortgage is a method of using property as security for the repayment of a loan. It is
based on a 14th-century coinage of a Latin word meaning “dead pledge.” The interpre-
tation was that the property was “dead” to the borrower if he defaulted on the debt, 413
EVERYDAY MATH
Many store items these days are labeled with bar
codes, which use lines of varying widths to indicate
numbers that can be read by laser scanners.
Taxi/Getty Images.