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Understanding credit card terms

The Schumer Box is a summary of key credit card terms that lenders are required to provide to consumers. It is intended to allow people to easily compare rates, fees, and other details in order to make informed decisions when choosing a credit card.
Let's see how credit card terms listed in the Schumer box apply to real-world situations. Below is a Schumer box for a credit card issued by a local bank:
Annual Percentage Rate (APR)18.99%
Grace Period25 days
Annual Fee$0
Balance Transfer Fee3% of the amount transferred
Scenario 1: Tara wants to sign up for this credit card, but she's not sure how much it will cost her if she does not pay off her balance in time. This scenario is relevant to the first row of the Schumer box, which shows the card's APR. In simple terms, Tara will be charged $18.99 for every $100 she owes over the course of the year.
Scenario 2: Paul wants to transfer a balance from one credit card to this new card. His current card has a $45 annual fee so, he's excited to see that there's no annual fee, but he's not sure what happens if he transfers his balance. This scenario is relevant to the last row of the Schumer box, which shows the balance transfer fee. If Paul transfers $1,000 from his current card, he will be charged $30.
His new balance will be $1,030.
Scenario 3: Nick has just made a big purchase on this credit card, but he wants to avoid paying any interest on it. This scenario is relevant to the second row of the Schumer box, which shows the card's grace period. Nick has 25 days before the bank starts to add interest to his balance.

Comparing two credit cards

Let's look at another scenario that shows the decision-making process when comparing two different credit card options.
Credit card ACredit card B
Annual Percentage Rate (APR)12.99%17.99%
Grace Period30 days21 days
Annual Fee$0$45
Late Fee$20$35
Foreign Transaction Fee$1.50 per transaction$0
Scenario 1: Layla frequently travels to Mexico to visit family and friends and she uses her credit card to pay for all her purchases, both at home and in Mexico. She is a responsible credit card user and always pays her balance in full each month. She wants to keep her annual costs as low as possible.
  • Layla would be better off with the credit card B, as it has no foreign transaction fees. Although it has an annual fee, it would be offset by the savings she would receive from not having to pay a fee on each foreign transaction.
Scenario 2: John rarely travels outside of the US, so foreign transaction fees are not a concern for him. He often carries a balance on his credit card from month to month, and is most concerned with avoiding high interest charges.
  • John would be better off with the credit card A, as it has a significantly lower APR. The longer grace period would also benefit him, as it gives him more time to make his payments before incurring any late fees.
Scenario 3: Tina is a sporadic credit card user and doesn't travel outside of the US. Sometimes she pays her balance in full, while other times she carries a balance for a few months. She is not particularly concerned with the APR, but wants to avoid any late fees or annual fees if possible.
  • Tina would be better off with the credit card A, as it has no annual fee and a lower late payment fee.

Want to join the conversation?

  • blobby green style avatar for user prince
    hey! gr8 course BTW....n David u r doin a superb job in answerin the questions n handlin the comment section.....
    My question here is- What exactly does it mean to have a balance in a credit card?
    Thank you
    (22 votes)
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    • aqualine tree style avatar for user David Alexander
      When speaking of credit cards, the word "balance" is shorthand for "balance due", the amount that needs to be paid to clear your debt. Say you borrow $479 to buy a new TV set. When your first bill comes, if you pay back $50, then you have a "balance due" of $429 PLUS the interest on the debt. As you make monthly payments, your "balance" goes down by the amount you pay, but goes up because you must pay interest on the amount you haven't paid yet.
      (36 votes)
  • blobby green style avatar for user lakern
    In Scenario 2, should the new balance be $970 because the fee is subtracted, not added?
    (13 votes)
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  • blobby green style avatar for user trentonrcolwell
    Are credit cards the best way to earn credit?
    (5 votes)
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  • starky seedling style avatar for user Tommy Bullock
    In Scenario 2, wouldn't his new balance after transferring the $1000 be $970? Why would he be gaining money if the credit card company is charging him a fee to transfer?
    (4 votes)
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    • piceratops seedling style avatar for user Sara
      Paul owes $1000 on his current credit card (his balance). When he switches credit cards and wants to move his balance from his current card to his new one, this specific company is going to charge him a 3% fee for doing this.

      People often do this when their current credit cards have a really high interest rate or have an annual fee (like Paul's), and they would save money by switching. Instead of owing his credit company $1045 (his balance + annual fee), Paul will only owe $1030 (his balance + transfer fee) if he pays it off before the due date!

      It's a little confusing because with a debit card, your balance is how much money you have. On a credit card, your balance is how much you owe. I hope this was helpful!
      (12 votes)
  • aqualine ultimate style avatar for user Financial learner
    For me this course is the best course I have done
    (7 votes)
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  • starky sapling style avatar for user sierra.joeyee
    So this might be a stupid question, but is buying something counted as a cash advance fee? It is right?
    (4 votes)
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    • aqualine tree style avatar for user David Alexander
      Cash advance is a bad thing to get involved in. These places will loan you money at a high interest rate based on knowing where you work and how much you will get on the next payday. Then, when you get paid and repay the loan, you don't have enough money to make it to the next payday, so you borrow again.

      If you mean "pay in advance", that means you can't borrow money for what you want to get, but must pay for it first.

      So, be aware of the different terms "cash in advance" or "cash advance", and avoid cash advance. It is dangerous, expensive, deceitful and addictive.
      (7 votes)
  • marcimus pink style avatar for user Daniel Eisert
    Wouldn't card A be not such a bad idea for Layla? Assuming her transactions are x<30, would she not be saving more by not having to spend $45 dollars for annual fees? Also the interest rate and late fee is lower, which always is a plus in predicaments when the bill cannot be paid on time.
    (6 votes)
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  • aqualine ultimate style avatar for user johnstonjo36
    is the APR important
    (2 votes)
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    • aqualine tree style avatar for user David Alexander
      Yes, it is. Companies that offered credit used to give confusing information on how much money a person would be charged for borrowing. Consumer reporting agencies then demanded "truth in lending", which demanded that all charges be stated in terms that made them comparable. The APR (annual percentage rate) was mandated to make comparison fair. THAT is the standard by which you determine whether you will be paying more or less for renting money from a lender.
      (6 votes)
  • stelly orange style avatar for user EmJ
    Why do credit cards have to be so confusing? Aren't there other ways to increase your credit score?
    (3 votes)
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    • aqualine tree style avatar for user David Alexander
      So. Don't go the "credit card" route. Build your credit score by going to a local credit union and taking out a "credit builder" loan. The credit union will loan you $1,000 and put it into a "locked account" where you won't be able to access it until you have paid it back a year later, making payments on time. That will build your credit score. Another way is to get a job and not leave it, showing that you are a dependable person. I understand that the Marine Corps has several thousand such jobs that open up every month. All it takes is that you enlist.
      A third way to build your credit score might be to rent an apartment, pay your rent on time and in full every month, and not trash the place.

      All of these things will build your credit score.

      Getting and using a credit score is comparatively easy, don't you agree?
      (5 votes)
  • aqualine ultimate style avatar for user Financial learner
    What if you never pay the money you owe to the bank account and you owe a lot of money
    (3 votes)
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