Annual Fees 

Free Credit Cards: An article in the December 18, 1980, issue of the New York Times announced that Citibank was going to begin charging cardholders a $15 annual fee. In those days, many bankcards did not charge annual fees. American Express, Diner's Club, and Carte Blanche cost $35 back then. 

Annual fees (or "membership fees," as they are sometimes called) now range anywhere from $0 to $100 or more, while the average is about $20. These fees can add up. Suppose you have three bankcards, each charging $25 apiece that's $75 a year. There are, however, cards that carry no annual fees. A free credit card isn't a giveaway for the issuer. Most cardholders pay interest, and that's where issuers really make money. In addition, every time you use your card, the merchant pays a percentage of the purchase (called a "merchant discount fee") to the card companies for the privilege of accepting the card. A small portion of the merchant discount fee, which typically ranges from 1.5 to 4 percent of the purchase amount, is passed on to the card issuer. 

If your credit card carries an annual fee, your card issuer must warn you thirty days before the card will be renewed, so you will have the opportunity to cancel the card before you pay the fee. This notice will appear on your billing statement; it must disclose how much the annual fee will cost and tell you how and when to close your account if you don't want to pay the annual fee. 

Grace Periods 

A Free Ride? A grace period, or "free-ride" period, is the time between the closing date of the billing cycle and the due date that you have to pay the balance in full and be charged no finance charge. If it sounds really confusing, that's because it is. 

If your card has a grace period, the bill will usually read "Pay this amount to avoid further finance charges ..." next to the total balance. If your card does not have a grace period, you can pay off your bill in full at the end of the month, and you will find next month that you were charged interest anyway. 

People are usually confused about how grace periods really work, and I don't blame them. The way interest is calculated on credit cards is very complicated. Just remember this: You usually get the benefit of a grace period only if you pay the entire bill in full by the due date. 

You should understand that unless you pay off every last penny at the end of the month, the grace period is useless. 

To continue reading on part 2 click here