Editor’s note: This article is part of an ongoing series examining the fine print of your financial life. For a list of recent posts, click here.

Maybe you have finally decided to shop around for a credit card that offers you a better deal than you are currently getting. But, as always, buyer beware. Just because Congress passed a law that is aimed to help consumers avoid getting ripped off by credit card companies, doesn’t mean they aren’t going to try. So before you sign on the dotted line, here are a couple of important concepts that you should understand and read carefully in any credit card offer. Be forewarned – this is some complicated and dense stuff, so hold on tight!

What’s the annual percentage rate (APR)?

Credit card offers will usually clearly state the annual percentage rate, which is the interest rate that you will pay if you don’t pay your credit card bill in full every month. These rates can vary widely and there may even be several different APRs, including: one for balance transfers and a different one for purchases; an introductory APR, which may be for only a limited period of time; tiered APRs, which have different APRs for different levels of an outstanding balance – for example, different APRs for balances above and below $1,000; penalty APRs, which may be steep and levied if you are late making your payments; and a delayed APR, which is similar to an introductory APR. APRs can vary widely as they usually depend on your credit history.

Also, be aware that those cash advances often carry a different APR and it is usually steep.

How do they calculate your balance, which determines your finance charges?

Your finance charges are determined by two factors – your interest rate and your balance. While the interest rate can vary, there are lots of different ways credit card companies determine your balance. They typically use different methods to factor the balance, taking into consideration some mixture of these factors: your balance over one or two billing cycles; including or excluding new purchases in the balance; and using the average daily balance, the adjusted balance or the previous balance.

This balance is important because it is what you are paying interest on. It can vary, depending on when you made a purchase, when your bill is due. The Federal Trade Commission says that consumers usually do best when a creditor uses the adjusted balance method, which will subtract payments that are made and not consider new purchases in the balance when computing interest charges. The FTC also advises that average daily balance is more commonly used, which takes literally the average balance every day (including payments and sometimes including new purchases) and divides it by the number of days in the month.

Fees, fees, fees

Credit card companies love fees – the $39 late fee, the 3 percent transaction fee for a balance transfer, another $39 for the over-the-limit fees, as much as $150 for an annual fee. Read carefully to see whether the card carries any fees. The new credit card law that goes into effect in February limits some of these fees, but scan the fine print.

Grace periods

A grace period, typically 20-25 days, is the time you have to pay your bill in full without accruing any finance charges.  There are three types of grace periods – full, typical and none, so be sure you understand the grace periods on your credit card. There is usually not a grace period on balance transfers or cash advances, but check the fine print.

If you are carrying a balance, there is typically no grace period and interest may start piling up as soon as you charge – again, read the fine print.

Hopefully you’ve reached the end of this post without your eyes falling out from all the different factors that go into how a credit card company bills you. You may hate me right now for making you read this, but trust me when I say it’s worth it to understand these concepts when comparing credit card offers.

Now that you’ve got a little info, go out there and get the best card you can get!

This blog entry was featured in Carnival of Financial Planning - Edition #129.