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Choosing a Credit Card

GMAT-TJGGEY

Credit Card A

Interest Rates and Interest Charges
Annual Percentage Rate (APR) for Purchases 0% introductory APR through your 08/2012 billing period.
After that, your APR will be 22.9%.
This APR will vary with the market based on the Prime Rate.
APR for Transfers 0% introductory APR through your 08/2012 billing period.
After that, your APR will be 22.9%.
This APR will vary with the market based on the Prime Rate.
APR for Cash Advances 24.9%.
This APR will vary with the market based on the Prime Rate.
Penalty APR and When It Applies 29.4%.
This APR will vary with the market based on the Prime Rate.
This APR may be applied to your account if you make a late payment.
How Long Will the Penalty APR Apply?: If APRs are increased for a payment that is more than 60 days late, the Penalty APR will apply indefinitely.
Paying Interest Your due date is at least 25 days after the close of each billing cycle. We will not charge you interest on new purchases, provided you have paid your previous balance in full by the due date. We will begin charging interest on cash advances on the transaction date.
Minimum Interest Charge If you are charged interest, the charge will be no less than \$0.50.
For Credit Card Tips from the Federal Reserve Board To learn more about factors to consider when applying for or using a credit card, visit the website of the Federal Reserve Board at http://www.federalreserve.gov/creditcard.
Fees
Annual Fees None.
Transaction Fees
- Transfer None.
- Cash Advance Either \$10 or 3% of the amount of each cash advance, whichever is greater.
Penalty Fees
- Late Payment Up to \$35.
- Over-The-Credit-Limit Up to \$29. We will only charge you an over-the-credit-limit fee if you choose to accept this option.
- Returned Payment Up to \$35.

Credit Card B

Interest Rates and Interest Charges
Annual Percentage Rate (APR) for Purchases 0.00% introductory APR for the first 15 months. After that, your APR will be 17.24%
This APR will vary with the market based on the Prime Rate.
APR for Balance Transfers 17.24% APR on balance transfers requested within 30 days of account opening.
This APR will vary with the market based on the Prime Rate.
APR for Cash Advances 25.24% This APR will vary with the market based on the Prime Rate.
Penalty APR and When It Applies 27.24% This APR will vary with the market based on the Prime Rate.
This APR will apply to your account if you:
1) Make one or more late payments; or
2) Make a payment that is returned.
How Long Will the Penalty APR Apply? If the Penalty APR is applied, it will apply for at least 6 months. We review your Account every 6 months after the Penalty APR is applied. The Penalty APR will continue to apply until after you have made timely payments, with no returned payments during the 6 months being reviewed. The Penalty APR will apply to existing balances only if a payment is more than 60 days late.
Paying Interest Your due date is at least 25 days after the close of each billing period. We will not charge you interest on purchases if you pay your entire balance by the due date each month. We will begin charging interest on cash advances and balance transfers on the transaction date.
For Credit Card Tips from the Federal Reserve Board To learn more about factors to consider when applying for or using a credit card, visit the website of the Federal Reserve Board at http://www.federalreserve.gov/creditcard.
Fees
Annual Membership Fee \$0
Transaction Fees
- Balance Transfer Either \$5 or 3% of the amount of each transfer, whichever is greater.
- Cash Advance Either \$5 or 3% of the amount of each cash advance, whichever is greater.
- Foreign Transaction 2.7% of each transaction after conversion to US dollars.
Penalty Fees
- Late Payment Up to \$35
- Returned Payment Up to \$35
- Overlimit None

Credit Card C

Interest Rates and Interest Charges
Annual Percentage Rate (APR) for Purchases 0% introductory APR for 21 months from date of account opening.
After that, your APR will be 11.99%. This APR will vary with the market based on the Prime Rate.
APR for Balance Transfers 0% introductory APR for 21 months from date of account opening when transfers are completed within 4 months from date of account opening.
After that, your APR will be 11.99%. This APR will vary with the market based on the Prime Rate.
APR for Cash Advances 25.24%
This APR will vary with the market based on the Prime Rate.
Penalty APR and When It Applies Up to 29.99%, based on your creditworthiness. This APR will vary with the market based on the Prime Rate.
This APR may be applied to your account if you:
(1) Make a late payment or
(2) Make a payment that is returned.
How Long Will the Penalty APR Apply? If your APRs are increased for either of these reasons, the Penalty APR will no longer apply to existing balances on your account if you make the next six consecutive minimum payments when due. However, the Penalty APR may apply to new transactions indefinitely.
Paying Interest Your due date is at least 23 days after the close of each billing cycle. We will not charge you any interest on purchases if you pay your entire balance by the due date each month. We will begin charging interest on cash advances and balance transfers on the transaction date.
Minimum Interest Charge If you are charged interest, the charge will be no less than 50 cents.
For Credit Card Tips from the Federal Reserve Board To learn more about factors to consider when applying for or using a credit card, visit the website of the Federal Reserve Board at http://www.federalreserve.gov/creditcard.
Fees
Annual Fee None
Transaction Fees
- Balance Transfer Either \$5 or 3% of the amount of each transfer, whichever is greater.
- Cash Advance Either \$10 or 5% of the amount of each cash advance, whichever is greater.
- Foreign Purchase Transaction 3% of each purchase transaction in US dollars.
Penalty Fees
- Late Payment Up to \$35.
- Returned Payment Up to \$35.

Consider each of the following statements. Does the information in the three sources support the inference as stated?

Yes

No

Yes

No

Credit Card C has the greatest difference between its penalty APR and its regular APR, not counting the promotional introductory rates of 0%.

Yes

No

Credit Card A and Credit Card C would charge the same amount for a transaction fee for a cash advance of $400.

Yes

No

Each credit card uses the average daily balance method, which involves applying the monthly APR to the average daily balance to calculate the interest. The interest is compounded monthly. If a customer owed an average daily balance of 2,000 on Credit Card B, and had to pay the penalty APR, she would owe over 3,000 by the end of 12 months (assuming the APR is compounded monthly and the customer made no attempts to reduce the balance).