How to Spot a Credit Card Rip-Off

Issuers are taking heat for hidden charges, but there's already an easy way to tell if a new card offer is a deal or not. It's the "Schumer Box," a table in every application named for Sen. Charles Schumer, D-NY who sponsored the 1988 law that requires it.

An APR of 11% or Less on Purchases

The annual percentage rate (APR), or interest you pay on balances, must appear in big type. You aren't guaranteed this APR. It will depend on your credit history.

The box will also say whether there's an introductory rate and how long it'll last. Today's average APR is 11.32%; with a credit score of 720, you should get 10% or less.

Note: Most APRs are variable, meaning they change with the prime rate.

Low Rates on Other Loans

Look next for rates on cash advances and balance transfers if you'll use those features. The average APR on cash advances is 21.65%; expect a fee of 2% to 4% too (these charges usually appear in or under the box).

If you're transferring a balance, look for a card that has a 0% APR for at least a year. And ask to have any fee waived (43% of issuers will do this for new customers, reports education and advocacy group Consumer Action).

Forgiving Penalty Terms

In the same section of the Schumer Box, the issuer must also tell you what the penalty rate, or "default rate," will be if, for example, you pay late or go over your limit. (It can shoot up above 30%.)

The issuer also must disclose what triggers this rate, next to an asterisk below the box. Look for a card that allows at least one or two late payments before the default APR kicks in.

Finance Charges Based on Average Daily Balance

According to a 2006 Government Accountability Office report, about a third of issuers calculate your finance charges using an average of your current and previous months' balances. This is usually listed in the box as "two-cycle average daily balance" or "two-cycle billing" and means you may pay interest on debt you've already paid off.

For example, if you charge $500 in the August cycle and make an on-time payment of $450, under two-cycle billing, you'd be charged interest on the full $500 in September vs. only the $50 owed.

If your balance fluctuates, opt instead for a card that uses the "average daily balance," which is one-cycle billing. Also, look for the phrase "adjusted balance," which means the issuer subtracts any payment from your beginning balance.

No Annual Fee

You what you'll pay each year for the privilege of being a cardholder. About two-thirds of cards don't charge an annual fee, according to a 2007 survey by Consumer Action.

The ones that do are typically airline or cashback rewards cards, but these also tend to come with high interest rates.

Pay a fee only if you'll earn enough rewards to cover it and you don't carry a balance.

What's Not in the Box

Unfortunately, not everything you need to know is in the Schumer Box. Some key information is buried in the cardholder's agreement -- the fine print you receive only after you've been approved.

Certain terms are red flags. The phrase "any time for any reason" means that the issuer can hike your rate at will even if you've never been late with your bill. And statements like "defaults to other creditors" or "delinquent on an account with any other creditors" mean that the card company practices universal default and can raise your rate if you make a late payment on any loan anywhere.

The Federal Reserve has put forth proposals that would eliminate these practices. In the meantime, however, you should call customer service before you apply to find out whether the card has these sneaky terms, advises Curtis Arnold, author of "How You Can Profit from Credit Cards" and founder of CardRatings.com.