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One of the key decisions you'll make when it comes to choosing and using a credit card is whether you will pay your bill in total every month or just pay off part of it.

It is very important to know your 'payment profile.'

If you pay off just the minimum or even most of what's due, there's a balance left. So you'll need to know how your credit card applies its interest rate to what's not paid to know where you really stand and what you'll be paying to maintain an unpaid balance.

Card companies also apply fees to a number of card uses -- for example a late fee, or an over-the-limit fee. Before you go any further look candidly at your own credit history and see just which problems or habits are most likely to arise in your card use. Be honest with yourself -- do you miss payment deadlines more than you'd like? If so, you don't want a card where the interest rate shoots up whenever you miss a payment (not to mention the late fees).

Payment in full
If you always pay your monthly bill(s) in full, the best type of card is one that has no annual fee and a solid grace period before finance charges are applied. With this card you've got convenience and you've got it cheaply. In simple terms, paying the entire balance every month saves you bundles.

But if you pay in toto every month you are also in the minority when it comes to card users.

For those of us who don't always pay everything, it helps to know how finances charges are worked out. You can calculate what it is going to cost you as part of your comparison-shopping. Credit card companies apply a periodic rate to your balance. But there are different ways of applying that number, and there are different ways of deciding what the 'balance' is that it will be applied to. There's:

Average daily balance -- with this most common method the balance is calculated by taking the amount of debt you had in your account each day during the billing statement period and averaging it.

Adjusted balance -- is figured by subtracting the payments you've made from the previous balance.

Previous balance -- is the balance outstanding at the end of the previous billing statement period.

Figuring your rate
The rate that is applied to that balance is determined by formula. The company begins with a 'base' or 'index' rate, which may be the prime rate, the one, three, or six-month Treasury Bill rate, the federal funds or Federal Reserve discount rate. Any movement in these rates and your credit card rate will follow -- sometimes very quickly if it's a variable rate.

The card company adds a number of percentage points, also sometimes called a 'margin' to this index rate to arrive at the rate they charge you.

When the base number changes, so does what you pay.

Your card company might also use a more complex formula -- for example a base, a margin and a 'multiplier'. In this case the base plus margin total is multiplied by that multiplier number to find your interest rate. That doesn't mean the number will be higher -- it depends on both the margin number and the multiplier.

Whichever way you pay, know your grace period. This is the time you have to pay in full before interest rates apply. It may be 25 days. It may be less. And is it the beginning of the 26th day or the end of it?

Too trivial? Not if interest begins accruing and late charges are triggered.

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