Credit Cards
A credit card can be a great financial tool for paying bills, spending money and establishing credit toward future expenses, such as buying a home or applying for a loan. Additionally, credit cards can aid you in emergencies or accidents by advancing you money that you may not have on hand.
But the advantages and conveniences of credit cards come with tremendous responsibility. The majority of credit card-owning Americans are in substantial debt. If you charge more than you can repay, you may find yourself in a dire financial situation.
As a consumer, it’s important to take responsibility for your credit record by researching your credit card agreement details and staying informed.
How Can I Establish Credit and Get My Own Card?
The world of credit can be confusing; for example, to build credit you need to have a credit card but at the same time it’s difficult to obtain a card if you don’t have a credit history.
Below are some tips and information to help you get a credit card and build a positive credit record.
- First, you must be at least 18 years old to apply for a credit card.
- Next, you must qualify; each credit card company uses different variables to decide what kind of credit agreement it will issue you, if any at all. To determine your credit eligibility, these companies look at your past credit history, your annual earnings and your assets, among other things. These factors affect the spending limit, interest rate and fees attached to your credit card.
- If you have never owned a credit card before (or if your credit history is poor), you may find it hard to obtain even the lowest-limit credit card. To get started, try applying for local store or department store credit cards—these are easier to be approved for. If you make timely payments you can use this credit history to build your overall record.
- Another effective way to build credit is to co-sign a credit card account with someone who already has a positive credit record. This process requires that the other person guarantee to pay any debts that you fail to pay on the co-signed account. If you make timely payments over time, you will build good credit. But if you fall behind on payments, the mistakes will affect both yours and your co-signer’s credit record.
- If you have a troubled credit history, you might want to apply for a “secured card.” Secured cards allow you to deposit money and then use the card to charge for items and services, similar to how you might use a debit card. You can use a secured card to build a positive credit record. Be aware that secured cards typically have extremely high fees attached to them.
- If you are denied a credit card, don’t hesitate to ask the company for the reason you were turned down. Reasons often vary; sometimes credit card companies turn down credit card requests simply because the consumer hasn’t lived at the given address for a long enough period of time.
Special tip: if you a have less-than-perfect credit record, avoid applying for multiple credit cards at one time because if you receive numerous denials, other creditors will find out, making it even harder for you to get a card in the future.
Lastly, remember that late or missed payments can severely hurt your credit record. These blemishes make it harder to qualify for higher limit cards from major companies.
Choosing a Credit Card
Revolving accounts
The revolving account is the most common type of credit card account. A revolving credit card requires that you pay a minimum payment on the account’s outstanding balance each month. As long as a balance still remains on your account, you are served a monthly “finance charge,” a form of interest you pay for the amount you still owe. The average finance charge is usually around 2% of the total account balance. This means that if you pay the minimum balance (instead of the complete balance) each month, your debt will continue to grow incrementally. Of course, you can choose to pay off the full balance at any time.
Paid in full accounts
The second type of credit card agreement is known as a paid in full account (sometimes referred to as a “charge” account). This credit agreement requires that you pay the total balance each month. This means that you cannot carry over a credit balance month-to-month, as with a revolving account. Keep in mind that many paid in full accounts have annual fees and other extra charges.
Rewards and bonus features
Some credit card companies offer “rewards cards,” which offer benefits for using the card. Generally, the more you charge on your credit card, the more perks you become eligible for. Rewards benefits include airline miles and points towards merchandise and gifts. Some benefits may appear very attractive but make sure to research the agreement details before you obtain any card.
Rates and Fees
While credit cards can make your life easier, it is important to be aware of the various ways that owning a credit card can cost you extra money. Credit cards agreements are accompanied by countless pages of fine print, the contents of which could impact you and your financial stability in a serious way. So read the fine print--knowledge about your credit card is power! If you inform yourself and understand the guidelines of your credit card agreement, you can avoid extra fees, unnecessary charges, and outlandish interest rates.
Annual fees
Many credit card companies charge annual fees to use their card. An annual fee is a flat charge that typically ranges from $15 to $75 per year, depending on the credit card company. Not all credit card issuers charge annual fees, so shop around if you’re looking to avoid these fees. Many credit cards with high annual fees advertise rewards , like airlines miles or points toward merchandise. Sometimes these rewards benefits outweigh the cost of the annual fee. For example, if you fly frequently, it may be worthwhile to get an airline mileage rewards card.
Annual Percentage Rates (APRs)
The annual percentage rate (APR) is the interest rate at which you will be charged for new purchases. Depending on your bank’s policy, your interest rate might be either fixed or variable. If you’re a new credit card user, look around for a low interest plan. APRs typically range from 6-12%, as long as you make timely payments.
Most credit card issuers advertise “introductory” APRs at considerably low rates—sometimes 0%—for a short period of time for new cardholders. These low introductory rates can be attractive, but the terms will inevitably change after a certain period of time. Be sure to know the length of the introductory APR and keep track of the time period so you aren’t surprised when the introductory phase ends. Remember to ask if the introductory rates apply to new purchases and balance transfers. If you make a late payment, creditors reserve the right to cancel your introductory rate at any time.
Grace period
The grace period is the period of time between the date your billing cycle closes and the date your payment is due. Typically, the grace period for credit cards is 20 to 30 days. As long as you pay your balance (even if it’s the minimum) before the end of the grace period, you will avoid any penalty fees and/or bad marks on your credit record. Find out the terms of your card’s grace period.
Be aware that cash advances do not have grace periods. With cash advances, interest will begin to accrue immediately when you withdraw the money from the ATM.
Transaction fees
Make sure you know about any transaction fees that may apply to your credit card agreement. These fees may include charges like late payment fees, cash advance fees, or charges for exceeding your credit limit.
Bill payment fees
Some credti card companies charge a fee for paying your bill online or over the phone. Sending your bill through the mail is the cheapest way to pay your billt--all you need is an envelope and a stamp--but if you find it more convenient to pay online or over the phone, make sure to ask if there’s an added fee for these payment transactions.
Penalty rates
Missing a payment is a surefire way to rack up extra fees. And worse, late or missed payments can damage your credit record. All credit card issuers include a penalty rate clause in the fine print. The average penalty rate on a credit card is around 23%, a considerable increase on the normal APR. Typically, your credit card company will lower your rates again after 5-7 months, assuming you pay your bills on time.
Tips to Prevent Credit Card Fraud
- Identity theft and credit card fraud is more common than you might know. Below is a list of tips that may help you protect your finances:
- Keep your credit card in a safe place in your wallet or purse; protect your card as you would cash.
- When buying an item with your credit card, don’t let it out of your sight and try to get your card back as quickly as possible. If you’re in a busy situation or you’re in a rush, it can be easy to forget to take your credit card back from the clerk or cashier. Stay alert.
- Be especially careful when giving out credit card information over the phone. Legitimate credit card companies will not call you asking for your credit card information. If you receive a call requesting your information, don’t give it out. Unless you’ve initiated the call and you have verified the company’s credibility, don’t feel obliged to divulge account information to anyone. Scam artists will say anything to get you to give out your credit card information.
- Emails are another credit card fraud tactic. Never respond to emails that ask for your credit card information. Additionally, don’t go to any websites that are advertised via email requesting the verification of any of your personal or credit card information. Reliable credit card companies do not send these kinds of emails.
- When providing credit card information online, be sure that the website is a secure site. To verify this, sign the back of the card immediately when you receive it in the mail.
- Tear up or shred all credit card applications you receive.
- If your credit card requires a PIN, never write down or tell anyone you PIN, to prevent identity theft.
- In general, always try to keep your credit card number shielded from the view of strangers, who might see it or copy it. Thieves’ fraudulent tactics are becoming more and more advanced—some are known to capture credit card numbers using cell phones or other small cameras.
- Write down a list of your account numbers and expiration dates, along with the phone numbers and addresses of your banks. Keep this list in a safe place at home and update it as you acquire new credit cards. In the event of credit card theft or general complaints, you’ll find the list valuable to refer to.
- Only carry around the credit cards that you need or the cards that you use most often. Don’t carry around cards that you use infrequently.
- When reviewing your monthly credit card statements, respond to any discrepancies immediately. Delaying complaints or questions can make them less likely to be resolved. Remember to save all of your receipts so you can compare them with your monthly statements.
- Always void and destroy incorrect receipts.
- Tear up or shred anything with your credit card number written on it so that no one else can get a hold of your information.
- Never sign a blank credit card receipt. If a receipt contains blank portions where charges could be added, make sure to draw a line through them to avoid fraudulent extra charges.
- It is risky to lend a credit card to anyone else, but if you do, make sure the person knows to protect the card and its information as strictly as you do.
- If you change your address, notify your credit card company several weeks in advance to avoid missing a payment.
How Do I Report Credit Card Fraud?
- If you suspect that any of your credit cards is lost or stolen, contact your credit card company immediately. Don’t wait! If you delay too long in disclosing that your card is lost or stolen, you may be held liable for any charges made on your card. As long as you notify your credit card company in a prompt manner, you will be insured for any fraudulent charges made in your name. To ensure that your complaint is recorded, you may want to consider writing a letter explaining your situation.
- Most credit card companies have toll-free numbers and 24-hour service to deal with these emergencies. The representatives are well equipped to help you with identity theft issues.
- If you need more help, contact the Federal Trade Commission (FTC), the federal department in charge of preventing identity theft and helping victims of fraud. The FTC investigates cases and prosecutes identity thieves. To file a complaint, call the FTC's Consumer Response Center at (202) 382-4357.
Be Aware! Credit Card Tips and Precautions
Keep in mind some of these important credit card tips and precautions:
- Credit card interest rates and fees vary widely, so do shop around before deciding on a card.
- Be responsible with your credit card usage. Credit card debt is a serious and prevalent problem today in America. Millions of families are financially crippled by debt. Don’t charge more than you can afford and only apply for cards that you absolutely need.
- Try to limit the number of credit cards you own to three, at the most.
- Read the fine print before deciding on a particular credit card agreement. If you have questions, don’t hesitate to ask the credit card representative for more information.
- Study your monthly statement carefully. If you notice any problems, errors or discrepancies, call the company immediately. Credit card companies can make mistakes.
- Keep in mind that fixed rates are not always fixed. As long as the company notifies you at least 15 days prior, it can change your rates even if they were previously advertised as “fixed.”
- Don't pay any upfront fees on a credit card. No legitimate credit card company will demand a payment in advance.
- Pay your bill promptly each month. A good payment record helps you avoid high interest rates. Keep track of your purchases so that you’re not spending more than you can repay.
- Beware of cash advances—they generally involve high finance charges and the interest begins as soon as you withdraw your money.
- Never pay someone else to get a credit card for you.
- Find out if your card has an annual fee. Credit cards with annual fees often offer rewards and bonus features, but make sure that your annual costs don't outweigh your card's benefits.
- Check your credit report at least once a year so you know where you stand.
- Introductory APRs can de deceptive! Although introductory rates can be ver low, if you don’t know when the introductory rate expires, you could be caught off guard by sudden increase in your rate.
How Do I Order My Credit Report?
A credit report contains information about your credit history. Ordering a credit report is important for ensuring the accuracy of your credit history and learning your credit score. Many companies charge fees to send you a credit report, but you can order your credit report for free once a year from any, or all, of the three major credit reporting services: Equifax, Experian and TransUnion.
Go to www.annualcreditreport.com to request your free credit statement online.
You can also write or call:
- Equifax
P.O. Box 740241
Atlanta, Georgia 30374-0241
Phone number: (800) 685-1111
- Experian
P.O. Box 949
Allen, Texas 75013
Phone number: (800) 682-7654
- TransUnion
760 West Sproul Road
P.O. Box 390
Springfield, Pennsylvania 19064-0390
Phone number: (800) 916-8800
What Does My Credit Score Mean?
If you use a credit card you will be given a credit score. A credit score is important to creditors and lenders in determining whether you qualify for a particular loan, credit card or other service. Your score takes into account various factors, including your credit history, annual earnings and assets.
Credit scores range from 300 to 850. The higher your score, the better chances you have to qualify for more credit. The average credit score in America is around 560.
How Do I Report Problems with My Credit Statement?
If you notice any problems, errors or discrepancies in your credit card statement, you should notify two parties: the credit card issuer and a Consumer Reporting Agency (CRA). The three main Consumer Reporting Agencies are Equifax, Experian and TransUnion. To contact these organizations, see the section about ordering your credit report.
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