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Shopping for and Comparing Low Interest Credit Cards & Balance Transfer Credit Cards
Keep these tips in mind when looking for a low interest credit or charge card.
• Shop for the plan that best fits your needs.
• Make sure you understand a plan's terms before you accept the card.
• Hold on to receipts to reconcile charges when your bill arrives.
• Protect your cards and account numbers to prevent unauthorized use. Draw a line through blank spaces on charge slips so the amount can't be changed, tear up carbon copies.
• Keep a record-in a safe place separate from your cards-of your account numbers, expiration dates and the phone numbers of each issuer to report a loss quickly.
• Carry only the cards you think you'll use.
Save with low interest credit cards and understand how balance transfer cards work
Shopping around for a credit card can save you money on interest and fees. You'll want to find one with features that match your needs. This information can help you understand the features of credit cards, compare credit card features and costs, know your rights when using your credit card, file a complaint if you have a problem with your credit card. Start by asking the following questions.
How will you use your credit card?
The first step in choosing a credit card is thinking about how you will use it.
If you expect to always pay your monthly bill in full-and other features such as frequent flyer miles don't interest you-your best choice may be a card that has no annual fee and offers a longer grace period.
If you sometimes carry over a balance from month to month, you may be more interested in a card that carries a lower interest rate (stated as an annual percentage rate, or APR).
If you expect to use your card to get cash advances, you'll want to look for a card that carries a lower APR and lower fees on cash advances. Some cards charge a higher APR for cash advances than for purchases.
What are the APRs?
The annual percentage rate-APR-is the way of stating the interest rate you will pay if you carry over a balance, take out a cash advance, or transfer a balance from another card. The APR states the interest rate as a yearly rate. Watch for multiple APRs-A single credit card may have several APRs:
One APR for purchases, another for cash advances, and yet another for balance transfers. The APRs for cash advances and balance transfers often are higher than the APR for purchases (for example, 14% for purchases, 18% for cash advances, and 19% for balance transfers).
Tiered APRs. Different rates are applied to different levels of the outstanding balance (for example, 16% on balances of $1-$500 and 17% on balances above $500).
A penalty APR. The APR may increase if you are late in making payments. For example, your card agreement may say, "If your payment arrives more than ten days late two times within a six-month period, the penalty rate will apply."
An introductory APR. A different rate will apply after the introductory rate expires.
A delayed APR. A different rate will apply in the future. For example, a card may advertise that there is "no interest until next March." Look for the APR that will be in effect after March.
If you carry over a part of your balance from month to month, even a small difference in the APR can make a big difference in how much you will pay over a year.
Fixed vs. variable APR: Some credit cards are "fixed rate"-the APR doesn't change, or at least doesn't change often. Even the APR on a "fixed rate" credit card can change over time. However, the credit card company must tell you before increasing the fixed APR. Other credit cards are "variable rate"-the APR changes from time to time. The rate is usually tied to another interest rate, such as the prime rate or the Treasury bill rate. If the other rate changes, the rate on your card may change, too. Look for information on the credit card application and in the credit card agreement to see how often your card's APR may change (the agreement is like a contract-it lists the terms and conditions for using your credit card)
How long is the grace period? The grace period is the number of days you have to pay your bill in full without triggering a finance charge. For example, the credit card company may say that you have "25 days from the statement date, provided you paid your previous balance in full by the due date." The statement date is given on the bill.
The grace period usually applies only to new purchases. Most credit cards do not give a grace period for cash advances and balance transfers. Instead, interest charges start right away.
If you carried over any part of your balance from the preceding month, you may not have a grace period for new purchases. Instead, you may be charged interest as soon as you make a purchase (in addition to being charged interest on the earlier balance you have not paid off). Look on the credit card application for information about the "method of computing the balance for purchases" to see if new purchases are included or excluded. Information on methods of computing the balance is in the section "How is the finance charge calculated?"
How is the finance charge calculated?
The finance charge is the dollar amount you pay to use credit. The amount depends in part on your outstanding balance and the APR.
Credit card companies use one of several methods to calculate the outstanding balance. The method can make a big difference in the finance charge you'll pay. Your outstanding balance may be calculated:
Over one billing cycle or two, using the adjusted balance, the average daily balance, or the previous balance, and, including or excluding new purchases in the balance. Depending on the balance you carry and the timing of your purchases and payments, you'll usually have a lower finance charge with one-cycle billing and either: The average daily balance method excluding new purchases, the adjusted balance method, or the previous balance method.
Minimum finance charge-Some credit cards have a minimum finance charge. You'll be charged that minimum even if the calculated amount of your finance charge is less. For example, your finance charge may be calculated to be 35?-but if the company's minimum finance charge is $1.00, you'll pay $1.00. A minimum finance charge usually applies only when you must pay a finance charge-that is, when you carry over a balance from one billing cycle to the next.
What are the fees?
Most credit cards charge fees under certain circumstances:
Annual fee (sometimes billed monthly). Charged for having the card
Cash advance fee. Charged when you use the card for a cash advance; may be a flat fee (for example, $3.00) or a percentage of the cash advance (for example, 3%)
Balance-transfer fee. Charged when you transfer a balance from another credit card (Your credit card company may send you "checks" to pay off the other card. The balance is transferred when you use one of these checks to pay the amount due on the other card.)
Late-payment fee. Charged if your payment is received after the due date.
Over-the-credit-limit fee. Charged if you go over your credit limit.
Credit-limit-increase fee. Charged if you ask for an increase in your credit limit.
Set-up fee. Charged when a new credit card account is opened.
Return-item fee. Charged if you pay your bill by check and the check is returned for non-sufficient funds (that is, your check bounces)
Other fees. Some credit card companies charge a fee if you pay by telephone (that is, if you arrange by phone for payment to be transferred from your bank to the company) or to cover the costs of reporting to credit bureaus, reviewing your account, or providing other customer services. Read the information in your credit card agreement to see if there are other fees and charges.
What are the cash advance features?
Some credit cards let you borrow cash in addition to making purchases on credit. Most credit card companies treat these cash advances and your purchases differently. If you plan to use your card for cash advances, look for information about
Access. Most credit cards let you use an ATM to get a cash advance. Or the credit card company may send you "checks" that you can write to get the cash advance.
APR. The APR for cash advances may be higher than the APR for purchases.
Fees. The credit card company may charge a fee in addition to the interest you will pay on the amount advanced.
Limits. Some credit cards limit cash advances to a dollar amount (for example, $200 per cash advance or $500 per week) or a portion of your credit limit (for example, 75% of your available credit limit).
How payments are credited. Many credit card companies apply your payments to purchases first and then to cash advances. Read your credit card agreement to learn how your payments will be credited.
How much is the credit limit?
The credit limit is the maximum total amount-for purchases, cash advances, balance transfers, fees, and finance charges-you may charge on your credit card. If you go over this limit, you may have to pay an "over-the-credit-limit fee."
What kind of card is it?
Most credit card companies offer several kinds of cards:
Secured cards, which require a security deposit. The larger the security deposit, the higher the credit limit. Secured cards are usually offered to people who have limited credit records-people who are just starting out or who have had trouble with credit in the past.
Regular cards, which do not require a security deposit and have just a few features. Most regular cards have higher credit limits than secured cards but lower credit limits than premium cards.
Premium cards (gold, platinum, titanium), which offer higher credit limits and usually have extra features-for example, product warranties, travel insurance, or emergency services.
Does the card offer incentives and other features?
Many credit card companies offer incentives to use the card and other special features:
Rebates (money back) on the purchases you make
Frequent flier miles or phone-call minutes
Additional warranty coverage for the items you purchase
Car rental insurance
Travel accident insurance or travel-related discounts
Credit card registration, to help if your wallet or purse is lost or stolen and you need to report that all your credit cards are missing
Credit cards may also offer, for a price,
Insurance to cover the payments on your credit card balance if you become unemployed or disabled, or die. Premiums are usually due monthly, making it easy to cancel if the payments are higher than you want to pay or you decide you don't need the insurance any longer.
Insurance to cover the first $50 of charges if your card is lost or stolen. Under federal law, you are not responsible for charges over $50.
Before you sign up to pay for any of these features, think carefully about whether it will be useful for you. Don't pay for something you don't want or don't need.
Where do i find best value credit cards?
We recommend starting at our Best Credit Card Values page. You will find the Top-10 credit cards in America here with full disclosures after selecting the "Apply Here" button.
When applying you will notice complete disclosures that under federal law, all solicitations and applications for credit cards must include certain key information, in a disclosure box which displays the following information:
Annual percentage rate (APR) for purchases
2.9% until 11/1/06, after that, 14.9%
Other APRs
Cash-advance APR: 15.9%, Balance-Transfer APR: 15.9%, Penalty rate: 23.9% See explanation below.*
Variable-rate information will look something like this:
Your APR for purchase transactions may vary. The rate is determined monthly by adding 5.9% to the Prime Rate.**
Grace period for repyament of balances for purchases
25 days on average
Method of computing the balance for purchases
Average daily balance (excluding new purchases)
Annual fees None
Minimum finance charge $.50
Transaction fee for cash advances: 3% of the amount advanced, Balance-transfer fee: 3% of the amount transferred, Late-payment fee: $25, Over-the-credit-limit fee: $25
* Explanation of penalty. If your payment arrives more than ten days late two times withing a six-month period, the penalty rate will apply.**The Prime Rate used to determine your APR is the rate published in the Wall Street Journal on the 10th day of the prior month.
APR for purchases. The annual percentage rate you'll be charged if you carry over a balance from month to month. If the card has an introductory rate, you'll see both that rate and the rate that will apply after the introductory rate expires.
Other APRs. The APRs you'll be charged if you get a cash advance on your card, transfer a balance from another card, or are late in making a payment. More information about the penalty rate may be stated outside the disclosure box-for instance, in a footnote. In this example, if you make two payments that are more than ten days late within six months, the APR will increase to 23.9%.
Variable-rate information. Information about how the variable rate will be determined (if relevant). More information may be stated outside the disclosure box-for instance, in a footnote.
Grace period for repayment of balances for purchases. The number of days you'll have to pay your bill for purchases in full without triggering a finance charge.
Method of computing the balance for purchases. The method that will be used to calculate your outstanding balance if you carry over a balance and will pay a finance charge.
Annual fees. The amount you'll be charged each twelve-month period for simply having the card.
Minimum finance charge. The minimum, or fixed, finance charge that will be imposed during a billing cycle. A minimum finance charge usually applies only when a finance charge is imposed, that is, when you carry over a balance.
Transaction fee for cash advances. The charge that will be imposed each time you use the card for a cash advance.
Balance-transfer fee. The fee that will be imposed each time you transfer a balance from another card.
Late-payment fee. The fee that will be imposed when your payment is late.
Over-the-credit-limit fee. The fee that will be imposed if your charges exceed the credit limit set for your card.
What are your liability limits?
If your credit card is lost or stolen-and then is used by someone without your permission-you do not have to pay more than $50 of those charges. This protection is provided by the federal Truth in Lending Act. You do not need to buy "credit card insurance" to cover amounts over $50.
If you discover that your card is lost or stolen, report it immediately to your credit card company. Call the toll-free number listed on your monthly statement. The company will cancel the card so that new purchases cannot be made with it. The company will also send you a new card.
Make a list of your account numbers and the companies' phone numbers. Keep the list in a safe place. If your wallet or purse is lost or stolen, you'll have all the numbers in one place. Take the list of phone numbers-not the account numbers-with you when you travel, just in case a card is lost or stolen.
What can you do about billing errors?
The federal Fair Credit Billing Act covers billing errors. Examples of billing error are:
A charge for something you didn't buy, a bill for an amount different from the actual amount you charged, a charge for something that you did not accept when it was delivered, a charge for something that was not delivered according to agreemen, math errors, Payments not credited to your account, A charge by someone who does not have permission to use your credit card
If you think your credit card bill has an error, take the following steps:
1. Write to the credit card company within 60 days after the statement date on the bill with the error. Use the address for "billing inquiries" listed on the bill. Tell the company your name and account number, that you believe the bill contains an error, and why you believe it's wrong, and the date and amount of the error (the "disputed amount").
2. Pay all the other parts of the bill. You do not have to pay the "disputed amount" or any minimum payments or finance charges that apply to it.
If there is an error, you will not have to pay any finance charges on the disputed amount. Your account must be corrected.
If there is no error, the credit card company must send you an explanation and a statement of the amount you owe. The amount will include any finance charges or other charges that accumulated while you were questioning the bill.
What if the item you purchase is damaged?
The federal Fair Credit Billing Act allows you to withhold payment on any damaged or poor-quality goods or services purchased with a credit card-even if you have accepted the goods or services-as long as you have made an attempt to solve the problem with the merchant. The sale must have been for more than $50 and must have taken place in your home state or within 100 miles of your home address. You should notify the credit card company in writing and explain why you are withholding your payment. You may withhold the payment while the credit card company investigates your claim. If you pay the charges for the goods on your credit card bill before the dispute is resolved, you will lose your right to make a claim.
Choosing and Using Credit Cards
Chances are you've gotten your share of "pre-approved" credit card offers in the mail, some with low introductory rates and other perks. Many of these solicitations urge you to accept "before the offer expires." Before you accept, shop around to get the best deal.
Credit Card Terms
A credit card is a form of borrowing that often involves charges. Credit terms and conditions affect your overall cost. So it's wise to compare terms and fees before you agree to open a credit or charge card account. The following are some important terms to consider that generally must be disclosed in credit card applications or in solicitations that require no application. You also may want to ask about these terms when you're shopping for a card.
Annual Percentage Rate. The APR is a measure of the cost of credit, expressed as a yearly rate. It also must be disclosed before you become obligated on the account and on your account statements.
The card issuer also must disclose the "periodic rate"-the rate applied to your outstanding balance to figure the finance charge for each billing period.
Some credit card plans allow the issuer to change your APR when interest rates or other economic indicators-called indexes-change. Because the rate change is linked to the index's performance, these plans are called "variable rate" programs. Rate changes raise or lower the finance charge on your account. If you're considering a variable rate card, the issuer must also provide various information that discloses to you: that the rate may change; and how the rate is determined-which index is used and what additional amount, the "margin," is added to determine your new rate.
At the latest, you also must receive information, before you become obligated on the account, about any limitations on how much and how often your rate may change.
Free Period. Also called a "grace period," a free period lets you avoid finance charges by paying your balance in full before the due date. Knowing whether a card gives you a free period is especially important if you plan to pay your account in full each month. Without a free period, the card issuer may impose a finance charge from the date you use your card or from the date each transaction is posted to your account. If your card includes a free period, the issuer must mail your bill at least 14 days before the due date so you'll have enough time to pay.
Annual Fees. Most issuers charge annual membership or participation fees. They often range from $25 to $50, sometimes up to $100; "gold" or "platinum" cards often charge up to $75 and sometimes up to several hundred dollars.
Transaction Fees and Other Charges. A card may include other costs. Some issuers charge a fee if you use the card to get a cash advance, make a late payment, or exceed your credit limit. Some charge a monthly fee whether or not you use the card.
Balance Computation Method for the Finance Charge. If you don't have a free period, or if you expect to pay for purchases over time, it's important to know what method the issuer uses to calculate your finance charge. This can make a big difference in how much of a finance charge you'll pay-even if the APR and your buying patterns remain relatively constant. See page 4 for examples of how the methods can affect your costs.
Examples of balance computation methods include the following: Average Daily Balance. This is the most common calculation method. It credits your account from the day payment is received by the issuer. To figure the balance due, the issuer totals the beginning balance for each day in the billing period and subtracts any credits made to your account that day. While new purchases may or may not be added to the balance, depending on your plan, cash advances typically are included. The resulting daily balances are added for the billing cycle. The total is then divided by the number of days in the billing period to get the "average daily balance."
Adjusted Balance. This is usually the most advantageous method for card holders. Your balance is determined by subtracting payments or credits received during the current billing period from the balance at the end of the previous billing period. Purchases made during the billing period aren't included. This method gives you until the end of the billing cycle to pay a portion of your balance to avoid the interest charges on that amount. Some creditors exclude prior, unpaid finance charges from the previous balance.
Previous Balance. This is the amount you owed at the end of the previous billing period. Payments, credits and new purchases during the current billing period are not included. Some creditors also exclude unpaid finance charges.
Two-cycle Balances. Issuers sometimes use various methods to calculate your balance that make use of your last two month's account activity. Read your agreement carefully to find out if your issuer uses this approach and, if so, what specific two-cycle method is used.
If you don't understand how your balance is calculated, ask your card issuer. An explanation must also appear on your billing statements.
Other Costs and Features-Credit terms vary among issuers. When shopping for a card, think about how you plan to use it. If you expect to pay your bills in full each month, the annual fee and other charges may be more important than the periodic rate and the APR, if there is a grace period for purchases. However, if you use the cash advance feature, many cards do not permit a grace period for the amounts due-even if they have a grace period for purchases. So, it may still be wise to consider the APR and balance computation method. Also, if you plan to pay for purchases over time, the APR and the balance computation method are definitely major considerations.
You'll probably also want to consider if the credit limit is high enough, how widely the card is accepted, and the plan's services and features. For example, you may be interested in "affinity cards"-all-purpose credit cards sponsored by professional organizations, college alumni associations and some members of the travel industry. An affinity card issuer often donates a portion of the annual fees or charges to the sponsoring organization, or qualifies you for free travel or other bonuses.
Special Delinquency Rates. Some cards with low rates for on-time payments apply a very high APR if you are late a certain number of times in any specified time period. These rates sometimes exceed 20 percent. Information about delinquency rates should be disclosed to you in credit card applications or in solicitations that do not require an application.
Receiving a Credit Card. Federal law prohibits issuers from sending you a card you didn't ask for. However, an issuer can send you a renewal or substitute card without your request. Issuers also may send you an application or a solicitation, or ask you by phone if you want a card-and, if you say yes, they may send you one.
Cardholder Protections. Federal law protects your use of credit cards.
Prompt Credit for Payment. An issuer must credit your account the day payment is received. The exceptions are if the payment is not made according to the creditor's requirements, or the delay in crediting your account won't result in a charge.
To help avoid finance charges, follow the issuer's mailing instructions. Payments sent to the wrong address could delay crediting your account for up to five days. If you misplace your payment envelope, look for the payment address on your billing statement or call the issuer.
Refunds of Credit Balances. When you make a return or pay more than the total balance at present, you can keep the credit on your account or write your issuer for a refund-if it's more than a dollar. A refund must be issued within seven business days of receiving your request. If a credit stays on your account for more than six months, the issuer must make a good faith effort to send you a refund.
Errors on Your Bill. Issuers must follow rules for promptly correcting billing errors. You'll get a statement outlining these rules when you open an account and at least once a year. In fact, many issuers include a summary of these rights on your bills.
If you find a mistake on your bill, you can dispute the charge and withhold payment on that amount while the charge is being investigated. The error might be a charge for the wrong amount, for something you didn't accept, or for an item that wasn't delivered as agreed. Of course, you still have to pay any part of the bill that's not in dispute, including finance and other charges.
If you decide to dispute a charge: Write to the creditor at the address indicated on your statement for "billing inquiries." Include your name, address, account number, and a description of the error. Send your letter soon. It must reach the creditor within 60 days after the first bill containing the error was mailed to you.
The creditor must acknowledge your complaint in writing within 30 days of receipt, unless the problem has been resolved. At the latest, the dispute must be resolved within two billing cycles, but not more than 90 days.
Unauthorized Charges. If your card is used without your permission, you can be held responsible for up to $50 per card.
If you report the loss before the card is used, you can't be held responsible for any unauthorized charges. If a thief uses your card before you report it missing, the most you'll owe for unauthorized charges is $50.
To minimize your liability, report the loss as soon as possible. Some issuers have 24-hour toll-free telephone numbers to accept emergency information. It's a good idea to follow-up with a letter to the issuer-include your account number, the date you noticed your card missing, and the date you reported the loss.
Disputes about Merchandise or Services. You can dispute charges for unsatisfactory goods or services. To do so, you must: have made the purchase in your home state or within 100 miles of your current billing address. The charge must be for more than $50. (These limitations don't apply if the seller also is the card issuer or if a special business relationship exists between the seller and the card issuer.) and first make a good faith effort to resolve the dispute with the seller. No special procedures are required to do so.
If these conditions don't apply, you may want to consider filing an action in small claims court. Questions about a particular issuer should be sent to the agency with jurisdiction.
National Banks
Comptroller of the Currency
Compliance Management, Mail Stop 7-5
Washington, DC 20219
State Member Banks of the Reserve System
Consumer and Community Affairs
Federal Reserve Board
20th & C Streets, NW
Washington, DC 20551
Federal Credit Unions
National Credit Union Administration
1776 G Street, NW
Washington, DC 20456
Non-Member Federally Insured Banks
Office of Consumer Programs
Federal Deposit Insurance Corporation
550 Seventeenth Street, NW
Washington, DC 20429
Federally Insured Savings and Loans, and Federally Chartered State Banks
Consumer Affairs Program
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Other Credit Card Issuers (includes retail/gasoline companies)
Consumer Response Center
Federal Trade Commission
Washington, DC 20580
Qualifying for low interest credit cards
A credit card is a great financial tool. It can be more convenient to use and carry than cash and it offers valuable consumer protections under federal law. At the same time, it's a big responsibility. If you don't use it carefully, you may owe more than you can repay, damage your credit rating and create credit problems for yourself that can be difficult to fix. Chances are your mail is full of offers from credit card issuers. How do you know if the time is right for a credit card? Here is some important information that may help you determine whether you're ready for plastic, what to look for when you select a company to do business with and how to use your credit card responsibly.
Qualifying: If you're at least 18 years old and have a regular source of income, you're well on your way to qualifying for a card. But despite the invitations from card issuers, you'll still have to demonstrate that you're a good risk before they grant you credit. The proof is in your credit record. If you've financed a car loan or other purchase, you probably have a record at a credit reporting bureau. This credit history shows how responsible you've been in paying your bills and helps the credit card issuer decide how much credit to extend. Before you submit a credit application, get a copy of your credit report to make sure it's accurate. Contact the credit bureaus listed in the telephone directory under "credit" or "credit rating and reporting." Because more than one credit bureau may have a file on you, call each until you locate all the agencies maintaining your file. The three major national credit bureaus are:
Equifax-(800) 685-1111
Experian-(888) 397-3742
Transunion-(800) 888-421
Anyone who takes action against you in response to a report supplied by a credit reporting agency-such as denying your application for credit-must give you the name, address and telephone number of the credit bureau that provided the report.
Establishiing a credit history: Suppose you haven't financed a car loan, a computer, or some other major purchase. How do you begin to establish credit? First, consider applying for a credit card issued by a local store and use it responsibly. Ask if they report to a credit bureau. If they do-and if you pay your bills on time-you'll establish a good credit history.
Second, consider a secured credit card. It requires that you open and maintain a bank account or other asset account at a financial institution as security for your line of credit. Your credit line will be a percentage of your deposit, typically from 50 to 100 percent. Application and processing fees are not uncommon for secured credit cards. In addition, secured credit cards usually carry higher interest rates than traditional nonsecured cards.
Third, consider asking someone with an established credit history-perhaps a relative-to co-sign the account if you don't qualify for credit on your own. The co-signer promises to pay your debts if you don't. You'll want to repay any debt promptly so you can build a credit history and apply for credit in the future on your own. A positive credit history is an asset, not only when you apply for a credit card, but also when you apply for a job or insurance, or when you want to finance a car or a home.
If your application gets denied: If you're turned down for a card, ask why. It may be that you haven't been at your current address or job long enough. Or that your income doesn't meet the issuer's criteria. Different credit card companies have different standards. But if you are turned down by several companies, it may indicate that you are not ready for a credit card. If you've been denied credit because of information supplied by a credit bureau, federal law requires the creditor to give you the name, address and telephone number of the bureau that supplied the information. If you contact that bureau within 60 days of receiving the denial, you are entitled to a free copy of your report. If your file contains accurate negative information, only time and good credit habits will restore your credit-worthiness. If you find an error in your report, you are entitled to have it investigated by the credit bureau and corrected at no charge. You should dispute any inaccuracy in your report with the credit bureau and also with the company that furnished the information to the credit bureau.
Credit Card Best Values: Fees, charges and benefits vary among credit card issuers. When you're choosing a credit card, shop around. Compare these important features:
Annual Percentage Rate(APR): The APR is a measure of the cost of credit, expressed as a yearly interest rate. Check out the "periodic rate," too. That's the rate the issuer applies to your outstanding balance to figure the finance charge for each billing period. For example, if you have an outstanding balance of $2,000, with 18.5% interest and a low minimum monthly payment, it would take over 11 years to pay off the debt and cost you an additional $1,934 just for interest, which almost doubles the total cost of your original purchase.
Grace Period: This is the time between the date of a purchase and the date interest starts being charged on that purchase. If your card has a standard grace period you have an opportunity to avoid finance charges by paying your current balance in full. Some issuers allow a grace period for new purchases even if you do not pay your balance in full every month. If there is no grace period, the issuer imposes a finance charge from the date you use your card or from the date each transaction is posted to your account.
Annual Fees: Many credit card issuers charge an annual fee for granting you credit, typically $15 to $55. Some issuers charge no annual fee.
Transaction Fees: Some issuers charge a fee if you use the card to get a cash advance, if you fail to make a payment on time, or if you exceed your credit limit. Some may charge a flat fee every month whether you use the card or not.
Customer Service: Many issuers have 24-hour toll-free telephone numbers and online systems.
Other benefits: Issuers may offer additional benefits, some with a cost, such as: insurance, credit card protection, discounts, rebates, and special merchandise offers.
Responsibility: Once you get a card, sign it immediately so no one else can use it. Note that the accompanying papers have important information, such as customer service telephone numbers, in case your card is lost or stolen. File this information in a safe place. Call the card issuer to activate the card. Many issuers require this step to minimize fraud and to give you additional information. Keep your account information to yourself. Never give out your credit card number or expiration date over the phone unless you know who you're dealing with. A criminal can use this information to steal money from you, or even assume your credit identity. Keep copies of sales slips and compare charges when your bill arrives. Promptly report in writing any questionable charges to the card issuer. Don't lend your card to anyone, even to a friend. Your credit privilege and history are too precious to risk.
You are responsible: While a credit card makes it easy to buy something now and pay for it later, you can lose track of how much you've spent by the time the bill arrives if you're not careful. And if you don't pay your bill in full, you'll probably have to pay finance charges on the unpaid balance. What's more, if you continue to charge while carrying an outstanding balance, your debt can snowball. Before you know it, your minimum payment is only covering the interest. If you start having trouble repaying the debt, you could tarnish your credit report. And that can have a sizable impact on your life. A negative report can make it more difficult to finance a car or home, get insurance, and even get a job.
Federal Protection: Federal law offers the following protections when you use credit cards:
Errors on your bill: You must notify the card issuer in writing within 60 days after the first bill containing the error was mailed to you. In your letter, include: your name; account number; the type, date, and amount of the error; and the reason why you believe the bill contains an error. In return, the card issuer must investigate the problem and either correct the error or explain to you why the bill is correct. This must occur within two billing cycles and not later than 90 days after the issuer receives your billing error notice. You do not have to pay the amount in question during the investigation.
Unauthorized charges: If your credit card is used without your authorization, you can be held liable for up to $50 per card. If you report the loss of a card before it is used, the card issuer cannot hold you responsible for any unauthorized charges. If a thief uses your card before you report it missing, the most you will owe for unauthorized charges is $50. You should be prompt in reporting the loss or theft of your card to limit your liability.
Types of Credit accounts: Credit grantors generally issue three types of accounts. The basic terms of these account agreements are:
Revolving Agreement: A consumer pays in full each month or chooses to make a partial payment based on the outstanding balance. Department stores, gas and oil companies, and banks typically issue credit cards based on a revolving credit plan.
Charge Agreement: A consumer promises to pay the full balance each month, so the borrower does not have to pay interest charges. Charge cards, not credit cards, and charge accounts with local businesses often require repayment on this basis.
Installment Agreement: A consumer signs a contract to repay a fixed amount of credit in equal payments over a specific period of time. Automobiles, furniture, and major appliances often are financed this way. Personal loans usually are paid back in installments.
Credit Insurance: Is it right for you?
The next time you apply for a mortgage or personal loan, you may be asked if you want to buy credit insurance, or it might already be included in your loan proposal. Credit insurance protects the loan on the chance that you can't make your payments. Credit insurance usually is optional, which means you don't have to purchase it from the lender. In fact, the Federal Trade Commission (FTC), the nation's consumer protection agency, says it's against the law for a lender to deceptively include credit insurance (or other optional products) in your loan without your knowledge or permission.
There are four main varieties of credit insurance: Credit life insurance pays off all or some of your loan if you die. Credit disability insurance, also known as accident and health insurance, makes payments on the loan if you become ill or injured and can't work. Involuntary unemployment insurance, also known as involuntary loss of income, makes your loan payments if you lose your job due to no fault of your own, such as a layoff. Credit property insurance protects personal property used to secure the loan if destroyed by events like theft, accident or natural disasters.
Shopping Tips
Before deciding to buy credit insurance from a lender, think about your needs, your options, and the rates you're going to pay. You may decide you don't need credit insurance. If you do, credit insurance can be an expensive form of insurance. For example, it may be less expensive and more practical for you to get life insurance than credit insurance. Before deciding to buy credit insurance, you should ask:
• How much is the premium?
• Will the premium be financed as part of the loan? If so, it will increase your loan amount and you'll pay additional interest, and more for points (if points are on your loan).
• Can you pay monthly instead of financing the entire premium as part of your loan?
• How much lower would your monthly loan payment be without the credit insurance?
• Will the insurance cover the full length of your loan and the full loan amount?
• What are the limits and exclusions on payment of benefits-spell out exactly what's covered and what's not.
• Is there a waiting period before the coverage becomes effective?
• If you have a co-borrower, what coverage does he or she have and at what cost?
• Can you cancel the insurance? If so, what kind of refund is available?
Before you sign any loan papers, ask the lender whether the loan includes any charges for voluntary credit insurance. If you don't want credit insurance, tell the lender. If the lender still pressures you to buy insurance, find another lender. And review your loan papers carefully to be sure they have been drawn up correctly. Lenders can't deny you credit if you don't buy optional credit insurance-and if you don't buy it directly from them. If a lender tells you that you'll only get the loan if you buy the optional credit insurance, report the lender to your state attorney general, your state insurance commissioner or the FTC. Consumers should ask these same questions about other extra products offered with their loan, such as auto or shopping clubs, home or auto security plans, and debt cancellation products.
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