Credit Cards 101

You can use a credit card to buy things and pay for them over time. But remember, buying with credit is a loan and you have to pay the money back. In addition to the cost of what you bought, you will owe a percentage of what you spent (interest) and sometimes an annual fee.  Here are some basic credit cards 101 information to help.

You may need credit for immediate reasons, such as:

• Renting an apartment or car
• Getting phone service and utilities service
• Financing a car or home
• Paying for school expenses
• Spreading out payments on high-dollar items
• Travel or hotel reservations

By establishing a good credit history, you’ll have access to credit later on for things like the following:

• Buying a home
• Applying for a job
• Qualifying for loans for purchases including cars, furniture and wedding expenses
• Making urgent repairs to your car or home
• Getting emergency medical care for you or a family member
• Internet purchases

Know What Creditors Look for on Credit Reports:

Understanding what types of information most creditors evaluate is important. Your credit report is a key part of your credit score, but it is not the only factor. Other factors are taken into consideration, such as:

• Paying your bills on time
• How many accounts you have and what kind
• Longevity of accounts
• The unused portions of lines of credit
• Collections actions
• Current total of outstanding debt

Terms You Should Know:

Annual percentage rate (APR). The APR is a measure of the cost of credit, expressed as a yearly interest rate. Usually, the lower the APR, the better for you. Remember that the interest rate and minimum monthly payment affect how long it will take to pay off your debt and how much you will pay for your purchase over time.

Grace period. This is the time between the date of the credit card purchase and the date the company starts charging you interest.

Annual fees. Many credit card issuers charge an annual fee for giving you credit, typically ranging from $15 to $55.

Transaction fees and other charges. Most credit card issuers charge a fee if you don’t make a payment on time. Other common credit card fees include those for cash advances and going beyond the credit limit.

$0 Fraud Liability. You are not responsible for unauthorized charges made on your account, regardless of whether they are online or offline. There is no deductible for this program.

Other options. Credit card issuers may offer other options for a price, including discounts, rebates and special merchandise offers. If your credit card is lost or stolen, federal law protects you from owing more than $50 per card.

Paying Your Bill:

If you carry a balance on your credit card, the lower the annual percentage rate (APR) of your card, the less you will pay in interest or finance charges during a given year. In short, if you never pay your bill in full and the features and benefits of all your cards are the same, the one with the lowest interest rate will save you the most money over time.

If you always carry a balance, making your monthly payment early in the billing cycle (even before the stated due date on the billing statement) will also save you money. Why? Because most credit card issuers use the average daily balance method to figure monthly interest or finance charges. If you make your monthly payment early in the billing cycle, you reduce the daily balance for more days in that cycle. This also reduces the total balance used to figure the average daily balance for that month.

If you only use your credit cards for purchases and you pay your monthly bills in full each month by the due date, you will avoid all interest charges.

Protecting Your Credit:

Once you have obtained credit, it is necessary to protect it. This means being careful with your credit, debit and ATM cards, as well as your account and personal identification numbers (PIN). Following these tips will help to ensure your credit is protected.

• Carry only the cards you expect to use, and keep the others in a safe place.
• Maintain a list of account and telephone numbers of the companies that issued your cards. That way, if the cards are lost or stolen, you can notify the companies quickly. Be cautious about giving anyone your account numbers, especially over the telephone when someone calls you.
• Save sales receipts to compare with your bill, and when you discard documents with account numbers on them, be certain that the numbers can’t be read.
• If you disagree with an item on your credit card billing statement, you are responsible for notifying your credit card issuer in writing within 60 days of the date of the statement. You should include your name, account number, the item you believe is in error and the reasons why.

Credit Card Features

Choosing the Right Card for You

There’s much more to choosing a credit card than learning which ones offer free giveaways for signing up. Shopping around for a credit card can save you money on interest and fees, which can vary among credit card issuers. Find out the best card with the right credit card features for you.  Most issuers offer several kinds of cards, including:

• 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 histories. Those include people who are just starting out or who have had trouble with credit in the past.
• Standard cards, which do not require a security deposit and have just a few features. Most standard 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, including product warranties, travel insurance or emergency services.

You’ll want to find one with features that match your needs. Before choosing a credit card, ask yourself these questions:

• Do you expect to pay your account in full each month? If so, the annual fee and other charges may be more important than the annual percentage rate (APR).
• Will you be using the cash advance feature? In this case, the APR and fees applicable to cash advances may be more important.
• Is the credit limit high enough?
• Is the card accepted at the majority of the places you plan to use it?
• What are the plan’s services and features?

Features and Benefits of Some Credit Cards

Credit Cards offer a wide range of features and benefits. It is important to read and understand all of the criteria associated with the features of your card. Below is a list of some of the most common:

• Rebates (money back) on the purchases you make
• Rewards programs that can be redeemed for airline tickets, gift cards or other purchases
• Warranty coverage for the items you purchase
• Car rental insurance
• Travel accident insurance or travel-related discounts

Before you sign up to pay for any of these features, think carefully about whether it will be useful for you and don’t pay for something you don’t need. Shopping around for a credit card can save you money on interest and fees.

Cash Advances

Some credit cards let you borrow cash in addition to making purchases on credit. Most credit card companies treat 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 issuer 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 percent of your available credit limit).
• How payments are credited. Many credit card issuers apply your payments to balances with lower APRs before balances with higher APRs. If cash advances have a higher APR than purchases, your payments may be applied to your purchases before your cash advances. Read your credit card agreement to learn how your payments will be credited.

Insurance Options

Many cards offer insurance to cover the payments on your credit card balance if you become unemployed, disabled or in the case of death.

• 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.
• Most issuers don’t hold customers responsible for fraudulent charges.
• Insurance programs vary per card so make sure to read and understand the coverage options that are associated with your card.

Fraud Protection

Here are some tips to help protect yourself from credit card fraud.

Do:

• Sign your cards as soon as they arrive.
• Carry your cards separately from your wallet, in a zippered compartment, a business card holder or another small pouch.
• Keep a record of your account numbers, their expiration dates and the phone number and address of each company in a secure place.
• Keep an eye on your card during the transaction, and get it back as quickly as possible.
• Void incorrect receipts.
• Destroy carbons.
• Save receipts to compare with billing statements.
• Open bills promptly and reconcile accounts monthly, just as you would your checking account.
• Report any questionable charges promptly and in writing to the card issuer.
• Notify card issuers in advance of a change in address.

Don’t:

• Lend your card(s) to anyone.
• Leave cards or receipts lying around.
• Sign a blank receipt. When you sign a receipt, draw a line through any blank spaces above the total.
• Write your account number on a postcard or the outside of an envelope.
• Give out your account number over the phone unless you’re making the call to a company you know is reputable. If you have questions about a company, check it out with your local consumer protection office or Better Business Bureau.

Reporting  Credit Card Losses and Fraud:

If you lose your credit cards or if you realize they’ve been lost or stolen, immediately call the issuers. Many issuers have toll-free numbers and 24-hour service to deal with such emergencies. By law, once you report the loss or theft, you have no further responsibility for unauthorized charges. In any event, your maximum liability under federal law is $50 per card.

If you suspect fraud, you may be asked to sign a statement under oath that you did not make the purchase(s) in question.

For More Information:

The Federal Trade Commission (FTC) works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Complaints Against a Credit Card Company:

If you wish to file a complaint against your credit card company you can call 1-855-411-2372 or visit www.consumerfinance.gov

Reading Your Credit Card Statement

Learning how to read your monthly credit card statement will help you pinpoint the key information featured in your account statement.

Quick Tips for Reading Your Credit Card Statement

• When you get your credit card statement, be sure everything is correct.
• Check the due date.
• Look at the new charges and match everything with your receipts.
• Make sure your last payment was recorded correctly.
• If something seems out of place call your credit card issuer immediately to get it fixed.

Key Terms to Look For When Reading and Understanding Your Bank Statement:

Post date: Date that a purchase, cash advance, fee, service charge or payment is received on your charge or credit card.

Total credit line: The maximum balance you can carry.

Statement/Closing date: Date that your billing cycle ends. Interest is calculated on that date for the cycle and the statement is generated.

Available credit line: The amount of unused credit that is available to you. Your available credit is your Balance subtracted from your Total Credit Line.

Amount over credit limit: Amount you owe that exceeds your credit line. Any combination of purchases, cash advances, fees or finance charges may cause you to exceed your credit limit. If you go over your credit limit, you will be charged an extra fee each month until the amount of money you owe is less than or equal to your credit line.

Cash advance limit: The maximum amount of cash that you can withdraw from your credit card account.

Past due: Status of an account when the minimum payment has not been received by the due date.

Available cash limit: The amount of cash that is available within your cash advance limit that you can withdraw from your credit card account.

Purchase/Advance minimum due: The smallest amount you can pay on your purchases and cash advances by the Payment Due Date and still meet the terms of your card agreement.

New balance: The total amount you owe the issuer. Includes any unpaid balance from last month, new purchases, cash advances and any other charges such as annual fee, late fees or finance charges.

Minimum amount due: The smallest amount you can pay by the Payment Due Date and still meet the terms of your Card Agreement. This is listed on two places in your statement.

Balance transfer: Transferring balance from one card to another, usually to take advantage of a lower interest rate. Transfers are limited to the available credit on the receiving card and may incur fees additional to the interest.

Previous balance: The total balance due at the end of the last billing cycle.

Finance charge: The cost of consumer credit expressed as a dollar amount. This includes any charges, such as interest and fees, paid by the consumer to the creditor for obtaining a loan.

Periodic rate: The interest rate described in relation to a specific amount of time. For example, the monthly periodic rate is the cost of credit per month; the daily periodic rate is the cost of credit per day.

Annual percentage rate (APR): The interest rate, calculated on a yearly basis, which you pay on balances. If you carry a balance, the APR is the best indicator of what credit costs.

Payment due date: The day a payment is due to the creditor. After that date, a late fee can be charged, the payment can be recorded as late, and the account can be considered delinquent.

Total balance: The total amount you owe the issuer. Includes any unpaid balance from last month, new purchases, cash advances and any other charges such as annual fee, late fees or finance charges.

Information in this article was derived from the Federal Reserve Board, the Federal Trade Commission and the My Money Management Web sites.