Ready,
Set, Credit
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 FOR A CREDIT CARD
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; www.equifax.com
EXPERIAN - (888)
EXPERIAN (397-3742); www.experian.com
TRANS UNION - (800)
888-4213; www.transunion.com
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.
ESTABLISHING 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
IS 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.
GETTING THE
BEST DEAL
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 & OTHER CHARGES
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.
OTHER
BENEFITS
Issuers may offer additional benefits, some with a
cost, such as: insurance, credit card protection,
discounts, rebates, and special merchandise offers.
CREDI-QUETTE
- 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 PROTECTIONS
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.
KINDS 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, too.
FOR MORE INFORMATION
The 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
www.ftc.gov
or call toll-free, 1-877-FTC-HELP (1-877-382-4357);
TTY: 1-866-653-4261. The FTC enters Internet, telemarketing,
identity theft and other fraud-related complaints into
Consumer Sentinel, a secure, online database available
to hundreds of civil and criminal law enforcement agencies
in the U.S. and abroad.
The Federal Consumer Information
Center (FCIC) publishes the Consumer Information Catalog
which lists more than 200 booklets on a wide variety
of subjects, including credit. Access the Catalog and
its full-text entries at www.pueblo.gsa.gov.
Or write Catalog, Consumer Information Center, Pueblo,
CO 81009. Or call them at 1-888-878-3256.
American Express Company offers free
consumer booklets on a variety of credit subjects. To
order, contact: American Express Company, PO Box 4635,
Trenton, NJ 08650-9874. For information about students
and credit, you can visit The Money Pit at American
Express University at www.americanexpress.com/student.
Or access American Express Company at www.americanexpress.com.
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