A credit card is a way of borrowing money that brings charges of its own with it. The terms of the card impact your total cost. It's smart to examine the credit card charges if you apply for credit.
Here are some vital terms that usually have to be given to you up front when you apply for credit, or when you get good credit card offers in the mail. You should also ask about these terms when you're looking for a card. Annual Percentage Rate. The APR is how much interest you are charged for your purchases on the card. Some cards have variable rates, which change depending on the market index. But most have flat rates, which stay in effect unless or until the lender changes them.
Free Period. Also known as the "grace period," this lets you avoid being charged any interest if you pay back the full balance before the time is up. If you intend to pay your card off in full each month, you should know how long your free period is. If there is no free period, that means the lender charges you interest as soon as you make the purchase, no matter how quickly you repay it. If your card includes a free period, the lender must mail your bill at least 14 days before the due date so you'll have enough time to pay.
Annual Fees. Some lenders charge annual fees for their cards, anywhere from $25 to $50, sometimes even higher. But many, many credit cards are annual fee free, too, so keep that in mind when you apply for credit.
Transaction Fees and Other Charges. A card may have other fees connected to it, too. Some lenders charge you if you use the card for a cash advance, if your payment is late, or if you go over your credit allowance.
Balance Computation Method for the Finance Charge. If there’s no grace period, of if you’ll be paying off your balance over the course of many months instead of all at once, then you should know how the lender calculates your monthly finance charges. This can make a big difference in how much interest you'll pay - even if the APR and your buying patterns stay the same. Balances Affecting Credit Score:
Average Daily Balance is the most common way of figuring interest. It credits your account the day you make a payment. To calculate the balance due, the lender looks at your balance of each day in the billing cycle, then determines what the average daily balance was which, in fact, influences your credit score.
Adjusted Balance. This is generally the best method for customers. The balance is figured by subtracting payments you make in the current billing period from the balance at the end of the previous billing period. Purchases carried out during the billing period aren't included. This way, you can avoid interest charges by paying part of the balance until the end of the billing cycle to pay a portion of your balance to avoid the interest charges on it. Some lenders leave out 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 and new purchases during the current billing period are not included. A number of creditors also exclude unpaid finance charges.
Two-cycle Balances. Lenders sometimes use other ways to calculate your balance that make use of your last two months' account activity. Look through the agreement carefully to see if your lender uses this method and, if so, what two-cycle method is used.
If you don't understand how your balance is calculated, ask your card lender. An explanation must also appear on your billing statements. You are entitled to have it explained to you.
Credit card terms differ among lenders. Searching for a credit card, work out a plan to use it. If you mean to pay your monthly bills in full, annual fees and other credit card fees may be more important than the APR, if the card offers grace period for purchases. However, if you use the cash advance many cards do not allow a grace period for the due amounts. So, it is all the same wise to consider the APRs and balances calculation method. If you are going to pay for purchases overdue, the APR and the balance calculation method is certainly major concern.
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 lender 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 when you apply for credit.
Receiving a Credit Card. Federal law prohibits lenders from sending you a card you didn't ask for. However, a lender can send you a renewal or substitute card without being asked. Lenders also may send you an application, or ask you by phone if you want a card — and, if you say yes, they can send you one.
A lender is to credit your account the day they receive the payment unless it is not made according to the creditor's requirements, or if the delay in crediting doesn’t result in a charge. To help avoid finance charges, follow the lender's mailing instructions. Payments sent to the wrong address could delay crediting your account for up to five days, and you could miss your deadline, which will impact your credit score. If you lose your payment envelope, look for the address on your bill, or call the lender. Many lenders let you pay your bills online, too.
Mistakes in Your Bill. Lenders must quickly fix billing errors. You'll get a letter describing these rules when you open bank credit card account. Many lenders put the rights on your bills. If you find an error on your bill, you can file dispute and stop payment on it while the charge is settled. Still, you must pay any part of the undisputed bill covering finance and other charges.
When disputing a charge contact lender at the address in your statement, write your name, address, account number, and describe the mistake. Mail it promptly. It must get to the lender within 60 days after mistake was mailed to you.
The creditor must acknowledge your dispute in writing I no longer than 30 days of receipt, if only the problem has been fixed already. Or the dispute must be handled within two billing cycles, but not more than 90 days.
Unauthorized Charges. If you’re the victim of credit card fraud, you can be held responsible for up to $50. If you report the loss before the card is used, you won’t be held liable for any unauthorized charges. If a thief uses your card before you report it missing, the most you'll owe is $50. To minimize your liability, report the loss as soon as possible. Some lenders have 24-hour toll-free telephone numbers to accept emergency information.
Disputes about Merchandise or Services. You can dispute charges for shoddy 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 lender or if a special business relationship exists between the seller and the card lender.) First you must 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.
Shopping Tips. Keep these tips in mind when you apply for credit. Think of the variant that best fits your needs. Make sure you know a plan's terms before you take the card. Keep receipts to acknowledge charges when your bill comes. Keep your cards and account numbers from credit card fraud. Make a line through blank spaces on charge letter so the amount can't be altered. Tear up copies. Preserve a record of your credit account numbers, expiration dates and the phone numbers of each creditor to report about loss straight off. Take the cards you really use.
What is a credit card?
A credit card lets you to pay for things by borrowing against your line of credit with the credit card company, and to make monthly payments on the remaining amount you owe.
What Are the Advantages of a Credit Card?
It lets you to make purchases on credit without carrying around a lot of cash.
It provides for accurate record-keeping by consolidating purchases into a single statement.
It gives you convenient ordering by mail or phone.
It lets you to pay for large purchases in small, monthly installments.
Under certain circumstances, it allows you to withhold payment for merchandise that is defective.
Credit Card Disadvantages?
The ease of using credit cards, combined with impulsive buying, may result in over-spending.
High interest rates, as well as other costs make credit cards a relatively expensive method of obtaining credit.
Lost or stolen cards may result in some expense ($50) and inconvenience.
The use of multiple credit cards can get you even further into debt.
Fraudulent or unauthorized charges may take months to dispute, investigate, and resolve.
How Do I Get a Credit Card?
You must apply for credit. A credit card cannot be issued unless you apply for it. Lenders often acquire names of consumers with good credit history from a credit bureau and send the consumers "preapproved" applications.
Card lenders are allowed to mail you an application for a credit card or to ask you by phone whether you want a card, and to send you a card if you say yes. A lender will consider your employment, assets, debts, and good credit history when you apply for credit. If you have had poor credit history, some companies will issue you a "Secured" credit card. The lender requires you deposit money in an account and allows you to make credit purchases up to the amount on deposit. Consumers who want to use such plans to rebuild good credit history should make sure the deposits are held in a protected escrow account.
How Does a Credit Card Work?
When you have been issued a credit card you are given a line of credit. You can make purchases or receive cash advances up to that amount with your card. When you make a purchase, the merchant gives proof of your purchase to the credit card company and they pay the merchant on your behalf, in effect granting you a loan. The credit card lender then bills you for reimbursement of the purchase or cash advance amount. You can either pay the balance in the minimum payment due date it is due or the periodic interest rate on unpaid balances.
What Are My Credit Card Protections?
Federal law protects consumers when they use credit cards. Protections include the following items:
Prompt Credit for Payments. A card lender must credit your account on the day the lender receives your payment, unless the payment is not made according to the creditor's requirements or unless the delay in crediting your account would not result in a charge.
Refunds of Credit Balances. When you return merchandise or pay more than you owe, you have the option of keeping the credit balance on your account or requesting a refund. To get a refund write the card lender. The card lender must issue you the refund within seven days of receiving your request.
Mistakes on Your Bill. There are specific rules that the card lender must follow for quickly fixing billing mistakes. The lender has to furnish you a statement describing the rules when you open a credit card account and at least once a year after that. Many lenders print your rights on their monthly billing statements. You have to notify the lender in writing at the address specified for billing mistakes within 60 days after the first bill containing the mistake was mailed to you. The lender has to look into the problem and either correct the mistake or explain to you why the bill is correct not later than 90 days after the lender gets your billing mistake notice. During that period you do not have to pay the disputed amount or interest on that amount.
Unauthorized Charges. If your credit card is used without your authorization — credit card fraud you can be held responsible for up to $50 per card. If you report the loss before the card is used, federal law says the card lender cannot hold you responsible for any unauthorized charges. If you have a lost or stolen credit card, report the loss as soon as possible. Most lenders have a toll-free number in service 24 hours. You should follow-up your phone call with a letter.
Disputes About Merchandise or Services. If you have a problem with merchandise or services that you charged to a credit card and have made a good faith effort to work out the problem with the merchant, you have the right to withhold from the card lender payment for the merchandise or services. If the card you used is a bank card or another card not issued by the merchant of the defective merchandise, you can withhold payment only if the purchase exceeded $50 and occurred in your home state or within 100 miles of your billing address.
What Should I Do If My Credit Cards Are Lost or Stolen?
Phone the credit card company immediately, and report that your card is lost or stolen. Your monthly billing statement will list the phone number for reporting lost cards. Be sure to get the name of the person you talked to. The lender will cancel your card so no unauthorized charges can be made on it. To create a record for the company and for your own files, write to the company after you have phoned. Include your name, address, account number, the date you believe the card was lost or stolen, and the name of the person you spoke to when you called the company.
You will not be responsible if you notify your lender that your cards were lost or stolen before unauthorized charges are made. If your cards are used before you report them missing, the most you can be responsible for is $50 per account.
More on Credit Cards
Make sure you comprehend the terms of a credit card plan before you accept the card. Review the disclosures of terms and fees that has to appear on credit-card offers.
Keep copies of sales slips and promptly compare charges when your bills arrive. Pay bills on time.
Protect your credit cards and account numbers to prevent credit card fraud. Draw a line through blank spaces above the total when you sign receipts. Rip up or save carbons.
Do not give out your card number over the phone unless you know the business or unless you initiated the call.
Keep a list of your credit card numbers and the telephone numbers of each card lender in a safe place in case your cards are lost or stolen.
Credit card gives you convenience. You can buy things you want right here, right now and pay for them later…
But you are not as free in your purchasing actions as you may think. Credit card can turn very expensive to hold. What’s more, any borrow has to be returned. When you apply for credit, you need to know how expensive it is and whether you can cope with it. Then you should look around best terms.
Credit Laws to Help You
Two laws assisting you in cost compare:
Truth in Lending demands that creditors provide you with information about the cost of credit or a loan.
Consumer Leasing allow you to compare the cost and terms of leases.
Credit costs are different. The knowledge of the finance charge and the annual percentage rate (APR) allows you can compare credit prices.
Under Truth in Lending, you acquire the right to get from your creditor all the information on what the terms and the whole cost will be.
The finance charge is the total price you pay to use credit including interest costs and other costs, such as service charges, for example.
Thus, if you borrow $100 for one year, and the interest is $10 and if there is a service charge of $1, the finance charge will be $11.
The APR is the percentage cost of credit on a yearly basis that helps you to compare costs, no matter what credit line you have or how long you have to repay it.
All credit card companies, banks, and other finance companies are required to state the cost of their credit calculated in finance charge and the APR. Federal law does not set interest rates or other credit charges. The disclosure of interest rate, fees and other charges is required by the Federal law so that you can compare them and make the deal you want and can afford.
Cost of Open-end Credit
Open-end credit includes bank and department store credit cards, gasoline company cards, home equity lines of credit, and check-overdraft accounts that let you write checks for more than your actual balance with the bank. Open-end credit can be used again and again, generally until you reach a certain prearranged borrowing limit. Truth in Lending requires that open-end creditors tell you the terms of the credit plan so that you can shop and compare costs.
If you're looking for an open-end plan, the APR is only the periodic rate that you will be charged, figured on a yearly basis with annual membership fees, transaction fees, and points, for instance being not included in the APR. so you should be aware of these fees, not just the APR.
Your Credit card company is to tell you when finance charges are applied to your account, so you know how much time you have to pay your bill before the charge is added. There may be a 25-day grace period to pay your balance in full before the charge is applied.
Creditor is obliged to tell you about the system they use to computer the balance, which you pay a charge on. Your whole finance charge is calculated by the interest rate applied to balance. Creditors apply a number of various systems to know your balance. You are strongly advised to examine them closely to get the best finance charge.
Under adjusted balance system creditors, take the amount you owed at the start of the billing cycle and subtract any payments made during that cycle. New purchases are not included. So, creditors just use the amount at the start of the billing cycle to get the finance charge.
Under the average daily balance system creditors add your each day balances in the billing cycle and divide the total by the number of days in the cycle. Payments effected during the cycle are subtracted to calculate the daily amounts and, new purchases may or may not be included depending on the plan. Under the two-cycle average daily balance system, creditors take two billing cycles with average daily balances to compute your finance charge. Like in the previous system, payments are subtracted to get the balances, but new purchases may or may not be considered.
Under a different system used, a significantly different amount of the charge will be applied, no matter what the purchase or the payment.
If you are making a good credit card deal, the creditor is to inform you about the APR and other charges (for instance, annual fees and late payment fees) at that time. It works the same with a home equity loan, and credit card terms and conditions have to be given to you right when you apply.
Truth in Lending grants you, as a credit card holder, the right to know what system your creditor uses. The act is not used to dictate the rates or to calculate finance charges, but allows you to ask for explanation of any point you are not clear about.
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