Credit Cards

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 agency (CRA) (The most common type of CRA is the credit 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.

HOW TO MANAGE CREDIT CARD USE

Many people find themselves with credit problems because they don't keep track of purchases they make with their credit cards. A simple method of keeping track of monthly credit card charges is to:

• Determine the total amount you can responsibly charge on all your credit card accounts during that month.
• Keep track of your credit spending in the same way you maintain a running balance of your checking account.
• Subtract each amount charged from the monthly charge limit you set.
• Stop using your credit cards if you draw this balance down to zero.

Get 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 percent 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 and 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.

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.

Protect Your Credit

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.

Be 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 letter. You do not have to pay the amount in question during the investigation.
• Loss or theft -- If you lose your credit or charge cards, or if you realize they’ve been lost or stolen, immediately call the issuer(s). 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.