Do you want a credit card? Do you know how to
get one and how to use it and for what purposes? We will
outline the basics for you.
A credit card is a card through which you can buy items on credit
and can even borrow money on credit. You will owe the amount of the items you
put on your credit card to the financial organization which has provided you the card.
There will be a credit limit on the card. This is how much you can spend. Each month you
will receive a bill from the financial organization and you can either pay off the entire
amount due, make a minimum payment, or pay any amount in between.
There are advertisements for credit cards on television, in
newspapers, on billboards and even on the internet. There are thousands of banks and
financial organizations which provide credit cards. Some of
the major credit card providers are American Express, Capital One,
Discover Financial Services, Chase Bank, HSBC Bank, Citibank and Bank of America.
These credit card organizations offer different types of credit cards
targeting different groups of people. There are standard credit
cards for general public, student credit cards for college and
university students, business credit cards for businesses and
individual store credit cards and gas or petrol credit cards for purchasing gasoline.
Credit cards sometimes offer different benefits to their customers.
Sometimes the credit card companies offer things such as cash
back offers, discounts on purchases, insurance coverage, and/or travel benefits.
As there is stiff competitions among the credit card companies,
occasionally they use various lucrative benefits to attract new customers.
Do you know how to apply for a credit card? There are several ways to
apply. You can contact the credit card providers directly. The contact numbers
of the credit card companies are available in your local phone directory or on the internet.
You can also find the phone numbers on the offers the credit card companies send you or in
advertisements found in almost any published medium, such as magazines or newspapers.
Some times the marketing staff of the credit card providers also call people and ask them to
apply for their credit cards. This is called Telemarketing or Cold Calling. You tell them you
are interested in a credit card, they will reach you by telephone, postal mail or e-mail.
Before applying for a credit card, be sure to compare rules and regulations
and the various benefits of different card providers and their specific offers. All information
regarding the fees, benefits, APRs, are usually printed on the
application forms. If you find it difficult to understand anything,
be sure to ask a representative of the credit card company, and
they will get you answers to your questions.
Beside the standard credit cards, you can get various types of
credit cards. There are student credit cards, business credit cards,
entertainment cards, gas cards, store cards, airline cards, and the
list goes on. Because the credit card companies are competing for your business,
they are constantly introducing special credit cards targeting different
groups of people offering various benefits.
As you use your credit cards, you should keep track of your purchases
and know your balance at all times. You should also make sure
to keep receipts and compare them with your credit card statement each month.
Mistakes can happen and if you find something on your bill which is not correct,
immediately contact the company and report it.
Some of the terms which you will find frequently used for your credit
cards include APRs (Annual Percentage Rates), grace period, finance charges, fees,
cash advance features, credit limit, incentives and billing errors.
Understanding these terms will help you better manage
your finances and you will be better educated to avoid falling into a debt trap.
Credit cards have both advantanges and disadvantages. Use your card wisely and the card
will be highly beneficial to you. But if you abuse the card by buying items that you
have no means to repay, you will quickly fall into debt and may find it difficult to get back
to solid financial standing.
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, be sure to do comparisons
to ensure you 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, conditions and fees before you agree to open a credit
or charge card account. The following are some important terms
to consider that 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 looking for a card.
Annual Percentage Rate (APR)
The APR (Annual Percentage Rate) is a measure of the cost of credit,
expressed as a yearly rate. It must be disclosed before you
become obligated on any credit account. It will also be shown on your monthly 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 the 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 information that discloses the initial rate 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. You must receive information, before you become
obligated on the account, about any limitations on how much and
how often your rate may change.
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.
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 credit 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.
Examples of balance computation methods are outlined below:
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."
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.
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.
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
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.
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.
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.
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
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.
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 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 resolve the matter, you may want to consider filing
an action in small claims court.
Keep these tips in mind when looking for a credit or charge card:
Shop around 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 carbons.
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.
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