Getting A Credit Card
Credit Access and Use Equal Rights
The Equal Credit Opportunity Act guarantees you equal
rights in dealing with anyone who regularly offers credit, including
banks, finance companies, credit card companies, and credit unions.
When you apply for credit, a creditor
may not:
- Ask about or consider your sex,
race, national origin, or religion.
- Ask about your martial status or
your spouse, unless you are applying for a joint account or relying
on your spouse's income.
- Ask about your plans to have or
raise children.
- Refuse to consider reliable public
assistance income or regularly received alimony or child support.
- Discount or refuse to consider
income because of your sex or marital status or because it is from
part-time work or retirement benefits.
Choosing a Credit Card
There is a good chance that you've received 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, shop around to
get the best deal. Credit card terms vary among issuers. When shopping for a
credit card, think about how you plan to use it. Do you expect to pay
your bills in full each month, or do you plan to pay off your purchases
over time? Consider the Annual Fee, Finance Charges, balance computation
method, and whether or not there is a Grace Period for purchases.
NOTE: Some credit cards do not permit a Grace Period for the amounts due
if you use the Cash Advance or Balance Transfer feature, even if they
have a Grace Period for purchases.
It's also a good idea to look at the Credit Limit and how widely the
credit card is accepted, as well as the plan's additional services and
features.
Consider and compare all terms, including the following, before you
select a credit card:
Grace Period
The Grace Period is the date by which or the period within which any
credit extended for purchases may be repaid without incurring a Finance
Charge. Knowing whether a credit card gives you a Grace Period for
purchases and Cash Advances is especially important if you plan to pay
your account in full each month. Without a Grace Period, the credit card
issuer may impose Finance Charges from the date you use your credit card
or from the date each transaction is posted to your account.
Annual Percentage Rate (APR) and Finance Charges
The APR (Annual Percentage Rate) is a measure of the cost of credit,
expressed as a yearly rate. The credit card issuer must also disclose
the "periodic rate," which is a rate applied to your outstanding balance
to figure the Finance Charge for each Billing Cycle.
Some credit card plans allow the issuer to change your APR when
interest rates or other economic indicators (called indexes) change.
Because the rate change is linked to the indexes' 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 credit card, the issuer must also provide information that
discloses to you:
- That the rate may change.
- How the rate is determined, which index is used, and what
additional amount (the "margin") is added to determine your new
rate.
NOTE: Most credit card plans allow the issuer to "reprice" your
current APR if the account falls into poor standing or becomes
delinquent. Re-pricing is the act of increasing the APR.
Annual Fee
Some issuers charge annual membership or participation fees. They
often range from $25 to $50, and sometimes reach as much as $100. "Gold"
or "Platinum" cards sometimes reach as much as several hundred
dollars. These fees may be charged whether or not you use the credit
card.
Transaction Fees and Other Charges
A credit card may include other costs. Some issuers charge fees if
you use the credit card to get a Cash Advance, make a late payment, or
exceed your Credit Limit. Often an issuer will charge a fee to transfer
a balance from another creditor's account to their account. Fees are
disclosed to you in your Terms and Conditions as well as in your Account
Agreement. It is important that you read these documents in order to
understand your responsibilities as an account holder.
Balance Computation Method for the Finance Charge
If you don't have a Grace Period or if you expect to pay for
purchases over time, it's important to know what balance computation
method the issuer uses to calculate your Finance Charge. This can make a
big difference in how much a Finance Charge you'll pay � even if the APR
and your buying patterns remain relatively constant. Examples of balance
computation methods include the following:
Average Daily Balance: This is the most common calculation
method. 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 are typically 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."
Adjusted Balance: This is usually the most advantageous method
for credit card holders. Your balance is determined by subtracting
payments and credits received during the current Billing Period from the
outstanding balance at the beginning of the 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 Finance Charges on that amount. Some creditors exclude prior
unpaid Finance Charges from the previous balances.
Two-cycle Balances: Issuers sometimes use various methods to
calculate your balance that make use of your last two months' account
activity. Read your agreement carefully to find out if your issuer uses
this approach. This is the sum of the Average Daily Balances for two
Billing Cycles.
The Truth in Lending Act requires a lender to inform you of the cost
to borrow, so that you can compare the cost and terms of credit offered
by various lenders.
Using Your Credit Card Responsibly
Bad credit can cause you many headaches in years to come. Credit Card
delinquency may prevent you from qualifying for other types of loans,
such as a mortgage or an auto loan. Furthermore, when you miss a
payment, you may receive a call or other correspondence reminding you of
your overdue balance. To avoid this, be sure to pay at least the minimum
payment by the due date printed on your statement every month.
Protect Your Credit Record
- Pay bills promptly to avoid late fees and to protect your credit
rating.
- Keep track of your charges and don't exceed your Credit Limit to
avoid Over-limit Fees.
- Report any change of address prior to moving so you receive
bills promptly.
Your Credit Card Rights
The Fair Credit Billing Act applies to credit cards and can be used
for:
- Billing errors.
- Unauthorized use of your account.
- Goods or services charged to your account, but not received or
not provided as promised.
- Charges for which you request an explanation or written proof of
purchase.
If your credit card is lost or stolen, you will not be held liable
for any changes.
Credit Card Billing and Disputes
- Write to the creditor or credit card issuer within 60 days after
the first bill containing the disputed charge is mailed to you.
However, if more than 60 days have passed since you were billed for
the item, you still might be able to dispute the charge if you only
recently found out about the problem.
- Send your letter to the address provided on the bill. Do not
send the letter with your payment.
- Be specific. In your letter, give your name and account number,
the date and amount of the charge disputed, and a complete
explanation of why you are disputing the charge.
- Keep a record of receipt to document that your letter was
received. It's a good idea to send it by certified mail with a
return receipt requested.
If you follow these requirements of receipt, the creditor or credit
card issuer must acknowledge your letter in writing within 30 days of
receipt and conduct an investigation within 90 days. While the bill is
being disputed and investigated, you do not need to pay the amount in
dispute. The creditor or credit card issuer may not take action to
collect the disputed amount, including reporting the amount as
delinquent, and may not close or restrict your account. If there was an
error or you do not owe the amount, the creditor or credit card issuer
must credit your account and remove any Finance Charges or late fees
relating to the amount not owed. For any amount still owed, you have the
right to an explanation and copies of documents proving you owe the
money. If the bill is correct, you must be told in writing what you owe
and why. You will owe the amount disputed, plus any Finance Charges. You
may ask for copies of relevant documents.
Understanding Your Credit History
The Fair Credit Reporting Act controls how your credit history is kept,
used and shared among lenders. It is designed to promote accuracy and
ensure the privacy of the information used in credit reports. The three
major Credit Reporting Agencies have credit files on millions of
consumers nationwide.
www.annualcreditreport.com
is the official site to help consumers to obtain their free credit report.
Under the Fair and Accurate Credit Transactions Act (FACT act), you are
entitled to one free credit report (credit file disclosure) in a 12 month period.
To request this free annual disclosure you may contact them
on-line at: www.annualcreditreport.com.
You can also contact them to request this free credit report annual disclosure by
calling toll free 1-877-322-8228 or by using the mail request form available on
the website: www.annualcreditreport.com.
Contact information for the three major credit reporting agencies
is as follows:
Equifax
P.O. Box 740256
Atlanta, GA 30374
toll free: 1-800-685-1111
http://www.equifax.com/
Experian
P.O. Box 9532
Allen, TX 75013
toll free: 1-888-397-3742
http://www.experian.com/consumer/index.html
Trans Union
P.O. Box 6790
Fullerton, CA 92834
toll free: 1-800-888-4213
http://www.transunion.com/
Anyone who takes adverse action against you in response to a report
supplied by a Credit Reporting Agency, such as denying your application
for credit, insurance, or employment must give you the name, address,
and telephone number of the Credit Reporting Agency that provided the
report.
- You have a right to know what is in your credit report,
including medical information and, usually, the sources of the
information. Make sure your report is accurate.
- Get your report for free if a company takes adverse action
against you based on the report and you request your report within
60 days of receiving the notice of the action.
- YOu are additionally entitled to request one free report a year
as outlined in ammendments to the Fair Credit Reporting Act (FACT).
If you find inaccurate or incomplete information in your report:
- Contact both the Credit Reporting Agency and the company that
provided the information to the Credit Reporting Agency.
- Tell the Credit Reporting Agency in writing what information you
believe is inaccurate. The information provider must investigate and
report the results to the Credit Reporting Agency. If the
information is incorrect, it must notify all nationwide Credit
Reporting Agencies to also correct your file. If the reinvestigation
does not solve your dispute with the company, ask that your
statement regarding the dispute be included in your file. A notice
of your dispute must be included anytime the Credit Reporting Agency
reports the item.
Credit Report Access
Only people with a legitimate business need can get a copy of your
report. An employer or a prospective employer can only get your credit
report if you give written consent. Creditors, employers, or insurers
cannot get a report that includes medical information without your
approval.
Duration of Negative Information
A Credit Reporting Agency can report negative information for seven
years, and bankruptcy information for ten years. Information about a
lawsuit or an unpaid judgment against you can be reported for seven
years or until the statute of limitations runs out, whichever is longer.
When Your Debt Is out of Control
If you ever find yourself in a situation where you can't make a
monthly payment, notify your credit card issuer and work out a modified
payment plan that reduces your payments to a more manageable level. Be
cautious about turning to a debt counseling company to solve your debt
problems. Avoid paying such a firm in advance until you find out what
the company can really do. Before you sign a contract, check out the
organization with the U.S. Better Business Bureau or with your local
consumer protection agency.
Counseling services provide assistance to individuals having
difficulty budgeting their money and/or meeting necessary monthly
expenses. Many organizations, including credit unions, cooperative
extension services, family service centers, and religious organizations,
offer free or low-cost credit counseling.
The National Foundation for Consumer Credit Is There to Help
(NFCC)
NFCC has 1,400 members that provide money management techniques, debt
payment plans, and educational programs to help consumers learn to
budget and use credit and credit cards wisely. Many of its members are locally managed
nonprofit agencies operating under the name Consumer Credit Counseling
Service (CCCS). To locate the nearest NFCC member, call toll-free, 24
hours a day 1-800-388-2227, or visit its website at
http://www.nfcc.org/.
Myvesta.org is the nation's first nonprofit Internet-based debt
counseling service. It assists families and individuals with debt,
credit, money and financial problems through its website at
http://www.myvesta.org/, as well
as through one-on-one counseling at 1-800-680-DEBT.
New Credit Card Rules from the Federal Reserve
Credit Glossary
Affinity Card
A credit card endorsed by groups such as colleges, sports teams,
professional organizations, or special interest groups that are offered
to their alumni, fans or members. Typically, use of the credit card
gives financial benefit to the endorsing organization.
Annual Fee
A yearly bank charge for use of a credit card that is billed directly on
the customer's monthly statement.
Annual Percentage Rate (APR)
The interest rate reflecting the total yearly cost of the interest on a
loan, expressed as a percentage rate. Under the federal Truth in Lending
Act, it must be calculated in a standard way to allow consumers to make
"apples-to-apples"comparisons of lending terms.
Authorization
An Authorization occurs when you present your credit card or account
number to a merchant for payment. An authorization reserves the purchase
amount against your available credit to ensure that the credit is
available at the time the transaction posts to your account.
Average Daily Balance
This is a method by which many creditors calculate Finance Charges.
Adding each day's balance and dividing that total by the number of days
in a Billing Cycle determines an Average Daily Balance. The Average
Daily Balance is typically multiplied by the Periodic Annual Percentage
Rate in order to calculate the amount of Finance Charges assessed on an
account.
Available Credit
Available Credit is the amount of credit you have available to use for
Purchases, Balance Transfers and Cash Advances.
Automated Teller Machines (ATM's)
ATM's are self-service machines that dispense cash and process deposits.
Balance Transfer
A Balance Transfer is the process of transferring a balance from one
credit account to another.
Bankrupt
The status of being legally declared unable to pay your debts as they
become due. Federal bankruptcy laws have been enacted which allow a
person or organization to liquidate their assets to pay a reduced amount
to their creditors or which allow the rehabilitation of the debtor by
requiring creditors to accept reduced payments from future earnings of
the debtor. Declaring bankruptcy is generally considered a last resort.
Billing Cycle (Billing Period)
The Billing Cycle is the period between billings for products and
services - Normally a month.
Carrying a Balance
Carrying a Balance means the balance revolves on an account from one
month to another. When a cardholder carries a balance he/she does not
pay the balance in full every month.
Cash Advance
A Cash Advance allows you to obtain cash from your credit card account.
Please note there may be restrictions on the amount you may withdraw.
Typically, a Cash Advance is obtained through a financial institution or
an Automated Teller Machine (ATM).
Cash Advance Fee
A Cash Advance Fee is a charge by the bank for using a credit card to
obtain cash. This fee can be stated in terms of a flat per-transaction
fee or a percentage of the amount of the Cash Advance.
Cash Advance Limit
The Cash Advance Limit is the established limit by which credit card
holders can withdraw cash from their accounts. This limit is typically
established as a percentage of the Credit Line.
Credit Payment Insurance
Credit Payment Insurance is a credit protection service offered by some
creditors to their customers. It assists customers in maintaining a good
credit rating in times of financial difficulty.
Credit
A Credit on your statement reflects any monetary transaction other than
a payment that decreases your Outstanding Balance.
Credit Limit (Credit Line)
The Credit Limit is the total amount of credit extended to the customer
by the lender.
Credit Reporting Agency (Credit Bureau)
A Credit Reporting Agency compiles data on consumers' credit payment
history. Trans Union, Equifax, and Experian are the three major Credit
Reporting Agencies in the United States.
Credit Report
The Credit Report is a critical factor in credit scoring systems that
lenders use to issue credit cards, mortgages, or other loans. A Credit
Report contains information regarding a customer's payment history and
comes from a Credit Reporting Agency.
Creditor (Card Issuer)
A Creditor is an entity to whom money is owed.
Current Balance
The Current Balance is the total amount of credit spent on Purchases,
Balance Transfers, and Cash Advances. This balance may include Finance
Charges and fees.
Daily Periodic Rate
The Daily Periodic Rate is used to calculate the amount of Finance
Charges assessed on an account. It is typically calculated by dividing
the Annual Percentage Rate by 365.
Delinquency
A Delinquency means that payment is overdue on an account.
Finance Charge
Finance Charge is a fee for using credit. It is comprised of interest
charges and other fees.
Fixed Interest Rate
A rate of interest charged on an account. This rate is in effect for the
life of the loan, provided the account remains in good standing. This
rate will not fluctuate based on the Prime Lending Rate.
Grace Period
If the cardholder does not carry a balance, the Grace Period is the
interest-free period of time a lender allows between the transaction
date and the billing date. The standard Grace Period is usually between
20 to 30 days.
Introductory Interest Rate
A rate of interest charged on an account for a specific, limited period
of time. This rate is typically lower than the Ongoing Rate and is used
by the creditor as an incentive.
Late Fee
A Late Fee is a charge to your account if the minimum payment due does
not reach the lender by the payment due date.
Minimum Payment Due
The Minimum Payment Due is the smallest amount you must pay each month
to keep your account in good standing. Your minimum payment can vary
from month to month based on your current balance and is typically based
on a percentage of the Outstanding Balance. You can always pay more than
your minimum payment.
Ongoing Interest Rate
A rate of interest charged on an account for a period of time. This rate
can be either a Fixed or Variable Rate.
Over Limit
Over Limit refers to the amount of your balance that exceeds your Credit
Limit. If this occurs, an Over Limit Fee will be assessed.
Over Limit Fee
An Over Limit Fee is a charge for exceeding the Credit Limit on the
account.
Outstanding Balance
The total amount you owe the creditor.
Post Date
A Post Date is the date that the transaction was debited or credited to
your account.
Pre-approved
A credit offer with a "Pre-approved" status means that a potential
customer has passed the preliminary credit-information screening
necessary to obtain credit with the creditor.
Personal Identification Number (PIN)
A Personal Identification Number (PIN) is a secret number that
identifies you and allows you to perform transactions at ATM's.
Prime Lending Rate
Prime Lending Rate is a variable interest rate that is often used in
calculating the Interest Rate on a credit account.
Re-pricing
Re-pricing is the act of changing a credit card holder's APR.
Secured Card
A Secured Card is a credit card that a cardholder "secures" with a
deposit to ensure payment of the Outstanding Balance if the cardholder
defaults on payment. Secured cards are general-purpose credit
cards targeted to customers with imperfect or limited credit histories
who do not qualify for a traditional unsecured credit card loan.
Smart Cards (Chip Cards)
There are various types of Smart Cards, sometimes called Chip Cards.
Electronic chips allow these credit cards to function in different ways: as
credit cards, debit cards, frequent buyer or rewards program cards, I.D.
cards, or any combination. Many college I.D. cards are chip cards. These
may or may not be credit cards.
Transaction date
The Transaction Date is the date a transaction was initiated.
Variable Interest Rate
A rate of interest charged on an account. This rate may change and is
typically calculated by adding or subtracting an amount to a base
standard interest rate, usually the Prime Lending Rate.
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