Ready, Set ... 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.
same time, its a big responsibility. If you dont 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
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 youre ready
for plastic, what to look for when you select a company to do business
with, and how to use your credit card responsibly.
for a Credit Card
If youre at least 18 years old and have a regular source of
income, youre well on your way to qualifying for a card. But
despite the invitations from card issuers, youll still have
to demonstrate that youre a good risk before they grant you
credit. The proof is in your credit record. If youve financed
a car loan or other purchase, you probably have a record at a credit
reporting bureau. This credit history shows how responsible youve
been in paying your bills and helps the credit card issuer decide
how much credit to extend.
you submit a credit application, get a copy of your credit report
to make sure its 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:
PO Box 740241
Atlanta, GA 30374-0241
(800) 685-1111 EXPERIAN (formerly TRW)
PO Box 2002
Allen, TX 75002
(888) EXPERIAN (397-3742) TRANS UNION
PO Box 1000
Chester, PA 19022
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.
a Credit History
Suppose you havent 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 youll establish
a good credit history.
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.
consider asking someone with an established credit history
perhaps a relative to co-sign the account if you dont
qualify for credit on your own. The co-signer promises to pay your
debts if you dont. Youll want to repay any debt promptly
so you can build a credit history and apply for credit in the future
on your own.
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.
Application Is Denied
If youre turned down for a card, ask why. It may be that you
havent been at your current address or job long enough. Or
that your income doesnt meet the issuers 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.
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.
dispute any inaccuracy in your report with the credit bureau and
also with the company that furnished the information to the credit
the Best Deal
Fees, charges, and benefits vary among credit card issuers. When
youre choosing a credit card, shop around. Compare these important
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. Thats
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.
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.
Many credit card issuers charge an annual fee for granting you credit,
typically $15 to $55. Some issuers charge no annual fee.
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.
Many issuers have 24-hour toll-free telephone numbers.
Issuers may offer additional benefits, some with a cost, such as:
insurance, credit card protection, discounts, rebates, and special
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
youre 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
Dont lend your card to anyone, even to a friend. Your credit
privilege and history are too precious to risk.
While a credit card makes it easy to buy something now and pay for
it later, you can lose track of how much youve spent by the
time the bill arrives if youre not careful. And if you dont
pay your bill in full, youll probably have to pay finance
charges on the unpaid balance. Whats 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 law offers the following protections when you use credit
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.
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.
of Credit Accounts
Credit grantors generally issue three types of accounts. The basic
terms of these account agreements are:
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.
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.
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.
Information Center (CIC) publishes the Consumer Information Catalog
which lists more than 200 booklets on a wide variety of subjects,
including credit. Write Catalog, Consumer Information Center, Pueblo,
CO 81009. Or call them at (719) 948-4000.
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.