|
What
is APR?
The APR is a measure of the cost of credit, expressed as a yearly rate.
It also must be disclosed before you become obligated on the account and
on your account 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 your 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 various information
that discloses 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.
At the latest, you also must receive information, before you become obligated
on the account, about any limitations on how much and how often your rate
may change.
What is Grace Period?
Free Period, 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.
What is Finance Charge?
Finance charge is a fee charged by issuer when you don't have a free period,
or if you 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.
How is Finance Charge
calculated?
Examples of balance computation methods include the following:
- 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."
- Adjusted 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.
- 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.
- Two-cycle Balances.
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.
Are there any other fees?
Annual Fees.
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.
There is nothing on the card that indicates it is a secured card. It can
be used exactly the same as an unsecured card. Plus, the card offers all
the convenience of any major credit card
Transaction Fees and Other Charges.
A 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.
What is a Secured card?
A Secured card means that a security deposit account is needed to secure
your credit card. The security deposit amount will equal your credit limit.
Using the credit card does not access your deposit, thus the money remains
untouched in the security deposit as long as your secured credit card account
is open. A secured card can be one of the best tools for starting or rebuilding
a favorable credit history.
What values to look for?
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.
What to do when I lose
my card?
If you lose your credit or charge cards or if you realize they've been
lost or stolen, immediately call the issuer. Many companies have toll-free
numbers and 24-hour service to deal with such emergencies. 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.
If you suspect fraud, you may be asked to sign a statement under oath that
you did not make the purchase in question.
What rights do I have?
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.
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.
Anything else I should
know?
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.
Pay bills promptly to keep finance and other charges to a minimum.
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. |