A credit card is a great financial tool and it is more convenient to use and carry than cash and it offers valuable consumer protections under federal law. But you have to be careful. You may charge more than you can repay. It could damage your credit rating and create problems that can be hard to fix. Here is some important information that can help you determine if you are ready for a credit card, what to look for when you select a company and how to use your credit card responsibly.
Qualifying for a Credit Card
To qualify for a credit card you have to be at least 18 years of age and have a regular source of income. You also have to show that you are a good credit risk before you will receive credit. Before you apply for a credit card you should get a copy of your credit report.
Establish a Good Credit History
To start establishing credit, you should first consider applying for a credit card from a local store and use it responsibly. Second, consider a secured credit card. A secured credit card requires you to open and maintain a bank account or other asset account at a financial institution as security for your line of credit. Your credit line is usually a percentage of your deposit, typically from 50 to 100 percent. It is not uncommon to incur application and processing fees. Further, secured credit cards usually have higher interest rates than non-secured cards. Third, consider asking someone who has established credit to co-sign the account. The co-signer is someone who promises to pay your debts if you are unable to pay. Make sure that you pay your debts on time so you can build a positive credit history. This will help you establish credit in the future on your own. A good credit history is important when applying for credit cards, jobs, insurance and when you want to finance a car or a home.
If your application has been turned down, find out why. If you have been denied because of information supplied by a credit bureau, the creditor must give you the name, address and telephone number of the bureau that supplied the information. If you contact the credit bureau within 60 days of receiving the denial, you are entitled to a free credit report. If you find an error in your report, you are entitled to have it investigated by the credit bureau and corrected free of charge.
The fees, charges and benefits vary among credit card issuers. You should shop around and compare these important features:
* Annual percentage rate (APR). The APR is a measure of the cost of credit, expressed as a yearly interest rate. Also check out the “periodic rate”. That is the rate issuers apply to your outstanding balance to figure the finance charges. For example, if you have a balance of $2,000, with an 18.5% APR and a low monthly payment, it would take you over 11 years to pay off that debt and would cost you an additional $1,934 in interest.
* Grace period. The grace period is the time between the date of your purchase(s) and the date interest starts being charged on that purchase(s). Some issuers allow a grace period for a new purchase even if you don’t pay your balance in full every month.
* Annual fees. Many credit card issuers charge an annual fee for granting you credit, usually $15 to $55 while some issuers have no annual fee.
* Transaction fees and other charges. They may charge a fee for using your card for cash advances, late payments, exceeding your credit limit and some charge a flat fee every month whether you use your card or not.
* Customer service. Many issuers have 24-hour, toll-free telephone numbers.
* Other benefits. They may offer additional benefits. Some provide different forms of insurance, credit card protection, discounts, rebates and special merchandise offers.
There are three types of accounts that credit grantors generally issue. The basic terms of these account agreements are:
* Revolving agreement. When you pay your bill in full every month or you choose to make a partial payment. Usually department stores, gas and oil companies and banks issue these types of credit cards.
* Charge agreement. When you promise to pay your balance in full every month, you don’t have to pay interest charges. Charge cards, not credit cards, and charge accounts with local businesses often require repayment on this basis.
* Installment agreement. When you sign a contract to repay a fixed amount of credit in equal payments over a specific period of time. When you finance an automobile, furniture or major appliance, they are often installment agreements. Also, personal loans are often paid back in installments.
To protect your credit you should:
Sign the card immediately so no one else can use it. File away all of the papers you receive in a safe place, in case your card ever gets lost or stolen.
Call the card issuer to activate your card. Most 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 are dealing with. Someone can use that information to steal money from you or steal your credit identity.
Keep copies of sales slips and compare them with your bill. Immediately report, in writing, any questionable charges to the card issuer.
Do not lend your card to anyone, even a friend. Your credit privileges and credit history are too important to risk.
It may be easy to buy something now and pay for it later, but you can lose track of how much you’ve spent. If you continue to charge while having an outstanding balance, your debt can snowball and before you know it, your minimum payment just covers the interest. If you start falling behind on your payments, it can ruin your credit rating. A bad credit rating can make it hard to finance a car or home, get insurance and even get a job.
Federal law offers the following protections when you use credit cards.
* Errors on your bill. You must contact the card issuer in writing within 60 days after the first bill containing the error was mailed to you. You should include your name, account number, the type, date and amount of the error and the reason why you believe the bill has an error. The card issuer must then investigate the problem and either correct the error or explain 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 your credit or charge cards have been lost or stolen you should call the issuer(s) immediately. By law, once you report the loss or theft, you have no further responsibility for unauthorized charges. Your maximum liability under federal law is $50 per card.
http://www.bankruptcy-lawyers-chicago.com/credit_matters.php
