Choosing and Using Credit Wisely
Chances are you’ve received (or will soon!) your share of “pre-approved” credit card offers in the mail, some with low introductory rates or other perks for recent graduates. Many of these solicitations urge you to accept “before the offer expires.” Don’t feel pressured by the marketing. Take your time to do your own research and shop around to get the best deal.
Credit terms and conditions affect your overall cost, so read the fine print before you agree to open a credit or charge card account. Also, just because a friend is opening a particular card, doesn’t mean it’s the right one for you. Each one has characteristics that might or might not work for you. Maybe you frequently travel to visit your parents, in which case a card with airline points would be great; or you’re a loyal shopper on Amazon.com, which has its own credit card with perks. There are several respectable websites for credit card comparisons, such as wallethub.com. Just know that these sites often get advertising dollars from some of the cards they list.
Credit card fine print:
Introductory APR (Annual Percentage Rate). Is your card offering “6 months at 1.9% APR”? That sounds pretty great, right? But you need to find out what the APR will be once those 6 months are over. It could jump to more than 22%!
More info about an APR. The APR is the cost of credit, expressed as a yearly rate. It must be disclosed before you become obligated.
“Variable rate” cards. interest rates or other economic indicators–called indexes change. These plans are called “variable rate” programs. Rate changes raise or lower the finance charge on your account. The issuer must disclose to you that the rate may change and how the rate is determined, meaning which index is used and what additional amount (sometimes printed as “Prime + X%”) is added to determine your new rate.
Annual fees. Annual membership or participation fees range from zero to hundreds of dollars for “gold” or “platinum” cards. Be sure to factor this into your decision when selecting a card.
Transaction fees and other charges. If you aren’t careful, fees can add up quickly. Some issuers charge a fee if you use the card to get a cash advance, if you make a late payment or if you exceed your credit limit. Some charge a monthly fee whether or not you use the card. Do your best to avoid any additional fees.
Late payments. One late payment to a credit card can have devastating effects on your financial life. Some cards with low rates for on-time payments apply a very high APR if you are late even just once in any specified time period. These rates sometimes exceed 20%. Information about delinquency rates should be disclosed to you on credit card applications or in solicitations that do not require an application. Once your APR is raised because of a late payment, it’s difficult to get it lowered again. But it’s always smart to call if this happens—often, if it’s a first-time offense, you’ll be able to get the charge reversed and APR lowered.
Stolen cards. If you suspect your credit card is stolen, call the issuer immediately, as well as a credit reporting agency like Experian. Under the Fair Credit Billing Act, you can only be held responsible for up to $50 of fraudulent charges per card. If the card is an ATM or debit card, you may also be liable for up to $500 of unauthorized charges if you report the loss after 48 hours. If you report the loss before the card is used, you can’t be held responsible for any unauthorized charges.
Choosing and using a credit card
Nearly every day, you’re involved in some type of financial transaction. When you have a credit card, it can be tempting to use it too often, racking up debt before you know it. If you’ve ever seen the movie “Confessions of a Shopaholic,” you know how credit card abuse can get out of control. Interest and late fees add up to a lot more than that new pair of shoes cost. To keep you in check, think of your credit card as a bundle of cash instead of a handy piece of plastic. If you don’t have that money in the bank—or at least enough to pay minimum balances on time—don’t spend it.
More credit card considerations:
1. Shop around for the plan that best fits your needs.
2. Make sure you understand a plan’s terms before you accept the card.
3. Hold on to receipts to reconcile charges when your bill arrives.
4. Protect your cards and account numbers to prevent unauthorized use. Draw a line through blank spaces on charge slips so the total amount can’t be altered.
5. Pay off balances at the end of the month to avoid interest charges—or at least the minimum to avoid late fees.
6. 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.
7. Carry only the cards you think you’ll use.
8. If you do forget to pay a credit card bill and you incur a late fee, call customer service. They are usually agreeable to waiving the fee one time.
Your free credit report
Although you’re just starting to build credit, it’s helpful to request a free copy of your credit report at annualcreditreport.com, especially if you plan to purchase a house or car soon. The Fair Credit Reporting Act gives Americans access to one free credit report every 12 months. Don’t get scammed into a website that asks for a credit card number to run a credit report; they’re notorious for hidden charges and sneaky monthly fees unless you cancel. Popular sites creditkarma.com and creditsesame.com also offer a free credit score from one of the three credit reporting agencies. When you order, you’ll be asked for your name, address, social security number and date of birth. To verify your identity, you may also need to provide some information that only you would know.
What is a credit report?
A credit report contains information on where you live, how well you pay your bills, and whether you’ve been sued, arrested or filed for bankruptcy. Nationwide consumer reporting companies sell the information in your report to creditors, insurers, employers and other businesses that use it to evaluate your applications for credit, insurance, employment or renting or purchasing a home. Get a copy every year so you can consistently see where you stand, and to spot any errors—and then get them fixed.