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What is
APR?
Annual Percentage Rate. 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.
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