Some of your friends may have credit cards already. At first glance, a credit card gives you freedom to buy something on the spur of the moment -- without worrying if you have enough cash in your pocket. It makes shopping look incredibly easy: just one payment at the end of the month.
But if you talk to friends or adults about using credit cards, you may find that there are drawbacks. Some credit card users find they've spent too much money on too many things. Some can't pay their bills on time. And, those who have trouble paying back their debts may find they can't borrow money when they want to make a really important purchase -- like a car or a house.
The key to using a credit card wisely is knowing how to use it responsibly. We hope this brochure helps you do that by highlighting the important things all credit card users should know.
You may be able to get your first credit card with your name on it through your parents. By having your parents co-sign for the card, you use your parents' income and good repayment history to qualify. You then can make purchases with the credit card, and you or your parents can pay the bills.
If you have a job or other income, you may be able to get a credit card on your own. This is important because if you want to use credit regularly -- and someday apply for even more credit -- you will need to establish your own "credit history."
This credit history (prepared as a "credit report" by a credit bureau) is a description of how responsibly you handle credit -- for example, whether you pay bills on time. Financial institutions usually check your credit report before lending you money or issuing you a credit card. To establish your credit history:
1. Apply for a credit card at a local store or a small loan at a local lending institution. Ask the creditor if the store or lending institution reports credit histories to a credit bureau. If they do and you pay back your debts regularly, you will compile a good credit history.
2. Ask the creditor for specific reasons if you are ever turned down for credit. For example, your current salary might not be high enough or you may not have worked at your current job long enough. Time may resolve these matters. Reapply for credit when your situation changes.
3. Ask someone with an established credit history (such as a relative) to act as your co-signer if you cannot get credit on your own. The co-signer must promise to pay your debts if you don't. If you use a co-signer, repay your debt promptly and try again to get credit on your own.
If you are choosing a credit card, think about how you will use it. You may want to compare the following cost features to see which card will best suit your financial needs.
1. Annual percentage rate (APR): The APR measures the cost of credit on an annual basis and may be the easiest way to compare costs among credit cards. Usually, the lower the APR, the less you'll be charged for credit. The APR includes the interest rate and other costs, such as service charges or loan fees. If you expect to pay back less than the full amount you charge each month, you'll have to pay finance charges on the unpaid balance. In this case, choose a card with a low APR.
2. Annual fees: Many companies charge an annual fee, no matter how much or little you use their credit card. But if you intend to pay your credit card bills in full each month, you may not have to pay monthly finance charges. In this case, a card with a low annual fee may be more important to you than one with a low APR.
3. Grace periods: This "free" period allows you to avoid any finance charges by paying your bill before the due date shown on your statement. Some cards have grace periods from 21 to 30 days. Some have no grace periods and impose finance charges from the day you use the card. Cards with longer grace periods may save you money, but only if you pay all of your charges each month.
4. Other charges: In addition to comparing the terms noted above, check several credit card offers to see if you will be charged a fee for things such as paying your bill late or charging more than your credit limit. These extra fees, which may be charged in addition to interest, add to the cost of using your credit card.
Always read your monthly credit card statement promptly and carefully. Check whether there are errors on your bill (such as wrong amounts or no credits given for a returned item), or whether someone has made illegal charges on your credit card. If you find an error:
1. Send the credit card issuer a letter right away -- within 60 days after the first bill containing the error was mailed to you. Use the special "billing error address" given on your monthly statement or credit card contract. Remember that only a letter to the special address protects your rights under the law. Phone calls do not protect you.
2. Include in your letter: your name and account number; the date, type, and dollar amount of the charge you question; and why you think there was a mistake. You may be asked later to sign a statement under oath that you did not make the purchase in question.
3. Know that the credit card company must tell you that it has received your letter and corrected the mistake, or explain why the bill is believed to be correct.
4. Make sure to pay the charges on your credit card bill that are not in dispute.
If you discover your credit card lost or stolen:
1. Call the credit card issuer immediately about the situation. Use the telephone number established by the card issuer for this purpose. Follow up the call with a letter giving your card number, when the card was missing, and the date you called in the loss.
2. Understand that if a thief uses your card before you notify the credit card issuer, you may be held responsible for up to $50 for unauthorized charges for each card.
3. Know that you cannot be held responsible for more than $50 in unauthorized charges for each card.
To safeguard your credit card -- and your credit record -- make sure you:
Never lend your card to anyone.
Never leave your card or receipts lying around.
Destroy all carbons and incorrect receipts.
Never put your card number on a postcard or on the outside of an envelope.
Never give your card number over the phone, unless you are certain the company or organization is highly reputable.
Sign your credit card in ink as soon as it arrives.
Keep a record of your card number, expiration date, and the phone number and address of the card company in a safe place, separate from your wallet.
Do not sign a blank receipt, whenever possible.
Draw a line through blank spaces on charge slips above the total so the amount cannot be changed.
Open billing statements promptly and compare them with receipts you have saved.
Write promptly to the credit card issuer if any questionable charges appear on your statement.
You have the right to know every piece of information in your credit file under the Fair Credit Reporting Act. If you want to find out what your credit record looks like, take the following steps:
1. Call credit bureaus to find which one has your file. Look in your local Yellow Pages under "Credit" or "Credit Rating and Reporting." Call every credit bureau listed in your area and tell each one that you want to see your file.
2. Although the credit bureau is not required to give you a copy of the report, more and more are doing so -- often for a small fee. You'll be required to identify yourself -- by phone, in-person, or by mail -- before any information is disclosed.
3. If you were turned down for a credit card and you request your file within 30 days of the denial, you will not be charged for a copy of your file.
If you find any inaccurate information in your credit file, you have the right to correct it. The following information may be useful:
Tell the credit bureau, in writing, why you think the information is incorrect. Supply copies of any documents supporting your position.
If the credit bureau cannot confirm the information you challenge, it must delete or change it.
If you disagree with the credit bureau's findings, you may write a brief statement stating your side. This becomes a part of your credit bureau report.
If negative information in your credit report is accurate, only time may erase it. Credit bureaus are permitted to report negative information for 7 years and bankruptcies for 10 years. In some cases, though, negative information may be reported indefinitely. Don't be misled by credit repair companies that promise to "repair" or "clean up" your credit history. They can correct errors -- but not change the past.
Sometimes, because of overspending, illness, or other difficulties, you may find it impossible to pay your bills on time. If you ever find yourself in that situation, consider the following information:
Try to work out a modified payment plan as soon as possible with those you owe money to.
If you're having trouble making car payments, know that financing contracts often let the financing company repossess your car with no advance notice. Try hard to work out car payment problems.
Be cautious about turning to a debt counseling company to solve your debt problems. Avoid paying in advance until you find out what the company can really do. Before you sign any contract, check out the organization with the Better Business Bureau or your local consumer protection agency.
You may want to contact a non-profit counseling service, such as the Consumer Credit Counseling Service (CCCS), for help. You can find CCCS listed in your telephone white pages. In addition, non-profit financial counseling programs are sometimes offered by universities, military bases, and credit unions.
Different federal agencies regulate different kinds of cards, so check to see which company issued the card. For cards issued by:
Department stores, oil companies, or other non-bank creditors, write: Credit Cards, Correspondence Branch, Federal Trade Commission, Washington, D.C. 20580.
National banks, write: Office of the Comptroller of the Currency, Consumer Activities Division, Washington, D.C. 20219.
Savings and loan institutions or federal savings banks, write: Office of Thrift Supervision, Consumer Affairs Program, Washington, D.C. 20552.
Federally-insured, state-chartered banks, write: Federal Deposit Insurance Corporation, Office of Consumer Affairs, Washington, D.C. 20429.
All other banks, write: Federal Reserve Board, Division of Consumer and Community Affairs, Washington, D.C. 20551.
If you want more information about your credit rights, you can write for a free copy of any of the following Federal Trade Commission brochures: Cosigning a Loan; Credit and Charge Card Fraud; Credit Billing Errors; Credit Practices Rule; Electronic Banking; Equal Credit Opportunity; Fair Credit Billing; Fair Credit Reporting; Fix Your Own Credit Problems; Lost or Stolen: Credit and ATM Cards; Scoring for Credit; Solving Credit Problems; Utility Credit; and Women and Credit Histories. Write: Public Reference, Federal Trade Commission, Washington, D.C. 20580. You also may write to this address to receive a free copy of Best Sellers, a listing of all the FTC's consumer publications.
FTC CONSUMER & SMALL BUSINESS ADVISORY - PUBLIC DOCUMENT
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