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What is an Annual Fee?
What is Annual Percentage Rate (APR)?
What is an Introductory Rate?
What is a grace period?
What is a balance transfer?
Are there hidden costs associated with credit cards?
What are Other fees?
What is a secured credit card?
What is an unsecured credit card?
Why do some credit cards require a deposit?
Are all credit cards "real" cards?
Do all credit cards allow cash withdrawals?
How do Issuers evaluate if I am creditworthy?
How can I evaluate if I am creditworthy?
Does applying for a credit card affect my credit status?
I have damaged credit. Can I still get a credit card?
What are benefits such as frequent flyer miles, rebates, etc.?
How are Finance Charges Calculated?
I am not a U.S. resident. Can I still get a credit card?
Where can I file a consumer complaint?
What is an Annual Fee?
Many issuers charge an annual fee for the privilege of using their card -
typically between $15 and $50. Sometimes this fee can be waived if you use
your card frequently, or if you transfer a certain balance to the card or
even simply for asking! If you are planning on paying your bills within a
month or two from the date you make purchases, you should probably be
looking for a card with NO annual fee. However, the total annual cost
(interest charges + annual fee + any other charges) is ultimately what
matters.
What is Annual Percentage
Rate?
APR can be either "fixed" or "variable rate" (sometimes called "floating
rate"). Fixed rate APR's are usually a little higher, but you know exactly
how much you will be charged each month. With a floating rate credit card
the interest is based on a published index + an adder - for example,
"prime rate + 2.9%". Naturally, if you expect to be carrying a balance,
you want to look for a card with the lowest rate. As of May 17th 2000, the
prime rate (the most common published index) is 9.5%.
What is an Introductory
Rate?
Various credit cards offer a low introductory rate that switches to a
higher variable or fixed rate. Make sure that you know how long the
introductory rate is applicable and what APR the card will carry after the
introductory period elapses. Be aware that the introductory rate for some
cards will be terminated if you are late with a payment.
What is Grace Period?
Grace period is the time between the day you make a purchase and the day
when interest begins to be charged. For most cards, it is 25 days from the
billing date. If you carry a balance, many cards have no grace period and
you will be charged interest from the day you make a purchase.
What is a Balance
Transfer?
If you already have a credit card and you apply for a new one, you can
transfer your existing balance on the previous card to the new one.
Effectively, the new credit card issuer will assume the outstanding debt
[that you owe on the previous card] by paying off the credit card issuer
and then billing you for it.
Are there Hidden Costs
associated with Credit Cards?
Strictly speaking, there aren't any hidden costs with credit cards.
However, there are often annual fees or application fees that apply, the
details of which have to be revealed to the applicant. Often these are
outlined in the Terms & Conditions section. Again, it is important you
read the fine print so that you fully understand all costs associated with
a particular credit card.
What are Other fees? How
much is the penalty for being late?
How much do you pay if you go over the credit limit? How much does your
bank charge you for an ATM withdrawal (cash advance fee)? Is the interest
rate for cash advances the same or is it higher than the card's "regular"
APR? What is your cash advance limit? Answers to all these questions may
influence your choice of credit card.
What is an Secured Credit
Card?
A secured credit card is a credit card that requires a security deposit.
These types of credit cards are generally for individuals whose credit is
less-than-perfect. Your credit line will represent anywhere from 70% - 90%
of your security deposit. Depending on the credit card issuer, some
secured credit cards require a deposit for a limited time such as one
year. If your history with the card is good, the credit card issuer may
extend your credit line or offer you an unsecured card.
What is an Unsecured
Credit Card?
An unsecured credit card does not require a security deposit. Such credit
cards are intended for individuals with good or outstanding credit.
Why do some credit cards
require a deposit?
A security deposit is usually required for high-risk credit cards, such as
secured cards for people with damaged credit. Your security deposit is the
bank's insurance against possible credit card abuse. The deposit assures
the credit card issuer that you will not avoid full payment of your credit
card bill.
Are all Credit Cards
"real" cards?
No, not all credit cards are created equal. Some credit cards are
advertised as being Visa cards, for example, yet their use is restricted
to purchases from specific catalogs, companies, or services. The best way
to avoid these pitfall cards is to always read the fine print.
Do all credit cards allow
cash withdrawals?
No. Whether or not you can withdraw cash using the credit card is
dependent upon the credit card issuer.
How do Issuers evaluate
if I am creditworthy?
Issuers determine credit worthiness by what are called the three C's of
credit (capacity, character and collateral). Capacity refers to your
ability to pay given your income and existing debt. Collateral refers to
any assets you have that can secure payment (e.g. bank accounts, home
ownership). Character refers to factors such as your payment history and
length of employment. The criteria for accepting applicants vary between
issuers and credit card products.
How can I evaluate if I
am creditworthy?
You can get a very good idea by looking at your credit report(s). Three
separate bureaus maintain a different snapshot of your financial history
and provide copies of this report to creditors upon request. It is
important to make sure information on these reports are accurate,
especially if you have been turned down for credit and don't know why. You
can get a copy of your credit report on-line from TrueCredit.Com.
Does applying for a
credit card affect my credit status?
Yes. Every time you apply for a credit card, department store card, or any
other type of credit-related card, an inquiry is made as to your credit
status. This inquiry is noted with the respective credit bureau. Although
these inquiries will remain on the report for approximately one year,
issuers will be primarily concerned with the number of inquiries over the
last 6 months. Showing a handful of inquiries for that period is not
critical. But issuers do become concerned if there are more than 10
inquiries during that time. They interpret this as an indication that you
are in [too] much need of credit, and thereby consider you high risk. As a
result, they will be less likely to grant you the credit card you are
applying for. It is therefore important that you do not apply for an
excessive amount of credit cards unless absolutely necessary.
My credit is damaged. Can
I still get a credit card?
Yes. Depending upon how damaged your credit is, you will most likely be
interested in secured credit card offers. You can expect to have to
provide a security deposit against which you can borrow by charging the
credit card.
What are benefits such as
frequent flyer miles, rebates, etc.?
A number of issuers offer additional benefits to card members. Rebate
cards allow you to earn cash back and discounts on goods and services
based on card usage. Frequent flyer cards allow you to earn miles for each
dollar charged. With special interest cards (e.g. golf and ski) you
receive discounts and accumulate points towards purchases.
How are Finance Charges
Calculated?
Most issuers use the Average Daily Balance method for calculating
interest. This means that if you don't pay your bill in full, interest
will be charged from the day a charge is posted to your account. Some
issuers charge two months of interest when you switch from paying in full
each month to carrying a balance. This is called Two Cycle Billing. The
other two methods for computing charges are Adjusted Balance and Previous
Balance. If you feel ambitious the exact formula for interest calculations
can be found on your bill.
I am not a U.S.
resident. Can I still get a credit card?
Yes, some U.S. banks do issue credit cards to international applicants.
Due to the risk involved in opening an account for someone abroad,
international credit cards usually require a security deposit. There are
known cases wherein organizations posing as banks have offered such credit
cards, collected large sums of security deposits, and then disappeared
without a trace. It is therefore important that you research a bank making
such an offer. If you are interested in obtaining an international credit
card, please refer to our Credit Card Offers page.
Where can I file a
consumer complaint?
If you have a problem
with a particular company and would like to file a complaint, we recommend
you do so through the Consumer Broadcast Group who will file the complaint
and help you take action.
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