1. Credit Cards What You Need To KNOW © Consumer Action 2010
An educational partnership between Consumer Action and American Express

2. Purpose of Training
Most people have credit cards — but do they know the terms of the agreement that they have with their credit card issuers?
This training will help you understand how credit cards work and that how you use your cards can affect your credit history.
An educational partnership between Consumer Action and American Express

3. Objectives Understand the types of cards available
Sort through card offers
Compare terms and conditions
Avoid penalty rates and fees
Find more information and assistance
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4. Credit cards
The average household receives five credit card offers per month in the mail, and more by telephone and the Internet
This array of choices makes it difficult to:
Sort through offers
Understand terms & conditions
Select the right card
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5. Wise credit Not managing your credit wisely can lead to:
Increased annual percentage rates (APRs)
Unnecessary fees
A decline in your credit
Denials of future credit
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6. Topics covered Types of credit cards Card offers
Card terms and conditions
Credit card billing statements
Using credit cards
Card fees
Optional services and card benefits
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7. What are credit cards good for?
Emergencies
Big ticket items
Establishing credit
Safer than cash
More purchasing power
Protection from fraud on the Internet
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8. Types of Cards
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9. Credit cards Revolving Credit
Credit line can be used up to the credit limit
Pay charges in full each month, pay just the minimum, or make a partial payment greater than the minimum due
Available credit goes up and down as purchases and payments are made
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10. Charge cards Pay all charges in full every month by the due date
Cannot carry a balance
No balance = no interest
Some charge cards allow a balance carry-over for specific purchases, such as travel charges
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11. Secured credit cards Guaranteed by money deposited in an account
Credit limit usually equals the amount of the deposit
Can be used by people with credit problems to reestablish good credit
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12. Sub-prime credit cards
Marketed to people who have poor credit
Typically have very low lines of credit, large upfront fees and high interest rates
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13. Prepaid cards Also called stored value cards These are used by
retailers as gift cards
travelers as a safe way to get funds on the road
parents who want to give their kids the convenience of a credit card without the risk
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14. Card Offers
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15. Types of offers Pre-approved Invitations to apply
Offers come in the mail, by telephone and online
Instant credit at stores
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16. Pre-approved offers Personalized and based on credit history
Federal law requires that pre-approved solicitations contain a “firm” offer of credit
The only exception is if consumer has experienced a serious decline in creditworthiness since the offer was made
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17. Invitations Ask consumer to apply for a card
Does not require a firm offer of credit
Intended to interest consumers in applying
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18. Instant credit
Salespeople often ask you if you want to get the store’s credit card
Get a discount on purchases
If the shopper’s credit is good, credit is issued on the spot
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19. Compare basic terms Look for a box with: This box is: interest rates
grace period
annual fee
This box is:
required by law
often headed with the words “Rates and Fees” or “summary of terms”
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20. Look closely Credit limits Balance transfers
While the offer of credit may be guaranteed, the actual credit limit may not be
Balance transfers
If you don’t know your credit limit, it’s difficult to know if you can transfer balances from another card
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21. Credit line
Consumers don’t know when they apply what credit line they will receive
Many offers state “up to” a certain amount (for example: “up to” $25,000)
Key words — “up to”
Company can—and often will—give consumer a lower credit limit
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22. Balance transfers
Many offers include the opportunity to transfer a balance from one card to another without a fee
Consumer should ask if this is a limited time offer
Transfer balance after receiving card
If the balance transferred is higher than the new credit limit, the company may only transfer a portion of the balance, or may decline the whole transfer, leaving a balance on the old card
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23. Card Terms and Conditions
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24. Cardholder agreements
Sent with every new card
Legal contract between consumer and the card issuer
By using the card, consumer agrees to honor the terms and conditions in the agreement
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25. Subject to change
Card terms and conditions are subject to change at any time
Change notices are usually sent by mail, along with the monthly statement
Consumers should review everything sent by issuer, even if it looks like junk mail
Notices must be sent at least 45 days before the change takes effect
New rate will apply only to new transactions unless an intro rate has expired, a variable rate has changed, you’re more than 60 days late or haven’t paid as agreed under a workout agreement
If your credit card company is going to make changes in certain fees (but not your APR), it must give you the option to cancel the card before these fee increases take effect.
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26. Keep all paperwork
Save card terms and conditions in an easily accessible file for easy reference
When the company updates your cardholder agreement, replace the old copy with the new one
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27. Annual percentage rate (APR)
Card’s interest charge, expressed as a yearly rate
The interest rate is the cost of borrowing money from the credit card company
Your card’s interest rate is usually for purchases — if you withdraw cash you might be charged a higher interest rate
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28. Variable rates
If card has a variable rate, the APR will change when interest rates go up or down
Variable interest rates change according to a set formula using an “index” and a “margin”
The most common index is the Prime Rate published in the business sections of major newspapers and online
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29. Prime Rate
The interest rate banks charge their most qualified borrowers
Prime Rate is the “index” most commonly used to set interest rates on variable rate credit cards
Other indexes used include the London Interbank Offering Rate (LIBOR)
Indexes are published in the business sections of major newspapers and online
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30. Fixed rates
If an issuer calls a rate “fixed” the rate can’t change ever, for any reason. So issuers will use terms like “non-variable” for rates that do not vary with the Prime Rate.
Non-variable rates can change at any time after the first year, or whenever you are more than 60 days past due, with 45 days notice
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31. Default or penalty rates
Higher interest rates charged for late payments or decline in credit
Default factors
Late payment
Bounced check
You default on another account you have with the same creditor
Higher rate will apply to new transactions only, unless you are more than 60 days late
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32. Default with other creditors
Some companies raise your interest if your credit score declines, but they must give you 45 days notice about the change
This is sometimes called “universal default”
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33. Cash advance APR
Most cards charge a higher interest rate for cash advances
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34. Credit card checks
These special checks - “convenience checks” - are linked to credit card account
They can be used to transfer a balance from another card or to make purchases or payments to companies that do not accept credit cards
Convenience checks are charged the cash advance interest rate, usually higher than the regular rate, plus a cash advance fee
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35. Grace period
The time between the close of the billing cycle and the payment due date
If you do not carry a balance from the last credit card bill, interest will not be charged on purchases if the new bill is paid in full by the due date
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36. Credit Card Billing Statements
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37. Minimum monthly payment
The lowest amount you are required to pay each month
Paying just the minimum amount does very little to reduce the amount owed
Paying more than the minimum helps reduce the amount of interest owed on the card
Excess payment must be applied to higher-rate balances first
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38. Periodic interest rate
APR divided by 365 days
The daily periodic rate is used to calculate your daily and monthly interest charge
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39. Payment due date
The last day that payment can be accepted without penalty, generally days after the close of the billing cycle
Due dates must fall on the same day every month
If payment is not received by 5:00 on the due date, a late fee will be charged
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40. Dispute rights
If you find a mistake on your bill, you can formally dispute the charge
You do this by notifying the credit card company
You can dispute charges for
The wrong amount
Something you didn’t accept
An item or service that was not delivered
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41. Take a break Free annual credit reports www.annualcreditreport.com
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42. Credit Card Fees
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43. Annual fees
Annual fees are common on charge cards, “rewards” and airline miles credit cards
Sometimes an annual fee will be applied if you do not make at least a few charges during the year
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44. Annual fee tips
Consider the overall value of a card when comparing fee and no-fee cards
For cards with airline miles or other rewards, make sure the card’s benefits and services are worth the price of the fee
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45. Application fees
Many sub-prime cards — and some secured cards — charge a fee when an account is opened
Account-opening fees, including an annual or application fee, cannot exceed 25% of the initial credit limit
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46. Application fee tips
Secured credit cards are generally much better deals than sub-prime credit cards
You can find secured credit cards that don’t charge application fees
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47. Balance transfer fee
Charge for transferring a balance from another credit card
Commonly assessed as a percentage of the transferred amount (for example, 3%)
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48. Balance transfer tips
When applying for a new card, ask about balance transfer fees
Most companies don’t charge balance transfer fees to new cardholders for the first month or two
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49. Cash advance fee
Commonly charged as a percentage of the cash advance (for example, 3%)
Minimum charges are common
A maximum charge may limit the amount paid, but these are not as common as minimum charges
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50. Cash advance tips
Cash advance fees are an expensive way to get cash – not only do you pay the percentage fee, but interest on cash advances begins to accrue immediately
Instead, use your ATM or debit card to withdraw cash from your checking or savings account at your own bank’s ATMs or point-of-sale terminals
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51. Currency conversion fee
Fees charged for purchases made overseas, or purchases made from companies based outside the U.S.
Also called a foreign exchange fee or surcharge
Fees vary by issuer
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52. Currency conversion fees tip
Before traveling outside of the U.S., shop around to find a card with a low, or no, currency conversion fee
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53. Late fees Charged if your payment is late
Payments received on the due date before 5 p.m. cannot be considered late
Your due date must fall on the same day each month
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54. Late fee tips Always pay bills on time
Allow at least seven days for the payment to reach issuer if using the U.S. Postal Service
Consider online bill pay, pay-by-phone, online payments at the issuer’s web site, or automatic payments from bank account
Try to avoid waiting until the last minute--you can be charged a fee if you need to make an expedited payment with the help of a customer service rep
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55. Over credit limit fee
Charged if you go over your credit limit AND you have given permission to the card issuer to charge a fee if you exceed your credit limit
Only one over-limit fee allowed per billing cycle
If you don’t give permission, you don’t get fee AND transactions that would push you over limit are likely to be declined
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56. Credit limit tips Know your credit limit
Keep your credit in good shape by accessing no more than 50% of your credit limit at any time
Call card issuer in advance when an increase in your credit limit is needed
Ask if issuer has free alerts to warn when you are approaching your credit limit
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57. Optional Fee-Based Services & Card Features and Benefits
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58. Optional services Most card issuers offer optional services for a fee
These may include credit protection insurance, identity theft or fraud prevention plans
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59. Your choice You do not have to buy optional services
Not buying them will not affect your card application or change the terms of the card
Before making a decision on whether to purchase optional services, get detailed information and review the limitations and restrictions of the service
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60. Free benefits
Zero liability if your card is used to make purchases without your authorization
Cash rebates or merchandise rewards
Rental car “collision damage waiver” (CDW) coverage
Buyers’ protection against loss and theft
Extended warranties on items you buy using your card
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61. Common fee-based services
Credit protection services
ID theft monitoring services
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62. Credit protection insurance
Makes your loan payments if you die, become ill or unemployed
Coverage is quite expensive
There are significant limitations
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63. ID theft monitoring services
Credit monitoring companies charge a yearly fee to check your credit report
Alerts you if information in your report changes, such as reviews by potential creditors or new accounts
You can check your credit report yourself for free
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64. About Consumer Action www.consumer-action.org
Free educational materials on credit cards and other personal finance topics
You can get advice and referrals by calling Consumer Action counselors
TTY:
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