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		CREDIT CARDS: How To Choose—And Use—Them Wisely
		Using your credit cards wisely is largely a matter of being informed — e.g., how much your card company is charging you for credit — and by following some simple tips for using the card.

TABLE OF CONTENTS

Examine The Card's Terms
Use It Wisely
INFOSOURCES

EXAMINE THE CARD’S TERMS

To choose a credit card wisely, you must first review and understand the terms and features of the various cards. This can can add up to very respectable savings over a period of time. In addition, you should also know how use your cards wisely to keep your costs to a minimum. The Financial Guide explains how to achieve these goals.

Chances are you have received offers in the mail asking if you would like to open credit card accounts. Frequently, these offers say that you have been "pre-approved" for the card, often with a very attractive interest rate (usually, a short-term "low-ball" rate) and with a line of credit purportedly set aside for your use (although few people ultimately qualify for the credit line in the promotional literature). Typically, these offers urge you to accept quickly, "before the offer expires." However, before accepting a credit card offer, understand the card's credit terms and compare costs of similar cards to get the terms and features you want.

Making an informed decision about a credit card is largely a matter of finding out what the actual cost of credit is under that card. Credit cards involve not only a ''finance charge"—a charge for the convenience of borrowing—but usually other, less obvious charges as well.

Learn which credit terms and conditions apply. Each affects the overall cost of the credit you will be using. Due to the provisions of the Fair Credit and Charge Card Disclosure Act, you can compare terms and fees before you agree to open a credit card or charge card (no interest) account. Be sure to consider and compare the terms listed below, which both direct-mail applications and pre-approved solicitations must reveal.

Which card is best for you may depend on how you plan to use it. If you plan to pay bills in full each month, the size of the annual fee or other fees, and not the periodic and annual percentage rate, may be more important. If you expect to use credit cards to pay for purchases over time, the APR and the balance computation method are important terms to consider. In either case, keep in mind that your costs will also be affected by the grace period.

The "annual percentage rate," or APR, is disclosed to you when you apply for a card, again when you open the account, and on each bill you receive. It is a measure of the cost of credit, expressed as a yearly rate.

The card issuer also must disclose the "periodic rate," the rate the card issuer applies to your outstanding account balance to figure the finance charge for each billing period.

Some credit card plans allow the card issuer to change the annual percentage rate on your account when interest rates or other economic indicators (called indexes) change. Because the rate change is linked to the performance of the index, which may rise or fall, these plans are commonly called "variable rate" plans. Rate changes raise or lower the amount of the finance charge you pay on your account. If the credit card you are considering has a variable rate feature, the card issuer must tell you that the rate may vary and how the rate is determined, including which index is used and what additional amount (the "margin") is added to the index to determine your new rate. You also must be told how much and how often your rate may change.

A free period, also called a "grace period," allows you to avoid the finance charge by paying your current balance in full before the due date shown on your statement. Knowing whether a credit card plan gives you a grace period and the length of this period is especially important if you plan to pay your account in full each month.

If there is no free period, the card issuer will impose a finance charge from the date you use your credit card or from the date each credit card transaction is posted to your account. If your credit card allows a grace period, the card issuer must mail your bill at least 14 days before your payment is due. This policy ensures that you have enough time to make your payment by the due date.

CAUTION: The grace period is generally misleading. The period does not start when the statement is mailed and end when your check is received, as many consumers believe. In fact, it usually starts a few days before the statement is mailed and ends a few days after the payment is received, based on certain accounting dates adopted by the credit card company. Consequently, a 25-day grace period (a fairly common period) for paying the statement may water down to a much shorter period.

Most credit card issuers charge annual membership or other participation fees. These fees range from $25 to $50 for most cards and from $75 on up for premium "gold" or "platinum" cards (with the American Express Platinum costing $300).

A credit card also may involve other types of costs. For example, some card issuers charge a fee when you use the card to obtain a cash advance, when you fail to make a payment on time, or when you go over your credit limit. Some charge a flat monthly fee whether or not you use the card.

If your plan has no free period or if you expect to pay for purchases over time, it is important to know how the card issuer will calculate your finance charge. This charge will vary depending upon the method the card issuer uses to figure your balance. The method used can make a difference, sometimes a big difference, in how much finance charge you will pay—even when the APR is identical to that charged by another card issuer and the pattern of purchases and payments is the same.

The average daily balance method (including or excluding new purchases) gives you credit for your payment from the day the card issuer receives it. To compute the balance due, the card issuer totals the beginning balance for each day in the billing period and deducts any payments credited to your account that day. New purchases may or may not be added to the balance, depending on the plan, but cash advances typically are added. The resulting daily balances are added up for the billing cycle and the total is then divided by the number of days in the billing period to arrive at the "average daily balance." This is the most common method used by credit card issuers.

This balance is computed by subtracting the payments you made and any credits you received during the present billing period from the balance you owed at the end of the previous billing period. New purchases that you made during the billing period are not included. Under the adjusted balance method, you have until the end of the billing cycle to pay part of your balance and you avoid the interest charges on that portion. Some creditors exclude prior, unpaid finance charges from the previous balance. The adjusted balance method usually is the most advantageous to card users.

As the name suggests, this balance is simply the amount that you owed at the end of the previous billing period. Payments, credits, or new purchases made during the current billing period are not taken into account. Some creditors also exclude unpaid finance charges in computing this balance. If you do not understand how the balance on your account is computed, ask the card issuer. (An explanation of how the balance was determined must appear on the billing statements the card issuer provides you and on applications and pre-approved solicitations the card issuer may send you.)

When shopping for a credit card, you probably will want to look at other factors besides cost—such as whether the credit limit is high enough to meet your needs, how widely the card is accepted, and what services and features are available under the plan. You may be interested, for example, in "affinity cards," all-purpose credit cards that are sponsored by professional organizations, college alumni associations, and some members of the travel industry. Frequently, an affinity card issuer donates a portion of the annual fees or transaction charges to the sponsoring organization or allows you to qualify for free travel or other bonuses.

USE IT WISELY

Here are some suggestions for the use of credit cards:

1. Pay bills promptly to keep finance charges as low as possible.

TIP: Keep copies of sales slips and promptly compare charges when your bills arrive.

2. Keep a list of your credit card account numbers and the telephone numbers of each card issuer in a safe place in case your cards are lost or stolen.

3. Protect your credit cards and account numbers to prevent unauthorized use.

4. Deal only with reliable firms. In doubt? Check with your local consumer protection agency or the Better Business Bureau (BBB) nearest to where the business is located. Study the advertising offer carefully. Ask the company about its warranty, refund and exchange policies. If you cannot get the answers to your questions, or there are any doubtful claims, don’t buy.

5. Never Send Cash. Never give out your credit, debit charge card, or bank account number unless you have checked out the company or have done business with them before.

TIP: Try to pay by charge or credit card, so that you have record in the event of a dispute with the merchant.

Dispute Improper Charges

If there is a problem with your order—you were billed for the wrong amount, you never got the product, the goods arrived in damaged condition, or the merchandise or services were misrepresented—try to resolve it by following these steps:

When you have charged your purchase, you are entitled to a response to your complaint within 30 days, and the problem must be resolved within two billing cycles (but not more than 90 days). If you used a debit card, you are entitled to a response within 10 days. However, if the financial institution that issued the card needs more time, it may take up to 45 days, provided it credits your account with the disputed amount until the dispute is resolved.

1. Write immediately to the company from whom you ordered, explaining the problem and asking for a specific resolution. Be sure to include your name, address, and daytime phone number, your order or invoice number, copy of canceled check, or any other helpful information about your purchase. You generally have 60 days after receiving a bill to dispute charges. Pay any other charges on your bill that you are not disputing.
   
2. If you charged your purchase to a charge or credit card account, or you arranged for the payment to be automatically withdrawn from a bank account, send a copy of your letter to the card issuer or bank.

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Related FGs

• CREDIT REPORTS: What You Should Know—And Do—About Yours

• YOUR CREDIT CARD RIGHTS: What To Do If You Have A Problem

• MERCHANT CREDIT CARD ABUSES: What They Cannot Ask You To Do

• GETTING OUT OF FINANCIAL TROUBLE: Steps You Can Take

Financial Calculators

• How long will it take to pay off my credit cards?
• How long will it take to save for a major purchase?
• Simple loan calculator.
• How much can I borrow?
• What interest rate would I need?
• How long would it take to pay off a loan?
• What would my payments be?

Books And Other Publications

• Larry Burkett, The Complete Guide to Managing Your Money, (Budget Book Service, 1996), ISBN 0884861325.
• Jane Bryant Quinn, Making the Most of Your Money, (Simon & Schuster,1997), ISBN 0684811766.
• C. Frederic Wiegold, Editor, The Wall Street Journal Lifetime Guide to Money, (Hyperion, 1997), ISBN 0786861320.

Government And Non-Profit Agencies

The following agencies are responsible for enforcing federal laws that govern credit card transactions. Questions concerning a particular card issuer should be directed to the enforcement agency responsible for that issuer.

• State Member Banks of the Reserve System:

Consumer & Community Affairs
Board of Governors of the Federal Reserve System
20th & C Sts., N.W.
Washington, D.C. 20551

• National Banks:

Comptroller of the Currency
Compliance Management
Mail Stop 7-5
Washington, D.C. 20219

• Federal Credit Unions:

National Credit Union Administration
1776 G St., N.W.
Washington, D.C. 20456

• Non-Member Federally Insured Banks:

Office of Consumer Programs
Federal Deposit Insurance Corporation
550 Seventeenth St., N.W.
Washington, D.C. 20429

• Federally Insured Savings and Loans, and Federally Chartered State Banks:

Consumer Affairs Program
Office of Thrift Supervision
1700 G St., N.W.
Washington, D.C. 20552

• Other Credit Card Issuers (includes retail gasoline companies):

Division of Credit Practices
Bureau of Consumer Protection
Federal Trade Commission
Washington, D.C. 20580

• The U.S. Postal Inspection Service:

This office covers mail fraud, sexually offensive materials, solicitations that look like government materials but are not. If you suspect such violations, contact your local Postmaster or Postal Inspector or:

Chief Postal Inspector
U.S. Postal Service, Room 3100
475 L'Enfant Plaza SW
Washington, D.C. 20260-6444
Tel. 800- 654-8896

or

The Consumer Advocate
U.S. Postal Service
Washington, D.C. 20260-2200
Tel. (202) 268-2284

The Federal Trade Commission does not handle individual complaints, but reporting failure to deliver, late delivery, unordered merchandise, misrepresentation or fraud helps uncover widespread abuses that the FTC might take action to stop.

Division of Enforcement
Federal Trade Commission
Washington, DC 20580
Tel. (202) 326-3768

The Federal Communications Commission will handle requests for action on suspected violations of the Telephone Consumer Protection Act, such as persistent sales calls after the seller is told to stop.

Informal Complaints and Public Inquiries Branch
Enforcement Division
Common Carrier Bureau
FCC, Mail Stop 1600A2
Washington D.C. 20554

Mail and Telephone Preference Services should be contacted if you wish to have your name removed from mail or telephone lists of many companies. You may also contact the Direct Marketing Association.

Telephone Preference Service
Direct Marketing Association
P.O. Box 9014
Farmingdale, NY 11735-9014

and

Mail Preference Service
Direct Marketing Association
P.O. Box 9008
Farmingdale, NY 11735-9008

Low-Cost Credit Cards: Bankcard Holders of America lists banks charging no fees and low interest rates for their conventional credit cards. To obtain a copy of the list, write to:

Bankcard Holders of America
524 Branch Drive
Salem, VA 24153

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HOW DIFFERING FINANCE CHARGES AFFECT THE COST OF CREDIT

“While the interest rate is a major factor in determining your interest cost, the method of computing the balance to which the interest rate is applied can also be significant.  The following table shows how your interest cost can vary when the Average Daily Balance, Adjusted Balance and Previous Balance methods are used.”

* To figure average daily balance (including new purchases):

($400 x 15 days) + ($100 x 3 days) + ($150 x 12 days) divided by 30 days = $270

** To figure average daily balance (excluding new purchases):

($400 x 15 days) + ($100 x 15 days) divided by 30 days = $250

As you can see, the finance charge varies based upon which balance is used and whether new purchases are included or excluded.”

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REBATE CARDS: ARE THEY A GOOD DEAL?

The use of rebates has grown rapidly. About one-quarter of the hundreds of millions of credit cards in use offer rebates. Credit card solicitations promise cash, frequent-flier miles or points that will buy everything from gas to video rentals. Blockbuster, Egghead Software, Sam Goody, Toys "R" Us and Waldenbooks, among others, sponsor credit cards that give rebates on the cost of merchandise you buy with the card, once you send in a rebate form and proof of purchase. You usually get larger rebates on the sponsoring company's products and lower rebates on other card charges.

TIP: You will get a good deal from a rebate card if you spend a lot, and if you pay your bill in full each month. If you carry a balance on the card, what you gain in rebates you will lose in the excessive interest charged by credit cards.

Here are some of the rebate cards offered, with their terms (at the time of this writing):

• The Discover Card (800-347-2683). Offers up to 1% back on unlimited amounts once you've spent $3,000.
• American Express Membership Rewards (800-297-3276). Awards a point for each dollar charged. Points can be used at CompUSA, NordicTrack, Saks Fifth Avenue, Timberland, and others. Once you have more than 999 points, you can transfer them to a frequent-flier program.
• Citibank/Apple Computers Visa (800-374-9999). Gives 2.5% back on up to $3,000 of purchases a year and 5% on higher amounts. Rebates may be applied toward the purchase of Apple computers.
• GE Rewards MasterCard (800-544-5232). Rebate MAX out at 2% on up to $10,000 of purchases a year. Because the rebate is figured on a graduated scale, the maximum on the $10,000 is actually 1.4% or $140 a year.
• General Motors MasterCard (800-846-2273). Earns 5% toward the purchase of any GM automobile, excluding Saturn's under a special program, cardholders may earn up to 10%. Maximum rebate: $3,500 ($7,000 for Gold Card holders) over seven years.
• Nordstrom Visa (800-935-4210). Up to a 5% discount on Nordstrom purchases once you charge $5,000 on the card.

The terms of these cards change often, so be sure to inquire about them before signing up.

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