Consumer Credit

Shop around for a credit card that best fits your needs. You can get a free list of low-rate credit cards on the Bankrate website. When comparing the different offers, you'll need to understand the key terms of the contract. Terms and conditions vary widely, so it’s important to compare all the terms of the offer. Key terms you should know include the following:

• Annual percentage rate (APR): The amount of interest assessed on an outstanding credit card balance. For billing purposes, the APR is usually divided into periodic (monthly or daily) rates. A variable APR, often referred to as “prime + x%,” is tied to an economic market index such as the prime rate; thus, it fluctuates with the economy. A fixed APR does not fluctuate with the market. Rather, it's set by the credit card company. Be aware that the company can change the rate on both variable and fixed cards with as little as 15 days notice to cardholders. APR can range from 7.99 to 30.25 percent.
• Penalty APR: A much higher, punitive interest rate that credit card companies may apply to cardholders who have exceeded their credit limits, made one or more late payments, or are otherwise in bad standing. Penalty APRs are, on average, about 52 percent higher than regular APRs. Look for a card without penalty APRs.
• Grace period: The time during which a transaction does not accrue interest. Grace periods range from zero to 30 days, with an average of 23 days. They often apply only to purchases, not cash advances or other transactions. Look for a grace period of at least 25 days.
• Transaction fee: Cardholders are nearly always assessed additional fees for transactions other than purchases, such as cash advances. The fee is usually a percentage of the transaction, but a minimum fee may apply. Transaction fees may or may not be capped (i.e., have a maximum fee chargeable for a single transaction).
• Cash advance: An immediate cash loan from a consumer’s credit card account. Cash advances may carry a higher APR than purchases and often are assessed transaction fees. Grace periods may not apply to cash advances.
• Credit limit: The maximum balance that can be maintained on a card at any given time.
• Minimum payment: The amount of money that must be paid on the account, usually on a monthly basis, to avoid late fees and maintain compliance with the credit contract.
• Methods of computing balances:
  • Average daily balance: The outstanding balances for each day in the billing cycle are added and the total is divided by the number of days in the billing cycle. New purchases may or may not be added, depending on the terms of the card. If the terms state that new purchases are included, purchases made during the billing cycle will raise a cardholder’s balance and may increase the finance charge. Once the average daily balance is calculated, interest is assessed each day at the daily rate, which is the annual percentage rate divided by 365.
  • Adjusted balance: Payments or credits received during the current billing are subtracted from the balance at the beginning of the billing cycle. New purchases are not included in the calculations. For example, if a cardholder’s beginning balance was $2,000 and they made a payment of $500 during the billing period, they would only be charged interest on the remaining $1,500. This is generally the most consumer-friendly computation method.
  • Two-cycle balance: Credit card companies add together the average daily balances for the current and previous billing cycles. The average daily balance for the current billing period may or may not include new purchases. The two-cycle balance method is the least consumer-friendly method of balance computation.
  • Secured credit card: This type of credit card is linked to a bank account, allowing a credit card company to deduct payment if the cardholder fails to pay.

• Hidden transaction fees: Often buried in the fine print, these fees apply to cash advances and balance transfers. For example, if the card has a transaction fee of 3 percent and a minimum of $10, a cardholder who receives a $50 cash advance will be charged the minimum of $10, which amounts to an actual transaction fee of 20 percent.
• Late fees: The fee assessed when you don’t pay on the due date. Look for a card with a low late fee.
• High over-the-limit fees: These fees can range from $25 to $35. Many companies assess the fee when you exceed their limits by as little as $1.
• Annual percentage increase: Penalty APR is triggered by a late or missed payment. It's usually several percentage points higher than the average regular APR.
• Short grace periods: Grace periods have historically been 30 days. They now average several days less. Some cards have no grace period at all.
• Low introductory rates: Generally, introductory rates turn into very high regular rates. The rate increases are not prominently disclosed. Read the fine print.
• Bait-and-switch offers: The offer advertises a premium card, but the fine print allows the company to substitute another card, with a higher APR and fees, if the applicant doesn’t qualify for the premium card.

• Know your financial limitations: Don’t spend beyond your means. Create a budget that takes into account your average credit card payments each month and stick to it.
• Pay off your entire bill each month: Your best option is to buy only when you can pay your bill in full, before you decide to pay over time. Use this credit card payoff calculator to see how long it will take you to pay off your balance at the monthly payment you propose.
• Reduce credit card fees: Getting rid of all but one or two cards means you avoid fixed costs, such as annual fees, and makes you less vulnerable to incurring multiple late payments and over-the-limit fees.
• Be prepared to switch cards: If you're unable to pay off a large balance, pay as much as you can and switch to a credit card with a lower annual percentage rate (APR). You can view a list of low-rate credit cards on the Bankrate website.

You have the following protections under the FCRA:

• You have the right to a copy of your credit report, which contains all the information in your file at the time. You can be charged a fee for this.
• Your credit report should list all of the information gathered on you and the sources of the information. It also lists anyone who requested your credit report for employment purposes for the past two years and for most other purposes for the past year.
• A consumer report may contain personal information, including your home and work addresses, as well as information on whether you have ever been arrested or filed for bankruptcy.
• Consumer reports cannot be given to prospective employers without your consent.
• If you disagree with the completeness or accuracy of information in your credit report, you can file a dispute with both the CRA and the company that supplied the information to the CRA. The CRA and supplier of information are obligated to investigate your dispute within 30 days.
• If a dispute is not resolved to your satisfaction, you can add a summary explanation to your credit report.
• If you're a victim of fraud, you're entitled to a free credit report.
• A CRA cannot charge you when you dispute mistakes or outdated information on your credit report. Ask the credit bureau for a dispute form, and submit it with supporting documents.

If you are denied credit, insurance or employment because of information supplied by a CRA, you have the right to a free copy of your credit report, as long as you request it within 60 days of receiving the denial notice. The denial notice must advise you of your rights and provide the name, address and phone number of the CRA providing the report. The three national credit reporting agencies and their addresses are as follows:

Include in your dispute copies of your receipts, sales slips and payoff letters. If you are unable to resolve the dispute to your satisfaction, federal law provides that you can add an explanation to your credit report regarding each item in dispute.

There is nothing a credit repair company can do for you that you cannot do yourself for little or no money. A CRA cannot charge you when you dispute mistakes or outdated information on your credit report.

The Federal Trade Commission (FTC) enforces credit laws and provides information on credit and other consumer issues. Call the FTC at 877-382-4357.