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| Matching the card to your lifestyle original source: http://www.bankrate.com When it comes to credit cards, it's definitely not "one size fits all." As a smart consumer, you should select the card best suited for your spending and payment habits. A vast majority of consumers revolve some debt month after month. If you fall into that category, find a card with a low interest rate and no annual fee. If you use credit cards for convenience and pay it off each month, you probably could not care less about the interest rate, but are looking for perks. Here's a look at the various types of cards on the market to help you find the best card for your lifestyle. Did you know ... That the average consumer has a total of 13 credit obligations, including credit cards and installment loans (such as mortgages, car payments and school loans). Of these 13, nine are likely to be credit cards and four installment loans. Source: Fair Isaac Corp. Credit reports, credit scores and you If you are applying for a loan or credit, records of your previous dealings with someone else's money are vital. Whether you get that credit card, or not, may depend on a network of credit reporting agencies that either share information with, or are owned by, three major credit bureaus. This report is often a critical factor in credit scoring systems that lenders use to issue credit cards as well as mortgages or other loans. So, if you're considering making a major financial move it's a good idea to check your credit report to know where you stand. That way you can be aware of, and if necessary take care of, problems before they jump up and derail your plans. If you find problems, or if potential creditors discover them, take steps to rebuild damaged credit and clean up that record. If you've made mistakes in paying previous loans, bounced checks, made late payments or had other problems, you may still be able to reduce the amount of damage they will do to your credit with explanations or some basic repair. Getting your hands on your credit report Obtaining copies of your credit reports is easy. Thanks to a new federal law everyone is entitled to one free credit report from each of the main credit reporting agencies -- Equifax, Experian and TransUnion -- per year. The program rolled out across the nation one geographical region at a time with all consumers eligible on Sept. 1, 2005. You must request your free credit reports through a centralized source. To order online, visit www.annualcreditreport.com. By phone, call 877-322-8228. Or, you may complete the form on the back of the Annual Credit Report Request brochure, and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA, 30348-5281. Three other opportunities to receive a free copy of your credit report: 1. If you applied for a loan and were turned down, you can request a copy by writing the correct credit bureau within 30 days of the rejection. With your request, you should include a copy of the declined loan application. 2. You can also get a free report if you are unemployed, planning to apply for jobs in the next 60 days, receiving public welfare assistance or believe the credit file contains mistakes resulting from fraud. 3. Some states already offer a free annual credit report from each of the three agencies. Residents of Colorado, Maine, Massachusetts, Maryland, New Jersey and Vermont are entitled to one free series annually. Georgia residents are entitled to two free annual credit reports from each credit reporting agency. Costs and fees Sure, you pay the finance charge on your bill, but do you understand how the credit card company arrives at the number? Check out four of the most common calculation methods. But be warned: the method alone only tells part of the story. To make sure you're getting the best deal on a card, ask how the company calculates the charges and whether interest is calculated on a daily or monthly basis. Find out if there is a grace period for new purchases. And have the company rep explain when and how your monthly payments are applied. Calculation methods Average daily balance The company averages your daily balance. For instance, if you charged $100 on the first day of June and $200 on the 16th, your average daily balance would be $150. That number times roughly one-twelfth your annual percentage rate (APR) equals your monthly finance charge. Interest may be calculated on a daily or monthly basis. Daily balance The company calculates the actual balance you carried each day of your billing cycle and multiplies it by roughly 1/365th of your APR and adds it together. Two-cycle balance Similar to an average daily balance except that the daily average is based on your last two billing months, not just one. With this method, if you don't pay off your card in full one month, you'll be hit with retroactive interest on your next bill. Previous balance The bill will show beginning balance and ending balance for your account. The finance charge is based on the outstanding balance at the beginning of the billing cycle. Special-need card users There are banks that specialize in extending Visa and MasterCard credit cards to applicants who are just establishing a credit history. Pick a bank, and see how you do. Don't apply to more than one because credit applications show up on your credit report, and multiple rejections make you look desperate for credit. If that application doesn't get you a credit card, there are two basic approaches. The first is to start with department store credit cards and oil company credit cards and build a credit history using the cards. These cards are easier to obtain than Visa or MasterCard charge cards. Establishing a payment history will help you qualify down the road for the major credit cards. Apply to one, meaning either a department store or oil company, and see if you are approved. Wait a few months before applying for another card. A second approach is to get a secured credit card. With a secured card, you place a deposit with the credit card company and they provide you with a credit card. The credit limit is typically equal to the deposit. Carrying a small balance on the department store cards or secured card isn't a bad idea because it shows that you can handle an outstanding balance. I don't think it makes as much sense to carry a balance on an oil company card because it conveys a message that you can't keep current on your gasoline purchases. It's critical that you stay current on all of your bills. Late payments, missed payments or other payment problems will undo all your efforts to build a credit history to the point where you have ready access to credit. Guide to reading your monthly statement Purchases/new charges: This is where the statement should spell out what you purchased and how much you borrowed. It's also the first thing you want to check, says Mark Oleson, director of the Financial Counseling Clinic at Iowa State University. His smart credit trick: Save all charge receipts for the month and match them with the bill when it comes in. "I want to make sure that when I pay my bill, I'm paying the amount I charged," Oleson says. That way if you're double billed or charged for something you didn't buy, you can take action immediately. If you have a problem, quickly contact the credit card company by phone and follow up with a letter. In addition, you want to look at what rates are applied to what charges. If you took out a cash advance, chances are you might pay that at a higher rate, which probably started the day you received the money. If you have a balance transfer at a special rate, you want to make sure that's noted correctly on your statement. Previous balance: Does the number track with your last bill? And is it going down or are you just treading water? Payments and credits: Did you get credit for that return on Dec. 26? Or for the last check you sent? "Look to make sure they applied the last payment as they should have," says Rus Halsey, group manager and counselor for GreenPath Debt Solutions, a nonprofit credit counseling service based in Farmington Hills, Mich. And if you sent in a check to pay off last month's cash advance, did the company apply the credit correctly? Cash advances: This will tell you how much you've borrowed. Many cards charge a higher interest rate on a cash advance than on purchases. They may not offer a grace period. And some don't automatically apply your repayment to the cash-advance debt. If you have to take a cash advance, find out the rules for borrowing and repaying ahead of time. And track this balance until it's paid off in full. APR: It stands for annual percentage rate, and it's the "industry standard" for measuring finance charges, says Halsey. "I don't have to get hung up on how it's calculated daily, monthly or whatever. I look at the APR." But credit companies can change the APR, which is one reason to check it when the bill comes in each month. You want to make sure it's "steady and consistent" with what the company has charged you in the past, he says. Finance charges: If you carry a balance, and sometimes even if you don't, finance charges are the penalty for using plastic. Some cards won't levy finance charges as long as you pay off your bills in full each month. Others start charging interest from the moment you use the card. |
| Shop safely on the Web When it comes to buying online, credit cards are the only way to fly. "The bottom line is that people feel a lot safer (using credit cards)," says Linda Sherry, spokeswoman for Consumer Action, a nonprofit advocacy and education group. "Much as I advocate pay-as-you-go, when shopping online or with merchants you don't know, a credit card is a lot safer." But not all cards are created equal. Depending on your card brand and the issuing bank, your plastic may offer some, all or none of the following: Zero liability Upside: Offered by credit card issuers, including Visa, MasterCard, DiscoverCard and American Express. When someone steals your credit card and makes charges without your permission, you are responsible for the first $50. But if your card offers "zero liability," you aren't responsible for any amount. Downside: Some cards require that you adhere to certain rules, like reporting the fraud within a certain length of time, so it pays to know how your card works. One-time use/virtual or temporary numbers Upside: Offered by credit card issuers, including Discover; also by some banks, including MBNA. You download a piece of software from your card's site or go to the site and login to your account and get a "disposable" number, good for one online purchase only. Downside: Some cards will let you use these for recurring charges (like that monthly club membership) for up to a year, others won't. And you can't use them to pay for things online that you will pick up in person, such as airline tickets. The reason: Many times merchants want to verify that you're the person who paid for the goods, and will ask you to show the card you used for the purchase. With a disposable number, the two won't match. Extra passwords Upside: Offered by credit card issuers, including Visa and MasterCard. Similar to the system you use when you sign in for your e-mail. With this program, you include an extra password, known only to you and the card company or bank, when you buy from certain online merchants. Downside: Not every e-tailer who accepts the card online participates in the program. So technically, if someone steals your number, they could still use it plenty of places online without knowing your password. Bottom line: Read the fine print and choose your card carefully before you point, click and buy. Fraud shield Smart consumers always reach for a credit card when they buy online because cards offer charge-back rights and a shopper's liability is limited to $50 in case of fraud or theft. |
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