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Q. What does APR mean and why is it important?
A. APR stands for annual percentage rate, which is the annual
interest rate a credit card company charges you for a one-year loan on the
balance of your credit card purchases. It's important to know that APRs vary
from one company to another, so do your homework and shop around for a credit
card that has the lowest APR. If you know you're going to pay off your credit
card balance in full each month, then you don't need to concern yourself with a
credit card's APR.
Q. What should I look for when shopping around for a credit card?
A. First, know why you want or need a credit card in the first
place. Will it be used for emergency situations only? Or, will it be used to
make other kinds of purchases (e.g., school supplies, living expenses)?
If you don't have a budget and/or you don't know how you're going to use the
credit card, then DON'T apply for a card until you've created a budget and
you've determined exactly how you're going to use the card.
After you know how you will use your credit card, then follow these steps: READ
the FINE PRINT and understand the terms of the agreement, which at
first may appear to be tedious and difficult to understand. The fine print will
explain late fee penalties, APRs, introductory promotional offers, payment
cycles. After you understand the terms of one credit card company, it will be
easier to understand the terms of other credit card companies. And by all
means, if you don't understand the terms, call the credit card company and ask
them to explain the terms until you do understand.
Shop around for the lowest APR, especially if you know you'll be carrying a
balance from one month to the next. And never choose a credit card that has
an annual fee . There’s no reason to pay a credit card company an
annual fee to use its services.
Q. How can you tell the difference between a scam and the
real thing?
A. Only do business with credit cards from major
banks and always read the fine print of the terms of agreement. Visa,
MasterCard, Discover, and American Express are the most reputable. Be wary of
credit card solicitors on campus and don’t fall for the hard sell. If you’re
feeling pressure, just say “no” and walk away. Be careful of providing
your social security number on applications on campuses.
Q. What are some of the benefits of having a credit card
over an ATM card?
A. Don’t confuse the two. When you use a credit card, you’re
borrowing money from a credit card company. When you use an ATM card, which can
also be a debit card, you’re taking money out of your checking account.
While it’s a good habit to make purchases with money that you have in your
checking account, there are some protections that come with using a credit
card. For example, if the merchandise doesn’t work, or it arrives damaged, you
can challenge the charge and the credit card company won’t require payment on
the amount in question until the issue has been resolved. Of course, your first
inquiry in such a case would be for you to contact the seller directly.
Q. How can I find out about my credit history?
A. As of September 2005, all consumer credit-reporting
agencies are required to provide you with a free annual credit report. However,
there is only one authorized source that you should use. Go to
www.annualcreditreport.com , and complete the application.
Q. I plan to pay my credit card balance in full every
month. What should l look for in choosing a card?
A. As always, look for a card with no annual fees. In
addition, since you'll be paying the balance in full every month you can ignore
the interest rate, or APR. Look for a card that offers a Rewards Program, such
as up to 5 percent cash back, merchandise rewards and airline miles. Also, many
cards offer the opportunity to automatically take the payment from your
checking account. This way you'll be sure of never missing a payment.
Q. How can I avoid missing the payment due date?
A. Always mail your credit card payment at least 5 business
days before the due date. Most credit card companies have steep late payment
penalties. Also, your interest rate on new purchases, as well as any current
balance, may be raised to a very high rate if you’re late.
Q. What happens if I miss a payment?
A. The consequences can be severe. You will be penalized and
have to pay a late fee, which varies from one credit card company to another –
which is another reason to read and understand the fine print before you apply
for a credit card. This late fee is on top of the interest rate on the balance
of your credit card purchases. Missing a payment can also tarnish your credit
rating if you get in the habit of missing payments.
The best response to missing a payment is to be proactive
and call your credit card company immediately. See the next question.
Q. What should I do if I miss a payment?
A. Call your credit card company immediately and ask them to
forgive the late fee. If the company says "no," threaten to close your account
and transfer your balance elsewhere. If you’re a good customer with a history
of making regular, on-time payments, there is an excellent chance that the
company will remove the late fee. After all, they want your continued business.
Don't abuse this course of action, however; if you get in the habit of missing
payments, your credit card company will be disinclined to waive the late fee
and most likely will increase your interest rate.
Q. What should I do if my payment is in the mail but it
won't get to the credit card company within the pay period?
A. Again, call your credit card company and let them know that
payment is on its way. And again, ask them to forgive the late fee.
Q. Why should I care about making the minimum payment on
my credit card?
A. As a credit card holder, you're obligated to make at least
the minimum payment on your credit card. Not honoring the "minimum payment"
agreement has severe consequences. Some companies may view this as nonpayment
and hit you up with a late fee.
Q. How can I pay off some debts over several months while
paying the least amount of interest?
A. Look for a new card that offers an interest free period on
balance transfers. Apply for the card and ask for a balance transfer of the
entire amount. Do NOT make additional charges against the new card
. Be sure to make the minimum monthly payments on the old card until the
transfer has been completed.
Q. What are the danger signs of misusing my credit cards?
A. You're maxed out on your credit card limit; You get a cash
advance on one credit card to pay off another; You rationalize a purchase
knowing full well you don't have the money to pay for it; You pay only the
minimum payment; or worse, you can’t even make the minimum payment; You don’t
open your bills and review your statements.
Q. What are some of the consequences of bad credit?
A. You can't open a checking account. You can't get
another credit card. You can't rent an apartment. You can't purchase furniture,
computers or anything on credit. You can’t get a mortgage. You may pay double
the interest on a car loan and get hit with excess dealer fees. You may not be
able to rent a car. In some cases, you won’t get a job offer because many
employers run credit checks. Employers interpret a bad credit history as a sign
of irresponsibility and immaturity.
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