CREDIT CARDS
What is a credit report?
A credit report is where all the
information about your financial history is revealed: whether you paid
your bills on time, how much money you have in your account, how many
accounts you have...
Why is good credit so important?
Having a good credit history enables
you to have lower interest loans, better credit card rates, make car
payments, and will help you out when you eventually decide to buy a
house. Good credit means you are reliable, dependable person who pays
his/her bills on time. On the other hand, if you have bad credit, it
means that you will pay higher interest on loans, will have higher
credit card rates... It can also be a problem if you do not have a
credit history at all. Most international student will be in this
category: most of us have never had a credit card in the United States
and do not pay bills either.
How to start off your credit history?
The best way to gain credit is to sign
up for a credit card. Make sure to shop around and review the section
on credit cards in this booklet, as well as asking around to your
professors and advisors for help in selecting a good credit card for
you. You can also get a department store credit card (at the mall for
example). But you have to pay your bills on time and in full each
month, if not, you will only be hurting your credit!!
Once you have started building up your
credit, you should periodically check your credit report for errors.
You can get your credit report for free at:
www.freecreditreport.com
www.truecredit.com
For more information, go to the web
resources section.
Types of credit cards:
1. Bank cards (Visa,
MasterCard, Discover Card...)
2. T&E (travel
& entertainment) cards (American Express, Diners’ Club...)
3. House cards:
these are cards that are valid only in specific stores. (Sears cards,
gaz cards, department store cards...)
4. Affinity cards:
these cards are usually bank cards that are affiliated with another
company. That company’s logo is on the card and they provide benefits
for credit card owners. For example, the United Mileage Plus Visa card
is a Visa credit card, with Visa benefits, plus United Airlines
benefits (if you join, you get a number of miles added to your mileage
account and then you get an additional mile for every dollar you spend).
Some definitions you will encounter
when shopping for credit cards:
-Annual fee: yearly charge for the
privilege of using a credit card (many companies no longer charge
annual fees)
-Finance charge: money you are charged
for using credit (e.g.: interest costs, cash advance fees...)
-Grace period: time (usually about 25
days) during which you can pay a credit card bill without being charged
a finance charge. This only applies if you pay your balance in full
each month.
-APR: Annual Percentage Rate: yearly
percentage rate of the finance charge. This interest rate changes all
the time. There are two kinds of rate: fixed rate (fixed annual
percentage rate) and variable rate (prime rate, which varies, and an
added percentage).
-Introductory rate: this is a
temporary, lower APR that usually lasts the first six months of credit
card use before converting to a normal rate.
What you need to know before selecting
a credit card:
•make sure you understand a plan’s
term before accepting it (terms: all the things written above)
•make sure you know what the minimum
payment required every month is. No matter what you do, try your
hardest to pay your bills in full in each month; you won’t have to pay
interest. If you don’t pay your loan in full each month, you will
charged increasing interests.
•shop around!!
There is a good checklist available
at: http://www.bankrate.com/brm/green/cc/crdt1e.asp
What qualifications do I need to get a
good credit card?
Credit card companies will look at
your credit report (see “Credit Report” section). They are looking for
the following:
1.Good payment record: they want to
know if you pay your bills on time consistently.
2.Control of debt load: they want to
make sure you do not live beyond your means (e.g.: always buying big
purchases impulsively when you cannot afford it...).
3.Signs of stability and
responsibility: how long you have lived in the same place, how long
have you held the same job, what kind of job you have...
4.Lack of credit inquiries: every time
you apply for a credit card, your credit report is pulled. When your
credit report is pulled, it is marked as an inquiry for two years. The
more inquiries you have in your report, the more it seems as if you are
desperate for loans.
5.Lack of available or unused credit:
credit card companies do not like it if you have many credit cards that
you never use or if you have never had any credit cards either.
If you do not have these
qualifications, the credit card companies will not give you a card or
will give you one with a high interest rate on it. It all depends on
your credit report.
As international students, you are
unlikely to have a good credit report since it might be your first time
living in the United States.
What to do if you notice an error in
your card billing?
1.You need to write your credit card
company (within 60 days of your bill). Include the disputed charge,
your name, your account number, the date and the amount of the error.
Also explain why you are disputing the charge.
2.Send the letter to the address
provided on the bill, separately from your payment.
3.The credit card company has 30 days
to get back to you, and 90 days to investigate your claim. DO NOT pay
for the disputed charge during that time.
4.If the investigation concludes that
the disputed charge really was an error, you won’t have to pay
anything. But if they find that it was not an error, you will have to
pay the amount of the disputed charge and all charges associated with
it (including late fees).
Sample credit card terms:
Below is a credit card offer I got in
the mail. It is a credit card coupled with United Airlines that will
give me 1 mile for every dollar I spent with the credit card. Let’s
analyze it:
• 14.64% APR: this is a pretty high
APR. Reasonable APRs for people with good credit average between 8 and
9%.
• Variable rate information: describes
how the APR is calculated.
• You have 20 days to pay your bills.
• The annual fee is $60.00 (also
pretty high).
• Finance charge: every time you buy
something with your credit card, the total amount of your purchases
will be added with one dollar. (If on the same day, you spend $5.00 at
Ingles, $3.00 at Blockbuster, and $9.00 at the gas station (all using
your credit card), your total charges for the day will be $20.00 as
opposed to $17.00 if you had used cash).
• You will be charged $29.00 every
time you are late paying a bill.
• If you pay your bill on time and in
full every month, you will not be charged with the APR. You will only
be charged with the finance charges.