Q: What is a good first credit card?
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 or 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
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. But,
be careful which secured card you choose. Some of these cards
carry extremely high fees -- so high that you could end up
spending most of your deposit in fees.
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
How do I get the best
credit card deal?
When considering a particular offer, make sure
you know ALL the details of how your card will work. Be sure to
study its terms and costs before signing on. Here are some key
questions to ask.
Does the card have an
If you're looking for a no-frills, low-rate
card offer, there's no reason to pay an annual fee. Avoid cards
that charge them. Many rewards cards, such as the wildly popular
air-mile credit cards, and some super high-end prestige cards
charge annual fees in exchange for rewards or perks and
services. Weigh these offers carefully.
What is the card's APR?
The lower the interest rate, the less money
you'll pay when you carry a balance. Does the card come with a
super-low introductory rate? How long does the teaser-rate last?
Will you be able to pay off your card balance before the teaser
Is the APR fixed or
About 70 percent of all credit cards have variable rates. The
interest rate on a variable-rate credit card fluctuates with an
index. When the index shoots up, so does the card rate. When the
index slips down, down goes the card rate. Be aware that the
slide down happens much slower than the rate increase.
Some variable-rate card accounts are re-priced
each month. Others are re-priced each quarter. Most issuers use
The Wall Street Journal prime rate as an index. Unlike
variable-rate cards, the interest rate on a fixed-rate card does
not fluctuate each month or each quarter. If you sign on for a
card with a fixed 12.99 percent rate, there's a good chance
you'll be paying 12.99 percent for quite awhile.
But it's important to
realize that a fixed-rate card deal could change at any time.
According to federal law, issuers must give written notice of
rate increases to fixed-rate cardholders a mere 15 days before
the new rate takes effect.
Does a variable-rate
card offer have a floor?
credit cards come with floors, also called minimum APRs. Once
your card hits its floor, that's as low as it goes. Your
interest rate won't drop any lower, regardless of future Fed
Twenty-four percent of variable-rate credit
cards surveyed by Bankrate.com have floors. Seventy-five percent
of those cards had hit their minimum APRs as of October 2001.
The only direction the rate on these cards can go is up. Be sure
to check for a minimum APR before signing on for a variable-rate
How long is the card's
Most cards offer grace
periods to customers that pay off their balances each month. A
grace period is the period after a purchase is made during which
interest is not charged. If payment is made in full by the end
of the grace period, no interest is charged. But if only a
partial payment is made, interest kicks in at the end of the
Many issuers have whittled down the
interest-free grace periods on credit cards from 25 days to 20.
Some credit cards have no grace periods whatsoever, which means
the interest clock starts ticking after each and every purchase.
What are the card's
While nobody plans on
missing a credit card payment or going over the limit, it's
important to realize what will happen if you do.
Penalty rates and fees are on the rise. Some
card issuer's policies are quite severe -- as high as $35. Be
sure to check. Pay careful attention to what will happen if you
pay late during a card's introductory period. Will that
super-low teaser rate disappear after one little mistake?
Found the card you want? Ready to transfer a
balance? Before you do, check for fees.
Some cards charge you a fee for each and every
balance you transfer to the card. Both First USA and Citibank
charge a fee equal to 3 percent of the balance being
transferred. First USA caps its fee at $35. Citibank's fee is
capped at $50. It's best to avoid offers with hefty transfer
Continue making minimum
payments on your old card while waiting for a balance transfer
to take effect, which could take four weeks. If you don't, your
old issuer could slap you with a late fee. This Bankrate.com
worksheet will guide you through the balance transfer process.
How do I dispute a
credit card purchase?
Don't you just hate it when
you buy a product and bring it home, only to discover the
product is damaged or poorly made?
To make matters worse, the merchant refuses to
replace it or give you a refund.
If you made the purchase with a credit card,
your card company may be able to help.
Credit card purchases are
protected under the Fair Credit Billing Act. This law gives the
consumer the right to withhold payment on poor-quality or
damaged merchandise purchased with a credit card.
Under the law, you do need to make a real
effort at resolving the dispute with the merchant before you can
ask your issuer to "charge back" the merchant and credit your
account. There are a few other catches as well.
The sale must be for more than $50 and have
taken place in your home state or within 100 miles of your home
address. Few issuers enforce the $50 or 100-mile rule on
purchases, but all are free to do so.
So there's a chance that you'll be able to
dispute credit card charges on shoddy merchandise purchased
outside your home state, over the Internet, by mail order or
"Many credit card companies will let you
dispute that," says Jeanne M. Hogarth, a program manager in
consumer policies at the Federal Reserve Board. "Technically,
they don't have to."
Because card companies are
eager to hang on to their customers, especially good ones,
they'll often go above and beyond what's required of them by law
when a customer is unhappy with a card purchase.
For example, Capital One issues a temporary
credit to a customer's account when a purchase is in dispute.
"If a customer sends a dispute letter, we'll
issue a temporary credit so they won't have to pay for it," says
Diana Don, a spokeswoman for Capital One. "We're giving the
benefit of the doubt to the customer."
Capital One then contacts the merchant. If
Capital One agrees with the customer, the refund stands. If
Capital One sides with the merchant, the customer must pay for
the item, plus finance charges.
Some card companies may be
less generous when a big-ticket item is in dispute or if you
made the purchase while traveling overseas. It all depends on
the card company and how much they value you as a customer. They
can point to the limits spelled out in the Fair Credit Billing
Act whenever they want to.
"This is goodwill and that's
all it is," Hogarth says. "At any time a credit card company can
fall back on what's required by law."
To get the Fair Credit Billing Act to work for
you, here's what you need to do:
First off, try to resolve the problem with the
"Give them the chance to fix it. Sometimes
they do," says Cary L. Flitter, a consumer attorney in Narberth,
"If you use common sense
and courtesy, it usually gets the problem solved before it
becomes a Fair Credit Billing problem."
If possible, take the defective merchandise
back to the store. Otherwise, call the store and ask for a
manager or supervisor. Keep records of each conversation.
If the merchant won't budge, put your
complaint in writing. Outline the dispute in a short, detailed
letter to the merchant and send it certified mail.
Be sure to make copies of the complaint letter
sent to the merchant. One copy will be sent to your credit card
company as proof that you tried to resolve the dispute with the
merchant and one copy will be kept in your records.
The next step is contacting your credit card
company and alerting them of the disputed purchase amount. To be
protected under the Fair Credit Billing Act you'll need to do
this in writing and within 60 days after the bill with the
disputed charge was sent to you.
In your letter, be sure to include your credit
card account number, the closing date of the bill on which the
disputed charge appears, a description of the disputed item and
why you're withholding payment. Enclose a copy of your complaint
letter to the merchant and any other documentation you may have
supporting your position.
Send your letter by
certified mail, return receipt requested, to the credit card
company at the address for "billing inquiries" and not the
address for payments.
A credit card company
cannot charge you finance charges on a disputed charge. But you
will still be charged interest on any other purchases you may
have made. Be sure to include a payment for these purchases with
Don't delay in the mailing of your dispute
letter, especially if it includes a payment. Under the Fair
Credit Billing Act, an issuer can take as many as five days to
credit a payment not sent to the payment address.
Your issuer will then contact the merchant and
hear its side of the story. Two things can happen. If the card
company sides with the merchant, you'll have to pay for the
disputed item, plus any finance charges. If the card company
sides with you, you don't have to pay a penny.
To dispute a bill, it's
best to move quickly. You'll want to inform your card issuer of
the disputed charge before it's due for payment. You can't
withhold a payment once a bill is paid.
How many credit cards
should I have?
It's better to have two cards with $5,000
credit limits than 10 cards with $1,000 credit limits.
Your credit rating is
influenced by the credit lines available to you and your history
in making timely payments on outstanding balances. Choose the
two cards with the best terms. Cancel the rest.