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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 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. 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 credit.

Q. 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 annual fee?
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 rate expires?

Is the APR fixed or variable?
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?
Some variable-rate 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 cuts.

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 card offer.

How long is the card's grace period?
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 grace period.

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. Avoid them.

What are the card's penalty policies?
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 fees.

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.

Q. 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 phone order.

"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 merchant.

"Give them the chance to fix it. Sometimes they do," says Cary L. Flitter, a consumer attorney in Narberth, Pa.

"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 your letter.

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.

Q. 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.

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