False: Credit card offers vary, depending on the bank involved and to whom the credit card is offered. Those with higher credit scores may be offered more favorable terms. Be sure to read all of the terms and conditions carefully to see what you will be charged in interest, and for such things as late, over the limit, and bounced check fees that can quickly add up. In addition, check to see if the card offers a grace period during which finance charges do not accrue if you make full payments every month. Also review any benefits the card may offer, e.g., cash-back bonus awards, miles, shopping points, and any associated annual fees for such benefits.

False: Credit card interest rates are controlled by the state of the issuing bank, not the state you live in, so rates can vary widely.

False: Carefully review and understand the terms of your account for each transaction type before using your card; issuers generally apply different standards to purchases, cash advances and balance transfers. Each of these may carry different annual percentage rates (APRs). In addition, you may be given a grace period for purchases allowing you to avoid interest by paying your balance on time, in full each month. On the same account, however, interest may start to accrue immediately on cash advances. And if you decide to transfer a balance from another card, you may be charged a flat fee and interest until the balance is paid off.

False: You can apply for an individual credit card in your name alone, based on only your credit history. You alone are responsible for this card. You may authorize others to use your card, but you are still responsible for the debt.

False: If you pay only the minimum monthly balance, it can take years to pay off your purchases, and with compounding interest, you may be paying for whatever you bought many times over. For example, if your minimum monthly payment is only two percent of the balance, and if you charged $2,000 on a credit card with an 18 percent APR, it would take about 30 years to pay it off with minimum payments. It would cost you about $5,000 in interest payments! Minimum payments recently changed to four percent with most card companies, and at that rate, you would pay the debt in 10 years and pay $1,000 in interest. While repaying the debt at four percent may seem burdensome, the higher repayment rate will save you thousands of dollars in interest payments in the long run.

Beginning February 2010, periodic statements must contain the following warning: “Minimum Payment Warning: Making only the minimum payment will increase the interest you pay and the time it takes to repay your balance.”

In addition, the card issuer must disclose, based on the assumption that the borrower will only make minimum payments, 1) the total number of months and total cost to pay off the balance; and 2) the monthly payment and total cost of paying off the balance in 36 months.

The card issuer must also provide a toll-free number that the consumer can call to get information about credit counseling and debt management services.

False: Credit card companies are permitted by federal law to change your rates or terms with 45 day advanced–written notice, so read all the monthly inserts and notices you receive once you get a card. Credit card company agreements may provide a number of reasons that will enable them to increase your interest rate and charge you more for late fees, over-the-limit fees, and other charges. For example, some card agreements reserve the right to increase the rate if you are over the limit more than once in a specific time period or if you are late more than once.

Currently, your credit card company may even increase your rate based on your late payment on a completely different debt, such as another credit card you own, or an auto loan. This is called “universal default.” Any adverse financial information about you that hits your credit report could trigger universal default. Credit card companies may monitor your credit reports closely, so you should to be vigilant about all of your credit.

As of August 2009, card issuers are required to include with the change-in-terms notice, a brief statement of your right to cancel the account before the effective date of change. They also must inform you that closing your account will not constitute default, will not trigger repayment of your outstanding balance faster than permitted (amortized over five years), and will not trigger a penalty. In addition, effective February 2010, universal default will be prohibited. Also, rate increases on new transactions during the first year after account opening will be prohibited. There are, however, several limited exceptions to the rate-increase prohibitions.¹

¹Exceptions include the following: 1) Card issuers can offer a discounted rate that expires after a specified time period, as long as the new rate is disclosed at account opening; 2) Card issuers can offer a variable rate that is tied to an index outside of the issuer’s control; 3) Card issuers can increase rates for new transactions (not during the first year) as long they give 45-day advance notice; 4) Card issuers can increase the rate that applies to outstanding balances if the account is over 60 days delinquent.

False: Currently, card companies may choose how they apply the money you send, especially if you have accepted a zero percent offer for balance transfers but have another interest rate for new purchases going forward. Review your initial offer for terms like “we may apply payments and credits first to your balances with lower APRs before balances with higher APRs.” Such terms allow the card issuer to apply your payment first to the balance carrying a zero percent APR, and you will have to pay interest on your purchase balance until your transferred balance is paid in full.

So, if you decide to take advantage of a zero percent offer on a balance transfer and carry a balance for a period of time, and if purchases carry a higher APR, consider putting purchases on a separate card or using another means of payment.

Beginning in February 2010, if different APRs apply to different balances on an account (e.g., purchases, balance transfers, cash advances), the card issuer must allocate payments in excess of the required minimum payment to the balances carrying the highest APR first.

True: Financial institutions use credit reports provided by the three major credit bureaus (Experian, Transunion, Equifax) when making credit decisions. If you have no credit history upon which they can base your willingness and ability to repay your debts, financial Institutions may hesitate to lend to you. A credit card from a major retailer or a major credit card company (MasterCard, Visa, Discover, American Express) is relatively easy to obtain. Just be sure to review all of the terms of the card offer and be vigilant about paying your bills on time.

Warning: Too many open credit card accounts and too many applications can adversely affect your credit rating. In addition, maintaining high balances may also negatively affect your credit report and score.

True: Federal Reserve Regulation Z, which implements the Truth-in-Lending Act, provides specific protections for consumers in credit card transactions when there is a billing error, unauthorized use (card is lost or stolen), or a purchase dispute. Regulation Z protections do not apply to cash, checks, or debit card transactions.

Billing Error:
Regulation Z protects consumers in billing error² disputes with card issuers. If you find a billing error on your monthly statement, you must notify the creditor in writing within 60 days after the first bill showing the error was mailed. Just calling the creditor is not sufficient to preserve your rights under this regulation. Be sure to include your name and account number, the reason you believe there is an error, the date of the error, and the dollar amount.

The card issuer must acknowledge your letter within 30 days or resolve the situation within that time. Or, the card issuer has up to 90 days to investigate and resolve your dispute. While waiting for the resolution, you are not required to pay the amount in question or any associated finance charges. The card issuer cannot report you to the credit bureau as delinquent, and it cannot try to collect the disputed amount. You do have to pay other undisputed charges and related finance charges.

If the card issuer determines that there was a billing error, it must correct the error and credit your account. If the card issuer determines that no error occurred, you must pay the amount owed and any accrued finance charges. You must receive a written explanation of the reasons for the finding. You are entitled to documentation of the finding upon request.³

Lost or Stolen Card
If your credit card is lost or stolen, Regulation Z places a limitation on your liability: $50 maximum.⁴

Asserting Claims and Defenses
This protection will apply if you don’t get what you ordered as the merchant promised. Regulation Z provides you with rights regarding resolution of disputes involving goods or services purchased with a credit card if:

1. You have made a good faith effort to resolve the dispute with the merchant
2. The dollar amount in question is more than $50
3. The disputed transaction took place in the state where you live or within 100 miles of you.

If these three conditions are met, you may assert the claims and defenses that you would normally have against the merchant, against the card issuer.

²Billing error is broadly defined in Regulation Z to include computational errors as well as billing for property or services not accepted or delivered as agreed upon.

³Note that billing error instructions are provided on the back of every credit card monthly statement.

⁴MasterCard and Visa have a zero dollar liability for lost or stolen credit cards.

False: Card issuers may send you credit card solicitations that say you are “pre-approved,” but an offer is not final until the credit card company checks your full credit history. And once they have done a credit check, the offer may change. While you must be made a “firm offer of credit” in order to be sent a pre-approval, you might not get the card at the rate provided in the initial mailing.

And even if you do get the rate that was promised in the pre-approval, that rate may change. If you default on a payment , i.e., you fail to make a minimum payment by payment due date, exceed the credit line or make a payment that is not honored by the bank, the card issuer could increase the APR substantially.

In addition, you are not guaranteed the credit line amount originally offered. The amount of your initial credit line will be based on your credit profile at the time your account is opened. If you do not meet the card issuer’s specific requirements, they may not extend credit to you at all.

True: Regulation Z, requires that all credit card applications or solicitations contain certain items in a specific table format with headings, commonly referred to as the Schumer Box. Use terms such as APR, minimum finance charge, grace period, cash advance fee, balance transfer fee, late fee, and overthe- limit fee to determine which offer is most appropriate for you.

Be sure to review the terms outside of the Schumer Box as well. Sometimes the big differences between cards are in the fine print.

Understanding the terms of your credit card will soon be easier. Effective February 2010, card issuers will be required to adopt new disclosure formats that will make account solicitations and applications, account opening disclosures, and monthly statements more meaningful and easier to read.

False: Don’t automatically assume that this product is right for you. Be sure to evaluate the terms carefully before purchasing this product.

Credit protection insurance is offered by credit card companies in the event that you cannot make your required payments. If, for example, you suffer job loss or short-term disability, must take unpaid family leave, or fulfill military obligations, the credit card company may either defer payments, finance charges, and late fees or make your minimum payments for you. The company may also offer this insurance in the event of marriage, adoption, divorce, or birth of a child.

Before signing up for credit insurance, consider the following:

1. If you file an insurance claim, will you still be able to use your credit card? For instance, if you file a claim because of job loss, the credit card company may no longer extend credit to you because you have no income. However, if you file a claim because of a marriage, you may still be able to use the card.
2. Ask the card company to explain the insurance terms. For example, if the insurance covers hospitalization, is there a minimum hospitalization period required before the insurance is available? Does this coverage impact other medical insurance you may have or vice versa?
3. Is there a monthly fee?
4. If the card company defers your payments and you make a payment, your regular payment cycle is reinstated. Under what circumstances will you be required to make at least minimum payments again?
5. In the event of marriage, adoption, baby, or divorce, the card company will make two months of minimum payments. Interest, however, will continue to accrue.
6. What documentation does the card company require before it will accept your claim?
7. Can you afford the insurance payments? The cost of credit protection insurance may fluctuate depending on your credit card balance. For example, a company’s fee may be $0.85 for every $100 of your balance. If your balance is $5,000, then your monthly payment for the insurance would be $42.50. This amount would be in addition to your regular monthly payments.

False: Credit card checks may be appropriate for some borrowers but not others. Before using the checks issued by your credit card company, consider the following:

1. You cannot use these checks to pay off credit cards in your wallet that are issued by the same credit card company.
2. The debts you pay off with these checks will be added to your credit card balance.
3. You may be charged a fee for use of these checks.
4. A high balance on one credit card may adversely affect your credit rating, so don’t consolidate too much credit onto one card.

Currently, card issuers are not required to provide cost disclosures with these checks; the issuer can just refer the borrower to the original account agreement. Beginning February 2010, however, card issuers will be required to disclose key terms such as introductory rates and their expiration dates, rates that will apply after introductory rates expire, fees, and grace periods(or lack thereof) in a summary table on the front of the page containing the checks.

False: There is a variety of credit cards developed for individuals with differing levels of credit problems. Most of these are subprime cards, often promoted as credit builder or credit repair cards.

These cards may provide you with an opportunity to rebuild or repair your credit, but they can be expensive. Because a borrower with credit history problems poses additional risk to the creditor, subprime credit cards can carry higher interest rates and fees. The fees alone could eat up some of your otherwise available credit, limiting your purchasing power. Also, some card issuers will require that you open and maintain a bank account balance for up to the offered credit limit as collateral.

False: Credit card issuers do not indicate in their disclosures that a card is subprime. Carefully evaluate the cost and terms associated with each offer you receive to determine which one is best for you before you apply for any given card. Once your application is approved, the subprime credit card issuer may assess your new card with many fees associated with setting up the account. These fees could add up to hundreds of dollars before you even use your card. Your buying power with this card will be limited until you pay these initial charges and free up your promised credit limit.

Effective February 2010, card issuers offering subprime credit cards will be prohibited from financing fees (other than late fees, over-the-limit fees, or insufficient fund fees) that together exceed 25 percent of available credit in the first year.