What is a Credit Card?

The dictionary defines a credit card as

'A card which can be used to obtain cash, goods or services up to a stipulated credit limit. The supplier is later paid by the credit card company which in due course is reimbursed by the credit card holder who will be charged interest at the end of the credit period if money is still owing.'

In other words, whatever you charge to your credit account has to be paid back within the credit cycle or an interest amount will be applied to the remaining balance.

Advantages and Disadvantages of Credit Cards

The obvious advantage to using a credit card is that it allows you to purchase some goods or services that you may not be able to pay for immediately. The credit cycle is usually about 30 days, and if the money is paid in that amount of time, there is no interest attached to the money borrowed. This sounds good in theory, but the bottom line is that most Americans don't pay off their balances on a monthly basis. This is where some of the disadvantages come into play.

Any amount that isn't paid off within the time of the monthly cycle will be subjected to an interest charge. Depending upon the rate charged by the specific card issuer, that interest rate can be huge. On top of that, many people will continue to charge things to their card and the balance and interest just continues to grow until they have no hope of ever paying the card off if they just make the minimum required payment.

Credit Requirements

Chances are that every few days you get a pre-approved credit card application with your name on it. Sounds easy, doesn't it? Well, read the fine print and you'll see that many of these offers come with heavy penalties that can add up to high interest rates and annual fees.

To get the best possible interest rate with no additional fees, the credit companies will look at your credit history for information. They will check to see that you are responsible with your credit and have paid your bills in a timely manner. Signs of stability and credit responsibility will go a long way in reducing the amount of interest that card company will charge you. Outstanding loans with late payments and too much available credit will work against you.

Although credit cards can be great in an emergency situation, they can easily get out of hand. Before you apply for one, decide in advance what you plan to use it for. If used with discretion, they can come in pretty handy.

Help! My Credit Card Was Stolen!

Never fear, help is here! The first thing you need to do is report the stolen card to the company as soon as possible. Most companies have a toll-free number or an online service that deals solely with this problem.

Fortunately for you, federal law dictates that you are only liable for the first $50.00 of any fraudulent charges made on a charge card. Still, you are required to report the lost or stolen card even though you're not going to take a huge hit. Here's a little extra incentive to make the call fast: If you report the loss or theft before any unauthorized use, you don't even pay the $50.00.

Many card issuers are waiving the $50 exposure, so check the details on your credit card offer.

After the card is gone, make sure you pay attention to every charge on the bill. Whatever shows up that isn't yours, notify the card company in writing immediately. Make sure to include in the letter the date in which you notified the company that your card was lost or stolen and send it to the billing errors address. Do not send the letter with your payment. It will get lost in the shuffle.

If your card was a debit card, things may work a bit different. The amount of liability you are responsible for depends directly on how quickly you report it lost or stolen. If it is done before it has been used, again you are not responsible for any fraudulent charges. If you wait, even as little as two business days, you could be held liable for up to $500.00 of any fraudulent charges found on the card.

Once your card is gone and you have reported it, review your bills. Make your bank aware of any questionable deductions from your account that occurred during the time your card was lost or stolen. A phone call is great, but follow it up with a certified letter and include the day you reported your card stolen or lost. This should absolve you of any liability.

The best way to avoid stolen or lost cards is to keep track of them. Know where they are at all times and keep your pin number a secret. Also, don't use a pin number that is easy to figure out such as your birth date or phone number. Make it a number that only makes sense to you and keep it that way.

What Is A Credit Report?

A credit report is a document that includes all your pertinent personal and financial information. It will contain your full legal name, your social security number, previous and current addresses, date of birth, and current and previous employers. This information has been obtained from any previous credit applications you have filled out.

This report will also include information about any financial accounts you have now or have had in the past. This will include any loans, credit cards and their credit limits, monthly bills, and so on. It will also include the names of any other persons that may be responsible for payment on these accounts.

Any financial situations that you have been involved in that are public record will also be included. This means that judgements, tax liens, bankruptcies, overdue child support, etc., will also show up on this report.

Inquiries are also marked on your credit report. Anytime you apply for a loan, credit card, or anything that requires an institution to request a copy of your credit report, it will be noted.

To buy a copy of your own credit report online, click here.

What Is My Credit Score and Why Is It Important?

Basically your credit score is based on a mathematical equation that evaluates all the information on your credit report. The end result is called your FICO Score. FICO stands for Fair, Isaac, and Company, the organization that developed the scoring mechanism. This score is what will be used by companies to determine whether you are a safe financial risk or not. In order to even have a FICO score, you must have at least one open account on your credit report and that account needs to have been open for at least six months.

Your score is influenced by your financial history. Outstanding debts past 30 days, consistent late payments on monthly bills, and any collection action that has been brought against you will determine what your score will be. Your credit score will influence not only the decision to give you the loan or credit card, but also the amount of interest to attach to the line of credit. The higher your credit score, the lower your interest rate and vice versa.

Knowing and understanding your credit report is vital to getting a mortgage, car loan, and even renting an apartment or getting a job. If you have never seen your credit report, check it out soon. There is a chance that yours may contain errors and it's critical that you get those errors cleaned up quickly.

Fees

Most credit cards charge fees for various things, and it is important to know what these fees are and how to avoid them.

The annual fee

Some credit card companies charge you an annual fee just for using their card. Because of stiff competition, you can often negotiate this fee away if you call and speak to a customer service representative.

Cash Advance Fee

Most credit card companies will charge you a fee for cash advances. These fees can vary but are usually somewhat hefty. Not only will they charge you a one-time fee, but the interest rate for this money will be at a considerably higher rate. Plus, unlike a regular purchase, where interest begins accruing after some grace period passes, cash advances accrue interest charges from day one.

Many card companies are competing for your business and are now offering an introductory cash advance and balance transfer rates for a specific amount of time. This lower rate can be applied to any balances you may wish to transfer from another card. Although it sounds good, some companies will charge you a fee for the transfer. Know what the fee is before you transfer any balances.

Miscellaneous Fees

Things like late-payment fees, over-the-credit-limit fees, set-up fees, and return-item fees are all quite common these days and can represent a serious amount of money out of your pocket if you get whacked for any of these fees.

Incentives

Since there are so many credit card companies, competition is stiff. Adding incentives to their offers is one of the more popular ways to tip the scales in their favor. Incentives like rebates on purchases, frequent flyer miles on certain airlines, and extended warranties on purchases are just a few of the bonuses that card companies will now offer.

For those of you who collect and use your frequent flyer miles, they also have added incentives like travel insurance and car rental insurance for your convenience. Of course, they are hoping that with all this traveling, you are using their card to foot at least some of the bill.

Rewards

Many card companies are looking to keep your business and are therefore making it worth your while to use their card. Just simply by using their card you can accumulate points that will in turn earn you rewards. What kind of reward depends solely on the amount of points you accumulate. Since you can't accumulate these points without charging things on your card, this is a classic case of 'you have to spend money to save money'.

Bottom line is this: Know what you need and what you don't. No sense in paying for any features that you won't use.

First things first, find the right card for you. Not all cards offer the same interest rates and incentives so pick the one with terms and conditions that match your needs. Then simply go to that issuer's web site and click on the "Apply" link. The application appears and you're ready to get started.

Besides asking for routine personal identifiers such as your driver's license number, social security number, date of birth, and current address, you will probably have to supply details regarding your employment, salary, banking relationships and other credit obligations.

Once the application is complete, the approval time can vary. Some card companies will offer you instant approval while others may take a week or two. The rate at which you are approved is generally based on your credit history. Once you have been approved, they will notify you by e-mail, mail, or phone.

Applying online is not only safe and secure, but pretty quick too. No waiting for the mail to travel back and forth between the two of you. All necessary correspondence can be done by e-mail.

Applying By Mail or In Person

Since we do get most of our offers for credit cards through the mail, this gives you the opportunity to sit with many different offers on paper right in front of you. Now you can take the time to read each offer in depth in order to decide what card fits your needs without using the computer at all.

All of the card offers will come with an application attached to it and, again, all you need to do is fill it out and return it. The paper applications will ask for the same details that the online ones do, so have your info handy. The approval process when applying by mail can take a little longer since the traditional mail service is not as quick as the web. You should still be able to have an answer in as little as two weeks or so.

Another option is to go to your local bank branch and apply for a card in person. This is virtually the same application process again, only you are dealing with a bank platform employee. The wait time for approval may be a bit quicker since the bank can easily check your credit history and knows your financial status.

Any of the application processes will work. Just be cautious when choosing a card and don't apply for too many at once. Each credit check by the different card companies will show up on your credit report and too many hits are perceived as a negative.
 

How To Pay Off A Balance

Of the people who carry a credit card, about one-third of them do not pay off their balance each month. If you're one of these people, you may have noticed that even though you pay the minimum payment due each month, the balance either never changes or even continues to grow.

Just why does this happen, you may ask? Well, let me let you in on a little secret the credit card companies hope it will take you a long time to figure out. The amount of your minimum payment is usually equal to the interest only that is due on your balance. It may even be less. So, even if you're paying your minimum amount on time each month, none of that payment is actually going to the principal. At this rate, you'll never pay off your card. So, let's go over a couple of tips that may help you put a dent in your balance.

First, quit using your card. If you need to make some changes in your lifestyle, then do it. Unless it is truly an emergency, don't use your card for anything. Charges will only keep the vicious cycle going.

Pay more than the minimum payment due. For reasons stated above, this is critical to eliminating credit card debt. If you can, transfer your card to a card that has a lower interest rate. These applications come in the mail all the time. Just remember, this new card isn't for charging. It's to be used as a tool to pay the balance off.

Payment Agreements

When you apply for any credit, there are several different payment agreements that you can opt for. The first is the revolving agreement. This basically means that you can either pay off the card each month or make only partial payments. If the balance is not paid off though, you will be charged an interest rate on the balance. This is the most popular form of payment agreements.

The second kind is the charge agreement. This is set up so that you are required to pay off the balance in full each month and the third agreement is the installment agreement. This allows you to pay a fixed amount of the balance each month until the balance is paid in full.

Choose a payment option that will work best for you and proceed wisely. Nothing ruins your credit score like a bunch of late payments!

The Process

This process is basically a series of steps: initiating, authorizing, completing the transaction, and lastly, receiving your funds. Let's start at the beginning.

The process begins when you accept the card from the consumer. The next step is to verify that the card is active and the amount of the purchase is within the cardholder's available credit limit. How that verification is done depends upon the equipment that is available to you, and how you interact with your customer.

If you own a business in which the customer can present you with the actual card, like stores and restaurants, then you can physically take the card and swipe it through your card terminal. If you own a business that is online, your customer enters their own information into your form. Mail order and call center-based businesses usually have computer-based terminals for entering charge card data.

The second step is authorization. The key for reducing any problems during the initial phase is to make sure you are using technology that allows for real-time authorizations. This software will immediately send the card number and amount to the card processor and the processor immediately approves or denies the sale. This is critical for cutting back on charge-backs and card errors.

Third, you will need to complete the transaction. At the end of the business day, any credit card charges will need to be processed. This procedure is called batching and can be done either by hand or on your credit card terminal. Once this is done, the credit card processor will send each credit card company represented in the batch the transaction that took place. Once this is done, each credit card company will debit the cardholder's account. This ends this part of the transaction and all that is left is for the monies to be transferred into your account. This usually takes place pretty quickly, often within two to four business days.

Safety Issues

Since the process can take a few days to complete, knowing that your money is safe and will actually be credited to your account is a key concern. Many credit card processing companies have protection policies in place that will absolve you of any responsibility should you be a victim of credit card fraud as long as you followed their authorization procedures 100%. Before you decide on which processing company to go with, check out their safety policies, particularly if you are an Internet company. You will want as much protection as you can get.

Why You Were Rejected

The most probable answer is your credit score. Although several other things may have been taken into consideration, such as your salary or time on your job, your credit score is usually the biggie. The catch here is that your credit history doesn't even have to be bad, it can be blank and that will work against you just as much as a bad score will. Having no credit is almost as bad as having bad credit since the credit card companies have no reference point to see just how you will handle your credit account.

If you have a history of making late payments on bills and other loans, that will work against you. The credit card company wants to know that you are a worthwhile risk before they issue you a card.

As I mentioned above, other issues also come into play. If you have just started a new job, a creditor may want to wait a while to make sure that you keep it. These are other factors that will be considered if your credit history is less than perfect but not a total loss.

What To Do

Clean up your credit history! This is the single best step you can take in improving your options when it comes to credit cards and other types of loans as well.

Most creditors are required to tell you why you were rejected and what credit bureau they used to access your report. You may be entitled to a free copy of your credit report if the data contained on it was used to deny your application. Check with the credit bureau to see.

If your credit rating is poor, take action. Start paying your bills on time. See about consolidating your bills so you can afford to pay the monthly amount. Eliminate any extra spending that isn't necessary and use that towards your outstanding debts. Yes, this could take some time, but in the long run it will be worth it.

Once you have cleaned up your credit a bit or established some basic credit, let some time pass. Apply for the card again. Once the creditor sees how hard you have been working to get your credit report up to par, you may just be rewarded for your efforts. Be careful, though. The last thing you want to do is go overboard with new credit and dig yourself into a financial hole!

Top Reasons Why a Credit Card Has an Expiration Date

One of the most simple and uncomplicated reasons the credit card will expire is that the magnetic strip will not last forever. Although the plastic card itself is virtually indestructible, the magnetic strip is a little touchier and will eventually wear out. When that happens your card will no longer be readable by credit card terminals and ATMs.

Some institutions use an expiration date as a way of reconnecting with the cardholder. It gives the company and the user the opportunity to get together and discuss any issues or complaints that the customer may have. It also allows the card company to appear to care about you as a customer. They will send you a friendly reminder, kindly offering you the chance to renew with your same comfortable company. With all the competition out there, comfort and history can go a long way in keeping customers.

Cardholder security is another reason. This allows the company to check up on you and make sure you are who you say you are and nothing has changed. With identity theft being what it is today, this is a good thing. Some people have had credit cards opened in their names without their knowledge and charges have been made. If the card expires, the company will contact you and possibly warn you about current fraud trends.

The company may use the expiration date as a way to remind you they are there. For people who don't use their cards very often, this can be a gentle reminder of just what's in their wallet and, hopefully, remind you to use it.

Nearing The Expiration Date

It is actually quite easy to renew your card. About a month before your current card actually expires, a new one will suddenly appear in the mail to replace your expired one. This is great if you're in town. If you are going to be traveling, check your card before you go. If it will expire before you get back, call ahead and get your new one before you leave.

Once you have your new card, read the material that came with it. This may very well include a list of new and improved terms. If you find these terms to be new, but not improved, contact the card company. Do not use the card until you have received verification that the terms have been changed to your approval. If they refuse, you can always cancel the card. Trust me, it won't take long to find a replacement.

Your Credit Report

Your credit report is a document that will show your personal and financial information, good and bad. Your score is based on this information and is called your FICO score. The higher the FICO score the better. This information is reported by all three major credit bureaus, Equifax, Experian (formerly TRW), and TransUnion. Any time you apply for credit of any kind, the lender will contact one of these credit bureaus to obtain a copy of your credit report.

This all sounds pretty technical but what it boils down to is this, your credit score will influence all future financial decisions. That is why it is so vitally important that you keep track of your score and read your report regularly. Mistakes can and have been made. Keeping track of your report will help you to find these mistakes and resolve them in a timely manner.

What Your Score Means For You

Pretty much everything. As I mentioned above, your credit score will influence the decisions that companies make when you apply for credit. If your credit is less than perfect, you may be turned down or at least given a higher interest rate than someone who has a higher score. Problems can stay on your report for as long as two years even after they have been resolved.

What Influences Your Score

Your payment history is one of the main influences. Have you paid your bills on time? If you have routinely been late with payments, your score will be negatively affected.

How much outstanding debt you have is also a factor. This includes the outstanding balance on any loans you may have as well as the credit limits on any credit cards you may have. If you have multiple credit cards and these cards all have high credit limits, even if you don't carry a balance on these cards, the possibility still exists that you will someday charge all these cards to their limits. This possibility alone will negatively affect your credit score.

The length of your credit history is also a factor. Surprisingly, no credit history can work against you. With nothing to go on, the company has no idea as to just how you will handle your credit.

Obtaining Your Report

Since January of 2004, all credit bureaus are required to give you one copy of your credit report for free each year. Although the credit report is free, they can charge you for your FICO score. Contact any of the major credit bureaus either online or by phone and see what their policy is.