Everything you should know about getting a credit card but didn’t have a clue to ask
Okay, I am not saying you are clueless just that the fine print on credit card offers is not terribly easy to understand, especially if you have not encountered all of the possible scenarios that generate interest charges and fees. I was surprised, for example, that when I paid all but a tiny portion of my balance, the finance charge was calculated on all of my purchases during a given month rather than just on the balance over 30 days. It’s these nuances, illogical to me but carefully structured within the credit card agreement, that drive me batty.
Most of us know how to look for the basics:
- Is there an annual fee?
- What is the interest rate?
- What is the late payment charge?
- Do I get any rewards?
The Federal Reserve Board (USA) goes further and dissects these charges in an easy-to-read, even-I-can-understand guide entitled Choosing a Credit Card.
- covers annual fees, cash advance fees, late-payment fees, set-up fees, etc.;
- explains how finance charges are calculated (who said credit card companies weren’t creative?)
- shows a standard (required) disclosure box with further explanation of card features.
It also explains why I consider credit cards the safest way to make a transaction (though not necessarily why credit cards are the safest way to manage your expenses) in the “What are your liability limits?” section. Basically, the federal Truth in Lending Act provides the following protection: “If your credit card is lost or stolen-and then is used by someone without your permission-you do not have to pay more than $50 of those charges.” (Italics added by me). Not only are you protected from thieves using your card, you are also protected from unscrupulous merchants or just ones who have billed you without delivering the product or service according to an agreement. If I have a dispute or concern about a purchase, I contact my credit card company and discuss the situation with its representatives. It’s great to have the credit card company advocate on my behalf. (The rules for debit cards are quite different; see Facts for Consumers from the Federal Trade Commission).
Next time you get a credit card offer or if you just want to better understand how your card works right now, check out the guide at The Federal Reserve Board.