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 June 13, 2003
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Pick a Card, Any Card
Credit Cards Cost, but You Have a Say in What You Pay
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By PlanetFeedback Staff

The good news comes in a love letter, or maybe sweet words over the phone: We have a credit card with your name on it!

But before you return that love, look closely at what you're getting. All credit cards are not alike, so it pays to shop for the terms that best fit your needs. Interest rates vary, programs vary and the ways credit card companies calculate your finance charges vary.

Consumers' uses for their cards vary, too. You may need a card as a convenience, to make purchases and pay the entire balance every month. You may carry a balance. Or you may want a card that lets you pile up purchase points or frequent flyer miles. These are factors to consider when choosing a credit card.

Meeting Needs

"It depends on what your needs are. If you carry a balance, you want the lowest interest rate," says Mary Hurlburt, education coordinator for the nonprofit Consumer Credit Counseling Service of Greater Cincinnati. "If you don't carry a balance, you want the most perks."

But understand the perks. That auto company card may earn you credit toward a new car but it won't pay the whole sticker. There is a cap built in, Hurlburt says.

"There are cards that give cash back," says Celia Hayhoe, Ph.D., a University of Kentucky assistant professor who teaches courses in personal finance. "They usually carry high interest rates."

That can be the rub. The automobile company credit card; the one that gives you airline miles; the support-your-college card�you may pay top rates for these affinity cards. And more.

"Those cards, there's usually a membership fee," says Hayhoe.

Also, say you use a GM card but you buy a Ford. Your card doesn't help you.

"You probably will want to look at other factors besides costs�such as whether the credit limit is high enough to meet your needs, how widely the card is accepted, and what services and features are available under the plan," according to the Bureau of Consumer Protection Office of Consumer & Business Education. "Frequently, an affinity card issuer donates a portion of the annual fees or transaction charges to the sponsoring organization, or allows you to qualify for free travel or other bonuses."

"If you're going to use what you get, then sometimes it's worth the card," Hayhoe says.

Introductory deals with great rates for the first several months are another area for wariness. Hayhoe says one or two late payments can end the introductory rate early and send your rate higher than it would have gone.

"The thing is to know the terms under which you're getting this introductory offer," Hayhoe says.


The way to learn those terms is to read the fine print. According to the Federal Consumer Information Center, credit card companies must disclose their terms, and it's up to you to read them before signing the application.

"Once you sign it, it's a legally binding document," Hayhoe says.

A card issuer's direct mail application or preapproved solicitation must tell you the annual percentage rate; whether there's a grace period during which you can pay the full balance without being charged interest, and how long it is; any annual fees; how the company calculates your finance charge; and any transaction charges, such as for late payment, getting a cash advance or exceeding your credit limit.

"Some say that at any point, 'We reserve the right to change the terms of this agreement,'" Hurlburt says. "These are things they do now because they want to make more money."

She urges opening everything that comes in your statement. What looks like just another junk flyer may really be the notice that your terms are changing.

That's not the only way some companies make more money. Cash advances, Hayhoe says, have no grace period and, with most cards, they have higher interest rates than purchases. If you put purchases and cash advances on the same card, your payments apply first against the purchases. Your statement must tell you the interest rates for both.

Stepping even slightly over the credit line can whack you in the wallet, too, with fees of from $15 to $50 for exceeding your limit. This is disclosed as a reserved right, Hurlburt says, and you'll see that fee on every statement until you get back below your limit.

Knowledge, clearly, is golden.

"If you abide by the rules, you're OK," says Hurlburt.

The watchword is vigilance! Don't leave home without it.

Find more information from the Federal Consumer Information Center at: http://www.pueblo.gsa.gov/cic_text/money/credit-card/credcard.htm


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