Credit Cards, Charge Cards,
PrePaid Credit Cards and
Credit Card Debt Management

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Credit Cards, Charge Cards,
Prepaid Credit Cards

There are a large number of charge and credit card companies in the USA. Almost every bank offers their own credit card now, usually in conjunction with VISA or MasterCard, and often airlines and even bookshops have their own Visa or Mastercard. Another independent operator of credit cards, is DiscoverCard. Most large department stores and gas stations offer credit cards. Without a credit card, it is nowadays, almost impossible to rent a car, travel or stay in a hotel within North America. Interest rates (APR - see below) on balances, usually charged after a 25 days grace period on new charges for purchases, but not cash withdrawals, vary greatly: They can range from around 7% to 30% p.a.

There are basically five types of charge cards. They all have their advantages, and they all have their costs. The options you have for a charge card are

Debit Cards These are usually issued by your bank or credit union. Any charge on it will be immediately deducted (debited!) from your account. So you have to be sure that the money is in the bank account, otherwise you will end up with a hefty overdraft charge. The bank may use VISA or Mastercard as the charging mechanism, though many banks are now issuing their own debits cards. The debit card is usually part of the banking service and covered by your bank service fee. However, if you use your debit card in an ATM machine (Cash dispenser), you might have to pay an additional fee, especially if the ATM is not part of your bank!
Prepaid or Secured Credit Cards You can now go to your bank and ask whether they will issue you a PREPAID VISA or MASTERCARD. Such cards can be useful for instance, when you travel abroad and you want to have a set spending amount for your trip. If you lose the credit card or it gets stolen, you can get it reissued with the remaining amount on it (like a travelers check).It is also useful if you have teenagers travelling and you want them to stay within a set budget. There is usually a service fee that you pay upfront to the issuer of the card.

Secured Credit cards require you to deposit a predetermined amount into an interest bearing account of the issuer. You pay the credit card back on a monthly basis, but if you default, the card issuer will cash the amount in your deposit account. Your credit is limited to the amount you have deposited. If you leave a balance at the end of the month, you are being charged interest like on any other credit card. Because secured credit cards are often issued to high risk clients, the interest rate (APR) charged is usually quite high, in the 20-30% range! So, don't leave any balances on the card!

Charge Cards that require you to pay the full amount of the charges made at the end of every month The two largest issuers of such charge cards are American Express (AMEXCO) and Diners. Both charge an annual membership fee (between $300 and $1,500 a year) and you have to have good credit. Both are also unforgiving if you make a mistake or a late payment. They close your account immediately! Both charge cards are useful, when you, as an individual, travel a lot or if you have a company and you issue them to some of your employees. Other charge cards are issues by airlines or by rental car companies. AMEXCO, apart from issuing charge cards such as the normal Green Card, the Gold Card, the Platinum Card and the Black Card (for creditworthy high spenders), now also issues a series of credit cards. But you have to have a good credit score to get one of those! In addition, AMEXCO also offers in conjunction with airlines charge cards that have bonus features (airline miles). But these usually have a membership fee! Some more about the rules of charge cards are shown here.
Credit Card The main operators are Visa, Mastercard and DiscoverCard. Most banks offer Visa or Mastercard credit cards. Unlike charge cards, credit cards allow you to pay every month only part of what you owe them. For that they have certain rules (shown below) and charge a, generally high interest rate. The credit is an unsecured credit, but for a considerable cost. Credit card companies may vary the amount of credit they allow you (your credit limit), depending on your credit score and other credit exposure that gets reported to credit agencies. Reductions in the credit limits, as a result of a lower credit score, have now become a common feature of credit management.
Store and Gas Company Credit Cards Most store (Macy's, J.C. Penney's, Belk's etc) and Gas Company (Exxon-Mobile, BP, Shell etc) credit cards work the same way, Visa and Mastercard credit cards operate.

Charge cards and credit cards, shop and store cards operate with a set of rules which you better understand fully, before you subscribe to one of those cards. While the rules shown here are not exhaustive and do not cover every point, they include the main issues. But, YOU HAVE TO READ THE RULES AND BUSINESS CONDITIONS OF EVERY CARD AGREEMENT YOU SIGN!

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Charge Cards

Charge cards make their income from the membership fees and the percentage they charge the merchant (depending on the merchants business volume between 1 and 3% of every purchase) for the convenience.

The Basic Rules for Charge Cards (AMEXCO, Diners etc)
Membership Fee Charge Cards charge you a membership fee if they accept your application. This annual fee can be anywhere between $300 and $2000, depending on the type of card they issue to you. For AMEXCO for instance, the fee for the Green Card is lower than, say, for the Platinum Card. Higher level cards are only given by invitation! Your bank, if they have a relationship with AMEXCO, may be able to help!
Credit Limit Officially, charge cards have no credit limit. If AMEXCO or Diners issue you a card, they feel that you are responsible enough, to spend only what you can afford.

However, if a charge comes into their office that is outside your normal charging pattern, the AMEXCO office will phone the merchant and ask you to talk to them. They will ask you details, say your home address, your last payment amount, or similar items to make sure, that the charge is made by you. This is as much to protect you, the card holder, as it is to protect the Charge card issuer from any surprises.

Grace Period The normal Grace Period is 25 days. In other words, when you make a purchase, it will normally appear in the statement that comes up for payment 25 days after the purchase. You get, at the maximum, 25 days of free credit. Although, international charges appear now much quicker than they used to, there can still be a considerable time between the card holder making the charge and the charge appearing in your statement.
Payment Cycle The Payment date in the cycle is usually 21 days after the closing date of the statement. Make absolutely sure that the payment gets to the mail office in time! They will charge a late fee if you pay late! But worse, if you repeatedly pay late, they will close your account, almost instantly! There is no discussion, if your account is closed, it is almost impossible to reopen, even years later!
Interest Rate Charge cards normally do not charge any interest. Unless your account has been closed and you pay in installments. Then the rate (APR - Average Percentage Rate) is around 29.99% of the balance left in the account.

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Credit Cards

Unlike Charge Cards, Credit Cards make the majority of their money from the card holder. The largest proportion of their income comes from interest and fees charged to the card holder. They also charge the merchant, but generally a lower percentage than charge cards such as AMEXCO or Diners. Their merchant charges vary, depending on the annual sale of the merchant, but they are usually around 0.5 to 3 percent of the charged items.

Again, when you sign up for a Credit card read the fine print and know exactly what you sign! Below are some of the main points that you should check!

The Basic Rules for Credit Cards
(VISA, MasterCard, DiscoverCard)
Credit Limit Your credit limit is given to you with the issue of the card. Credit card companies periodically review your credit history and may increase or decrease your credit limit.
Finance Charges (Interest) Purchase of goods and services have a grace period. However, some transactions attract immediately, from the date of the transaction a finance charge. In other words interest accrues from the date of the transaction. Those are mainly:
  • cash withdrawals, (for instance from an ATM); cash withdrawals may also cause additional charges; and
  • balance transfers (i.e. if you pay off one credit card by charging it to another)
  • There may be other cash like transaction, usually known as special transfers or purchases, that trigger immediate finance charges.
Annual Percentage Rate (APR) The APR, or Annual Percentage Rate, will be the interest rate you pay on outstanding balances on your credit card. Normally the APR is calculated as a daily interest rate on the average daily balance you have on your card. The rate charged on your credit card will be the
  • Base Rate (also known as periodic rate or APR) plus
  • the Margin rate, which the credit card disclosed to you in their agreement or any update thereto. The margin will vary with the type of transaction, your credit score, your total credit exposure (to all credit cards, car loans, mortgage loans equity loans etc), you payment history and the amount of credit you have used on that particular card

The Annual Percentage Rate (or Base Rate) will be a quarterly or monthly rate as published in the Wall Street Journal. The rates used are:

Quarterly APR's Monthly APR's
Quarterly Prime Monthly Prime
Quarterly LIBOR Monthly LIBOR
Quarterly CD Treasury LIBOR
Bank Card Prime  

To this Base Rate the credit card issuing bank will add its own margin which will differ between purchases and cash withdrawals. The total of the two rates will be known as Periodic Rate or Corresponding APR. To confuse the mathematically challenged even more, the interest rate charged is usually shown as a "daily rate" (the Periodic Rate) and then sounds pretty "harmless". For instance, a 29.99% APR is "only" 0.08216% when shown as a daily rate! But an annual percentage rate of 29.99% is a substantial costs and far outstrips convenience!

You should also be aware that many credit cards use teaser rates to attract customers. These are artificially low rates (say 5% Corresponding APR) which may be offered for the first six month or the first year. Make absolutely sure that you know what you sign and that you know what the Corresponding APR is after the teaser rate expires! Moreover, be sure to pay on time and not to exceed the credit limit, because both events will automatically cancel any teaser rates offered and your account will immediately and without warning be charge the default rates!

Late Over Limit and Returned Payment Fees and Cash Withdrawal Fees These days a major source of income for credit cards are fees they charge to the card holders, such as Late Payment Fees and Over-the-Credit-Limit-Fees. They run at the moment at around $39 for each occurrence. Although, new legislation will set some limits on the size of these fees.

The problem with these fees is not only the size but the event which triggers them. If you had them charged, your annual credit review might result in a lowering of your credit limit.

There are other charges such as cash withdrawal charges. You should be aware that most credit cards will charge you an up front fee for any cash withdrawals. This can be quite substantial and are in addition to the higher interest charged for cash withdrawals, as opposed to purchases of goods and services.

Membership Fee and Renewing Accounts Most VISA and Mastercard issuers do not charge an annual fee here in the USA and in Canada. This is different in Europe, where annual membership fees are common.If you deal with a credit card issuer that charges a fee (apart from AMEXCO), be very cautious and look for other nasties in the contract!

Each credit card account is reviewed annually by the issuing bank. Such reviews will be an event where the credit card issuer will determine your interest rate (Periodic Rate) as well as you credit limit and your minimum payment. These days, the issuer can and will reduce your credit limit, if he feels that his credit risk has become worse. The credit card issuer that does this, at the moment, most often is Chase!

Closing and Suspending an Account If, after a an annual review or changes in the conditions, you decide that the conditions offered by the card are not acceptable, you can ask the credit card issuer to close your account. Your minimum repayment amounts and your rate of interest will then remain the same as before the review. But your account is now closed and you cannot use the card any longer: So CUT UP THE CARD!
Making Payments You have a monthly minimum payment which you have to make. The size of this payment varies with the size of your credit balance, but is usually around 5% of the credit balance (purchases plus cash advances plus finance charges - i.e. your interest payment).

Make sure that you mail the payment in time (at least 5 working days before the closing date - working days being Monday to Friday or Saturday, usually to 3.00 PM, depending on the card!).

You can make payments via the internet from your bank account. Some Credit card issuers encourage that. But make sure that your computer is protected from "phishing" by hackers, by having the appropriate firewall, virus and Spam protection programs installed on the computer.

Grace Period The Grace Period is the time between the closing of the monthly account statement (say January 3) and, the date, where the minimum payment has to be with the credit card issuer (say January 28).
A Summary of Billing Rights If you have a dispute with a credit card company about a charge, you have to contact the credit card issuer within
  • sixty days of the charge appearing on your credit card statement, and
  • You have to give
    • details of the charge,
    • the reason for the dispute
    • the date of the charge,
    • the amount,
    • the name of the company making the charge,
    • your cardholder name and
    • your credit card account number IN A LETTER TO THE CREDIT CARD ISSUER


IT IS IMPERATIVE THAT YOU DO THIS IN WRITING, IN A LETTER, not an e-mail, because you will not preserve your rights if you send either an e-mail or try to resolve the problem on the phone.

In any case, attempting to resolve such issues with a phone to the credit card call center, is, in most cases, a hopeless undertaking, since the people dealing with you there, generally have neither the knowledge nor the authority to solve the problem. That is not the call center peoples fault, but the fault of the credit card company. They like it that way, because most people give up while trying to resolve such an issue!

Special Rules for Credit Card Purchases If a good or service you purchased with a credit card is defective or has other quality problems, you may have the right not to pay for the good or service. In order to get this protection you have to
  • try to correct the problem in good faith with the merchant, if at all possible in writing, so that you have a paper trail! and
  • the purchase price for the good or service has to be larger than $50.00; and
  • The purchase has to be made within 100 miles of your credit card mailing address

Some credit and charge cards have variations of this policy. Therefore, read the fine print on your card agreement before you embark on a dispute!

Bankruptcy and Credit Card Debt Credit cards are unsecured debt and the holder of your credit card debt does not have a lien on you or your property. For some people, when credit card debt becomes overwhelming, they consider this option. In some cases, it is possible to obliterate credits with a bankruptcy filing (Chapter 7 filing). In most cases though, it will result in a court-ordered restructuring to repay your debt (Chapter 13).

The downside of this option is that your credit will be ruined for up to ten years, with most of the damage removed after seven years.

Credit cards have their use and allow you to control and record spending habits in an orderly way. But their use requires discipline and restraint, which most people find difficult. If you cannot afford it, whatever "it" is, don't buy it, especially not on a credit card. If you cannot resist your buying urges, credit cards are the wrong way, as well as an expensive way, to finance your "wants"!

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Prepaid Credit Cards

Most recently, because of the credit crisis, Prepaid Credit Cards have become fashionable. Some of these are a new kind which under various marketing guises ("reestablish your credit", etc) entered the market.

The standard prepaid credit card is quite simple: You go to your bank, pay, say $105.00 and get a Visa card worth $100. The $5.00 is the fee charged by the bank. You can then give the card to whoever you select, and they can spend $100.00. When the amount is spend, you can destroy the card.

Some of the new type of Prepaid Credit Cards have rules similar to ordinary credit cards. Others are straight forward debit cards, but usually at a higher cost than a debit card linked to a standard checking or savings bank account. These latter ones appeal to people, who do not have a bank account and can, for one reason or the other, not open a bank account.

The Basic Rules for Prepaid Credit Cards
(VISA, Mastercard)
Membership and other Fees Almost all of these prepaid cards charge a membership fee. The service charge can range from $1.00 per week to $10.00 per month. Most of the new prepaid cards, will reimburse part, or all, of the membership fee, if you use direct deposits to put your salary, or government payment into the account.

However, they will always charge you for transactions where you transactions where you and for ATM withdrawals use your PIN number and for ATM withdrawals.

The card issuing companies sales and marketing argument is that you will not pay any check cashing fees. But you if you deposit your salary check, many transactions will require you to use your PIN number (fee $0.95 to $1.50) or, if you want cash, you will have to use an ATM (fee $1.95- $2.50). If you use your ATM outside the USA, the transaction will cost you between $4.95 and $6.00

Credit Limit The Credit for most of these prepaid Credit cards (or debit cards) is limited to the amount you deposit. Once this is used up, your credit is exhausted!

Some prepaid card companies will extend limited credit facilities once you have had at least two recurring direct deposits to your account. The limited credit is more in the nature of a Payday Advance and will attract a very high rate of interest! You should also be aware that the next direct deposit, or any deposit you make, will be used to cover the credit you have taken out.

Grace Period There is no grace period, since each charge is simply deducted from the amount you have deposited.
Payment Cycle The payment cycle depends on your automatic direct deposits. Any deposit will be used to recover any credit you have taken out.
Interest Rate The interest rate (APR) you pay on a credit advance is normally around 150%. In most cases the credit card company will charge you an up front fee of 12.5% for every advance (e.g. $12.50 per $100 advanced). If your advance is not paid in full with your next direct deposit a daily rate of interest, the Periodic Rate, of about 0.4110% will be charged. Compare this to a high interest rate credit card where the daily rate is 0.0822%.

Prepaid cards and their hybrid credit cards come at a high cost. While they have their use, be careful how you use them and what commitments you make.

Your Credit Card Management

You can use a credit card for free, if you pay the whole amount you charged to the card at the payment date of the billing period. Though this does not apply, if you take out cash advances. Credit card issuing companies will charge an up front fee for that and the rate of interest starts on the day the cash advance is taken out!

However, if you repay your card regularly in full and if you have the cash, you can use the whole credit amount available without any negative effect on your credit score.

Most people though, cannot do that. They use credit cards, because cards enable them to spend more than they have available in cash or in their bank accounts. To manage credit cards successfully, it is important that you maintain good credit scores. Good credit scores will keep already high interest rates charged by credit card companies at more of less reasonably levels, say at 12-15% APR rather than at 29.9%. Be careful to limit the use of your credit card to a maximum of 40% of your agreed credit limit. If your balances are above that, your credit score (FICO Score) will take a dive! Besides that,

  • always pay on time and
  • pay significantly more than the minimum amount required.

As a financially conservative rule, your credit card repayments should not exceed 10% of your net, after tax income and you should keep the balances left on your cards, if any, small.

If you want to know more about paying off your credit cards and negotiating your debt repayment go to our page on debt negotiations

Some Books about Credit Cards and Credit Card Debt Management

The Credit Card market has been in turmoil during the last two years and some changes in legislation are under way. There are many books that explain to you what is happening. Above is only a small selection.

Selected Charge and Credit Cards

ezecredit does not endorse any of the charge, credit or debit cards shown below. Any contracts you might enter into will be solely your responsibility. ezecredit advises you strongly to read all agreements and fine print before you sign any credit card contract. All responsibility for signing such an agreement is yours and yours alone.

American Express American Express now offers a whole range of cards. Select the one best suited for your spending habits. Requires excellent credit.
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- Discover has a card for everyone. Whether you are a student on a budget, a frequent flyer or a high spender with a Titanium Card, you will find your credit card needs covered here!

- Pay your Discover Card bill online
DiscoverCard will, like other credit cards decrease your credit limit, without default on your part, or without giving any warning, arbitrarily!
View your last 12 statements and most recent transactions
Sign up for Account e-mail reminders
Offers a good online Credit Card debt management system.
And much more


Prepaid Credit Cards and Payday-Loan based Credit Cards

* This is a site that helps you select the right credit card. They show a list of popular Credit Card Specials, Deals & Promotions from leading banks and financial institutions. Finding a great credit card deal is as easy as 1,2,3. The offers are not necessarily prepaid
Secured VISA card by PA based Public Savings Bank. Credit limits from $200 - $1500
The Prepaid Visa card is issued by MetaBank. Funds deposited are insured up to $100,000 by the Federal Deposit Insurance Corporation (FDIC). If you sign up for Credit Builder, your bill pay transactions will be reported to PRBC one of the smaller credit bureaus.
Prepaid Visa Card issued by The Bancorp Bank or Manufacturers and Traders Trust Company. Chicago based.
* Prepaid Visa Card. You can put cash into the account by direct deposit, VISA Readylink, Western Union or similar. There is a weekly fee of $ 0.95 (annual $49.40!) and a "Load Fee"(?) of $5.00. (the Amount you pay when you make a deposit)

All of the Prepaid Credit Cards cards offer

  • No Credit Check;
  • Direct Deposit,
  • ATM Services for Cash withdrawals (additional Fees apply)
  • Daily limits on ATM withdrawals
  • All of these Debit Cards may have "Load Partners" that is, outlets or retailers where you can add cash to your card. Though, they will charge you a fee for such a service!
  • All of these Debit Cards have daily spending limits
  • Pre-authorization amounts (normal, if card is used in a hotel or rental car transaction) will result in a 30 to 90 day hold on the funds

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