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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!
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.
|
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. |
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!
 |
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
A WARNING:
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"!
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.
|
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. |
*
- *
- *
- *
- * |
-
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
|
