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Kinds of Credit Cards |How Cards Work
The Language of Credit Cards |Credit Cards and You
When you pay with a credit card, you're actually using a revolving loan.
VISA, MasterCard, Optima, and Discover are credit cards that you can use to pay for purchases or get cash advances. The company that issues you a card that lets you borrow up to a predetermined amount, known as a credit limit, and charges you a finance charge, or interest, on the amount you haven't repaid.
You pay back the loan at your own pace -- provided you pay at least a minimum amount each month. But the amount you repay is immediately available for you to borrow again. That's why it's known as a revolving loan.
charge cards Cards issued by department stores and oil companies are known as charge cards.
Charge cards work like credit cards, although the issuing company may not hold you to a credit limit. You pay off the amount you've charged at your own pace, and owe interest on the amount you carry over on your bill from month to month. Ordinarily charge cards can be used only to buy products from the company issuing them.
Increasingly, though, most stores will let you use credit, T&E, and debit cards for purchases, as well as their own charge cards.
travel & entertainment cards T&E cards cost more to get than a credit card, but they don't charge interest.
American Express, Diners Club, and Carte Blanche aren't credit cards, although you use them to pay for purchases in the same way. They require you to pay the amount you've put on your bill in full each month, but they don't charge interest unless your payment is long overdue.
You can also use T&E cards the way you use an ATM, to get money directly out of your bank account, if you sign up for that option and register a Personal Idenfication Number (PIN).
debit cards You can use debit cards in place of a check or cash to pay for a purchase at the time you buy it.
Banks and other card-issuing companies increasingly offer debit cards, which look like credit cards but work like ATM cards. When you use the card to buy something, the cost is electronically deducted (debited) from your bank account and deposited into the seller's account.
The advantage for the seller is instant access to your payment, while the advantage to you is not having to write a check or have the cash in hand. You just have to remember to record the amount.
Today, cards are another form of electronic banking, with charges authorized instantly by computer.
There's an account number on the front of your card. The first 6 digits show the company that issued the card. The next 4 identify region and branch information. The next 5 are your account number. The last is for extra security protection. On many cards, there's a holographic image, or special design using a color foil and ultraviolet ink invisible to the naked eye. Merchants scan the card under an ultraviolet lamp to see if the card is authentic.
Each card has a magnetic stripe on the back which houses specific information about your account. When it's run through a card machine, a clearing house checks your available credit, authorizes the transaction, and charges the amount to your account.
Knowing how to read your monthly bill can help you to monitor spending, reduce interest payments, catch errors, and more.
new balance
is the amount you owed on the day the statement was prepared. It includes any finance charges and late fees.credits
are amounts subtracted from the previous balance for overpayment, incorrect charges, or returned merchandise. For example, if you dispute a charge, the lender will credit you the amount until the dispute is settled.credit line
is the total amount you can borrow by charging purchases or taking cash advances. Lenders give credit lines of anywhere from $500 to $10,000 or higher, based on their assessment of your credit history and your ability to repay.finance charge is the interest charged on the amount you owe.
available credit is the amount you could borrow on the day this statement was prepared.
cash advances
are withdrawals you make at ATM machines using your credit card. However, you are borrowing the money against your line of credit rather than taking money directly from your bank account. You must establish a Personal Identification Number (PIN) with the card company to be able to get a cash advance.statement closing or billing date
is the date the statement was prepared. Any charges after this date will appear on the next statement.payment due date
is the last day you can make your payment to avoid finance charges or late fees.charges
are the purchases and cash withdrawals you made, each with a date and reference number. If you check these details against your records, you can be sure that the charges are all yours.previous balance
is what you owed on the day your previous statement was prepared.minimum payment due
is the least you must pay within 25 days of the closing date. It's usually at least 5% of the new balance or $10, whichever is greater. Whatever you don't pay will be carried forward and subject to finance charges.
protecting your rights Your rights as a credit card customer are spelled out on the back of your statement.
It's smart to find out what they are before you have a problem.
- You can cancel your card and avoid paying the annual fee as long as you notify the lender in writing within 40 days of receiving the bill that includes the fee.
- If you report a missing card immediately by calling the number on the back of the statement, you aren't responsible for any charges. $50 is the most you'll owe even if you don't report losing your card.
- You have 60 days to notify the lender in writing about billing errors, including purchases you didn't make. This includes wrong amounts of credit extended, wrong goods or services, incorrect payments or credits, computational errors or any other disputed charges. Card companies have 30 days to respond and 90 days to resolve the problem. They can't stop you from using your card while investigating the problem and can't release a bad credit report on you. And if they don't respond, they can't collect the disputed amount or finance charges.
- You can legally refuse to pay for defective merchandise if it cost more than $50 and you were unable to resolve the problem with the merchant. The purchase must be made in your home state or within 100 miles of your mailing address, though card companies are flexible about those restrictions. (The price and mileage restrictions don't apply if the lender advertised the product or was involved in the purchase).
- The Truth in Lending Act requires lenders to tell you in writing the cost of credit and the terms of repayment before you use your card. It's up to you to understand what you're told.
safety tips You can get the benefits of credit cards and avoid the problems if you're careful.
Never give your card number (or card) to anyone unless you are buying something or making a reservation. Since merchants can't charge your credit card account if your check bounces, there's no reason to write the account number on your check for them. And there's no need to put your phone, name, or address on a credit card receipt. In some states, it's illegal.
If a place you use your card uses a copy system instead of an electronic connection to record your purchase, you should destroy any carbon copies that are attached to your receipt. Thieves can use your number to charge purchases or even order new cards.
Never make your PIN available to anyone. Don't write it anywhere a thief may have access to it.
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