FTC FACTSfor Consumers

YOUNG CONSUMERS

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FEDERAL TRADE COMMISSION FOR THE CONSUMER

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credit card is a great financial tool. It can be more convenient to

use and carry than cash and it offers valuable consumer protections under federal law.

At the same time, it’s a big responsibility. If you don’t use it carefully, you

may owe more than you can repay, damage your credit rating and create credit

problems for yourself that can be difficult to fix.

Chances are your mail is full of offers from credit card issuers. How do

you know if the time is right for a credit card? Here is some important information that may help you determine whether you’re ready for plastic, what to look

for when you select a company to do business with and how to use your credit

card responsibly.

QUALIFYING FOR A CREDIT CARD

If you’re at least 18 years old and have a regular source of income, you’re well

on your way to qualifying for a card. But despite the invitations from card

issuers, you’ll still have to demonstrate that you’re a good risk before they grant

you credit. The proof is in your credit record. If you’ve financed a car loan or

other purchase, you probably have a record at a credit reporting bureau. This

credit history shows how responsible you’ve been in paying your bills and helps

the credit card issuer decide how much credit to extend.

Before you submit a credit application, get a copy of your credit report to

make sure it’s accurate. Contact the credit bureaus listed in the telephone directory under “credit” or “credit rating and reporting.” Because more than one

credit bureau may have a file on you, call each until you locate all the agencies

maintaining your file. The three major national credit bureaus are:

EQUIFAX — (800) 685-1111; www.equifax.com

EXPERIAN — (888) EXPERIAN (397-3742); www.experian.com

TRANS UNION — (800) 888-4213; www.tuc.com

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Facts for Consumers

Anyone who takes action against you in

response to a report supplied by a credit reporting agency — such as denying your application

for credit — must give you the name, address

and telephone number of the credit bureau that

provided the report.

ESTABLISHING A CREDIT HISTORY

Suppose you haven’t financed a car loan, a

computer, or some other major purchase. How

do you begin to establish credit? First, consider

applying for a credit card issued by a local

store and use it responsibly. Ask if they report

to a credit bureau. If they do — and if you pay

your bills on time — you’ll establish a good

credit history.

Second, consider a secured credit card. It

requires that you open and maintain a bank

account or other asset account at a financial

institution as security for your line of credit.

Your credit line will be a percentage of your

deposit, typically from 50 to 100 percent.

Application and processing fees are not uncommon for secured credit cards. In addition,

secured credit cards usually carry higher interest rates than traditional nonsecured cards.

Third, consider asking someone with an

established credit history — perhaps a relative

— to co-sign the account if you don’t qualify

for credit on your own. The co-signer promises

to pay your debts if you don’t. You’ll want to

repay any debt promptly so you can build a

credit history and apply for credit in the future

on your own.

A positive credit history is an asset, not

only when you apply for a credit card, but also

when you apply for a job or insurance, or when

you want to finance a car or a home.

IF YOUR APPLICATION IS DENIED

If you’re turned down for a card, ask why. It

may be that you haven’t been at your current

address or job long enough. Or that your

income doesn’t meet the issuer’s criteria.

Different credit card companies have different

standards. But if you are turned down by

several companies, it may indicate that you are

not ready for a credit card.

If you’ve been denied credit because of

information supplied by a credit bureau, federal

law requires the creditor to give you the name,

address and telephone number of the bureau

that supplied the information. If you contact

that bureau within 60 days of receiving the

denial, you are entitled to a free copy of your

report. If your file contains accurate negative

information, only time and good credit habits

will restore your credit-worthiness. If you find

an error in your report, you are entitled to have

it investigated by the credit bureau and corrected at no charge.

You should dispute any inaccuracy in your

report with the credit bureau and also with the

company that furnished the information to the

credit bureau.

GETTING THE BEST DEAL

Fees, charges and benefits vary among credit

card issuers. When you’re choosing a credit

card, shop around. Compare these important

features:

ANNUAL PERCENTAGE RATE (APR)

The APR is a measure of the cost of credit,

expressed as a yearly interest rate. Check out

the “periodic rate,” too. That’s the rate the

issuer applies to your outstanding balance to

figure the finance charge for each billing

period. For example, if you have an outstanding balance of $2,000, with 18.5% interest and

a low minimum monthly payment, it would

take over 11 years to pay off the debt and cost

you an additional $1,934 just for interest,

which almost doubles the total cost of your

original purchase.

GRACE PERIOD

This is the time between the date of a purchase

and the date interest starts being charged on

that purchase. If your card has a standard grace
Facts for Consumers

period you have an opportunity to avoid finance

charges by paying your current balance in full.

Some issuers allow a grace period for new

purchases even if you do not pay your balance

in full every month. If there is no grace period,

the issuer imposes a finance charge from the

date you use your card or from the date each

transaction is posted to your account.

ANNUAL FEES

Many credit card issuers charge an annual fee

for granting you credit, typically $15 to $55.

Some issuers charge no annual fee.

TRANSACTION FEES & OTHER CHARGES

Some issuers charge a fee if you use the card to

get a cash advance, if you fail to make a payment on time, or if you exceed your credit

limit. Some may charge a flat fee every month

whether you use the card or not.

CUSTOMER SERVICE

Many issuers have 24-hour toll-free telephone

numbers.

OTHER BENEFITS

Issuers may offer additional benefits, some

with a cost, such as: insurance, credit card

protection, discounts, rebates, and special

merchandise offers.

CREDI-QUETTE

$ Once you get a card, sign it immediately so

no one else can use it. Note that the accompanying papers have important information,

such as customer service telephone numbers, in case your card is lost or stolen. File

this information in a safe place.

$ Call the card issuer to activate the card.

Many issuers require this step to minimize

fraud and to give you additional information.

$ Keep your account information to yourself.

Never give out your credit card number or

expiration date over the phone unless you

know who you’re dealing with. A criminal

can use this information to steal money

from you, or even assume your credit

identity.

$ Keep copies of sales slips and compare

charges when your bill arrives. Promptly

report in writing any questionable charges

to the card issuer.

$ Don’t lend your card to anyone, even to a

friend. Your credit privilege and history are

too precious to risk.

YOU ARE RESPONSIBLE

While a credit card makes it easy to buy something now and pay for it later, you can lose

track of how much you’ve spent by the time the

bill arrives if you’re not careful. And if you

don’t pay your bill in full, you’ll probably have

to pay finance charges on the unpaid balance.

What’s more, if you continue to charge while

carrying an outstanding balance, your debt can

snowball. Before you know it, your minimum

payment is only covering the interest. If you

start having trouble repaying the debt, you

could tarnish your credit report. And that can

have a sizable impact on your life. A negative

report can make it more difficult to finance a

car or home, get insurance, and even get a job.

FEDERAL PROTECTIONS

Federal law offers the following protections

when you use credit cards.

ERRORS ON YOUR BILL

You must notify the card issuer in writing

within 60 days after the first bill containing the

error was mailed to you. In your letter, include: your name; account number; the type,

date, and amount of the error; and the reason

why you believe the bill contains an error. In

return, the card issuer must investigate the

problem and either correct the error or explain

to you why the bill is correct. This must occur

within two billing cycles and not later than 90

days after the issuer receives your billing error

notice. You do not have to pay the amount in

question during the investigation.
Facts for Consumers

UNAUTHORIZED CHARGES

If your credit card is used without your authorization, you can be held liable for up to $50 per

card. If you report the loss of a card before it is

used, the card issuer cannot hold you responsible for any unauthorized charges. If a thief

uses your card before you report it missing, the

most you will owe for unauthorized charges is

$50. You should be prompt in reporting the

loss or theft of your card to limit your liability.

KINDS OF CREDIT ACCOUNTS

Credit grantors generally issue three types of

accounts. The basic terms of these account

agreements are:

REVOLVING AGREEMENT

A consumer pays in full each month or chooses

to make a partial payment based on the outstanding balance. Department stores, gas and

oil companies, and banks typically issue credit

cards based on a revolving credit plan.

CHARGE AGREEMENT

A consumer promises to pay the full balance

each month, so the borrower does not have to

pay interest charges. Charge cards, not credit

cards, and charge accounts with local businesses often require repayment on this basis.

INSTALLMENT AGREEMENT

A consumer signs a contract to repay a fixed

amount of credit in equal payments over a

specific period of time. Automobiles, furniture,

and major appliances often are financed this

way. Personal loans usually are paid back in

installments, too.

FOR MORE INFORMATION

The FTC works for the consumer to prevent

fraudulent, deceptive and unfair business

practices in the marketplace and to provide

information to help consumers spot, stop and

avoid them. To file a complaint or to get free

information on consumer issues, visit

www.ftc.gov or call toll-free, 1-877-FTCHELP (1-877-382-4357); TTY: 1-866-653-

4261. The FTC enters Internet, telemarketing,

identity theft and other fraud-related complaints

into Consumer Sentinel, a secure, online

database available to hundreds of civil and

criminal law enforcement agencies in the U.S.

and abroad.

The Consumer Information Center (CIC)

publishes the Consumer Information Catalog

which lists more than 200 booklets on a wide

variety of subjects, including credit. Access the

Catalog and its full-text entries at

www.pueblo.gsa.gov. Or write: Catalog,

Consumer Information Center, Pueblo, CO

81009. Or call them at (719) 948-4000.

American Express Company offers free

consumer booklets on a variety of credit subjects. To order, contact: American Express

Company, PO Box 4635, Trenton, NJ 08650-

9874. For information about students and

credit, you can visit The Money Pit at American Express University at

www.americanexpress.com/student. Or access

American Express Company at

www.americanexpress.com.

Federal Trade Commission

Bureau of Consumer Protection

Office of Consumer and Business Education

August 2001

F C EDERAL RADE OMMISSION T FTC OR HE ONSUMER

1-877-FTC-HELP www.ftc.gov