| ***facts*** | for Consumers |
|-------------|---------------|

----

**Federal Trade      Commission - February 1993**

----

Choosing and      Using Credit Cards***fast facts***

| - Shop around for credit card terms that are            best for you. 
- Make sure you understand the terms of a            credit card plan before you accept the card. 
- Pay bills promptly to keep finance charges            as low as possible. 
- Keep copies of sales slips and promptly            compare charges when your bills arrive. 
- Draw a line through blank spaces about the            total when you sign receipts. 
- Keep a list of your credit card account            numbers and the telephone numbers of each card issuer in a safe            place in case your cards are lost or stolen. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Bureau of Consumer        Protection Office of Consumer & Business Education (202)        326-3650 |
|--------------------------------------------------------------------------------------------------------|

Chances are you have      received offers in the mail asking if you would like to open credit card      accounts. Frequently, these offers say that you have been "pre-approved"      for the card, with a line of credit already set aside for your use.      Typically, these offers urge you to accept quickly, "before the offer      expires." However, before accepting a credit card offer, understand      the card's credit terms and compare costs of similar cards to get the      features and terms you want. 

## Choosing a Credit Card

Credit card offers may seem attractive, but      remember a credit card is a form of borrowing that usually involves a "finance      charge" -- a charge for the convenience of borrowing -- and often      other charges as well. 

## Credit Card Terms

Before selecting a credit card, learn which      credit terms and conditions apply. Each affects the overall cost of the      credit you will be using. Under the Fair Credit and Charge Card Disclosure      Act, you can compare terms and fees before you agree to open a credit card      or charge card (no interest) account. Be sure to consider and compare the      following terms that direct-mail applications and pre-approved      solicitations must reveal.  * **Annual Percentage Rate**.      The "annual percentage rate," or APR, is disclosed to you when      you apply for a card, again when you open the account, and it is also      noted on each bill you receive. It is a measure of the cost of credit,      expressed as a yearly rate. The card issuer also must disclose the "periodic      rate" -- that is, the rate the card issuer applies to your      outstanding account balance to figure the finance charge for each billing      period.  Some credit card plans allow the card issuer to change      the annual percentage rate on your account when interest rates or other      economic indicators (called indexes) change. Because the rate change is      linked to the performance of the index, which may rise or fall, these      plans are commonly called "variable rate" plans. Rate changes      raise or lower the amount of the finance charge you pay on your account.      If the credit card you are considering has a variable rate feature, the      card issuer must tell you that the rate may vary and how the rate is      determined, including which index is used and what additional amount (the      "margin") is added to the index to determine your new rate. You      also must be told how much and how often your rate may change.      * **Free Period**. A free period -- also called a "grace      period" -- allows you to avoid the finance charge by paying your      current balance in full before the "due date" shown on your      statement. Knowing whether a credit card plan gives you a free period is      especially important if you plan to pay your account in full each month.      If there is no free period, the card issuer will impose a finance charge      from the date you use your credit card or from the date each credit card      transaction is posted to your account. If your credit card plan allows a      free period, the card issuer must mail your bill at least 14 days before      your payment is due. This is to ensure that you have enough time to make      your payment by the due date.  * **Annual Fees**.      Most credit card issuers charge annual membership or other participation      fees. These fees range from $25 to $50 for most cards, and from $75 on up      for premium "gold" or "platinum" cards.  *      **Transaction Fees and Other Charges**. A credit card also      may involve other types of costs. For example, some card issuers charge a      fee when you use the card to obtain a cash advance, when you fail to make      a payment on time, or when you go over your credit limit. Some charge a      flat monthly fee whether or not you use the card.  * **Balance      Computation Method for the Finance Charge**. If your plan has no      free period, or if you expect to pay for purchases over time, it is      important to know how the card issuer will calculate your finance charge.      This charge will vary depending upon the method the card issuer uses to      figure your balance. The method used can make a difference, sometimes a      big difference, in how much finance charge you will pay -- even when the      APR is identical to that charged by another card issuer and the pattern of      purchases and payments is the same. Examples of how finance charges based      on identical APRs can differ are shown on page 4.  Some of the      ways card issuers figure balances for finance charges are described on      pages 4 and 5.  * **Average Daily Balance**      (including or excluding new purchases). The average daily balance method      gives you credit for your payment from the day the card issuer receives      it. To compute the balance due, the card issuer totals the beginning      balance for each day in the billing period and deducts any payments      credited to your account that day. New purchases may or may not be added      to the balance, depending on the plan, but cash advances typically are      added. The resulting daily balances are added up for the billing cycle and      the total is then divided by the number of days in the billing period to      arrive at the "average daily balance." This is the most common      method used by credit card issuers.  * **Adjusted      Balance**. This balance is computed by subtracting the payments you      made and any credits you received during the present billing period from      the balance you owed at the end of the previous billing period. New      purchases that you made during the billing period are not included. Under      the adjusted balance method, you have until the end of the billing cycle      to pay part of your balance and you avoid the interest charges on that      portion. Some creditors exclude prior, unpaid finance charges from the      previous balance. The adjusted balance method usually is the most      advantageous to card users.  * **Previous Balance**.      As the name suggests, this balance is simply the amount that you owed at      the end of the previous billing period. Payments, credits, or new      purchases made during the current billing period are not taken into      account. Some creditors also exclude unpaid finance charges in computing      this balance. If you do not understand how the balance on your account is      computed, ask the card issuer. (An explanation of how the balance was      determined must appear on the billing statements the card issuer provides      you and on applications and pre-approved solicitations the card issuer may      send you.)  The following are examples of how different methods      of calculating finance charges affect the cost of credit: 

|                                                                                                                                 | Average Daily Balance (including        new purchases) | Average Daily Balance (excluding        new purchases) |
|---------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------|--------------------------------------------------------|
| Monthly rate                                                                                                                    | 1 1/2%                                                 | 1 1/2%                                                 |
| APR                                                                                                                             | 18%                                                    | 18%                                                    |
| Previous                                                                                                                        |                                                        |                                                        |
| Balance                                                                                                                         | $400                                                   | $400                                                   |
| New                                                                                                                             | $50                                                    | $50                                                    |
| Purchases                                                                                                                       | on 18th day                                            | on 18th day                                            |
| Payments                                                                                                                        | $300on 15th day(new        balance = $100              | $300on 15th day(new        balance = $100              |
| Average                                                                                                                         |                                                        |                                                        |
| Daily Balance                                                                                                                   | $270*                                                  | $250*                                                  |
| Finance                                                                                                                         | $4.05                                                  | $3.75                                                  |
| Charge                                                                                                                          | (1 1/2% x $270)                                        | (1 1/2% x $250)                                        |
|                                                                                                                                 |                                                        |                                                        |
| * To figure average        daily balance (including new purchases):($400 x 15 days) +        ($100 x 3 days) + ($150 x 12 days) |
|                                                                                                                                 | 30 days                                                | =$270                                                  |
|                                                                                                                                 |                                                        |                                                        |
| ** To figure average        daily balance (excluding new purchases):($400 x 15 days) +        ($100 x 15 days)                  |
|                                                                                                                                 | 30 days                                                | =$250                                                  |
|                                                                                                                                 |                                                        |                                                        |
|                                                                                                                                 |                                                        |                                                        |
|                                                                                                                                 | Adjusted Balance                                       | Previous Balance                                       |
| Monthly rate                                                                                                                    | 1 1/2%                                                 | 1 1/2%                                                 |
| APR                                                                                                                             | 18%                                                    | 18%                                                    |
| Previous                                                                                                                        |                                                        |                                                        |
| Balance                                                                                                                         | $400                                                   | $400                                                   |
| Payments                                                                                                                        | $300                                                   | $300                                                   |
| Average                                                                                                                         |                                                        |                                                        |
| Daily Balance                                                                                                                   | N/A                                                    | N/A                                                    |
| Finance                                                                                                                         | $1.50                                                  | $6.00                                                  |
| Charge                                                                                                                          | (1 1/2% x $100)                                        | (1 1/2% x $400)                                        |
|                                                                                                                                 |                                                        |                                                        |

## Costs and Features

Credit terms differ among card issuers, so shop      around for the card that is best for you. Which one is best may depend on      how you plan to use it. If you plan to pay bills in full each month, the      size of the annual fee or other fees, and not the periodic and annual      percentage rate, may be more important. If you expect to use credit cards      to pay for purchases over time, the APR and the balance computation method      are important terms to consider. In either case, keep in mind that your      costs will be affected by whether or not there is a grace period.  When shopping for a credit card, 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. You may be interested,      for example, in "affinity cards" -- all-purpose credit cards      that are sponsored by professional organizations, college alumni      associations, and some members of the travel industry. 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. 

## Using a Credit Card

Federal law prohibits card issuers from sending      you a credit card that you did not request. (The issuer **may**      send you a renewal or substitute card without a request.) Card issuers are      permitted to mail you an application or a solicitation for a credit card      or to ask you by phone whether you want to receive a card -- and to send      you one if you say yes. 

## Credit Card Protections

Federal law protects consumers when they use      credit cards. The protections include the following items.  *      **Prompt Credit for Payment**. A card issuer must credit      your account on the day the issuer receives your payment, unless the      payment is not made according to the creditor's requirements or the delay      in crediting to your account does not result in a charge. To avoid delays      that could result in finance charges, follow the card issuer's      instructions about where to send payments. Payments sent to other      locations could delay getting credit for your payment for up to five days.      If you lose your payment envelope, look on the billing statement for the      address for payments or call the card issuer.  * **Refunds of      Credit Balances**. When you return merchandise or pay more than you      owe, you have the option of keeping the credit balance on your account or      requesting a refund (if the amount exceeds $1.00). To obtain a refund,      write the card issuer. The card issuer must send you the refund within      seven business days of receiving your request. (Also, if a credit balance      remains on your account for more than six months, the card issuer must      make a good faith effort to refund the credit balance.)  *      **Errors on Your Bill**. Federal law provides specific rules      that the card issuer must follow for promptly correcting billing errors.      The card issuer will give you a statement describing these rules when you      open the credit card account and, after that, at least once a year. In      fact, many card issuers print a summary of your rights on each bill they      send you.  You must notify the card issuer in writing at the      address specified for billing errors when you find an error, and you must      do so within 60 days after the first bill containing the error was mailed      to you. (For this reason, keep your credit card receipts and promptly      compare them when your bills arrive.) In your notification letter, include      your name, your account number, the amount of the suspected error, and the      reason why you believe that the bill contains an error. The card issuer,      in turn, must look into 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. During the period that the card issuer is investigating the      error, you do not have to pay the amount in question. (For further      information, write: "Credit Billing Errors," Public Reference,      Federal Trade Commission, Washington, D.C. 20580.)  *      Unauthorized charges. Under federal law, 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 before the card is used, federal law says 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. This is true even if a thief is able to      use your credit card at an automated teller machine (ATM) to access your      credit card account. To minimize your liability, report the loss of your      card as soon as possible. Some companies have toll-free numbers printed on      their statements and 24-hour service to accept such emergency information.      For your own protection, you should follow up your phone call with a      letter to the card issuer. The letter should give your card number, say      when your card was missing, and mention the date you called in the loss.       * **Disputes about Merchandise or Services**. If      you have a problem with merchandise or services that you charged to a      credit card, and you have made a good faith effort to work out the problem      with the seller, you have the right to withhold from the card issuer      payment for the merchandise or services. You can withhold payment up to      the amount of credit outstanding for the purchase, plus any finance or      related charges. If the card you used is a bank card, a travel and      entertainment card, or another card not issued by the seller of the      defective merchandise, you can withhold payment only if the purchase      exceeded $50 and occurred in your home state or within 100 miles of your      billing address. If these conditions do not apply to you, you may want to      consider filing an action in small claims court -- an informal legal      proceeding that can be used to settle disputes. While the maximum amounts      that can be claimed or awarded differ from state to state, most small      claims courts hear cases involving amounts ranging from $25 to $2,000.      Some states have recently raised their limits to $5,000. Check your local      telephone book under your municipal, county, or state government headings      for small claims court listings. 

## Some Suggestions

* Shop around for credit card terms that are best      for you.  * Make sure you understand the terms of a credit card      plan before you accept the card. Review the disclosures of terms and fees      that must appear on credit-card offers you receive in the mail.  * Pay bills promptly to keep finance charges as low as possible.       * Keep copies of sales slips and promptly compare charges when      your bills arrive.  * Protect your credit cards and account      numbers to prevent unauthorized use. Draw a line through blank spaces      above the total when you sign receipts. Rip up or retain carbons.  * Keep a list of your credit card numbers and the telephone numbers      of each card issuer in a safe place in case your cards are lost or stolen.      

## Where To Go For Help

The following federal agencies are responsible      for enforcing federal laws that govern credit card transactions. Questions      concerning a particular card issuer should be directed to the enforcement      agency responsible for that issuer. **State Member      Banks of the Reserve System** Consumer and Community Affairs      Board of Governors of the Federal Reserve System 20th & C Sts.,      N.W. Washington, D.C. 20551**National Banks**      Comptroller of the Currency Compliance Management Mail Stop 7-5      Washington, D.C. 20219**Federal Credit Unions**      National Credit Union Administration 1776 G St., N.W.      Washington, D.C. 20456**Non-Member Federally      Insured Banks** Office of Consumer Programs Federal      Deposit Insurance Corporation 550 Seventeenth St., N.W.      Washington, D.C. 20429**Federally Insured Savings      and Loans, and Federally Chartered State Banks** Consumer      Affairs Program Office of Thrift Supervision 1700 G St., N.W.      Washington, D.C. 20552**Other Credit Card Issuers**      (includes retail/gasoline companies) Division of Credit Practices      Bureau of Consumer Protection Federal Trade Commission      Washington, D.C. 20580 12/88; 11/91