A credit card is a useful tool, when managed judiciously but a lurking danger if you mismanage it. Currently, threatened by the global financial crisis banks are changing credit limits, doing away with interest free periods and charging higher interest rates on the credit borrowed. One of the first things you need to keep in mind, is read the term and conditions when you apply for a credit card. It could be a laborious process but something that has to be dealt with, to protect yourself from any rude surprises that might be in store for you in times like this.
One hears stories of money being taken from the savings account of a person who has a credit card with that particular bank! Well, banks are allowed to do so, when a default occurs, the clause is covered in the terms and conditions. Banks also have an auto debit facility to claim a minimum payment on credit borrowed, if in case your account does not have enough funds, banks are allowed to levy a fine, which could be ridiculous amount that is nearly half the amount you borrowed!
Profit from your credit card !
Credit cards can be useful when you make a profit out of it! Now, how is that possible? Well, it all depends on the kind of card you purchase, its best to opt for a lifetime free credit card that does not have an annual fee attached. Also get a card that matches your lifestyle. If you shop a lot, see that your card offers a lot of discounts and cash back rewards for the all the shopping you do with a card. If your job allows you to make frequent trips, get a card that gives you several travel friendly schemes on eating out, hotel stays and airline ticket discounts.
High interest rates
Though the whole point of having a credit card is to provide you with cashless convenience, it makes money sense to decide, when, how and why you should use it. Never get tangled in the web of debt, especially when it comes to credit cards. Though its an ideal resource to tap into, when you need to ramp up funds quickly, the interest rates charged on a credit card are much higher than even those charged on personal loans. Remember that cash withdrawals from an ATM with your credit card will be charged a processing fee of around 2% and an even higher rate of interest than your regular purchases on the card.
Taking a loan on your credit card
Most credit cards do offer an EMI facility to pay any loan you take on your credit limit. It normally takes just one or two business days to obtain this loan and this can even be arranged over the phone with no documentation. However, the difference lies in the high interest rate charged, which can be as high as 30-42% as an annualized rate. The cards that offer a comparatively lower interest rate in the range of 22-26% most often do not have an EMI facility for repayments.
Though credit cards seem like a good bet for short term fund requirements refrain from using it, unless you can make the credit card usage count for some kind of benefit. Using your credit card purchases for an interest free period is fine, however remember the bank can do away with interest free periods anytime it chooses to and also hike the interest rates, according to its free will. Hence, be wary of a credit card and use it sensibly.
Another important aspect in manging your credit card is to keep a careful tab on your credit card statement that should reach you on a monthly basis.
Understanding your credit card statement
Scrutinize your credit card statement to understand your spending pattern. If a bill does not arrive on time for you to pay your dues report to the bank immediately. Also keep track of the credit card bill through your online banking account.
The first detail you need to clarify is your name, billing address, card number et al to make sure its correct. The second aspect is the total outstanding balance and current due date for payment. This column will also have the previous month's transaction using the card.
Minimum Payment Due
The second aspect to be scrutinized is the list of purchases or transactions done throughout that particular billing cycle. Go through each particular of them list to see if they match your expense records. Usually your statement will have a reference number that can be quoted if you feel any charge specified needs to be clarified.
Utilizing your reference number for billing errors and unauthorized charges
Always commit in writing within 60 days ( this time period varies from bank to bank) of the receipt of your statement the complaint regarding the billing error or unauthorized charges. Include all the following particulars in your complaint:
Your name, address, account number and reference number
Error description
The date and amount of the charge
Reason cited for the dispute of charge
Check your credit card statement if there is a specific address to which the complaint has to be sent to. This might be at the end of the statement or as part of the fine print, behind the statement.
Your credit card statement also has the other particulars like
Credit Limit
This is the maximum limit up to which you can make purchases or withdraw cash on your card. This credit limit can be revised by your credit card company depending on your credit score and your repayment track record
Available credit limit
This will be the amount you can still avail after you have made a bunch of transactions using the card.
Cash limit
This is the actual cash limit up to which you can withdraw on your card, which is included in your credit limit.
Statement Date
The billing cycle ends on a particular date after which the statement is printed, the interest rates applicable for your card transactions are calculated using this statement date as the starting point.
Total outstanding Amount Due
This includes past and present credit expenses and other charges levied to your account.
Reward Points Summary
This provides you cash discounts and other benefits on purchases made when accumulated over a period of time. This column contains all the past points earned and utilized by you till that particular billing cycle.
Grace Period
A grace period is the number of days you might get as relief before the high interest rates start kicking in for the remainder of the amount that is due. This can be anywhere between 20 and 25 days. However, remember you will be eligible for this grace period only if your previous month's outstanding amount has been paid in full.
Own a credit card responsibily
The responsibility of learning to use your card is imperative when you own a credit card. For this learning it is important for you to understand your credit card statement and, the terms and conditions associated with your credit card policy. Armed with this learning you can make the best out of this cashless convenience
Sunday, October 18, 2009
Sunday, October 11, 2009
Your 5-minute guide to credit cards
Credit cards do have some benefits, but it's easy to get into financial trouble if you rely on them too much. Here are more than a dozen tips for using cards wisely.
Use a credit card wisely and you can reap benefits like cash back, bonus points and airline miles, not to mention a better credit score. Use it unwisely and you could end up under a mountain of debt.
No. 1 rule is: Pay off your balance every month. Otherwise, you'll pay interest on your purchases. Paying the balance takes discipline. About 40% of households carry credit card debt, according to the Federal Reserve. And although the Credit Card Accountability, Responsibility and Disclosure Act makes significant strides for consumers, it will likely make credit harder to get and more expensive -- and it doesn't take effect until 2010.
Protect your good name
Make your payments by the date -- and time -- they're due. Late fees are usually around $30 and can run higher. Late payments can also trigger an interest rate increase. Because late and missed payments lower your credit score, the interest rate can go up on your other credit cards and for future loans as well.
Limit the number of cards you have. Experts recommend having two to six cards. Applying for lots of cards can hurt your credit score. Conversely, closing several credit cards at once will trigger a decrease in your score.
Read the fine print. Know the interest rate you will be charged, when your payment is due and your credit limit. The new credit card law sets out when interest rates can be changed, how your payment is applied, what the grace period is, who can have a credit card and much more. But keep in mind that these changes won't kick in until 2010.
Negotiate. If your credit score is 700 or above, you may be able to get a lower interest rate or get the company to drop a late fee.
Don't exceed 30% of your credit limit on each card. Credit bureaus don't care if you pay off your balance each month. They're interested in how much of your available credit you use. If it's excessive, your credit score will drop.
The devil in the details
Credit card companies market different types of cards, featuring low interest, rewards or other benefits. Be careful about the terms.
If you're transferring a balance to a new card with lower interest, find out how much the company will charge for the transfer. Urge that it be done electronically so you don't accumulate interest on both the old and new accounts. Low-interest introductory offers may apply only to the balance transfer and not to new purchases.
Reward cards that provide dividends like rebates and airlines miles sound too good to be true, and can be. The higher interest rate charged by most reward cards can more than offset the reward if you carry a balance. Reward offers can change with little notice and may come with budget-busting conditions -- for instance, you have to spend a certain amount to earn the reward.
Convenience? Sometimes
If you buy a defective item or protest a charge, your credit card company is obligated to investigate. If your card is stolen, you're liable for no more than $50 for unauthorized charges.
Other "services" offered by credit card companies have potential drawbacks.
Contactless credit cards make it even easier to purchase items because you don't need to swipe your card or hand it to a cashier. But thieves can scan the info on your card. You can buy a signal-blocking sleeve or make one out of aluminum foil.
Don't use "convenience" checks your credit card company sends you unsolicited in the mail. They're costly -- with a fee of 3% or 4% of the amount you write, plus high interest rates with no grace period -- and don't provide the consumer protection you get when you make a purchase with your credit card.
Credit card protection insurance generally covers only the minimum payment if you become disabled or unemployed, and interest continues to build on your outstanding balance.
Using a credit card issued by a department store you frequent can entitle you to cardholder discounts, but limit yourself to one card. Each department store account you open reduces your credit score.
Good Luck Guys.
Use a credit card wisely and you can reap benefits like cash back, bonus points and airline miles, not to mention a better credit score. Use it unwisely and you could end up under a mountain of debt.
No. 1 rule is: Pay off your balance every month. Otherwise, you'll pay interest on your purchases. Paying the balance takes discipline. About 40% of households carry credit card debt, according to the Federal Reserve. And although the Credit Card Accountability, Responsibility and Disclosure Act makes significant strides for consumers, it will likely make credit harder to get and more expensive -- and it doesn't take effect until 2010.
Protect your good name
Make your payments by the date -- and time -- they're due. Late fees are usually around $30 and can run higher. Late payments can also trigger an interest rate increase. Because late and missed payments lower your credit score, the interest rate can go up on your other credit cards and for future loans as well.
Limit the number of cards you have. Experts recommend having two to six cards. Applying for lots of cards can hurt your credit score. Conversely, closing several credit cards at once will trigger a decrease in your score.
Read the fine print. Know the interest rate you will be charged, when your payment is due and your credit limit. The new credit card law sets out when interest rates can be changed, how your payment is applied, what the grace period is, who can have a credit card and much more. But keep in mind that these changes won't kick in until 2010.
Negotiate. If your credit score is 700 or above, you may be able to get a lower interest rate or get the company to drop a late fee.
Don't exceed 30% of your credit limit on each card. Credit bureaus don't care if you pay off your balance each month. They're interested in how much of your available credit you use. If it's excessive, your credit score will drop.
The devil in the details
Credit card companies market different types of cards, featuring low interest, rewards or other benefits. Be careful about the terms.
If you're transferring a balance to a new card with lower interest, find out how much the company will charge for the transfer. Urge that it be done electronically so you don't accumulate interest on both the old and new accounts. Low-interest introductory offers may apply only to the balance transfer and not to new purchases.
Reward cards that provide dividends like rebates and airlines miles sound too good to be true, and can be. The higher interest rate charged by most reward cards can more than offset the reward if you carry a balance. Reward offers can change with little notice and may come with budget-busting conditions -- for instance, you have to spend a certain amount to earn the reward.
Convenience? Sometimes
If you buy a defective item or protest a charge, your credit card company is obligated to investigate. If your card is stolen, you're liable for no more than $50 for unauthorized charges.
Other "services" offered by credit card companies have potential drawbacks.
Contactless credit cards make it even easier to purchase items because you don't need to swipe your card or hand it to a cashier. But thieves can scan the info on your card. You can buy a signal-blocking sleeve or make one out of aluminum foil.
Don't use "convenience" checks your credit card company sends you unsolicited in the mail. They're costly -- with a fee of 3% or 4% of the amount you write, plus high interest rates with no grace period -- and don't provide the consumer protection you get when you make a purchase with your credit card.
Credit card protection insurance generally covers only the minimum payment if you become disabled or unemployed, and interest continues to build on your outstanding balance.
Using a credit card issued by a department store you frequent can entitle you to cardholder discounts, but limit yourself to one card. Each department store account you open reduces your credit score.
Good Luck Guys.
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