Credit cards. They can be a real convenience. Yet they can also help unwary consumers drive up debt that is hard to escape. If you are a credit card user, it’s important to use your credit card wisely, and also understand your rights, in order to protect your credit rating and live the lifestyle you choose.
Using Credit Cards Wisely
When choosing a credit card, it’s important to check the interest rate that will be charged. When you do not pay the full amount of your bill within the billing cycle (around 30 days), you are charged a percentage of that amount on top of the amount owed. This can really add up each month, so be sure that you understand how much more you will pay for the same purchase.
For example, if you are purchasing a $1000 item with your credit card, and only pay $10 towards that amount each month, and your card charges 10% interest each month, you will pay $1159 extra in interest, and it will take you 18 years to pay off that item. Is it really worth it? You might be better off just putting money aside each month until you have enough to purchase the item outright.
You can check out your own purchases using a credit card calculator online, such as this one.
Understanding Your Rights
Credit card companies also have obligations when it comes to lending through credit cards. Some things you should know:
- Your credit card company must inform you, in writing, 45 days before raising your interest rate. They must also tell you how to cancel your card as part of that notification.
- You must receive your statement at least 21 days before the payment is due.
- Interest rates cannot be increased during the first 12 months that you have a credit card.
- Promotional rates must last 6 months.
- Your bank can increase your interest rate if your payment is more than 30 days late.
These and other rights are included in this PowerPoint that you can download titled “Credit Card Act of 2009 and You.”
Know Your Credit Score
Your ability to get a credit card with a low interest rate is determined by your credit score. It’s important to review your credit report regularly, to ensure that everything on it is accurate. This will help you make better decisions.
- You are entitled to receive a free credit report from the 3 major credit reporting agencies (Equifax, Experian and TransUnion) annually. To get yours, visit http://www.annualcreditreport.com.
- Your credit score is the number banks look at when deciding whether or not to give you a loan, a credit card, etc, and what interest rate to charge. Use this free tool to get an estimate of your current credit score: http://www.bankrate.com/calculators/credit-score-fico-calculator.aspx
How do you protect your credit score? How do you teach your kids to use credit wisely? Would love to read your thoughts in the comments below!