Understand Your Consumer Credit Cards Rights

Thinking about getting your first credit card? Understanding the credit card world is crucial, especially if you’re getting your credit card for the first time. Be sure not to mistake credit cards for charge cards or cash cards; credit cards allow consumers a continuing balance of debt.

If you are a charge card holder, you must pay the balance in full every month and if you’re a cash card holder, you can use it like currency.

According to research, two out of three college students decide to get their first credit card. They are flooded with offers from certain credit card companies via e-mail, snail mail, campus kiosks, etc. yet those issuers may not give them the best deal. Student or not, you should do your research and learn more about credit cards because the right credit cardscan help you build a positive credit history.

Credit history is important because it can help you qualify for lower rates on auto loans and mortgages, reduce insurance premiums (many insurers use credit information to determine their prices) or get a comfortable apartment (many landlords check credit scores).

Your credit card will be issued by a bank or credit union, if the credit provider approves your account. After that, you can use your credit card to make purchases at merchants accepting that card. When a purchase is made, you indicate consent to pay the card issuer by signing a receipt with a record of the card details and indicating the amount to be paid. You may also be asked to enter your PIN (personal identification number) or you can make a purchase based on a verbal authorization via telephone and Internet (CNP – card not present transaction) – in this case, the merchant will ask you for additional information (such as the security code printed on the back of the card, date of expiry, and billing address) to verify that you are really in physical possession of the card.

Every month, you will be sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed.

You have an option to pay a defined minimum proportion of the bill by a due date, or you may choose to pay a higher amount up to the entire amount owed. However, if the balance is not paid in full, the credit issuer charges interest on the amount owned and usually at a much higher rate than most other forms of debt.

Also, if you fail to make at least the minimum payment by the due date, the issuer may impose a late fee and possibly other penalties.

If you are a credit card holder or want to become one, you must understand the perils of credit card debt, limits, charges, default % rates, compound rates, learn how APRs work and why it's important to pay in full every month.

Of course, it is clear that making the minimum payment each month keeps one in debt, but paying in full each month decreases not only debt, but also the interest that one owns to credit card companies. Thereby, each payment decreases more and more debt than the one before.

Banks usually incorporate their credit card companies in states allowing very high rates. A great portion of national wealth is consumed by the banking industry and the credit card industry earns it's greatest profits from those who are the most vulnerable – people who are simply forced to use credit cards. Five years ago, the average interest for a credit card was 18.9 percent charged to more than 185 million credit card users in the United States, and the numbers have increased until present day.

The question is, should you pay off the highest-interest debt first or the card with the smallest balance (4% of U.S. card holders have more than 10 credit cards).

Since February 2010, payments are directed to highest interest balances first. This means, if you make more than the minimum payment on a credit card bill, the credit card company must apply the excess amount to the balance with the highest interest rate.

On the other hand, if you make a purchase under a deferred interest plan such as "no interest if paid in full by January 2012", the credit card company may let you to apply extra amounts to the deferred interest balance before other balances.

It is crucial for a credit card holder to understand the credit card contract. Credit card agreements state that the issuer can change the rate and any term in the agreement at any time.

According to the Credit Card Act 2009, credit card consumers must be notified about the significant changes to their accounts at least 45 days before they take effect. Card users have the right to cancel or close their account if they don't agree to the changes. This right is called the right to opt out, that is, to reject certain significant changes in terms to consumer’s account. Opting out means that cardholders agree to close their accounts and pay off the balance under the old terms. They have at least five years to pay the balance.

Note!

Unfortunately, laws protecting consumers are not always effective. For example, when credit card companies change interest rates and mail a notice to the consumer, the notice is designed to appear as yet another piece of junk mail. If the consumer doesn’t go carefully through all the junk mail, not finding an important change in terms to the contract might cause additional problems.

The credit card reform law effective since the 22^nd February 2010 made credit cards more costly for all users and inaccessible for low-income families. The law provides for the return of routine annual fees, fewer reward cards and the possibility to pay credit card bills immediately rather than after a month-long grace period.

In 2009, there was a 67% drop in credit card mail offers that streamed into U.S. homes compared to 2008. 27% credit card offers carried an annual fee (compared to 18% in 2008).

Annual fees once used to be membership fees used by companies such as American Express and Diner's Club in order to make profit. Namely, cardholders with charge cards payed balances in full every month and therefore the accounts carried no interest. Annual fees were later imposed on bank cards too. According to issuers, interest rates were lowered in such way and protected against fraud and bankruptcy claims.

In 1990, AT&T issued a no annual fee credit card, which also meant a decline of annual fees among credit cards. Today, only high-credit customers are eligible for annual-fee-free credit cards while risky, low-scoring consumers recieve fee-based credit card offers.

If you use reward credit cards, you will be rewarded with cash back incentives and rebate programs. For example, Chase Freedom Visa Card offers $100 bonus cash back after you make $500 in purchases in your first 3 months, 0% intro APR for 12 months on balance transfers, 0% intro APR for 6 months on purchases etc.

There are also travel credit cards offering airline or hotel rewards. Whether you travel or spend money during your vacation, you can earn frequent flyer miles or rewards points, which can be redeemed for airline discounts or free nights at participating hotels. Airline or travel credit cards are especially useful to frequent flyers and travellers.

The grace period is guaranteed by the Credit CARD Act of 2009 to all consumers and it must last at least 21 days. This is the time during which you pay your credit card bill without having to pay interest. It usually applies only to new purchases. Most credit cards charge interests right away and rarely give a grace period for cash advances and balance transfers.

The experience of many people burdened with credit card debts shows that one should incur debt only when it is a true investment such as for education or a business. Anyhow, credit card holders buy items on credit and without even realizing it, soon end up with a debt of over $20,000 or more and become very frustrated. Every time they buy something after they have a balance owed, interest is assessed to their loan from the date of the purchase, hence, on a daily basis (not on a yearly basis) even on loans without balance. This results in very high rates.

The level of consumer debt in the United States has reached risky levels in the sense of life quality; credit card debt causes extra financial problems resulting in illnesses related to stress, marital problems, even divorce.

There are people whose entire paycheck goes to lenders, which means no money available for vacations, college education, saving for retirement and other goals. People don’t leave their home without a credit card and most of them lack the basic financial instruction on credit cards and interest, which results in people living way above their means.

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