Owning a credit card is a responsibility. When used correctly credit cards provide a sizable amount of power and leverage. If you're new to the world of credit cards or want to know more about card usage, these answers to frequently asked questions should shed some light.

A credit card is an unsecured revolving line of credit with a financial institution. It's a way for you to pay for goods and services with someone else's money, usually money that belongs to a bank. In return for this privilege, you may pay interest and fees.

Giving credit and loaning money is an ancient line of business, but credit cards didn't debut until the late 1940s, when a Brooklyn, New York-based bank launched a local credit plan called Charg-it. This early system was "scrip" based. The merchant took scrip for the purchase; deposited it into a bank account; and then the bank charged the customer for the amount of the purchase. In 1951, another New York bank issued the first modern credit card, MasterCharge that today is known as MasterCard.
In 1960, The Bank of America introduced BankAmericard (now Visa), and the system to support it, sending the nationwide credit card industry into full motion. The rest is history!

BACK TO TOP

In 1970, 20 million consumers across the U.S. carried a BankAmericard and made 170 million purchases. In 1980, 73 million credit cards of various types were in circulation and approximately 1 billion credit card sales slips were processed. Last year, there were approximately 550 million credit cards in the U.S., and consumers used them to make over $1 trillion worth of transactions. Quite a jump in popularity since the 70s, and the end isn't yet in sight.

BACK TO TOP

Like any business, financial institutions are in the credit card business to make money! They earn this money in several ways:

1. The largest portion of income comes from the finance and interest charges assessed to customers who "revolve" their balance, paying off only a portion of their debt from month to month. Financial institutions also receive a portion of the fee that merchants have to pay for accepting the credit card. This amount is usually 2% of the purchase price.
2. Issuers may charge additional fees for the use of the credit card, including annual fees, late fees, over-limit fees, minimum finance charges, and cash advance fees

BACK TO TOP

Most people enjoy the convenience of making an immediate purchase when they don't have cash available and of making flexible payments on that purchase over time. Making timely payments on your credit cards is also a good way to establish a credit history for when you need to buy a car, rent an apartment or buy a home.

BACK TO TOP

Credit cards are a convenience for travel, for buying airline tickets, securing a rental car, and making hotel reservations. There is also a high level of security in carrying a credit card instead of cash. If the card is lost or stolen during travel, the cardholder enjoys a limited liability of up to $50, assuming he or she followed the proper reporting procedures.

BACK TO TOP

You can obtain a credit card directly from a financial institution that issues credit cards, such as a bank or a credit union. Many businesses, like airlines, insurance companies and even gas stations are affiliated with lenders that issue cards to customers who qualify for credit.

BACK TO TOP

There is really no set amount. You can have multiple credit cards with different limits, features and benefits, or with rewards for using the card. You decide when, where and how to use your cards. The important thing is to not overspend nor incur more debt than you can handle. That can easily happen when you use lots of cards to charge lots of things without keeping records of your expenditures. A good rule of thumb is to keep your outstanding debt below 40 % of your monthly take-home pay. When you calculate how much that is including your monthly car payment and your rent or mortgage payment.

BACK TO TOP

Everyone has his or her personal purchasing or financing needs that can be satisfied by a credit card. If you've never had a credit card, it may be more difficult to get the exact one you want right now. You may be smart to accept almost any card to establish good credit. But be careful of the terms! Interest rates vary and can range from the single digits to well above 20%. Annual fees can be waived or as high as $100 per year. Some cards offer rewards, others are rigid in their payment procedures. Find out what's offered, then compare the cards to see which best fits your needs.

BACK TO TOP

If you have established credit, and you know you will revolve a balance, seek a credit card with a low annual interest rate and low or no annual fees. If you are a convenience user, that is, if you pay off your balance in full each month, the interest rate may be irrelevant and you might want a card with no annual fee and the longest grace period you can find.

BACK TO TOP

If you belong to a special interest group, you may want to carry an affinity card that benefits that organization. For example, you may use a card that donates a portion of the earned interest to a charity. Or, you may wish to get a credit card that offers a rewards program in the form of points or miles toward trips or goods and services offered by the company and its affiliates.

BACK TO TOP

Yes, the credit card industry has done a lot to ensure that your cards are safe from fraudulent use. Today's credit cards carry holograms and special embossed characters that thwart counterfeit activity. Although these methods have not totally eradicated counterfeiting, the industry is always looking for new ways to ensure that you can only use your card. One of the safest is a card with your photo on it.

BACK TO TOP

Never give your credit card number over the telephone unless you know you are dealing with a well-known, reputable company. The same is true for Internet purchases. Most web sites provide extra personal security by encrypting your card number as it travels between you and the merchant. Always be sure to print out a confirmation of your purchase for verification against your credit card statement.

BACK TO TOP

Although credit card issuers keep credit cards safe by monitoring your card activity and reporting to you any purchases that differ from your ordinary spending pattern, you still need to know where your cards are at all times. When your billing statement arrives, check it for any unusual purchases. Do not leave your credit card receipts in an unlocked vehicle or in places where others might take them. Destroy credit card receipts after you have balanced your monthly billing statement.

BACK TO TOP

You are protected by the federal Fair Credit Billing Act, which allows you to dispute any charge that you believe was not incurred by you. If you find a charge that you do not recognize or you have an unsatisfactory experience with a merchant the quality of the goods received is not up to standard, this law will protect you from liability for the charge. Most credit card companies print their dispute procedures on the reverse side of each month's billing statement. If you have a dispute, you must comply with these instructions. Compliance will ensure that you don't lose your right to dispute and that your claim will ultimately be resolved.

BACK TO TOP

If you have misplaced your card or believe it was stolen, call your credit card company immediately to make a report. After checking for any activity after you discovered the card lost, your issuer will probably close your account. In most cases, the credit card company will issue you a new card with a new number.

BACK TO TOP

When your next statement arrives, examine all the charges on your itemized bill and identify any unfamiliar purchases. Call your card company and describe the fraudulent charges, the dates they were made and the amount of each charge. You may be requested to sign an affidavit attesting that the charges you are disputing are not yours. If you complete all the steps that your credit card company has outlined in its dispute procedure, you will not be liable for greater than $50 of the fraudulent charges. In many cases, the issuer will waive the $50 charge.

BACK TO TOP

How do I increase the credit limit on my card?

If you have maintained a good credit history and if you are using your credit card and making timely payments, it shouldn't be a problem to raise your credit limit. Contact your credit card company and tell them you want a limit increase. The lender will evaluate your current credit history and debt load and look at their experience with you as a credit card customer. Many issuers will conduct this process while you wait on the phone, and they'll be able to tell you within minutes if you are a good candidate for a credit limit increase.

BACK TO TOP

How do I get cash with my card?

To obtain cash, either by using an ATM machine or going straight to the financial institution that offers cash withdrawals on your card, you will need a Personal Identification Number (PIN). This number usually has four digits and is part of the login process when you use your ATM, which simply won't work without a PIN. Most issuers charge interest from the transaction date of a cash advance; they may also charge an additional cash advance fee. Some issuers automatically assign you a PIN when you receive your new card; others allow you to select a code of your choice.

BACK TO TOP

Never write your PIN number on your card or carry it in on a slip of paper in your wallet or purse. With your PIN, anyone can make cash withdrawal on your account. If you select your own PIN, be sure to create a code that is not easily deciphered by anyone who has access to your personal information.

BACK TO TOP