Take time to review the disclosed terms and conditions of any new credit lines that you open. Details such as billing cycles, grace periods, late fees, and interest rates often are overlooked and the consequences are costly. Before you open any new credit card accounts, it’s important that you gain a full understanding of the cards you plan to use, and consider the cost.
1. Annual Percentage Rate: Calculate the yearly rate of interest for a particular credit card; the higher the percentage, the more interest paid.
2. Grace Period: A grace period lets you avoid finance charges by paying your balance in full before the due date. Knowing whether a card gives a grace period is important if you plan to pay the balance every month. Without a free period, the lender may charge from the date you use the card or from the date each transaction was posted to your account.
3. Annual Fees: Most lenders charge annual membership or participation fees, such as fees for “Gold” or “Platinum” cards. Search for cards that offer low annual fees or no annual fees at all.
4. Late and Over-Limit Fees: A late fee penalizes you for missing a payment. The cost of being tardy with your payments often ranges from $35-$39. An over-limit fee penalizes you for charging beyond your credit card balance. Fees are typically around $35. Late and over-limit fees can be very costly, as they will continue until you become current in your billing status.
5. Minimum Monthly Payment: Minimum monthly payments are calculated as a percentage of your total balance, usually between 2-4% of the total balance. Paying only the required minimum monthly payment is costly and will not significantly reduce a credit card debt. Increasing minimum monthly payments will reduce your total balance. Small amounts make a difference:
a. A $2000 VISA balance, with an interest rate of 18%, would take nearly 30 years to pay-off when making a 2% minimum monthly payment. Interest accrual: $5,000.
b. By making a 4% minimum payment, you would be paid in full in about 10 years. Interest accrual: $1,100.
6. Special Interest Rate Offers: Carefully read any special offers such as “0% Interest” offers or “No interest for Six Months” offers. These offers carry terms and conditions that you must meet to avoid paying interest; you are penalized with high interest rates for not meeting the specific credit terms.
Understanding Pre-Approved Credit Offers
Many companies that solicit new credit card accounts use pre-screening to identify potential customers. These are also referred to as “pre-approved credit” offers, and are based on information in your credit report. This payment history indicates that you meet certain criteria, set by the lender, offering you a new line of credit. For example, a pre-approved offer means you qualify for credit meeting a minimum credit score (even low scores can qualify). Be careful opening new pre-approved credit lines. If you are overextended or rebuilding credit—avoid creating new debts.
Avoiding Pre-approved Solicitations
• You have the ability to stop pre-approved credit card solicitations; you can opt out for 5 years or permanently. Contact (888) 667-8688 or visit optoutprescreen.com.
• The federal government created the Do Not Call Registry to stop pre-approved telemarketing calls: Contact (888) 382-1222 or visit donotcall.gov.
• To eliminate direct mail pre-approved applications, register online with the Direct Marketing Association: the-dma.org/consumers/offmailinglist.html.
Identity theft occurs when someone uses your personal information fraudulently. They may use your name or Social Security number to apply for credit or service, or your personal finance information such as your bank account PIN or credit card numbers for purchases.
According to the Fair Trade Commission, people generally do not become aware of identity theft until about 14 months after the crime has occurred. Meanwhile, debts are accruing in your name and damaging your credit history. In the aftermath, you could be facing a number of problems, not the least of which would be a loss of your time and money to set the record straight.
Skilled identity thieves use a variety of underhanded methods to gain access to your personal information. It’s important to know what you’re up against:
• Search through your trash for pertinent financial information such as credit card, savings, and checking account numbers.
• Steal credit or debit card numbers by capturing information in a data storage device that saves your credit card numbers or PIN.
• Go through your mail searching for bank and credit card statements, new checks, or tax information.
• Steal your wallet or your purse searching for credit cards, or your Social Security card.
• Complete a “Change of Address” form to divert your mail to another location.
• Hack into your computer system to steal your personal information.
Seven Preventative Measures
Here are seven ways to manage your personal information wisely and minimize the risks of identity theft:
1. Before you reveal any personal information such as your Social Security number or PIN, find out whether it will be shared with other institutions or organizations.
2. Pay attention to billing cycles; contact the creditor if a bill does not arrive on time.
3. Guard your mail by depositing outgoing mail in a post office collection box or at your local post office. Remove mail from your mailbox as soon as it has been delivered. If you are planning to be away from home, call the US Postal Service (800) 275-8777 to ask for a vacation hold.
4. Do not give out personal information over the telephone, through the mail, or over the Internet unless you know them to be secure. Look for Internet secure sites with security postings such as VeriSign©.
5. Protect any personal information in your home. Shred documents such as charge receipts, copies of credit offers and applications, insurance forms, discarded bank checks, or credit card statements.
6. Never carry your Social Security card; leave it in a secure place at home. Do not give out your number unless you are convinced it is absolutely necessary.