Credit Education Month: Be in charge of your credit cards

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Credit cards can offer numerous benefits to consumers, including a convenient way to pay for purchases, the ability to build a credit history, and the potential for rewards. But to make the most of your credit cards, it helps to be an informed consumer. First, remember that any purchase you make with your credit card is a loan that must be repaid. And as with any loan, it’s important to select the right product for you and to use it wisely.

To help you maximize the benefits and avoid the potential pitfalls, here are our latest tips for choosing and using credit cards.

Choosing a Credit Card

Maximize your ability to get a good credit card by ensuring that your credit report is accurate. Correcting inaccuracies may help you improve your credit history and credit score, which card issuers will consider when deciding whether to offer you a card and how they will determine your interest rate and credit limit. You also can find out if an identity thief has opened credit cards or other accounts in your name.

By federal law, you are entitled to one free copy of your credit report every 12 months from each of the three major nationwide consumer reporting agencies (also called “credit bureaus”) — Equifax, Experian and TransUnion. Each company issues its own report, and because some lenders do not furnish information to all three of them, it’s useful to request your report from each one in order to get a comprehensive view of your credit history. Go to www.AnnualCreditReport.com or call toll-free 1-877-322-8228 to order free credit reports or for more information.

If you find errors, each reporting agency provides ways to ask for an investigation and a correction. In addition, you can request a correction directly from the entity that supplied the incorrect information.

Determine what type of card best meets your needs. First, think about how you will use the card. In particular, do you expect to pay your card balance in full each month or carry a balance from month to month?

If you don’t pay your card balance in full each month, the best card for you will likely be one with a low Annual Percentage Rate (APR). But if you do plan to pay in full each month, you might instead focus on whether there is an annual fee, rewards or other features, such as a waiver of foreign transaction fees (helpful for international trips or purchases).

Shop around and compare product terms and conditions. Although you may receive credit card offers, don’t assume these are the best deals for you. If you decide you need to apply for a card, compare multiple products from several lenders. Various Web sites can help you compare product offerings from different institutions, but be aware that some sites list only companies that pay to advertise there.

What factors should you consider? Federal law requires creditors to disclose important rate and fee information to you before you apply. “This enables you to make apples-to-apples comparisons for the most important factors,” pointed out Elizabeth Khalil, an FDIC Senior Policy Analyst.

Here is additional guidance on how to compare key terms and conditions:

Annual Percentage Rate: The APR represents the annual cost of the credit. In general, there are three types of APRs that might be applicable to your card: those for purchases, for balance transfers from another card, and for cash advances. Also pay attention to introductory rates. Some credit offers, such as balance transfers, come with special low interest rates that will increase after the promotional period.

Fees: These can include annual fees, balance transfer fees and cash advance fees (in addition to any interest you might pay), foreign transaction fees, and penalties for late payments or returned payments. Determine if fees can change over time, as many cards will waive an annual fee for the first year but will charge it in later years.

Rewards: These programs can be complicated, with specific eligibility rules. Know what you need to do to qualify for rewards, which might include meeting spending requirements, and how much you would have to spend to accumulate enough points or miles to get what you want. Also understand what you need to do to maintain your reward points, since they can sometimes expire if an account is closed or considered inactive.

Do your homework before signing up for promotional offers or additional products. Some credit cards come with promotions that are enticing but may cost you more money in the long run. For instance, some credit cards marketed by retail stores offer “no interest” on balances for a certain period of time, such as the first 12 months after purchase. But if you don’t pay off the entire purchase balance by the end of the timeframe that was disclosed, you may be charged all of the interest that accrued since the date of purchase.

Additionally, credit card companies might offer other credit-related products, such as credit protection and identity theft protection.

Using a Credit Card

Carefully review your card statements for billing errors and other problems, and report them quickly.

If you notice a billing error, such as an unauthorized charge on your statement, contact the card issuer as soon as possible. Checking your account periodically also can help you monitor your spending.

Review all communications from your lender. Keep a copy of your cardholder agreement and look at all other mailings from your lender because they may include notices about adjustments to the important terms of your card.

Pay on time to limit late fees and protect your credit history. If you miss a payment, you’ll likely be charged a late fee. Late payments are also reported to the major consumer reporting agencies, which can harm your credit history.

Pay as much as you can to avoid or minimize fees and interest charges. While it may sound like a bargain to pay the minimum amount due, the long-term costs can be staggering. You will generally be charged interest on the unpaid portion of your balance at the beginning of a new billing cycle and your credit card issuer may start charging you interest from the time of purchase. If you can’t pay the full amount, paying even slightly more than the minimum amount due can reduce your interest costs.

If you add an “authorized user” to the account, set rules and monitor transactions. Adding an authorized user can be a way to jointly manage your finances or to help someone else establish a credit history. But remember that you will be liable for any charges the authorized user makes with the card, so it’s best to have a mutual understanding about your expectations as the account owner. Also consider asking your card issuer to place a spending limit on the card assigned to the authorized user. And, of course, be sure to regularly monitor the account and take appropriate action, if necessary.

Protect your card from fraud. Never provide your credit card numbers — including the account number and expiration date on the front and the security code on the front and/or back — in response to an unsolicited phone call, e-mail or other communication. When using your credit card online, make sure you’re dealing with a legitimate company.

Also, take precautions at the checkout counter and gas pump, watching for card reading devices that look suspicious, such as a plastic sleeve inside a card slot or other possible signs of tampering.

If you have lost your card or are the victim of identity theft, contact your credit card company as soon as possible.

To try to resolve a complaint, first contact your card issuer. Before calling, think through and summarize what the problem is and what you’d like done about it. This will help you remember the key points of the issue. In case the financial institution doesn’t agree to your solution, think about other alternatives you might propose or accept.

The FDIC and other banking regulators can’t settle contract disputes between a bank and a consumer, but they often can assist consumers in other ways, such as helping people understand confusing information, contacting the issuer and initiating a formal review process, or taking supervisory actions if the institution is in violation of a law or regulation. To find the regulator for an FDIC-insured institution, you can use our online directory at http://research.fdic.gov/bankfind or call the FDIC toll-free at 1-877-ASK-FDIC (1-877-275-3342).

For more tips and information, start at the FDIC Web page “How to Choose and Use a Credit Card” at www.fdic.gov/consumers/consumer/ccc/choose.html.