- If you travel, a bank or travel and entertainment card will eliminate
the need for carrying large sums of cash.
- Buy items on sale using your credit card only if you actually need
and will use them.
- Pay each month’s bill in full and avoid interest charges.
- Know how much you have charged on your card(s).
- Compare fees, terms, and interest rates of at least three lenders
when selecting a credit card.
- Know the phone number to call if your cards are lost or stolen.
Credit cards are a widely used source of convenient credit for restaurants,
hotels, mail order, on-line shopping, gasoline stations, grocery stores,
dental and medical care, church bazaars, as well as telephone and television
advertised products. There are many advantages of using credit cards,
but the consequences of misuse can be drastic and painful.
- If you are away from home without cash, you often can receive a
cash advance or have the option of buying traveler’s checks with
- Places that are suspicious of personal checks often take credit cards.
- Credit cards act as a short-term loan if you find something that is
bargain and haven’t the cash or balance in your checking account
pay for it.
- Credit cards eliminate the need to carry large sums of cash.
- If you move to a new place, credit cards give you purchasing power
until you establish yourself as a good risk in a new community.
- If you charge an item or service that costs $50 or more in Colorado
(or within 100 miles of your home) and later discover it doesn’t
work or has other problems, you can withhold payment from the credit
card company if you have attempted to resolve the problem
with the merchant.
- You often get the best rates of exchange when traveling in foreign
countries if you use your credit card for purchases and your ATM card
to get cash. Check with your card issuers about surcharges before you
leave on your trip. A two to three percent surcharge may
eliminate this advantage.
- Credit cards can help coordinate receipts for tax purposes.
- Bookkeeping is reduced to one monthly bill as opposed to checks.
- Adding monthly interest charges means you pay more for the goods
- Consumers often have more than one credit card and each one has a
credit limit. When the credit limits for all cards are added up, the
total can be in the thousands of dollars. Consumers can fall into the
habit of using credit cards to extend their income.
- Credit cards are easier to use than applying for loans even when a
loan from a credit union, bank or other financial institution may
provide the funds at a lower interest rate.
- Some people have been swindled by giving their credit card numbers
to dishonest salespeople over the phone.
Types of Credit Cards
Debit and ATM Cards
- Don’t confuse debit cards with credit
cards. Debit cards may look like credit cards, but they act like
checks. Once the debit card is used, the amount is immediately
deducted from your checking or savings account. The debit card
eliminates the need for carrying cash, but it does not extend
credit. Debit cards may be used as guaranteed check cashing cards.
In contrast, credit cards defer your payment until you are billed.
- Some cards can be used to withdraw money from automatic
teller machines (ATM). Beware of fees eating up your money if
you use your ATM card frequently for small withdrawals. Some financial
institutions charge their customers a set fee for a certain number
of transactions. Other institutions charge for each ATM use. If
you get cash at an ATM machine that is not part of your financial
institution’s network, the fees could be as much as $8 per
- Parents might want to introduce their children
(ages 13 to 17) to prepaid debit cards such as Pocket Card, American
Express Cobaltcard, and Visa Buxx, by funding a card that has
a spending limit established by parents. Parents supply the funds
and can use the cards to teach their children how to track how
the money is spent. This parent-controlled card is designed to
help parents teach their teens about using credit in a controlled
environment. One example of a prepaid credit card can be found
There are four major types of credit cards: bank cards, travel and entertainment
cards (T & E cards), retail store cards, and oil company cards. Applications
and interest rates for each type of card may be different. When using
a credit card, the consumer agrees to the terms of the credit card company.
Read these terms carefully and understand them before using the card.
Bank cards. The two major bank cards are MasterCard and VISA.
You may use bank cards to charge motel and restaurant bills, merchandise,
airline tickets, services, and some cards allow cash advances. Interest
on a cash advance starts the day you get the money and continues until
you pay back this loan.
Some cards are offered without fees, some are included in a total banking
package, and others charge a yearly membership fee. You are granted a
bank card based on your credit record. Your credit record also determines
the maximum amount you can charge. You may request to have this limit
raised if you establish a good credit history while using the bank card.
The interest charges for bank cards range widely, so it’s worth shopping
for a low interest rate if you don’t pay your bill in full each month.
If you fail to make the monthly required minimum payment, this is reported
and shows up on your credit report. You can have your account cancelled.
Some companies use banks to sponsor their own MasterCard and VISA cards
for their customers. For example, the American Automobile Association
offers a AAA/VISA card that can be used to charge no-fee travelers checks,
and obtain a 30-day, interest-free $300 emergency cash loan and emergency
airline tickets if needed while traveling. More and more universities,
organizations, travel clubs, and even political parties are sponsoring
credit cards. If you support their goals, you can make a contribution
to them when you make a purchase by using an affiliated (affinity) credit
Travel and entertainment cards (T & E). Consumers must apply
for travel and entertainment cards such as American Express, Diners Club,
and Carte Blanche and are charged an annual membership fee. Card holders
are billed for purchases every 30 to 60 days. They are expected to pay
each bill in full. Failure to pay promptly may result in a poor credit
report, interest charges, and eventual cancellation of the account.
Some T & E cards offer card holders additional services such as
group life and accident-and-health insurance, cash advances and gift catalogues.
Free travel insurance is frequently provided when T & E cards are
used and they may offer to stretch payments for large bills over a three-
to six-month period.
Retail store cards. Retail credit cards are issued by department
stores and other companies. If you have a retail store card, you may be
notified of special sales before the general public. These cards offer
revolving credit at a pre-established credit limit. Finance charges are
added to your bill if you do not pay in full each month. Most retail stores
also accept bank cards.
Oil company cards. Oil companies offer their own credit cards
and most accept VISA and MasterCard.
College Students and Credit Cards
In addition to student loans, college students may have high credit card
debt. Eager to woo college students, credit card companies market their
cards on campus with incentives such as t-shirts and sunglasses. The result
– students can get credit without understanding the responsibility
of handling credit.
It is important for students to establish a credit history. At the same
time, using credit without knowing how can turn into a crisis. Almost
65 percent of college students have at least one credit card; 15 percent
have four or more. Twenty-five percent have at least $10,000 in credit
Lost or Stolen Credit and Debit Cards
Notify the credit card issuer immediately if your credit card is lost
or stolen. You will be charged up to a maximum of $50 of unauthorized
purchases that occurs per card before the card company is notified of
the loss. If you lose five credit cards, you may be responsible for up
to five times $50 or $250. (Some homeowners insurance policies cover up
to $500 in charges on stolen credit cards.) As soon as the credit card
issuer has been informed that a card has been lost or stolen, the credit
card holder is no longer responsible for even $50 of unauthorized purchases.
You should be informed about your $50 liability for unauthorized use
of credit cards when you receive requested cards. Prepare for the possibility
of lost cards by listing credit card account and phone numbers, and addresses
for notification. Keep this information separate from your cards and leave
it with a relative or friend.
Lost or stolen debit cards can cost more to their owners than lost or
stolen credit cards. Debit card holders are liable for the first $50 of
charges even if the loss is reported before the card is used. If the loss
is not reported, the debit card holder is liable for up to $500 of unauthorized
You should also contact the Fraud Units for the credit reporting agencies
if cards are lost are stolen.
Trans Union 1-800-680-7289
Credit Card Billing Problems
Credit account users encounter two types of problems: 1) insufficent
notice before a bill is due, and 2) errors on the bill.
Insufficient notice. If your account allows you to avoid a finance
charge by paying your account in full by a certain date, the company must
mail its statement at least 14 days before the due date. Check the postmark
if you are receiving your statements shortly before payment is due and
complain to the card issuer.
Your payments should be credited the day they are received. Delays may
cost you money in finance charges. If you note a consistent and unreasonable
time lag, check with the company to see whether the problem lies with
the mail, the company posting procedure, or other reasons. You can also
pay your credit card bill by debiting your checking account and sending
funds electronically to your credit card company.
Errors. The Fair Credit Billing Act provides specific protection
for consumers who have billing problems. It defines billing errors as:
1. Charges made by someone not authorized to use your credit card.
2. Purchases that you question.
3. An incorrect amount charged for a service or an item or a charge for
something that you did not accept.
4. Failure to credit a payment to your account (or the correct amount).
5. Other mistakes made by the company’s credit department.
6. Finance charges added to your bill for late payment when your bill
was not sent to your current address (provided you notify the company
of your change of address at least ten days prior to the end of the billing
|Defective or Undelivered Goods
If you have charged merchandise or a service that turns out to be
defective or of poor quality, you may withhold payment on your credit
card bill. Try to resolve the problem with the merchant. If you are
unsuccessful in your good faith attempts to solve the problem, notify
the credit card company and do not pay that portion of your credit
card bill. You must, however, pay in full any amount that is not in
question. Enclose a letter explaining why you are withholding payment
and what steps you have taken to try to resolve the problem.
In order to withhold a credit card payment, the purchase must meet
the following requirements: the amount must be more than $50, and
the purchase must be made in Colorado or within 100 miles of your
home. These limitations do not apply if the retail store and the creditor
are the same, such as a department store. Nor do the limitations apply
if the creditor mailed you an advertisement for the merchandise or
Because of the number of consumer complaints about shoddy auto repair,
some consumers use their credit cards to charge repair work. If you
find that repair work has not been done or has been done poorly or
incorrectly, you can withhold payment. You must always try first to
resolve the problem before withholding payment. Keep a record detailing
who you talked to, when, what the problem was and what you asked to
have done. Notify the credit card company of the dispute, or the company
may notify the credit bureau that your account is delinquent. You
also should check your file at the credit bureau. (See Fact Sheet
9.141 for more detail about credit bureaus.) Credit bureaus and phone
numbers are Equifax: 1-800-685-1111, Experian: 1-888-397-3742, and/or
What Should You Do if You Find an Error?
- Send a letter to the creditor within 60 days of finding the error.
Give your name, account number, problem and the amount involved.
- Pay the part of the bill that is not disputed. You will not have to
pay finance charges on the amount in dispute unless it is discovered
that the bill was truly yours. If you are responsible for the amount,
you must pay the finance charges that accumulated during the time the
complaint was being resolved.
- A creditor must respond to your letter within 30 days or correct the
bill. Your bill must be corrected within two billing periods or 90 days
or you should receive a statement saying why the bill is correct.
- If the bill is still disputed after the negotiation period is over,
the creditor may report your delinquency to the credit bureau. Check
your credit file. You have the right to add your statement to your file,
which will be included in response to all future inquiries.
- Most credit card companies have toll-free numbers, others accept collect
calls. Always note the name of the person you talk to. Follow up your
call with a letter to document your case to preserve your billing rights.
You may wish to send a certified letter with a return receipt requested,
which will show you have fulfilled your side of the credit agreement.
Keep copies or records of all correspondence, documents and calls.
- If you have taken the above steps in the complaint process and the
creditor does not follow the rules, you will not be required to pay
the amount in question (up to $50 and finance charges), even if the
bill turns out to be correct. You also may sue for actual damages plus
twice the amount of finance charges, not less than $100 or more than
$1,000 and reasonable attorney fees.
Strategies for Using Plastic Credit
If you consider the use of a credit card a very short commitment that
allows you to buy something you don’t have money in savings to cover,
you will be using credit in a way that will be a benefit to you. On the
other hand, if you make purchases and then pay only the minimum payment,
you will have locked yourself into debt for a long time.
Finding a card with a lower interest rate also affects the total you
will pay for the items that you purchase. The impact of higher interest
rates can be dramatic. If you finance an $8,000 car and pay 12 percent
interest rather than 19.8 percent, you could save the difference of $30
each month. At 6 percent interest, you could have $968 in your own savings
account at the end of 2 1/2 years.
|Table 1. Making minimum monthly payments.
|Cost of Item
||2 ½ years
||2 ½ years