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.
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 (see 10 Ways to Protect Your
Personal Information and Your Money).
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.
"Your credit reports play a large role in what credit you will qualify for, so it's
important that they be accurate," said Jonathan Miller, Deputy Director for
Policy and Research in the FDIC's Division of Depositor and Consumer Protection
(DCP). "If you find any mistakes on a report, you have both a need and a right
to have them corrected. And, be wary of companies that promise to 'fix' your
credit report. If there is negative information that is legitimate, there is no
way to remove it, although it will expire from your report after a period of
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. "With any
deferred interest offer, it's important to pay the balance in full before the
promotional period ends," said Matt Homer, a Policy Analyst at the FDIC. "If
you can't do that, a better fit might be a credit card with a low APR that
doesn't expire after the promotional period."
Additionally, credit card companies might offer other credit-related products, such as credit
protection (to pay, suspend or cancel part or all of your outstanding balance
in the event of a specific hardship) and identity theft protection (to monitor
your credit reports for signs that a crook attempted to use your name to commit
fraud). "Make sure you fully understand how these products work and how much
they cost by reading the fine print and asking questions before you sign up,"
advised Homer. "Also evaluate whether the price you will pay justifies the
value you will get from the product."
For example, he said, as an alternative to paying for identity theft protection,
you can look for warning signs of fraud by monitoring your free annual credit
reports, especially if you space out the requests for a different company's
report approximately every four months.
Carefully review your card statements for billing errors and other problems, and report
them quickly. The FDIC's Consumer Response Center reports that billing
disputes and error resolution problems and processes are the most common types
of complaints it received in 2012 and 2013 related to credit cards. And,
according to the Consumer Financial Protection Bureau, many consumers are
confused and frustrated by the process of challenging inaccuracies on their
Checking your account periodically also can help you monitor your spending. "You may
want to sign up for alerts on your mobile phone or through e-mail that inform
you when your credit card has hit a specific balance amount or you are close to
your credit limit. Other alerts can remind you about an upcoming bill," Homer
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.
For example, a credit card issuer must typically provide customers a 45-day
advance notice of an interest rate increase.
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, which can sometimes be
up to $35 or more. 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 (for your convenience) or to help someone else (such as a relative
under 21 years old) 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. Write down the contact number printed
on the back of your card and keep it somewhere else that you can quickly
Recent security breaches at a few major retailers have some consumers concerned about
using their credit cards. Federal law protects consumers from unauthorized
activity, and card issuers often will waive any liability for fraudulent
purchases that are reported promptly. For more tips on avoiding fraud and reporting
identity theft or unauthorized charges, see 10 Ways to Protect Your
Personal Information and Your Money.
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.
"If you're having trouble resolving a complaint with the credit card issuer you can
consider taking your concerns to the institution's federal regulator," pointed
out DCP Director Mark Pearce. "Doing so not only can assist a consumer with a
legitimate complaint, but it also provides the regulator with important
information on consumer concerns and trends in general."
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, and/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