Anyone who has taken shop classes knows that tools can be exceptionally useful things. In skilled hands, they can transform the most unpromising wooden plank into a functional household item or an object of art. In the wrong hands, though, even the simplest hand tool has the potential to cause destruction and injury.
Hometown: North Bellmore, N.Y.
Education: Temple University (bachelor of arts in journalism)
- Worked at WABC-TV in New York in the investigative, consumer and general news departments
- Investigative consumer reporter for WGGB-TV, the ABC affiliate in Springfield, Mass.
- Former executive director of the national nonprofit consumer group Bankcard Holders of America
- Research associate at the National Bureau of Economic Research.
- Joined Consumer Action in October 2006 as deputy director of national priorities
The same thing can be said for credit cards. Used wisely, plastic can be a convenient tool through which you can establish and build up a sound credit history. But when misused, a credit card can ruin your credit record, hobble your personal finances and even sever potential employment opportunities.
To gain some insights about the ins and outs of credit cards and how to use them to their best advantage, Bankrate spoke with Ruth Susswein, deputy director of national priorities at Consumer Action, a national nonprofit advocacy and education organization.
What advantages does a credit card offer to users?
A credit card, of course, gives you the opportunity to take out an immediate loan whenever you want to make a big purchase — without first having to go to a bank and request that loan. A credit card also affords you some “float” with your money, meaning that you don’t have to commit all of your money at one time to making a major purchase. And if you’re new to the world of credit, using a credit card wisely is a terrific way through which you can establish a credit history.
What do “newbies” need to be aware of when they apply for their first major credit card?
It’s most important to look at the card’s APR (annual percentage rate), because so many of us underestimate the way that we’ll pay off our bills. We never expect to get a late fee; we never expect to go over our limit. Yet, sometimes, through no fault of our own, we do, and then we deal with all of these punitive fees. So realize that even though you may not intend to carry a balance, in the event that you do — and the majority of us do — make sure that the card that you get has either a low rate or a reasonable rate, and then look at the other fees.
|What other things should newcomers bear in mind before opening an account?|
For someone who is just starting out, if they see an offer or they get an offer for a credit card in the mail pitching credit lines of “up to $10,000,” let’s say, they should be keenly aware of the keywords in that offer. Just because it says you might be able to get a credit line of “up to $10,000” doesn’t automatically mean that you’ll get that amount. As a matter of fact, if you’re new to the world of credit, you’re likely to get nowhere near that amount. They will look at your credit history when they decide how much credit you actually will receive.
|Does it matter where you open up the credit card account?|
There are times when a credit union may offer better rates and better fees, but in the end, your decision regarding your choice of credit card should be based on what it’s going to cost you. A credit card, basically, is a commodity, and you have to look at what it’s going to cost you should you carry a balance. You need to know what interest rate they’re going to charge you and what the fees are. And then you need to look at what additional benefits the credit card issuer is going to offer you.
|Who should consider applying for a secured credit card?|
Secured credit cards are there specifically for people who cannot get an unsecured card for one reason or another. Such people, in most cases, have had credit card problems in the past and so they are just not eligible for an unsecured credit card. And a secured credit card is a terrific, legitimate way for certain people to establish or re-establish a good credit history.
|When should a responsible son or daughter get a credit card?|
This is not something we at Consumer Action take a hard and fast line on. This is a personal decision for parents to make, because they best know how their child is going to behave or what sort of decisions they will make.
Having some prior experience with a credit card before they’re out on their own — as, perhaps, an authorized user on their parents’ credit cards, for example — could be helpful, because eventually your children will need some understanding of how credit cards work. It’s crucial that children understand the importance of paying bills on time from early on, and they need to fully understand the impact using or abusing a credit card will have on their credit score and how that score will affect their lives. That history is now, basically, your lifetime “credit report card,” and everyone is going to want to take a closer look at it to better determine how financially responsible you have been and what degree of risk you pose.
How often should you check your credit report? Should you check with just one credit reporting bureau or all three?
You can, today, either order one free annual credit report from all three credit-reporting bureaus by taking advantage of annualcreditreport.com, or you can order one free one, every few months, separately from each of the three major credit bureaus. Either way, it’s worth doing, and that activity will serve you well. Just remember that the credit report you get from Experian is going to be a little different than the one you get from Equifax or TransUnion.
It’s important to check your credit report, but it’s especially important to have that information on hand before you make a major purchase — before you go about planning on buying a new car or a new house, for example. It’s a good idea to have that paperwork so that you can make sure there’s nothing in there that could adversely affect you. You want to make sure that there are no mistakes in your file — there often are errors in there — and you want to have the time to dispute and resolve them before you head out and shop for that new car and a loan.
What is the time limit with respect to contesting inaccurate information on a credit report? Where must you report such corrections?
There is no time limit with respect to correcting mistakes. In fact, the credit bureaus have a time limit within which they must respond to you, but you don’t have a time limit.
With respect to errors, generally you report the error to the credit reporting bureau that has the erroneous information on file. If the same error appears on all three credit reports, then it’s best to contact all three bureaus.
How do you effectively contest a credit card purchase or transaction to ensure that nonpayment for any “bogus transaction” does not somehow wind up on your credit record?
You dispute it as soon as you are aware of it, because in this case there is a time limit of 60 days. And you must make sure that you do this in writing, because you want to have some proof that you actually did dispute this within the time frame. Ideally, disputes should be done using certified mail with a return-receipt and you should keep a copy of the letter you send the lender or credit card issuer for your own records. Make sure, too, that you send your letter to the “billing dispute” address, not the address where you normally send your payments.
|What is the optimum number of credit cards for an individual or a couple?|
I usually recommend two. That’s really because, when you think about it, you have one card that you use exclusively for your purchases, and you have the second card just for emergencies. It’s always good to have a backup, particularly these days, given that you don’t know when and by how much your credit card issuer is going to slash your credit line.
Many think that some practices in the credit card industry, specifically “universal default,” are unfair to consumers. Are we going to see any pro-consumer legislation come into effect that will address such onerous practices?
I’m realistic enough to concede that all of the limitations we need and all of the prohibitions we need are not going to happen. But I am more hopeful that we are going to see some needed changes, some needed limitations, on credit card issuers and some of their worst practices.
For starters, the Federal Reserve has just finalized a rule that will ban card issuers from raising interest rates on your existing credit card balance, unless you pay 30 days late. This one change will have a tremendous affect on consumers. Unfortunately, we’ll have to wait till 2010 for it to take effect. We also hope that the “Credit Card Bill of Rights,” sponsored by Congresswoman Carolyn Maloney of New York, will become law. Consumers spoke out, and it passed the House this autumn. Now a new Congress must revisit it. It would improve upon and codify the steps that the Fed has just taken. Issuers would still be able to price for risk, but they could not apply new punitive rates on an old balance.
Think about it: A credit card contract is the only contract that you will ever enter into that is so one-sided that only one party in that contract can change the deal whenever they feel like it. You don’t have to do anything wrong to have things happen. You could be paying on time, you could never go over your limit, you could always pay more than your minimums. It’s the only arrangement where what would’ve been considered an ideal customer just a few short months ago, well, that person can suddenly be deemed a risky customer. And to be deemed a risk, all you have to do is something different than you did last year.
And if one lender deems you a risk, that change in status could affect your standing with all of your other lenders. It’s unfair and maddening, but that’s how things are. And, for now, it’s perfectly legal.
|What else about credit cards is important for Bankrate’s readers to know?|
I think it’s really important for people to know that we all have to keep an eye on our credit card bills and statements every month — as unexciting as it is, as tedious as it is.
There are just so many changes going on with credit these days. While you might think that you have this great credit line, the reality could be that you really don’t, because creditors are not required to let you know in advance that your credit limit has been changed. Consequently, it could be very easy to go over your credit limit today and then find yourself on the receiving end of a $39 over-the-limit fee. And once you get hit with that fee, your interest rate can be doubled and that bad news quickly could end up reaching your other lenders, who will then also deem you as “risky.” So be aware of your purchase rates, your credit limit and any changes in fees.