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Legal Guide to Shopping for Credit Cards

Consumers get bombarded by credit card offers every day. For some, it can be challenging to find the right one. This makes shopping around for the best card difficult. With the enactment of the Credit Card Accountability, Responsibility, and Disclosure (Credit CARD) Act of 2009, things should get easier for new cardholders.

Laws on Credit Card Disclosures

Two major laws largely govern credit card offers. The Truth in Lending Act (TILA) and the more recent Credit CARD Act. TILA requires credit card issuers to disclose the key terms that apply to the credit card in the application. The more recent Credit CARD Act has made many changes, including:

  • Retroactive rates. The CARD Act generally prohibits credit card companies from retroactively changing the interest rate on an existing balance.
  • Advance notice of rate increases. The Truth in Lending Act only demanded a 15-day notice for key changes on your credit card. This is now a 45-day notice.
  • Fee restrictions. Many fees, including over-limit fees (when you spend more than your credit limit), are now prohibited unless the cardholder explicitly agrees to allow over-limit transactions.
  • Payment allocation. Companies now apply card payments to your highest interest rate balances.
  • More time to pay. Credit card companies must send statements 21 days before a payment is due. Under the old law, it was 14 days.

The Annual Percentage Rate (APR)

Understanding the Annual Percentage Rate (APR) is essential when evaluating credit cards. The APR represents the annual cost of borrowing money. A lower APR means it will be less expensive to borrow. All credit card companies use the same method to calculate APR. As a result, APR is a reliable tool for comparing cards. But, there are key considerations when looking at credit card APRs:

  1. Introductory/teaser rates. Some credit cards entice with low initial rates. Look beyond this introductory APR and focus on the long-term APR. What matters is the intro APR rate and the rate once the initial period ends.
  2. Fixed and variable rates. Credit cards may have fixed or variable APR rates. Fixed-rate cards maintain a constant APR unless notified otherwise.
  3. Grace periods. Some cards offer a grace period. A grace period is an interest-free duration between making a purchase and the bill's due date.
  4. Calculating balances. Understanding how the actual balance gets calculated is crucial. This balance, to which the company applies the APR, determines your owed amount in each billing cycle.

Credit Card Fees

You should understand the fees associated with credit cards. Many credit card companies generate revenue primarily from fees. The types of fees you might encounter can significantly affect your financial decisions. Here are some key fees to consider:

  1. Annual/maintenance fees. Some cards impose an annual or yearly maintenance fee for card usage. The presence or absence of this fee often correlates with the interest rate, as lower interest rate cards may compensate with annual fees. To understand the card's cost structure, check this during account opening.
  2. Transaction fees. The company may charge different fees based on the type of transaction. Examples include cash advances, balance transfers, and foreign transaction fees. Understanding these fees is crucial, especially if you plan to use the card for specific transactions. Keep an eye on balance transfer fees, which may apply when moving debt from one card to another.
  3. Late fees. All cards come with late fees, so knowing the terms governing these penalties is vital. Understanding your time before late fees apply is crucial to avoiding unnecessary charges.
  4. Flat rate and first-year fees. Some cards may have a flat rate, a fixed fee regardless of usage, and extra fees within the first year. Carefully review these fees during account opening to assess the total cost of the card in the initial period.

Choosing a Rewards Credit Card

Credit card reward programs can be enticing. These programs offer a variety of tempting perks like travel rewards, cash back, and bonus rewards. While the allure of rewards is strong, resisting the temptation of choosing a card solely based on the best rewards is vital. For example, the Amazon Prime Rewards Visa Signature Card caters to Prime members with rewards for Amazon and Whole Foods purchases. But, the key lies in assessing the value of the rewards. Consider factors beyond the rewards rate, such as potential fees and interest rates. A cash rewards credit card or cash back card can be helpful, providing flexibility in using rewards for everyday purchases. Pay attention to bonus categories, including gas stations or online shopping, as they can enhance your cashback rewards.

Prioritizing a card that aligns with your prime membership or rewards categories ensures the most value and savings while being mindful of fees and interest charges.

Best Credit Cards for Rewards

Several credit cards stand out for their rewarding perks and diverse benefits. The Capital One Venture Rewards Mastercard offers flexible travel rewards with no blackout dates, providing excellent value for avid travelers. For those seeking luxury and exclusive experiences, the American Express Platinum Card delivers premium rewards, including airport lounge access and travel credits. The Chase Freedom Flex, a Mastercard, has rotating bonus categories that maximize cash back on everyday purchases. Discover It Cash Back, a Discover card, offers a unique cashback match, doubling the rewards earned in the first year. Also, the Citi Double Cash Card, a Mastercard, brings simplicity, offering cash back on all purchases — first when you make a purchase and again when you pay it off. These credit cards, each with its features, cater to various preferences, ensuring a rewarding option for every type of spender.

Store Credit Cards

Store credit cards can offer advantages and drawbacks, making it essential to weigh the pros and cons before committing. On the positive side, store credit cards often provide perks such as exclusive discounts, rewards, and special financing options. For instance, the Target RedCard offers discounts on eligible purchases at Target, in-store and online.

Store credit cards are relatively easy to get, making them accessible for people building their credit history. But, the downside includes potentially high interest rates and fees. The benefits are often limited to purchases from a specific drugstore, grocery store or retail chain, restricting their utility. Types of store credit cards vary widely, ranging from department stores to supermarkets. Carefully assess the terms, considering where you primarily shop, whether in-store or online shopping, to determine if a specific store credit card aligns with your spending habits and personal finance goals.

Other Resources

Navigating credit cards requires a careful understanding of the associated fees and rates and the pros and cons of the rewards offered with the card. It's also important to understand what credit card companies are legally required to disclose and not allowed to do. FindLaw's article, Federal Consumer Credit Laws Checklist, is a great resource. If you recently signed up for a credit card and feel like your credit card company violated the TILA or the CARD Act, contact a consumer attorney today.

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