using credit

GUIDE TO
USING C R E D I T
wisely
At Discover®, we believe that consumers should be armed with the information
they need to help them make wise credit decisions. We understand our role in
the education process, and are committed to providing information that’s simple
and easy to understand. So let’s start at the beginning.
©2012 Discover Bank, Member FDIC
USECREDITWISELY
2
Page 3
Understanding Credit
Page 6
What Is My Credit Score?
(And How Can I Raise It?)
Table of
Contents
Page 8
How to Establish and
Maintain Good Credit
Page 11
Understanding Your Credit Card’s
Terms and Conditions
Page 15
Tips on How to Avoid
Identity Theft and Credit Card Fraud
Page 19
Common Identity Theft Scams
Page 22
Take Control
What to Do if You Are a Victim of
Identity Theft and Credit Card Fraud
Page 25
Frequently Asked Questions:
Online Tools for Managing Your Credit
Page 27
Credit Glossary
3
credit
U N D E RS TA N D I N G
4
A CREDIT HISTORY IS A COLLECTION OF
all of the pieces of financial information that relate to your
life. It contains information on how long you’ve had your
individual credit accounts, the account limits, balances and
your payment history.
Current and future creditors only want to know one thing: If
they loan you money, what are the odds that you’ll repay it?
The reason creditors are so concerned about how risky you
are as a borrower is because when you buy something on
your credit card, you’re essentially taking out an unsecured
loan. The loan is unsecured because you haven’t put up any
collateral in case you don’t make payments, which means
increased liability for credit card issuers.
Contrast that with a mortgage, where you’ve pledged your
house as collateral to the lender in case you default on
the loan.
Because how you’ve handled bills in the past has been
proven to be a good indication of how you’ll handle credit
in the future, lenders obtain a copy of your credit history to
take a look at this snapshot of your financial life. This gives
them the information they need to decide whether to lend
you money or extend credit to you.
Information in Your Credit History
But not everything goes into a credit report. Some creditors,
like landlords, many apartment complexes, some utilities
and even certain lenders, don’t report your payment history
to the major credit bureaus (Equifax, ExperianSM and
TransUnion®). So even if you have a good record of on-time
payments, it won’t necessarily show up on your report.
If you want to build a solid credit history, you’ll want to
make sure your on-time payments are reported. If the
company only reports late payments and other negative
information, but doesn’t report on-time payments, that
account may not help improve your credit history or
credit score.
Negative information, including any late payments,
judgments, foreclosures and bankruptcies, is also typically
reported to the credit bureaus. Information that seems
neutral, such as what percentage of your maximum credit
limit you’re using, is also reported.
Your Credit Score
Each of the major credit bureaus has developed its own
credit scoring system, and the three together have created
VantageScore— a score which runs from 501 to 990,
with 990 being the top score. However, the FICO score,
developed by Fair Isaac, is used by almost 90 percent of
all lenders.
In addition to listing each of your credit and loan accounts,
your credit history also includes information that will identify
you personally including your name, address, birth date
and Social Security number.
Inquiries and How They Affect Your Credit History
Each time you apply for a credit card or a loan, the creditor may obtain a copy of your
history. This action is called an inquiry and it will be recorded on your credit history.
Too many inquiries within a short period of time may have a negative affect on your
credit history and score. Lenders will assume you’re trying to get as much credit as
possible because your spending is out of control. (Even if it isn’t.) Rest assured, when you
request a copy of your credit report (which you should do periodically), it will not negatively
affect your score. You are entitled to at least one free copy from each of the three bureaus every year.
Your credit history and score determine how much it costs for you to borrow money. If your credit history
shows that you pay on time and have a high credit score, you should be able to borrow at low rates.
If your record is not as good and you have a lower score, you may not be able to borrow at all or you
may have to pay higher rates.
5
The FICO score runs from 300 (poor) to 850 (perfect)
and the higher the score, the better your credit. According
to Fair Isaac, the median FICO score is 723, meaning half
of consumers fall above that and half below.
Having any negative information on your credit history
will lower your credit score, but there is a statute of
limitations on how long credit bureaus may keep negative
0
t
Perfec
850
50
75
0
Poor
450
650 70
0
80
0
0
55
600
information on your credit history. After either seven or
ten years (the rule varies depending on the item), negative
information like late payments, charged-off accounts or a
bankruptcy is supposed to “fall off” your credit report. If
that doesn’t happen automatically, you have the right to
make the bureaus remove it.
Even so, as information ages on your credit history, newer
information is weighed more heavily in your credit score.
That’s why you can raise your credit score over time if you
begin to practice good credit habits.
While the report is free, there is a charge to see your
credit score. If you’ve applied for credit and were turned
down, federal law says you’re entitled to see that score for
free. Or you can buy it at any time from any of the three
national credit bureaus—Equifax (equifax.com), Experian
(experian.com) and TransUnion (transunion.com).
When you receive your credit report, go through each
line to make sure the information is right. Are these your
accounts? Are the balances the same as those you’re
seeing on your monthly bills? Does the report reflect your
account history accurately (paying off balances, paying
on time)? Check the personal information, too. Is that your
current address? Do they have your name and Social
Security number exactly right?
If you find an item that isn’t yours or isn’t being reported
correctly, contact the bureau by phone and in writing, or
go online and dispute it. The Fair Credit Reporting Act
gives you the right to have incorrect information removed
from your report. Be prepared to follow up until you see
that the information has been removed. Credit bureaus
have 30 days in which to confirm disputed information, or
it must be removed from your credit history. You also may
notify the creditor of any information you believe may be
inaccurate or incomplete by writing to them at the address
As information ages on your credit history,
newer information is weighed more heavily
in your credit score. That’s why you can
Check Your Credit History and Credit Score Often
raise your credit score over time if you begin
Along with paying off balances and making payments
on time, one of the best things you can do to protect your
credit is to read your report. You’re entitled to at least
one free copy from each of the three bureaus every year
(available at annualcreditreport.com.) Some states allow
additional free reports. Obtain one copy of your credit
history every four months and you should be able to keep
up with your history for free.
to practice good credit habits.
provided by the creditor. This address may be found on
the back of your statement or in other documents.
Be sure to follow up and check your credit history again
to ensure the fix is permanent. Credit bureaus will often
remove disputed information temporarily while they
investigate your complaint. By checking back, you’ll
ensure that the negative information or errors on your
report are permanently removed.
6
What Is My
Credit Score?
(And How Can I Raise It?)
What is a
credit score?
Who invented credit scoring?
designed to predict how risky
Fair Isaac was the first company to start
using credit scoring on a national scale
and its model, the FICO score, is the
most widely used version. The scale
runs from 300 (poor) to 850 (perfect),
and the median score is about 723,
meaning that half of consumers fall
above and half fall below that mark.
you will be as a borrower and
How is a credit score calculated?
what your chances are of making
Different companies use different
formulas to come up with a credit
score. While all the formulas look at
roughly the same information (things
like your outstanding debts, whether
you pay on time, whether you carry a
balance), one formula may give more
weight to certain factors than others, so
different companies could assign you
different credit scores.
A credit score is a three-digit
number that represents your entire
credit history. Credit scores are
good on loans and other financial
obligations. The scoring system
analyzes how you manage each
piece of credit (such as credit card
accounts, mortgages or home equity
loans, car loans, school loans and
other debt), and then calculates your
credit score based on how you’ve
handled your debts over time.
With a FICO score, the most widely
used model, these are the components
that go into the calculation of your
credit score:
Payment history: 35%
Amounts owed: 30%
Length of credit history: 15%
New credit: 10%
Types of credit used: 10%
Source: MyFICO.com
Federal law requires that these
scoring models be “empirically
derived and statistically sound.” So,
when calculating your credit score,
companies are not permitted to use
certain factors, such as your marital
status, religion, sex, address, health
information or race to compute your
credit score.
7
How high does my credit score need to be for me
to buy a house or get a loan?
Generally speaking, the lower your credit score, the higher
the interest rate you’ll have to pay to borrow money. The
point at which a lender simply won’t make a home loan
varies from lender to lender.
To get a loan at going market rates (dubbed a “prime
rate” loan), you want to have a score in the high 600s or
above. The higher your score, the more lenders you’ll have
competing for your business—and the more likely it is that
you’ll be offered better rates and terms.
If your score falls below the high 600s, you end up in what
lenders call the “sub-prime” category. You can still get a
loan, but as a sub-prime borrower, you will be offered
higher interest rates and will probably see less favorable
terms on your loan. In addition, not every lender will make
sub-prime loans, so you may have a smaller pool of choices.
How can I raise my score (and keep it high)?
When it comes to raising or maintaining your credit score,
the most important thing you can do is pay all your bills on
time. If you can pay your bills in full and avoid carrying
balances on your credit cards, your credit score is likely
to increase.
But there are a couple of little-known “secrets” that can trip
people up:
Inquiries: When you apply for credit, the lender pulls your
file. That’s called an inquiry and it will be recorded on your
credit history. Too many inquiries within a short period of
time may have a negative affect on your credit history and
score. The reason: If you’re applying for credit, it means
you could be accumulating more debt. And from a payback
standpoint, taking on more debt could mean that you’ll be
less able to make your other payments on time.
So if you’re planning for a big purchase (like a home or
a car), keep excess inquiries off your credit history by not
applying for other loans or opening up credit accounts
while you’re in the process of shopping for the loan for that
purchase. And when you’re shopping for that home or car
loan, make all your applications within a two-week period.
Then all the inquiries will count as one (as opposed to
multiple inquiries), with only a five-point hit to your
credit score.
“
When it comes to raising or maintaining
your credit score, the most important thing you
can do is pay all your bills on time.
”
Due dates: The “pay by” date is the date by which your
payment must be received. When you’re paying your bills,
be sure to allow sufficient time for mailing to avoid a late
fee. You may want to consider other payment options, such
as online payments or pre-authorized debit, which are fast
and free. Plus, you save money on postage.
Credit balances: High balances are bad for your credit
score. If you’re carrying debt, creditors reason that you can’t
pay it (otherwise, you would have). And the closer you come
to that credit limit, the more it appears that you’re struggling
financially. So if you’re looking to raise your credit score,
keep your balances to just a small amount of your available
credit.
8
YOUR CREDIT HISTORY IS A
list of all the pieces of your
financial life. It includes every
credit card account you’ve opened
and any other loans you’ve taken
out. It also includes your debt
repayment history.
Many factors can affect your
credit score, including whether
you’ve paid on time or late,
been foreclosed upon or filed for
bankruptcy. If a court has ordered
you to repay a loan or your debt
has been deemed uncollectible—
these, too, affect your score. All
of this information stays on your
credit history.
How to Establish and Maintain
Lenders look at your credit history
to assess your ability to pay back
their money. If you are having
money problems, you represent
greater risk to a lender.
The basic principle with credit is
this: use credit wisely and spend
within your means.
Good Credit
9
Establishing Credit
If you don’t have credit (or much credit), the key is to
start small. One credit card or small loan can get the ball
rolling. But make sure your lender reports your on-time
payments to one of the three credit bureaus— ExperianSM
(experian.com), Equifax (equifax.com) or TransUnion®
(transunion.com)—and preferably to all three.
• Pay on time. One of the most important steps in
building and maintaining a solid credit history is to
pay all of your bills on time each month. By paying on
time, you’re showing the lender or creditor that you’ve
got enough cash flow to cover your expenses. If you
pay late and the creditor reports your late payment to
the credit bureaus, it may damage your credit history,
and lower your credit score.
• Keep your total charges well within your credit limit.
If you want to boost your credit history and credit
score, you’ll want to keep your total monthly charges
well within your credit limit. Why? In calculating your
credit score, you’ll take a hit if your balance is above
that limit because it signals to creditors that you may
be having financial difficulties and thus are a riskier
borrower.
• Regularly read your credit report. One way to
building a positive credit history is to make sure you
know what information is being reported. Errors and
negative information can damage your credit history
and your credit score, so you’ll want to regularly check
your credit report to see what’s there.
• Understand what debit cards can do for you. While
they look like credit cards, debit cards actually function
more like a checkbook. They provide direct access to
the cash in your bank account. So you can pay for
items and services with a debit card instead of writing
If your on-time payments don’t get reported, you’re
accumulating debt but not building credit. Only credit
accounts that report your borrowing and repayment
activity will count toward your credit history. Here are
some tips to help you establish a good credit history:
• When establishing credit, pay off your charges in
full at the end of the month. When you get a card,
always pay off the balance in full when the statement
arrives. Paying off your balance in full shows the card
company that you’re fiscally responsible. You’re using
credit as it was intended: as a short-term loan.
a check. What debit cards don’t do is help you build
your credit history. That’s because you’re not using
credit to buy these items—you’re using something
that’s treated like cash. Because you’re using a cash
substitute instead of credit, your debit card activity
isn’t reported to the credit bureaus and won’t help you
establish good credit.
10
UÊ ÃŽÊvœÀÊ>ÊVÀi`ˆÌʏˆ˜iʈ˜VÀi>Ãi°ÊAfter you’ve had your
first credit card for a while (six months to a year),
call the issuer and ask to increase your credit limit.
The idea is to raise the credit limit on the card, not
your debt load. If you’re carrying a balance, raising
your limit will help keep your debt-to-credit-limit ratio
low. That’s an important factor when calculating a
credit score.
UÊ œVÕÃʜ˜Ê܅>ÌÊޜÕÊÜ>˜Ì°ÊYour credit history becomes
critical when it’s time to make those big purchases,
like a home or a car. At that point, a one percent
difference in the interest on a loan will either cost
you or save you thousands of dollars over the life of
the loan.
By keeping your eye on the goal—establishing and
maintaining a good credit history—you’ll be able
UÊ œ˜Ãˆ`iÀÊ}iÌ̈˜}Ê>ÊÃiVÕÀi`ÊVÀi`ˆÌÊV>À`° A secured
credit card is tied to an account. You deposit a certain
to borrow that money when you want it, at the most
favorable terms and conditions being offered.
amount of money into the account and then you can
charge up to that amount. If you default on your
payment, the bank can tap into the account to get
repaid. After six to 12 months of on-time payments,
you may feel you’re ready to graduate to a regular
credit card or a store card. However, resist the urge to
open too many store card accounts to take advantage
of discounts. Every time you open one, it results in a
credit report inquiry, which may affect your score.
[ ]
One of the most
important steps
in building and
maintaining a solid
credit history is to
pay all of your
bills on time
each month.
11
Understanding Your Credit Card’s
Terms and Conditions
WHEN YOU SIGN YOUR APPLICATION FOR
Here are some of the most common terms and
a credit card, you’re agreeing to the terms and
conditions you’ll find in most credit card contracts.
conditions of the contract, which is often referred
to as the cardholder agreement. This generally
˜˜Õ>Ê*iÀVi˜Ì>}iÊ,>ÌiÊ­*,®ÊvœÀÊ*ÕÀV…>ÃiÃ
includes important information about your card,
The annual percentage rate (APR) is the yearly
such as the interest rate you’ll be charged on a
interest rate charged for purchases that are not
balance and how that balance is calculated, which
paid off by the due date. The APR may be fixed or
fees you may be charged and the cost of a balance
variable, and will vary by credit card.
transfer, as well as products or other perks you’ll
be offered.
A fixed rate will remain the same and does not
fluctuate with market conditions. On the other hand,
You will receive the full terms and conditions when
if the APR is variable, it will change depending
you get a new card. Be sure to keep this document
on the interest rate index to which it’s linked. For
in a safe place, as it contains everything you need
example, if the APR is tied to the U.S. prime rate,
to know about your credit card account. If you can’t
the APR will change when the prime rate changes.
find your agreement or want another one, call your
card’s toll-free number and ask to have it sent.
12
"̅iÀÊ*,Ã
Some credit cards charge different annual percentage
rates depending on the type of transaction. APRs may
The terms and conditions generally
be higher for cash advances and convenience checks
include important information
than for purchases. APRs may be different for balance
about your card, including the
transfers. A low balance transfer rate may last until you
pay off the transferred balance or it may apply to the
transferred balance for a specific period of time.
You may find a higher APR applied to your account
interest rate you’ll be charged on
a balance and how that balance
if you make late payments or miss payments on your
is calculated, which fees you may
credit card. You may even have your APR increased if
be charged and the cost of a
you are late paying on a different account—one that
has no relationship to this account—because the lender
balance transfer, as well as any
deems you to be a greater risk. This practice is referred
types of insurance or other perks
to as universal default, but it’s rarely used today.
Finally, some cards offer low introductory APRs that
you’ll be offered.
expire after a certain amount of time, such as six
months or a year.
Balance Transfer
A balance transfer is when you pay off the balance on
one credit card by using the credit you have on another
account. In some cases, you may be charged a fee to
complete the balance transfer. The fee is typically a
percentage of the balance you are transferring.
You can only transfer an amount up to your credit
limit on the new card. So if your credit limit is $5,000
on the new card and you try to transfer a balance of
$6,000, you will only be able to transfer $5,000 of
that old balance. Balance transfers by themselves do
not automatically close an account. You can continue to
use the card or you can close the account.
Claims and Disputes
If you find a discrepancy on your statement, contact
the merchant first to discuss the charge. If the merchant
is not responsive to your claim, contact your credit
card company. Credit card companies provide an
address for billing error disputes, or you may call their
dispute department. Claims and disputes might include
incorrect charges, unauthorized charges and charges
made to your card by an unauthorized person, as in
the case of identity theft or fraud.
13
Fees
Most credit cards do not provide a grace period on
You may encounter several different types of fees with
cash advances or balance transfers, so interest is
your credit card account:
assessed from the date of each of these transactions.
Uʘ˜Õ>ÊiiÊ Some credit card companies charge an
Method of Computing the Balance for Purchases
annual fee to use their credit card. The cards that
usually charge an annual fee offer benefits such as cash
rewards, airline miles or points toward merchandise.
The terms and conditions brochure or invitation letter
will tell you whether there’s an annual fee and how
much it is.
UÊ>ÌiÊiiÊ This is the fee charged by a credit card
company if a cardholder with a balance does not make
at least the minimum payment by the due date. Some
cards also increase interest rates if cardholders miss
payment deadlines.
UÊ"ÛiÀ‡Ì…i‡ˆ“ˆÌÊiiÊ This is the fee charged by credit card
companies when cardholders exceed their credit limit.
For example, if your credit limit is $10,000 and you
charge $11,000, you will be charged a fee.
UÊ*>އLއ*…œ˜iÊiiÊ This fee may be charged by a credit
This is how transactions are added to calculate a
cardholder’s monthly balance. If the method is “average
daily balance,” that means that each day’s transactions
are added to a running total, which is then divided by
the total number of days in the billing cycle.
Monthly Minimum Payment
The monthly minimum payment is the minimum amount
that a cardholder with a balance has to pay each month
to avoid default. Many cards charge two percent of the
outstanding balance, although some charge as much
as five percent. If possible, you should try to pay more
than the minimum amount in order to pay down your
debt faster.
Transaction Fee
This term is used to describe the fee charged for certain
card company if a cardholder chooses to pay his or her
types of transactions, such as a balance transfer, cash
balance over the phone as opposed to online or through
advance and purchase made in a foreign country. This
the mail. The fee covers customer service costs.
is usually a fixed percentage of the total amount of
Finance Charge
the transaction.
A finance charge is the amount of interest charged on
Universal Default
a credit card balance based on the annual percentage
Some financial institutions reserve the right to change your
rate for that type of transaction (purchase, balance
rates if you have defaulted on an account or loan with
transfer, convenience check, cash advance). In short,
another lender. For example, a cardholder who carries a
it’s a charge for the loan you’ve taken out on the card.
balance on one card may have his rates increased on that
Grace Period
A grace period is the amount of time from the date of
card if he has missed a payment on one of his credit cards
issued by another bank. This practice is rarely used today.
the purchase to the date payment in full is due, during
6>Àˆ>LiÊ,>ÌiÃ
which you will not incur finance charges on your
Variable rates are tied to an index, such as LIBOR (the
purchases. The length of a grace period varies from
London Interbank Offered Rate) or an interest rate, such as
card to card, but it is commonly about 20 days. If you
the U.S. prime rate. When the index changes, the rate on
do not pay your bill in full, then you will not receive an
the credit card changes.
interest-free grace period on future purchases.
14
Don’t throw away that agreement! Some credit card companies
offer extra features such as travel benefits, which are detailed
after the cardholder agreement.
In addition to the fees and charges listed in the cardholder agreement, you also may find
extra benefits. In many cases, these include free benefits for those who are traveling within
the U.S. or abroad.
UÊ/À>ÛiÊÃÈÃÌ>˜Vi°ÊThis is an emergency
number available to cardholders when
they travel within the U.S. or abroad.
Depending on the card, hotline staff can
arrange for a replacement passport,
emergency cash, medical care and
assistance with lost luggage.
UÊ
>ÀÊÀi˜Ì>Ê˜ÃÕÀ>˜Vi°ÊIf you rent a car
using a credit card and decline insurance
coverage offered by the rental agency, you
may be covered for collision damage at no
additional cost.
Uʏˆ}…ÌÊVVˆ`i˜ÌʘÃÕÀ>˜Vi° If you purchase
your plane ticket with your credit card, you
may receive flight accident insurance at no
additional cost.
UʓiÀ}i˜VÞÊ/À>ÛiÊ>˜`ʓiÀ}i˜VÞÊi`ˆV>Ê
Insurance. Your credit card may provide
you with a free travel insurance policy
that covers emergency travel and any
emergency medical care you need
while traveling.
15
TIPS ON HOW TO AVOID
IDENTITY THEFT AND
,/Ê
,Ê,1
Identity theft happens when someone
steals your personal information, such as
your Social Security number, address,
phone number or financial account
information, and uses it to open up lines
of credit in your name. Then the thief can
take out a mortgage, buy a car or obtain
credit cards to use on a shopping spree.
Credit card fraud happens when
someone gains access to an individual’s
legitimately opened credit card
account and uses it to buy items, take
out cash advances and create other
illegal schemes.
Credit card fraud costs credit card companies
millions of dollars per year. But the consumer
isn’t generally responsible for any of it, as many
companies have zero dollar fraud liability
guarantees. Identity theft poses a longer-term risk,
since basic personal information rarely changes.
Once personal information is stolen, it can be
used to open up new lines of credit for months
and years to come.
Unwinding Identity Theft and Credit Card Fraud
Approximately a quarter of a million Americans
file a complaint of identity theft with the Federal
Trade Commission every year. Since not everyone
who is a victim files a report, experts believe the
actual number is higher.
You can unwind the fraudulent activity that led
to identity theft, but it may take a tremendous
amount of time to clean up your credit history
and restore your credit score. Once you’ve gone
through the paperwork, you will need to check
back to make sure that nothing new turns up on
your credit history.
16
When it comes to credit card fraud,
your involvement will generally end
once you report the fraud to your credit
card company. You should do that as
soon as you discover your credit card
number or information has been stolen
or that there are charges on a bill that
you didn’t make.
fraud and verify that the order is
being placed by the real cardholder,
especially when the actual card is not
present. If you know you are dealing
with a trusted merchant, you should feel
comfortable providing this code.
Your best bet is a cross-cut shredder,
which turns paper into confetti. Clever
con artists can take strips from a stripcut shredder (shredders that slice paper
into long, thin strips) and put them
back together. But once you’ve
While the number of identity theft cases
has grown over the past five years,
the good news is that there are ways
you can reduce the chance that your
personal information will be stolen.
Here are some tips for avoiding identity
theft and credit card fraud:
Protect Your Personal Information
Pay attention whenever you are
asked to provide your address, phone
number, date of birth, Social Security
number or account numbers. Consider
who is asking for the information and
what they are going to do with it.
SHREDDING DOCUMENTS IS ONE OF
THE BEST WAYS TO PROTECT YOURSELF
AGAINST IDENTITY THEFT AND FRAUD.
If you haven’t initiated the interaction,
be extra careful. Con artists can be
extremely persuasive and will say
almost anything to get you to divulge
your personal information.
Keep in mind if you’re placing an
Internet, phone or catalog order,
merchants may ask you to confirm the
three digit code in the signature block
on the back of your credit card. Asking
for this three-digit code, sometimes
referred to as a “CID” (cardmember
identification) code, is one in a series
of steps merchants can take to prevent
Shred Everything
If you’ve always thought about buying
a shredder but haven’t yet, you should
make that purchase today.
Shredding documents is one of the best
ways to protect yourself against identity
theft and fraud. By shredding all
documents that contain any personal
information (including your address,
telephone numbers and other, more
sensitive data), you make it a lot harder
for someone to find any sort of useful
information to use against you.
created confetti, it’s impossible to
put back together.
Use a Secured Mailbox
Thieves will go to great lengths to
steal your personal information and
may even go as far as your front
door. Letting checks or other sensitive
information sit in an unlocked mailbox
can put you at risk. When sending
or receiving information that contains
personal or financial information,
consider using a secured mailbox or
dropping it off in a locked mailbox at
the post office.
17
Have Your Bills Sent to
You Electronically
It’s easy to throw away items that
contain personal information without
even thinking about it. But someone
looking for this information would have
no qualms about digging through a
dumpster—or even the garbage can at
your home—to find an account number
on a discarded bill or correspondence.
Paper bills are a ready target for
thieves. By having more of your bills
and other sensitive information such
as account statements sent to you
electronically, you reduce the likelihood
that you’ll throw something away that
contains your personal information.
When you sign up to receive your bills
electronically, you may be able to opt
into an electronic reminder system. This
will let you know when a bill needs to
be paid (and will typically thank you
when you’ve made the payment).
Pay Your Bills Electronically
Paying bills electronically will eliminate
some of the risk. If you pay your bills
with a check through an unsecured
mailbox, your personal financial
information could be compromised or
stolen before it gets to the intended
recipient. But if you pay your bills
online, you reduce the number of
opportunities for your personal
information to disappear.
Paying your bills online also saves you
time and the cost of buying stamps.
Just make sure the Web site is a secure,
encrypted environment. To make sure
that a Web site is secure, look for a
closed lock symbol in the bottom right
of the screen, which means the site
should be encrypted. Web addresses
that begin with “https” also indicate
secure sites, and if you click on the
lock symbol, it should display the same
“https” address.
When it comes to making your credit
card payment each month, you can use
the card’s electronic payment option.
You’ll get to choose the date on which
your payment will be made and how
much will be electronically withdrawn
from your checking account.
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Them Safe
Passwords can be difficult to remember,
especially if you have different
passwords for different sites. But it is
important to create “strong” passwords
and not just use your birth date, your
address or another easy password that
a con artist can guess.
Strong passwords contain both
letters and numbers, making them
more difficult for thieves to guess.
The strongest passwords include a
combination of upper- and lowercase
letters. Some security experts suggest
putting numbers in the middle of the
password instead of at the beginning
or end.
Remember: The longer the password,
the more secure it will be. When you
create a password, make sure it is at
least eight characters long.
Finally, select passwords you can
remember, but don’t use your birthday,
your pet’s name, family names or your
Social Security number.
Protect Your PIN numbers
PINs are becoming as prevalent as
passwords and are no longer limited to
use at automatic teller machines. Many
Web sites now require entering a PIN
as an added safeguard.
Keeping your PINs a secret may
mean the difference between having
savings and having nothing. Don’t
write PINs down, carry them in your
wallet or save them on the computer.
Do not e-mail passwords or PINs, and
memorize both.
18
Check Your Credit History and
Score Regularly
It’s a good idea to check your credit
history regularly, so you know that
everything on it is accurate and
legitimate. You can order your
credit report from each of the three
credit bureaus—Equifax, ExperianSM
and TransUnion®— by visiting
annualcreditreport.com. Federal law
entitles you to one free credit report
per year from each of these bureaus.
(Some states require the credit bureaus
to give you more than one free report
per year.)
Another way to protect yourself is to
purchase a credit-monitoring service
from one of the credit bureaus or credit
card issuers, which provides you with
access to your credit report and credit
score. These services will alert you by
phone, text or e-mail when there is a
change to your credit history.
Carry a Light Wallet
Another way to prevent identity theft
and credit card fraud is to minimize
what you carry in your wallet. Only
carry the credit cards you need and
don’t keep your Social Security card in
your wallet.
If you have multiple forms of
identification, such as a driver’s license,
a student ID, a work ID and a passport,
do not carry all of them with you all the
time. Carry only what you need. Also,
it’s a good idea to photocopy the entire
contents of your wallet (the back and
front of each card) so you’ll have it in
case of theft.
Watch What You Say on Your
Cell Phone
Be careful about what you talk about
on your cell phone in public. You may
think it’s no big deal to order a pizza
and put it on your credit card over the
phone, but an identity thief could be
lurking nearby. He or she could take
your number and start making online
purchases.
The same holds true for other personal
information, such as a Social
Security number.
Take Action
Remember, you can take action to
protect yourself from identity theft by
using the tips above. You may think you
have better or more important things to
do than stay on top of your personal
information, but taking the time to
protect yourself will save you time and
money in the future. And you can go to
bed at night feeling safer.
19
Common Identity
Theft Scams
These are some of the most common ways crooks and con artists will try to steal your
personal financial information:
Phishing. This occurs when online scammers send
you e-mails disguised as legitimate organizations
in hopes that you will provide your personal
information. The e-mail may warn you that access to
SeniorVicePresident@cont...
You’ve won BIG! Get your prize now!
SercurityServices@accoun...
Update your medical records
Today
Account.control@yourban...
Please confirm your account information
Today
IRS.gov.refunddepartment...
Refund expiration notice
Today
your account will be terminated if you don’t confirm
your bank account number. Other scam e-mails
offer you big riches if you provide your account
information, while others will ask you to reconfirm
your payment details for an order you may (or
may not have) placed. Be very suspicious of these
e-mails, as phishing crooks are clever and will often
use the exact logos of big-name companies with
which you may do business, such as a major retailer
or financial institution. Never click through a link on
any e-mail unless you personally know the sender.
,-ÊÀiv՘`° Another popular phishing scheme has
to do with the IRS. You receive an e-mail telling you
that the IRS has a refund for you. All you have to do
is click through the e-mail and provide your bank
account information. The IRS reminds taxpayers that
the only way it will contact you is by a letter sent to
your home address.
Foreign lottery scam. You may receive an e-mail,
letter or check telling you that you’ve won a foreign
lottery—even if you didn’t buy a ticket. All you have
to do to collect the money is to provide your bank
account number or deposit the check, so that the
Today
20
funds can be deposited. Of course, this is a
scam, and by providing information or depositing
the check, you are giving access to sensitive
financial information.
Fake caller ID. With today’s technology,
it’s easy for someone to call your house
and have a fake name or address pop up
on your caller ID. Just because it looks like
Hot tips from cold calls. While phony telemarketing
someone from your credit card company
offers have become less of a threat with the
or bank calling, it may not be.
government’s Do Not Call list, you may still get coldcalled. If someone calls you with a hot investing tip
and you don’t know who it is, it’s likely a scam.
Calls to “confirm” your personal information.
Remember, your bank will never call and ask you for
your full account numbers. And you should be wary
of anyone calling to ask you to confirm your PIN
number or the three- or four-digit security code on
the front or back of your credit card, unless you’re
sure it’s a trusted source.
Medical identity theft. Be careful about the people
with whom you share your medical history. When
you go to the doctor, keep an eye out that records
are kept in a secure area. Don’t provide your Social
Security number unless there is a good reason to
do so. Ask your insurance company to give you a
new card that doesn’t have your Social Security
number on it.
Fake jury duty. Someone calls to tell you that you
missed jury duty and he or she needs to confirm
your personal information. Because you think it is
the court calling, you may be more likely to confirm
your information and provide additional information.
Child identity theft. One of the fastest growing
segments of identity theft is the stealing of a
child’s Social Security number, name and other
“Phishing crooks are clever and will
often use the exact logos of big-name
companies with which you may do
identifying information. Often, it is a relative
or a close friend of the child’s parents who
steals the information to set up new credit
or bank accounts. You may not know there
business, such as a major retailer
is a problem until you try to get your child a
or financial institution. Never click
driver’s license, open up a checking account
through a link on any e-mail unless
you personally know the sender.”
for him or her, or apply for a student loan. You
can pull a child’s credit history once he or she
turns 13, and you should do that annually once
your kids are teenagers.
21
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The best way to avoid getting ripped off is to make sure you’re always in control of your money
and personal financial information. Here are some things you can do to protect yourself:
UÊÎÊvœÀÊ>ÊV>‡L>VŽÊ˜Õ“LiÀ° If someone calls
UÊ,i«œÀÌÊ̅iÊÃV>“Ê̜Ê̅iÊ/
°ÊWhile the
and says he or she is from your bank, credit
Federal Trade Commission (FTC) won’t
card company, doctor’s office or another
investigate individual complaints, it does
place with which you do business, tell the
catalog them and look for trends and
person you’re too busy to talk and ask for a
large-scale fraud. You can file a complaint at
phone number to call him or her back. If the
ftc.gov. If the fraud involves the IRS (such as
individual says, “I’ll call you back at a more
someone pretending to be from the IRS or if it
convenient time,” then hangs up, you can
involves children), you can call the Treasury
then call the doctor’s office, bank or credit
Department directly to file a complaint.
card company and ask if they are trying to
reach you for any reason.
sÊ,i«œÀÌÊ̅iÊÃV>“Ê̜Ê̅iÊVœ“«>˜Þʈ˜Ê
UÊ>˜}ÊÕ«°ÊIf you don’t want to get ripped off,
the easiest thing to do is to decline to give
any personal information over the telephone
question. If it turns out that no one at the
to anyone. If someone hits you up for a
bank, credit card company or doctor’s office
contribution to a charity, ask them to mail
called you, you’ll know someone tried to
you information instead.
pull a fast one. Ask for the department that
monitors fraud and tell them what happened.
22
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WHAT TO DO IF YOU ARE A VICTIM OF
IDENTITY THEFT AND CREDIT CARD FRAUD
WHAT IS IDENTITY THEFT AND
CREDIT CARD FRAUD?
WHAT SHOULD I DO IF I’M THE
VICTIM OF CREDIT CARD FRAUD?
Identity theft occurs when someone
steals your personal information to
acquire new bank or credit card
accounts, establish phone service
or even get a mortgage in the
name of the victim.
As soon as you become aware
that there are unauthorized charges
on your credit card account,
you should contact the fraud
department of the credit card
company through their toll-free
number on the back of the card.
Credit card fraud happens when
someone uses your established
credit card accounts without
authorization. Typically, someone
will use your card to make
unauthorized purchases or to take
out cash advances.
Credit card fraud disputes are
handled by the card issuer and
consumers are generally not liable
for unauthorized transactions.
WHAT DO I DO IF I SUSPECT
I’VE BEEN THE VICTIM OF
IDENTITY THEFT?
Act immediately, especially
because identity theft can occur
as soon as, or years after, your
personal information is obtained. If
you believe the theft involves your
current credit card accounts, call
each company or go online to
examine your charges one by one.
If you discover charges you didn’t
make, put them in dispute and have
the company cancel your card
and send a new one to your
current address.
23
Next, add (or change) security
passwords connected to your
accounts. And contact the issuer’s
fraud department immediately.
You may want to follow up any
phone conversations with a letter
or keep a written record of
your correspondence with
the company for your files.
Then contact the credit
bureaus and follow the
same procedures: follow
up with letters and keep
copies for your records.
Quickly get copies of all three of your credit
reports. Go through all the line items on the report,
look for accounts that are not yours and contact
the bureaus with that information by phone and
in writing.
When you write the credit bureaus,
also ask them to remove from your
record any inquiries resulting from
the fraud. (Inquiries, or checks by
creditors prior to issuing credit,
can lower your credit score,
so even if the thief hasn’t taken
a dime, he or she could still
damage your credit.)
If you suspect that
someone else has been
opening accounts in
your name, call one of
the credit bureaus and put
a “fraud alert” on your credit
report. While not foolproof,
this puts a flag on your account
and lets any potential creditor
know that there may be a
problem, while preventing further
criminal activity. If credit is sought,
the lender must take steps to verify
the applicant’s identity, often by
calling the applicant directly. The
alert will stay in place for 90 days.
If you suspect the thief has
access to your checkbook,
debit card or banking
information, contact that institution
(by phone and in writing). You may
need to change account numbers
and cancel your debit card.
You also need to contact the card
issuers and lenders for the bogus
accounts. Have them closed,
and make it clear that you never
opened them and that this is a
case of identity fraud. Follow up
in writing and include a copy
of the police report.
,Ê,Ê/Ê*" Ê 1,-Ê Ê7Ê-/-Ê"Ê/Ê/,Ê",Ê
,/Ê1,1-\
Equifax (equifax.com): (888) 766-0008
ExperianSM (experian.com): (888) 397-3742
TransUnion® (transunion.com): (800) 680-7289
24
IF YOU SUSPECT THAT SOMEONE ELSE HAS BEEN OPENING ACCOUNTS
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,/Ê1,1-Ê Ê*1/ÊÊ
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DO I REALLY NEED TO FILE A
POLICE REPORT?
ONCE I NOTIFY EVERYONE,
IS THAT IT?
Yes. Your local police department
may or may not work the case.
Local policies differ when it comes
to pursuing an identity theft case,
but filing an official complaint
with the police, which you will
typically sign “under penalty of
perjury,” gives your case additional
credence. Not only does it add
to the official record of the theft
(with a timeline and a succinct
summary of the crime), but it also
demonstrates that there was an
actual crime and that you are
taking official steps to clear up
the problem.
Unfortunately, no. Fraud alerts aren’t
foolproof. You need to regularly
monitor your bills and your credit
reports. And you may have to stay
in touch with credit bureaus and
card issuers to ensure that they
permanently remove the fraudulent
items from your accounts and
your records.
With a police report, you can also
write the credit bureaus and request
that the fraud alert be extended for
seven years.
If your local law enforcement
doesn’t take police reports on
identity theft (some don’t), you can
make an official record of your ID
theft by filing a fraud affidavit with
the Federal Trade Commission.
(Find the form at its “Tools for
Victims” site, listed at the end of
this page).
You may also want to take
additional steps, like placing a
“freeze” on your credit history.
Unlike a fraud alert, freezing your
credit means that credit bureaus
are not allowed to release your
credit report without your consent.
Only you can lift the freeze by
providing a PIN number and other
information to verify your identity.
Each of the three credit bureaus
will now allow identity theft victims
to enact a freeze on their credit
histories. Typically the cost for
this service is $10, but the fee
is waived if you are a victim of
identity theft and submit a valid
police report.
For information and updates on
credit freezes, visit the Consumers
Union’s Financial Privacy Now site
at consumersunion.org/campaigns/
learn_more/003484indiv.html.
ARE THERE ORGANIZATIONS
THAT CAN HELP ME SORT
THROUGH THIS?
Yes, there are a number of
consumer groups that are helping
people work through identity theft
issues. Here are a few that you
might find helpful:
s 4HE)DENTITY4HEFT2ESOURCE
Center (IDTheftCenter.org):
(858) 693-7935.
This nonprofit is dedicated to the
understanding and prevention of
identity theft.
s 4HE0RIVACY2IGHTS
Clearinghouse
(PrivacyRights.org):
(619) 298-3396.
This organization has some
great information on effective
steps to take.
s 4HE&EDERAL4RADE#OMMISSION
The FTC has complaint forms,
affidavits and sample letters you
can use to notify creditors and
credit bureaus. Check out
“Tools for Victims” at
ftc.gov/bcp/edu/microsites/
idtheft/tools.html.
25
What are the benefits of accessing my credit card account online?
?
FAQs
Frequently Asked Questions About
Online Tools for Managing Your Credit
There are many reasons to create an online account for your
credit card.
First, you’ll save time. You’ll receive your statements on the day
they’re issued. You can log on at any time, 24/7/365, to see your
transactions. In a couple of clicks, you can pay your bill. You may
also be able to download your transaction information directly
into money-management software such as Quicken® or Microsoft ®
Money. That will speed up your bookkeeping significantly.
If you have an online account, you’ll have an extraordinary amount
of access and control to help you stay on top of your expenses.
Not only will you be able to see your statement at any time, but
you should be able to look back at any statement over the last
12 months, which is helpful if you’re trying to track expenses or if
you’re submitting an expense report. Because you’re able to pay
closer attention to your transactions, you’ll become aware sooner if
something is amiss with your account.
If your card has a rewards program, you also can see how much
If you have an online account,
you’ll have an extraordinary
amount of access and control
to help you stay on top of
your expenses.
cash, points or miles you have accumulated. You may also be able
to more easily take advantage of any relationships the card issuer
has for leveraging or spending your cash rebate or rewards points.
You’ll also save money. You can pay your bills electronically by
having an automatic withdrawal from your checking account set up.
You’ll be able to decide exactly how much you want to pay and
when. With some credit card issuers, you can even pay your bill
up to the day it is due—without buying a stamp. Not only that, but
your payment will be posted to your account almost immediately.
Some companies offer online account preferences so that you can
set up e-mail reminders when your statements become available
and when your payment has been posted. You can change your
address or other personal information without making a phone call
or mailing it in. Some accounts provide cardholders with special
deals from merchants or personal finance resources.
How do I access my account online?
You’ll first need to set up your online account, which is secure and
can only be accessed with a unique username and password.
When you log in, you’ll be asked to select a username and
password. In some cases, you may be able to start out with your
26
account number, but once you have activated online
down or copy it into your electronic calendar in case there
access, you should change your username to something
is a problem with the payment.
less identifiable. You may also be asked to provide the
Also, paying your bill electronically means you don’t have
answers to questions that will be used to verify your
to buy stamps and you avoid any service charges for
identity. These questions may include “What is your
paying over the phone. Many consider it more secure than
mother’s maiden name” or “What was the name of your
sending a payment through the mail, which can put you at
elementary school”
risk of identity theft or finance charges if the mail is late
When creating a password for your online credit card
or lost.
account, be sure to use a strong password—one that uses
upper- and lowercase letters and numbers, and is not
something that can be easily guessed.
Once your online account is set up, all you need to do is
log in from any computer—anywhere in the world—with an
Internet connection.
How do I pay my bill electronically?
You will be asked to provide your bank account number
and routing number. You can find these numbers at the
bottom of a check from your account. The bank’s routing
number is the first number in the bottom left-hand corner of
the check. Your account number follows it in the middle of
What account information can I find online?
the check.
You can find your current account balance, current finance
Once your bank information is entered, you can click
charges, past account statements, transaction details,
through to your current statement. Click on the button that
payment due date, minimum payment due, total amount
says “Pay bill.” Most likely, you’ll be asked to enter the
due and personal information, including your billing
amount of the payment and the date you want the cash to
address. Depending on the type of card you have, you also
be withdrawn from your checking account.
may be able to see how much cash or how many rewards
Some online credit card accounts allow you to associate
points you’ve accumulated based on transactions. You can
several bank or money market accounts with your credit
sort transactions by date range or search for a transaction
card accounts. If yours does, be sure you choose the
using keywords.
correct account from which to make your payment.
What information will I find on my statement?
After you have entered in the information, you’ll click a
Your statement will show you the date of your transactions,
button that submits the payment. You’ll be asked to confirm
where you made your purchase and how much money you
your payment. Once you’ve clicked the confirmation button,
spent with that merchant. You’ll also find your balance, the
you’ll likely be issued a confirmation number, which is
total amount due, the minimum amount due and any fees
your receipt of the transaction. Be sure to write down that
or finance charges that have been assessed. The statement
number in case something goes wrong with the payment.
also will show the rewards you’ve accumulated in the
How can I be sure my online activity is secure?
past month.
Credit card companies, banks and other financial institutions
What’s the benefit of paying my bill electronically?
have spent millions of dollars to secure their Web sites and
You have much more control over your cash if you pay
keep their customers’ transaction and personal information
your bills electronically. Typically you can make a payment
safe. Typically, these companies use highly complex
the day it is due and the payment posts to your account
encryption software.
more quickly than if you mail it in. There is also less room
Web sites that are secure have URLs that begin with
for error. When you pay your bill, you’ll be given a
“https.” The “s” at the end of the word signifies that the site
confirmation number for the transaction. Write that number
is secure. Secure Web sites will also often show a closed
padlock icon at the bottom right-hand corner of the screen.
27
Annual Fee A yearly fee charged by
some credit cards for use of the card.
CREDIT
GLOSSARY
˜˜Õ>Ê*iÀVi˜Ì>}iÊ,>ÌiÊ­*,®Ê A
periodic percentage rate that determines
the finance charges you pay on your
account. The term is also used in the
purchase of a home and represents
the total cost of your loan, shown as a
percentage rate of interest. This rate not
only includes the loan’s interest rate, but
also factors in all the costs associated
with making that loan, including closing
costs and fees. The costs are then
amortized over the life of the loan.
Banks are required by the federal
Truth-in-Lending statutes to disclose the
APR of a loan, which allows borrowers
a common ground for comparing
various loans from different lenders.
Balance Transfer Moving an unpaid
balance from one open credit account
to another. You will save money if you
transfer balances to a credit account with
a lower interest rate.
Billing Cycle The length of time between
your statements. Billing cycles are
approximately one month in length.
Cardholder Agreement A written
document that provides details of your
agreement with the credit card issuer.
Cash Advance Using your credit card to
get cash from a bank, from an ATM or by
writing a convenience check. Typically,
the card issuer charges a cash advance
fee for the transaction and begins
charging interest immediately.
Charge Card A card that requires full
payment of your balance with each
billing cycle. Typically charge cards do
not charge interest, but late fees can
apply if full payment is not received by
the due date.
Credit Card A card that allows you to
charge items and either pay your balance
in full each month or carry it over time. If
you choose to make monthly payments
on the amount owed on the card, you will
be charged interest on the outstanding
balance until you pay the amount off
in full.
Credit History The history used to
prepare a credit report. Your credit history
includes a record of all of your financial
information, such as your credit cards,
mortgages, car loans, and whether
you’ve made any late payments. It should
show whether you’ve filed for bankruptcy
or have any judgments or liens filed
against you. It is a financial picture used
by companies to evaluate where you
have been financially, where you are
today and, with your credit score, where
you might be in the future.
Credit Limit The maximum amount that
you can charge on your credit card.
There is generally a fee if you exceed
your credit limit.
Ài`ˆÌÊ,i«œÀÌÊ A report about your
credit history that lenders (credit card
companies, mortgage companies, loan
agents, etc.) consult to determine whether
they should lend to you and how much
money they should lend. Your payment
history, outstanding debt and open lines
of credit are all shown on your credit
report. It is available from the three major
credit bureaus, Equifax, ExperianSM
and TransUnion®.
28
Credit Score A score generated by
mathematical models using information
from your credit history. Some of the
information used relates to the length
of time you have held credit cards (and
the balances on those cards), the length
of time you have had a mortgage,
whether you have paid your bills on time,
including utility bills, and other factors.
Identity Theft The theft of your personal
information, such as your Social Security
number, address, phone number or
financial account information, in order
to open up lines of credit in your name.
Once a thief establishes credit in
your name, he or she can take out a
mortgage, buy a car or obtain credit
cards to use on a shopping spree.
Debit Card A card issued by a bank that
directly accesses available funds from
a bank account, typically a savings or
checking account.
Interest Money charged for the use of
borrowed funds. Usually expressed as
an interest rate, it is the percentage of the
total loan charged annually for the use of
the funds.
Default When a customer doesn’t
make a required payment to a credit
card account, or otherwise violates the
terms of the agreement with the credit
card company.
Interest Rate The rate at which a credit
card company or other lender charges
a customer for borrowing money. It is a
percentage of the amount borrowed.
Finance Charges Certain charges that
can be incurred when using a credit card.
Finance charges include interest costs.
Introductory Rate A lower APR provided
by a credit card company for a limited
period of time.
Fixed Interest Rate An interest rate that
remains the same and does not fluctuate
with market conditions.
Late Fee A fee charged when at least the
minimum payment has not been received
by the specified due date.
Fraud Alert If you have been a victim
of identity theft, you have the right to ask
that credit bureaus place a fraud alert on
your file. This will let potential creditors
and others know that you may have been
a victim of identity theft.
Minimum Payment The smallest payment
a customer can make each billing
period to keep a credit account in good
standing.
Grace Period A period of time between
the transaction date and the payment due
date when a transaction can be paid off
without incurring an interest charge.
Penalty Rate A higher APR that the
credit card company charges under
circumstances that are specified in the
cardholder agreement, such as making
late payments or exceeding credit limits.
PIN (Personal Identification Number)
A security code that a customer uses
with debit and credit cards to authorize
transactions such as cash advances.
This PIN is different from the user ID
and password customers use to access
account information online.
Point A point is one percent of the
loan amount.
Preapproved A potential customer who
has satisfied certain credit criteria and has
passed an initial credit bureau evaluation.
Prime Rate An index rate that is used
to determine the interest rate a bank will
charge customers. It is one way that a
credit card company determines APRs.
Universal Default Some financial
institutions reserve the right to change
your rates if you have defaulted on an
account or loan with another lender. For
example, a cardholder who carries a
balance on one card may have his rates
increased on that card if he has missed a
payment on one of his credit cards issued
by another bank. This practice is rarely
used today.
Variable Interest Rate An interest
rate that rises and falls according to a
particular economic index, such as the
U.S. prime rate.
Zero Balance When your billing
statement shows no outstanding balance
and no new charges have been incurred.
With a zero balance, the cardholder
owes nothing.