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About the Federal Reserve
The Federal Reserve Bank of
Philadelphia is one of 12 regional Reserve
Banks in the United States that, along with
the Board of Governors in Washington,
D.C., make up the Federal Reserve System,
the nation’s central bank. To ensure a sound
financial system and a healthy economy, the Fed conducts
monetary policy, supervises and regulates financial institutions,
maintains the payments system, and serves as the lender of last
resort in a financial crisis.
The Philadelphia Fed is responsible for the Third District,
which covers eastern Pennsylvania, southern New Jersey,
and Delaware. Like other Reserve Banks, the Philadelphia
Fed is involved in conducting monetary policy, supervising and
regulating banks, and providing financial services to banks and
the federal government.
The Board of Governors, which is accountable to
Congress, oversees the Reserve Banks. Fed Governors and
Reserve Bank presidents participate in Federal Open Market
Committee decisions on national monetary policy.

Payment Cards Center
The Federal Reserve Bank of Philadelphia
established a Payment Cards Center to provide insights into
developments in consumer credit and payments. The center
carries out its mission through an agenda of research and
analysis, as well as forums and conferences that encourage
dialogue incorporating industry, consumer, academic,
nonprofit, and public-sector perspectives.

Today, consumers use many different types of payment
cards. Below you’ll find answers to some of the most
frequently asked questions about payment cards.

Why does the Philadelphia Fed
have an interest in payment cards?
Payment cards, such as credit, debit, and
prepaid cards, are increasingly becoming payment
vehicles of choice for many consumers. The Philadelphia Fed
has had a long association with the payment cards industry,
given the number of major card companies that historically have
been located in the region, especially in Delaware. In 2000, the
Bank established the Payment Cards Center to further its study
of this growing segment of the financial services industry.

What is a payment card?
A payment card is typically a 3 ⅜” by 2 ⅛” plastic card
with either a magnetic stripe or a computer chip that stores the
card user’s data, including card number and expiration date. The
most familiar types of payment cards have a magnetic stripe and
include credit, debit, and prepaid cards.
Credit Card: A credit card is any card that may be used
to borrow money or buy products and services on credit. The
balance can be paid in full by a set due date or paid over time
with interest, as long as the borrower makes monthly minimum
payments in amounts specified by the card-issuing bank. Credit
cards are issued by banks, retail stores, and other businesses.
Debit Card: A debit card is associated with a checking
or other deposit account. Funds are drawn from the associated
account to settle debit card transactions, such as retail
purchases or ATM withdrawals. Cardholders authorize debit card
transactions by signing their name or by entering a personal
identification number (PIN).
Prepaid Card: Prepaid cards differ from credit and debit
cards in that they offer consumers a way to pay early for future
purchases. Value is prepaid into the card account, and the
cardholder can spend these funds at a later date by presenting
the card for payment at accepting merchants or, in some cases,
by using the card with a PIN to withdraw cash at ATMs. The


cardholder may spend the balance on the prepaid card over time
or all at once. Examples of prepaid cards include gift cards and
payroll and travel cards.

Is it bad to have several credit cards?
Not necessarily. It is more important to borrow
responsibly and to pay bills when they are due. Some
consumers may find it convenient to have several cards: one
for small purchases they pay off each month, and one for
larger purchases they spread out over time. A third card for
emergencies or business purposes might also be appropriate.

What is a credit limit?
A credit limit is the amount established by the card issuer
as the maximum amount you may borrow to pay for purchases
or cash advances; it is based on your creditworthiness.

Are APR and interest rate the same thing?
They are the same. APR stands for annual percentage
rate (of interest) and represents the annual interest rate that
cardholders pay to borrow funds using a credit card’s revolving
line of credit. The APR may vary depending on the credit card and
on the individual. The APR can change over time, but card issuers
are required to tell consumers about any such change, either as
part of the Cardholder Agreement, which governs the use of the
credit card product, or through a Change in Terms notice.

If I pay my balance in full each month, will I
be charged interest?
Typically, no. Credit card holders who pay their balances
in full each month by the payment due date receive an interestfree grace period, during which no interest is charged on their
current balance until the next payment is due. Cardholders should


Cash advances on credit cards are
typically charged special fees and higher
interest rates than when the card is used
for purchases.

carefully read the Cardholder Agreement
to understand exactly the policies and
procedures governing their payment cards.

What is the minimum payment,
and how is it calculated?
The minimum payment is the least amount a credit
card holder must pay each month to keep the account in good
standing. The minimum payment is typically the greater of 2.5
percent of the outstanding balance or $15. You should review
your Cardholder Agreement or check with your card issuer to
confirm the minimum payment terms for your credit card.
Making only the minimum payment will extend the time it
takes to pay off the balance. As an example, on an account with
a 15 percent interest rate where the minimum payment is the
greater of 2.5 percent of the outstanding balance or $15, making
only the required minimum payment on a $5,000 purchase will
take 18 years, five months, at a total principal plus interest cost
of $9,530.30.
Remember that the minimum payment represents the
least amount your issuer will accept to keep your account in
good standing. You may always pay more than the minimum,
and most cardholders do just that. If you find that you are
consistently having trouble making any more than the minimum
payment, you may wish to seek the expertise of a reputable
consumer credit counseling agency.

What is a minimum finance charge?
If you have a very low balance, the finance charges will
be very low and may be subject to a minimum finance charge set
by the card issuer. For example, if you have a $25 balance and
pay an annual interest rate of 15 percent, the finance charge for
one month will be approximately 32 cents. Many issuers have a
minimum finance charge of 50 cents. Therefore, you would be
charged 50 cents, not 32 cents, for the billing cycle.


What is the average credit card debt of families in
the U.S.?
Research by the Federal Reserve finds that 68 percent
of American families had credit cards in 2010. About 55 percent
of those families carried a balance from one month to the next.
Among families carrying a balance at the time of the survey, the
average balance was $7,100.

What is a cash advance?
These are funds advanced to you from your credit card
line. You can authorize cash advances by using your credit card
and its PIN at an ATM or in person at a bank. However, cash
advances on credit cards typically involve special fees and
higher interest rates than when the card is used for purchases.
Be sure to check your Cardholder Agreement to determine how
your card issuer treats cash advances.

Several types of fees, including late, overlimit, and
penalty fees, can be assessed on payment card
products. How can I avoid such fees?
To avoid these types of fees, keep your spending under
your credit limit and pay your bill before the due date indicated
on the statement.

What is a credit report?
It is a confidential report on a consumer’s payment
history as reported by the consumer’s creditors to a credit
bureau. The credit bureau may provide the information only
to entities that have a “permissible purpose” under the law to
review a consumer’s report. Some examples of entities with
permissible purpose include lenders, such as credit card issuers;
insurance providers; government benefits providers; landlords;
and potential employers. The federal law that regulates use of
these reports is the Fair Credit Reporting Act (FCRA).

To obtain a copy of your
credit report, see instructions
on the back cover.

How do I check my credit report?
In December 2003, President George W. Bush signed
into law the Fair and Accurate Credit Transactions Act (FACTA).
This legislation requires, among other things, that the three
nationwide credit bureaus — Equifax, Experian, and TransUnion
— provide consumers, upon request, a free copy of their credit
report once every 12 months. To obtain a copy of your credit
report from one or all three of the major U.S. national credit
bureaus, visit or call 1-877-3228228. To request your report(s) through the mail, visit www., download
the form, print it, fill it out, and then mail it to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

What is a FICO score and how is it used in the
credit approval process?
A FICO score is a credit score developed by Fair Isaac
Corporation. Credit scoring applies a mathematical formula to
an individual’s credit bureau information to predict the likelihood
that he or she will repay a loan according to the terms of
the loan agreement. A credit score attempts to condense a
borrower’s credit history into a single number. It is one piece of
information used by financial institutions in evaluating individuals’
creditworthiness. (For information on what goes into a FICO
score, visit
In general, the higher a credit score, the better the terms
a borrower will receive. Those with high credit scores may be
approved for higher loan amounts and lower interest rates than
those with lower scores. Very low scores could prevent you from
being approved for a loan.


What should I do if my payment card is lost or stolen?
Immediately call your card issuer and report the card
as lost or stolen and follow up in writing. Be sure to check your
statement for fraudulent transactions and immediately dispute
those transactions with your issuer by phone and also in writing.
Remember, your card numbers can be stolen even if you still
have the physical card in your possession; therefore, it is
important to review your statements monthly and to frequently
check your bank account balances. Be sure to reconcile any
purchases and corresponding amounts as well as banking
account activity, particularly withdrawals, against your receipts.

If my credit or debit cards are used without my
authorization, how much could I lose?
It is very important to notify your card issuer by phone
and in writing as soon as you suspect that unauthorized charges
have been made using your payment card.
For credit cards, federal law limits consumer liability to
$50 per card for unauthorized purchases. If you report the loss
before your credit cards are used, the card issuer cannot hold
you responsible for any unauthorized charges.
For debit cards, liability protection depends on whether
the plastic card itself is stolen and used fraudulently. If it is, a
time element is added to the protection: If unauthorized activity
is reported within two business days, the liability limit is $50.
If unauthorized activity is reported within 60 days, the liability
limit is $500. If the fraud is reported more than 60 days after the
customer received the statement showing the fraudulent activity,
the liability is potentially unlimited. When thieves steal just the
account number and use it either on its own or to produce a
counterfeit plastic card, customers have zero liability for 60 days
from receipt of the statement on which the fraudulent activity is
reported and unlimited liability thereafter.
Many payment card issuers offer better liability
protection for their customers than is required by law for either

Phony e-communications can look real;
legitimate companies will not ask for
personal information such as passwords
and account information by e-mail.

credit or debit cards. You should check with
your card issuer or refer to your Cardholder
Agreement to review the issuer’s policies
regarding unauthorized card use.

What is the best method of disputing charges on
my credit card?
In writing. Include the transaction number, amount,
transaction date, posting date, name of the merchant, and the
reason for the dispute. Most issuers provide a special form for
this purpose and a special address. You may also call, but the
dispute must be in writing to protect your rights. Your issuer may
provide the form online and may accept online submission of the
form as the equivalent of putting the dispute in writing.

What is “phishing”?
It is a high-tech scam that uses e-mails, pop-ups, and
websites — that look like they are from a legitimate company
with which you do business — to fool you into revealing personal
or financial information the perpetrators can use to commit
fraud. Remember: Phony e-communications can look real,
and legitimate companies will not ask for information such as
passwords and account information by e-mail.

Is credit counseling harmful to my credit score?
If you need credit counseling, there is a good chance
your credit has already been severely damaged. In most cases,
counseling will improve your credit score over time by helping you
to follow a budget and to make regular payments to your creditors.


How can I find a reputable credit counseling agency?
When developing a list of potential counseling agencies,
do your research. Many universities, military bases, credit unions,
housing authorities, and branches of the U.S. Cooperative
Extension Service operate nonprofit credit counseling programs.
Also, your financial institution, local consumer protection agency,
and friends and family may be good sources of information and
referrals. Once you’ve developed a list of potential counseling
agencies, check them out with your state’s attorney general, local
consumer protection agency, and Better Business Bureau. They
can tell you if consumers have filed complaints about them. Then,
interview the final “candidates.”
The Federal Trade Commission suggests that consumers
be wary of counseling organizations that:




Charge high up-front or monthly fees for enrolling in credit
counseling or a debt management program (DMP);
Pressure you to make “voluntary contributions,” another
name for fees;
Won’t send you free information about the services they
provide without requiring you to provide personal financial
information, such as credit card account numbers and
Try to enroll you in a DMP without spending time reviewing
your financial situation;
Offer to enroll you in a DMP without teaching you budgeting
and money management skills;
Demand that you make payments into a DMP before your
creditors have accepted you into the program;
Encourage you to withhold timely payment from your creditors.

Your card numbers can be stolen even if you
still have the physical card in your possession;
therefore, it is important to review
your statements monthly.

If I need advice on structuring
my credit card payments, how
can I get help?
Reputable consumer credit counseling organizations
can advise you on managing your finances, help you to create a
budget, provide free educational materials and workshops, and, if
necessary, assist you in working out repayment plans with creditors.
Their credit counselors are certified and trained in the areas of
consumer credit, money and debt management, and budgeting.
Counselors discuss your entire financial situation with you and help
you develop a personalized plan to solve your money problems.

What is a debt management plan (DMP) and how
does it work?
A credit counseling agency may recommend that you enter
a debt management program (DMP). You should sign up for a DMP
only after a certified credit counselor has spent time thoroughly
reviewing your financial situation and has offered you customized
advice on managing your money. In a DMP, you deposit money
each month with the credit counseling organization, which uses
your deposits to pay your unsecured debts, like credit card bills,
according to a payment schedule the counselor develops with you
and your creditors. Your creditors may be willing to accept reduced
payments if you enter into a debt repayment plan.
To obtain a free copy of your credit report from one or all three of
the major U.S. national credit bureaus (Equifax, Experian, and
TransUnion), visit or call 1-877322-8228. To request your report(s) through the mail, visit www., download the
form, print it, fill it out, and then mail it to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

For More Information
The Federal Reserve Bank of Philadelphia has other brochures on
credit topics.
To obtain copies of these brochures, or for additional copies of this
one, please contact:

Federal Reserve Bank of Philadelphia
Public Affairs – Publications
P.O. Box 66
Philadelphia, PA 19105-0066



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