Last Updated on 2023-06-25
Basic Guidelines for Credit Card Usage: Treat it solely as a payment tool, not a borrowing tool, and adhere to the principles of making timely payments, avoiding cash advances, and refraining from installment payments. This section briefly covers the advantages and benefits of using credit cards.
Advantages of Credit Cards
Credit cards offer several advantages that debit cards do not.
A. Security
Compared to debit cards, credit cards are more comprehensively protected by U.S. law against unauthorized purchases.
| Credit Card | Debit Card |
| Liability Limit | |
| The liability limit for unauthorized purchases is $50. However, most banks waive this liability as part of their business practices, offering zero liability protection. | Within 2 days, the maximum liability for unauthorized charges is $50, between 2 and 60 days it is $500, and after 60 days, the cardholder is fully responsible. |
| During Investigation | |
| During the investigation, the cardholder is not responsible for the fraudulent charges. | Your money will be frozen during the investigation. |
| Dispute | |
| When facing transaction disputes such as undelivered items or incorrect charges, cardholders have the right to file a dispute with the bank (usually done online). | Resolving disputes with debit cards typically involves more complex and lengthy processes. |
| Transaction Process | |
| Credit card transactions do not require the entry of a PIN, making them quick and convenient. | Debit card transactions require a PIN, and if the PIN is lost and unauthorized charges occur, the bank may refuse to provide compensation. |
B. Cashback Rewards
Signup Bonus: Credit card applications often come with signup bonuses, which vary depending on the card and can range in value from $0 to $1,200.
Regular Cashback: Cashback rewards typically range from a minimum of 1% to as high as 4-10%. Some credit cards offer rewards in the form of bank points, hotel points, airline miles, and more.
Occasional Rewards and Discounts: Issuing banks such as Amex, Chase, and BOA provide discounts at select merchants. Additionally, during the pandemic, many credit cards offer high cashback rewards for dining and convenience store purchases.
C. Benefits
Credit cards offer extended warranties, purchase protection, and rental car insurance. Premium cards may also include travel insurance and complimentary access to airport lounges. All benefits have certain conditions and claim limits, which vary depending on the issuing institution and specific credit card. For detailed information, refer to the terms and conditions of each credit card.
Common Benefits of Mid-tier Credit Cards:
Extended Warranty
When cardholders make a full purchase of a warranted item using their credit card, the issuing institution provides an additional warranty period of up to one year (typically). During this extended warranty period, eligible repair costs are covered by the issuing institution.
Purchase Protection
If items purchased using a credit card are damaged (including accidental damage) or stolen within a certain timeframe, cardholders are eligible for reimbursement. Some Amex credit cards even offer coverage for lost items.
Rental Coverage
Cardholders who fully rent a car from traditional rental companies (Car Sharing services excluded) receive complimentary Collision/Loss Damage Insurance.
Cellphone Protection
Cardholders who pay their monthly cellphone bill with their credit card automatically receive insurance coverage for their phones, including coverage for damage and theft. For damage claims, the reimbursement amount is calculated as the repair cost minus any deductible. This benefit is mainly provided by Mastercard and high-end Amex credit cards.
Common Benefits of Permium Credit Cards
Return Protection
When a merchant does not accept returns for items purchased using a credit card (especially useful for Final Sale items), the issuing institution will reimburse the cardholder for the item. However, the issuing institution may require the item to be shipped to its designated return center.
Trip Protection
When transportation expenses are paid with a credit card, trip protection coverage provides reimbursement for additional expenses incurred due to transportation delays (such as accommodations, transportation, meals, and essential items) or for non-refundable travel expenses in the event of trip interruption due to unforeseen circumstances.
Elite Memberships
Cardholders gain complimentary elite memberships for car rental companies and hotels, allowing them to enjoy benefits such as car rental upgrades and hotel room upgrades. Cardholders can also achieve higher membership tiers through credit card spending.
Airport Lounge Access
Cardholders are granted complimentary access to airport lounges when traveling, and they can bring accompanying guests for free (usually up to a maximum of two guests).
D. Build Credit History
Credit cards are the easiest way to build your credit history. Even without a Social Security Number (SSN), credit history can be established and maintained using personal information such as name and date of birth. Credit history has an impact on loan interest rates, mortgage rates, insurance premiums, and sometimes even rental applications may require a credit history. Not having any credit history is often seen as unfavorable compared to having a credit history, as it indicates a lack of financial track record.
U.S. Acquiring Banks
- Visa: Costco only accepts Visa credit cards, but there are no restrictions on Visa Debit Cards.
- Mastercard: Typically offers cellphone protection.
- Discover: Functions as both an issuing bank and an acquiring institution. Acceptance rates in the United States are slightly lower than Visa and Mastercard but higher than Amex. Discover has partnerships with JCB and UnionPay, resulting in higher acceptance rates in Japan and China.
- American Express (Amex): Also functions as both an issuing bank and an acquiring institution. Although it has the lowest acceptance rate in the United States, its services, rewards, and promotional activities are highly competitive.
Secured Credit Cards
A secured credit card is a special type of credit card that requires a deposit of a certain amount as collateral. The credit limit provided by the bank is determined based on the deposit amount. After a certain period of usage, the bank may refund the deposit based on the credit history. Secured credit cards are primarily designed for individuals with poor or no credit history, allowing them to repair or establish credit. As a result, the application process is generally less stringent than for regular credit cards. Secured credit cards typically do not offer sign-up bonuses, and their rewards, benefits, and credit limits are often inferior to regular credit cards. However, the Bank of America Cash Rewards (Secured) cards, revised in July 2021, are exceptions to this trend.
Application Process for Secured Credit Cards:
- Apply for a secured credit card: Similar to applying for a regular credit card, applications can be made online, over the phone, or in person.
- Deposit the security funds: When applying, you will usually need to provide your bank account number and routing number. If approved, the deposit will be automatically deducted from your bank account. Insufficient funds in the bank account may result in the application being denied.
- Usage: Once activated, the credit limit is equal to the deposit amount. Eligible individuals can deposit additional funds to increase their credit limit. It’s important to note that any unpaid balances will not be deducted from the deposit; you will still owe the money and interest will be charged.
- Upgrade: After using the secured credit card for a certain period of time and establishing a good credit history, you may be eligible to upgrade to a regular credit card. Upon upgrading, the deposit will be automatically refunded. The assessment period for upgrading may vary depending on the bank.
Frequently Asked Questions
How should I handle credit card disputes?
The first step in resolving a transaction dispute is to communicate with the merchant. If the negotiation is unsuccessful, you can file a dispute with the bank.
Now that I have received my SSN, what should I do and when does my credit history start?
For international students, your credit history starts from your first credit card usage and is not directly related to having an SSN. To ensure that credit bureaus can accurately locate your information, remember to update your SSN with your credit card issuing bank and your checking account bank.
When applying for a credit card, what should I put for annual income?
When applying for a credit card, what should I put for annual income? Generally, international students can enter the amount specified on their I-20 as the minimum income. However, it is recommended to also include non-taxable income (such as stipends or other income sources after deducting taxes). If you feel that you receive a significant amount of financial support from your parents or have other scholarship income, you can include that as well.
Usually, there are small prompts next to the income field. The following image is an example from Chase credit card application instructions: Income includes salary, stock income, and other regular contributions. Therefore, international students can consider their parents’ financial support as part of their income.
How many credit cards should I have?
If you can manage them responsibly, having multiple credit cards is generally beneficial. The number of accounts is one factor that affects your credit score, and having more accounts can potentially increase your score. However, if you plan to apply for Chase credit cards, be aware of the 5/24 rule.
What should I do if my application is denied?
If your application is denied, contact the bank to inquire about the reason. If it’s due to missing information, a lack of credit history because you just received your SSN, or other factors, you can request reconsideration from the bank instead of reapplying directly.
What should I do if I no longer want to keep a credit card with an annual fee?
After holding the card for one year, you can choose to close the account or downgrade it. Downgrading allows you to maintain the length of your credit history. However, be aware that downgrading an American Express card may temporarily affect your eligibility for other sign-up bonuses.