Credit Cards compared...

For teenagers, prepaid credit cards can be that first taste of freedom which can allow young people to begin to experience shopping online, the exhilaration of withdrawing money that they are entitled to spend from a cash machine, and the first experiences of responsibility.

However, some children’s charities are warning that younger users of prepaid credit cards can be vulnerable in some instances when they are buying online – with some retailers not complying fully with the Age Restriction Act.

As many of us know, some violent video games have been given age limits in order to prevent younger people from playing them before they are at an appropriately mature level. Despite this, an investigation with a 16-year-old saw that he was able to buy video games without question from a number of websites without his identification being checked.

In a more extreme example, he found that he was able to buy alcoholic beverages and even knifes from online retailers without his age being challenged. All of this was despite his actual date-of-birth and address details being directly associated with the card. This problem would not have happened with credit cards for people with bad credit since a requirement is that you need to be over 18 to apply.

In the defence of some prepaid card companies, other investigations have seen gambling websites, which are only available to those who are over 18, adequately protect minors who try to access the website through using their prepaid card. One example saw a 16-year-old boy deposit £10 into a gambling account, with the card company he was registering with notifying his parents of the move days later with a warning about what was going on. The authorities were reassured that some measures were being made between companies and lenders in order to guarantee some security for those who are young and vulnerable.

A statement from the leaders of the investigation said: “Although a small sample, our findings from this operation seem to show the danger to which young people can be exposed on the internet.”

Some of the websites which were singled out in the investigations conducted, allowing illegal items to be purchased, have been warned that assuming a person is buying an item isn’t necessarily proof in itself that a person is of a legal age – like some organisations suggested in the reports that they specified.

Even though steps are now being taken to secure prepaid credit cards and what they can do online for those underage, it is argued that only so much can be done to protect their teenage users.

A credit card is a form of borrowing that often involves charges. Credit terms and conditions affect your overall cost. So it's wise to compare terms and fees before you agree to open a credit or charge card account.

The following are some important terms to consider that generally must be disclosed in credit card applications or in solicitations that require no application. You also may want to ask about these terms when you're shopping for a card.

Annual Percentage Rate. The APR is a measure of the cost of credit, expressed as a yearly rate. It also must be disclosed before you become obligated on the account and on your account statements.

The card issuer also must disclose the "periodic rate" - the rate applied to your outstanding balance to figure the finance charge for each billing period.

Some credit card plans allow the issuer to change your APR when interest rates or other economic indicators - called indexes - change. Because the rate change is linked to the index's performance, these plans are called "variable rate" programs. Rate changes raise or lower the finance charge on your account. If you're considering a variable rate card, the issuer must also provide various information that discloses to you:

ï that the rate may change; and ï how the rate is determined - which index is used and what additional amount, the "margin," is added to determine your new rate.

At the latest, you also must receive information, before you become obligated on the account, about any limitations on how much and how often your rate may change.

Free Period. Also called a "grace period," a free period lets you avoid finance charges by paying your balance in full before the due date. Knowing whether a card gives you a free period is especially important if you plan to pay your account in full each month. Without a free period, the card issuer may impose a finance charge from the date you use your card or from the date each transaction is posted to your account. If your card includes a free period, the issuer must mail your bill at least 14 days before the due date so you'll have enough time to pay.

Annual Fees. Most issuers charge annual membership or participation fees. They often range from £25 to £50, sometimes up to £100; "gold" or "platinum" cards often charge up to £75 and sometimes up to several hundred dollars.

Transaction Fees and Other Charges. A card may include other costs. Some issuers charge a fee if you use the card to get a cash advance, make a late payment, or exceed your credit limit. Some charge a monthly fee whether or not you use the card.

Balance Computation Method for the Finance Charge. If you don't have a free period, or if you expect to pay for purchases over time, it's important to know what method the issuer uses to calculate your finance charge. This can make a big difference in how much of a finance charge you'll pay - even if the APR and your buying patterns remain relatively constant.

Examples of balance computation methods include the following.

Average Daily Balance. This is the most common calculation method. It credits your account from the day payment is received by the issuer. To figure the balance due, the issuer totals the beginning balance for each day in the billing period and subtracts any credits made to your account that day. While new purchases may or may not be added to the balance, depending on your plan, cash advances typically are included. The resulting daily balances are added for the billing cycle. The total is then divided by the number of days in the billing period to get the "average daily balance."

Adjusted Balance. This is usually the most advantageous method for card holders. Your balance is determined by subtracting payments or credits received during the current billing period from the balance at the end of the previous billing period. Purchases made during the billing period aren't included.

This method gives you until the end of the billing cycle to pay a portion of your balance to avoid the interest charges on that amount. Some creditors exclude prior, unpaid finance charges from the previous balance. Previous Balance. This is the amount you owed at the end of the previous billing period. Payments, credits and new purchases during the current billing period are not included. Some creditors also exclude unpaid finance charges.

Two-cycle Balances. Issuers sometimes use various methods to calculate your balance that make use of your last two month's account activity. Read your agreement carefully to find out if your issuer uses this approach and, if so, what specific two-cycle method is used.

If you don't understand how your balance is calculated, ask your card issuer. An explanation must also appear on your billing statements.

Other Costs and Features

Credit terms vary among issuers. When shopping for a card, think about how you plan to use it. If you expect to pay your bills in full each month, the annual fee and other charges may be more important than the periodic rate and the APR, if there is a grace period for purchases. However, if you use the cash advance feature, many cards do not permit a grace period for the amounts due - even if they have a grace period for purchases. So, it may still be wise to consider the APR and balance computation method. Also, if you plan to pay for purchases over time, the APR and the balance computation method are definitely major considerations.

You'll probably also want to consider if the credit limit is high enough, how widely the card is accepted, and the plan's services and features. For example, you may be interested in "affinity cards" - all-purpose credit cards sponsored by professional organizations, college alumni associations and some members of the travel industry. An affinity card issuer often donates a portion of the annual fees or charges to the sponsoring organization, or qualifies you for free travel or other bonuses.

Special Delinquency Rates. Some cards with low rates for on-time payments apply a very high APR if you are late a certain number of times in any specified time period. These rates sometimes exceed 20 percent. Information about delinquency rates should be disclosed to you in credit card applications or in solicitations that do not require an application.