Paying by check is often a convenient alternative to using credit cards. Businesses use check verification services to screen buyers and to protect themselves from potential fraud. But how do these services work ? Many consumers assume that these services have direct access to their bank account information and this creates concerns over privacy. There are subtle differences between the workings of check services and credit bureaus which consumers should know.

In years past, merchants asked for a customers credit card in addition to their personal check to provide themselves with an avenue for compensation in the event that the check were returned unpaid. Following customer complaints over this practice, and not wishing to lose a significant percentage of their business, check verification services came into being. These services have established databases consisting of all customers who have previously paid by check at establishments using their services. They keep track of all those who have maitained good check payment practices and those who have not. The latter are tagged in the database and flagged whenever the verification system encounters them attempting another check payment.

This arrangement means that check services do not need access to your bank account information. New customers are initially green lighted until they run afoul of the system. The service makes a profit by charging merchants a percentage of each amount they approve. Merchants are glad to pay this percentage as a business expense to keep that particular customer base.

Another advantage of check verification services to merchants is that they assume the risk of bad checks in place of the merchant. In case an approved customer's check is returned, the verification service compensates the merchant for the amount and associated bank fees. Collection and recouping of unpaid funds then becomes the responsibility of the verification service which then acts similarly to a collection agency.

Consumers need to be aware that writing bad checks can negatively affect their credit rating because check verification services report such activity to the credit bureaus. The service will then attempt to collect on the amount for which the check is returned as well as additional fees incurred over bounced check and other processing fees from the bank.

In 1989, the United States Congress passed the Fair Credit and Charge Card Disclosure Act to force credit card companies to display all their terms and charges in easily readable tabular form so that consumers could be informed of the exact cost of aquiring a particular card before doing so. Even with this law in place, however, it can still be quite difficult to sort out the distinctions between the various charges and modes of calculating interest which credit cards use. It is important to understand initially that interest charges and fees are the ways in which credit card companies make a profit. They cannot do this simply by issuing consumers credit and getting nothing in return. Before accepting a credit card, make sure to go through the table of fees and charges to make sure that the full cost of owning the credit card is understood.

The Annual Fee:

Many bank and T&E cards come with an annual fee of up to $50.00 or more. There are however, cards which charge no annual fee. They are usually reserved for customers with the best credit ratings. VISA®, MasterCard® and Discover® cards with no annual fees are obtainable, but finding these involves diligent searching by the prospective cardholder. At the other end of the spectrum, consumers with very poor credit ratings will find a number of companies willing to issue high risk credit cards but with very high annual fees as well as other charges. Very often, consumers needing to re-establish their credit are willing to pay these amounts.

Cash Advance Charges:

Cash advances are a great convenince to the consumer, but they come at a heavy price which can be deceptive. Not only is there a charge for the transaction of up to 3% of the amount of the advance, but interest charges may also be tagged on at rates of 20% per annum or higher. As a general rule, credit cards should not be used for cash advances except in cases of emergency.

Late Payment Fees:

Many credit card companies are now charging late payment fees of up to $25.00. The amount of grace period time you have from the payment due date until this fee is assessed varies from issuer to issuer. Since the date refers to the day of receipt of your check and not the date of postage, consumers who cut things close to deadline dates leave themselves open to such charges. What can be insidious about such fees is that some banks and credit card companies tag add these fee amounts to your outstanding balance and then charge you interest fees on the full amount.

One Time Fees:

These are particularly common with credit cards designed for consumers with poor credit. They are charged in addition to the annual fee. In many cases, consumers end up paying well over a hundred dollars in initial and membership fees simply to obtain these cards. It is much more sensible simply to opt for a secured credit card if you have poor credit. The initial amount deposited will have to be at least $200.00, but it is refundable and you earn interest on it.

Over The Limit Fees:

Most consumers who carry high credit balances do not pay their balances in full each month. This means that they are paying high credit card interest rates. When these interest charges accrue at compound rates, it is not that difficult to find oneself suddenly over their credit limit. Over the limit fees are steep, often as much as $25.00. If the over-limit status is carried on over different billing cycles, limit fees can be charged for each month.

Finance Charges:

The term sounds confusing, but this is actually the most obvious of the charges on a credit card account. It is the interest charge on your account balance based on the fixed annual rate.

Transaction Fees:

These used to be more prevalent than they are now. They have become much more common with ATM cards than with credit cards. The issuing bank or company actually charges a fee (usually about 50¢) for every transaction you make with their card. This is a particularly costly and unnecessary charge and one which must be looked for before a particular credit card account is accepted.

Returned Check Fees:

Now also as high as $ 25.00, the consumer pays for this as well as the bounced check fees charged by their own bank. The cost of processing a returned check to credit card companies is nowhere near close to $ 25.00, but they are able to charge these amounts in cases where the consumer is clearly in the wrong and probably too embarassed to complain.

Hotel Reservations:

It is important to understand how hotels charge for rooms and services through your credit card. The important issue here is the extra amount the hotel charges as insurance over possible damage to your room. This is over and above the amount estimated for your room and services charges. This total amount can put you close to your credit limit because the amount is frozen on your account and the difference between this and your credit limit will be the amount of credit you have available until you check out and the actual payment of your bill occurs. It is therefore important to find out from the hotel what these charges are right from the start. It is often more convenient to use Travel and Entertainment(T&E) Cards for these purposes because they do not come with a credit limit. This is one advantage of the American Express Card® or the Diners Club Card®, for example.

A number of credit card companies have special arrangements with specific hotels which provide special discounts to their cardmembers. Often these perks also extend to restaurants and other entertainment items such as tickets. This synergy of merchants has been accelerating recently, and the dilligent consumer who takes the time to properly research various credit card offers will find a number of benefits resulting in significant savings.

Car Rentals:

The potential problem here is similar to the case above with hotel reservations. Car rental companies will place a hold on your account for an amount over and above the actual cost of the rental to insure them against possible damage to the vehicle you rent. But the advantages of using a credit card for car rentals can be many. The perks include free road service, discounts at particular rental agencies, cash rebates and car-rental insurance.

Airline Fares:

If one travels by air with any regularity at all, it is advisable to get a free air miles credit card. These are easy to obtain and provide you with discounts on airline tickets based on the amount of money you charge to your credit card. Additionally, most major credit card companies give you the option of joining travel clubs as well as helping you find some of the most convenient and cheapest flights and travel packages available. This is particularly so in the internet age, where a number of aggressive online credit card issuers have designed their websites to be virtual travel agencies.

Most airlines seldom fill out their seating capacities on most flights, so it is worth their while to use the extra capacity to induce potential new customers to use their services. Since airline tickets are relatively expensive, you would need to make significant charges to your credit card in order to get the equivalent of a free airline ticket. Most people do not charge the tens of thousands of dollars this requires to their credit cards. Indeed, most people do not have credit limits which allow them to do so, but it is still possible to achieve this simply by shifting the payment of large expenses such as school tuition or bill payments to a credit card rather than using a check. Of course, in such cases, it makes sense to pay your bill immediately it is due so as not to have to pay interest charges which would more than negate the benefits form free air miles.