Credit Card Tips / Terms

Prepaid credit cards are convenient for those people who do not have access to traditional credit card approval, because they are available to people who even have terrible credit histories and a really low credit score. Normally credit card companies want to reduce their risk – which mean the risk that those they lend money to will fail to repay the debt – by using credit scores and other means of predicting how responsible the cardholder will be. But that is no necessary with a prepaid credit card because the cash that backs up the debt – and covers any credit card charges or monthly payments due on the outstanding balance – is already on deposit.
 
There is no guesswork regarding whether or not the cardholder will have enough money saved to cover the credit card balance, in other words, because the cash needed to do that is already in a secure account. That makes it easy to get a credit card through the prepaid credit card approach, but what many consumers don’t realize is that it also offers them a golden opportunity to repair their credit, raise the all-important FICO credit score number, and take significant and intelligent steps toward getting their own traditional credit card account with a major card from Visa, Mastercard, American Express, or other recognized card names.

Getting the prepaid card is the first step, but then using it responsibly takes care of the rest. Just use it as you normally would to do things like shop or pay bills. But be sure that you have a prepaid card whose issuing company tracks your credit and then makes regular reports and updates to the big three credit reporting agencies. That way if you have good credit habits and pay your bills on time, you get noticed for that. The more credit you build, the faster you can repair your credit and raise your score, and soon you’ll be well on your way to approval for your own non-secured credit card.

Every credit card has a limit on how much the cardholder can spend each month without incurring extra fees and penalties. In other words, each credit card has a credit ceiling on how much can be purchased against it, charged to it, or borrowed from the account in a given month. Exceed that limit by, for example, spending more than the stated limit and the credit card company will hit you with a fine. Keep going too far over the limit and eventually the card company may lower your limit even further while also reporting your behavior to the major credit history agencies – which will result in a lower overall credit score or FICO score.

So it is to the consumer’s advantage to have a higher credit ceiling. While typical credit card customers with a major card like a Visa or MasterCard usually start off with credit limits of $500-$1,500, others customers have credit limits that are 10 to 15 times higher than that. When you first apply for a credit card, the card issuer will study your credit report and other information regarding your income, debts, and financial liabilities like mortgages or car payments. Using that data they will do calculations to determine how much of your monthly income is spent on paying your bills – and how much of it is left over after all your obligations are paid in full. In other words they try to predict how well you can budget your money, and how much extra money you have left over. Based on those calculations they will offer you an amount of credit – or a credit limit – that they think is reasonable. They want you to use your card but they also want to ensure that you do not default or miss a payment.

Once your credit limit is established, however, you can prove to the card company that you are ready to have a higher limit by paying your balance on time each month. Do that and every six months or so the card company will raise your limit. The limits are often raised by $200 or so at a time, so over a period of 10 years of good payment history your limit might go from $1,500 to $6,000. Sometimes you can also get your limit raised by transferring a balance from another credit card. So, for example, if you transfer $2,000 to your card from a competitor’s card, your card company may agree to raise your credit limit by $2,000. Combine balance transfers with a solid payment history and you, too, may wind up with a $25,000 credit limit – which is unusually high but not impossible to achieve.

As we start a new year and a new decade, lots of people are looking for smart financial tips, especially those that relate to ways to avoid identity theft and credit card theft. But while much of the expert advice out there is complex and sophisticated, some of the most important steps you can take to protect yourself are also the easiest and simplest of all.

Each year, for example, you should empty out your wallet and study everything in it. If it does not belong there, get rid of it so that your wallet is not so crowded and overstuffed. The way to determine whether or not it belongs there is to ask yourself whether you need it in an emergency – like the contact numbers of relatives, attorneys, or insurance companies – and if you use it regularly. If you have a credit card in your wallet that you have not used for a year, for instance, consider removing it. Of course there are items like family photos that you may want to carry anyway, but you should give some thought to the other kinds of documents and cards you carry. Lighten the load as appropriate, and then once you are pared down to the basic essentials, make a detailed list. Write down everything that you plan to carry in your wallet in 2010, including valuable information like customer service toll-free phone numbers, account numbers, and the exact name on each credit card.

Once you have that list or inventory, you can make a legible copy of it and put it into a safe place like your safe deposit box at the bank. If your wallet happens to get stolen or misplaced during the year, you’ll have a complete list of everything in it to use as a reference. Just call your card companies and cancel any missing cards and you can put your mind at ease. Otherwise those who lose a wallet without that kind of list can drive themselves crazy trying to recall what was in it – while valuable time is lost and those who specialize in identity theft and credit card theft have more opportunities to exploit your misfortune.

One of the fastest and easiest ways to cut down on credit card debt is through what is known as debt consolidation. Debt consolidation is simply the tactic of taking expense high interest loans and paying them all off with a single lower interest loan, effectively capturing the difference in high and low rates as your instant savings. Of course the problem these days is that banks and other lenders are being tight with their money, so it is not so easy to just walk into a bank and walk out with a good debt consolidation loan. Instead, many consumers are taking the debt consolidation idea and implementing it by themselves, just by doing a credit card debt balance transfer.

Here’s how it works, in a nutshell: Say – just for example – that you have two or three credit cards with credit card debts on each one of $1,000, for a total of $3,000 in balances carried forward month to month. Now for the sake of example let’s assume that each card has an interest rate of 20 percent. If you get an offer from a competing credit card company that will let you do a balance transfer for zero percent interest on the transferred balance, you could move all of your other credit card debt – from the three different cards – over to that one new card. You will still have an outstanding balance of $3,000 total, but it will be on one card, not three, which makes it easy to manage. You just have to pay one bill, not three bills, and that significantly decrease the chances that you will accidentally forget to pay one and go into default. But the best part is that your 20 percent debt is now transferred over to a credit card charging you zero percent.

Just by doing the balance transfer described in our little example, we saved 20 percent of $3,000 – which is equal to $600. Plus we simplified our budgeting and household accounting and check paying, which saves times and eliminates hassles. So if you want to take a bite out of your debt in 2010, consider doing a smart balance transfer. You could save hundreds of dollars in a matter of minutes.

Maybe you have noticed that once in a while, especially if you have been very good about making your credit card payment on time, you get a letter or note on your monthly credit balance statement that says you get a payment vacation. Some credit card companies offer these chances to skip a minimum payment, in other words, but before you accept the offer think about it for a minute because if you do not make the minimum payment you are still charged interest.

Making the minimum credit card payment just means you are keeping up with a portion of your interest payments, but by doing that you do not do anything to pay off the main balance of your debt. Only when you pay more than the minimum do your credit card payments cut down on your total outstanding balance – and only when you make a large enough credit card payment to pay off the entire balance do you stop getting charged interest.

Normally – unless you have a special card that lets you isolate certain purchases and pay them off separately – your card company will apply your credit card payments only to the total balance. So you may have a current outstanding balance, for example, of $300. If you buy something this month for $50 and pay for it at the end of the month by making a credit card payment of $50 your card company does not see it that way. In other words they don’t apply the $50 to that specific purchase but they just deduct it from the total you owe which is $300, plus the new $50 charge, plus any fees or interest you owe.

To really pay off your credit cards, therefore, you have to pay down the whole amount and clear the total outstanding balance back to zero. But keep in mind that there are some new cards being offered to those who have good credit and these cards offer financial management and budgeting tools that may let you pay off a designated purchase by itself – which gives you the flexibility to be more precise about how your credit card payment is applied. Some of these cards charge an annual fee but if you like that feature and option, you may want to look into getting one of these new cards.

The first time getting a new credit card has become a really important rite of passage in the modern world of consumerism, because without a valid credit card it is much harder to transact business, shop, and enjoy the convenience of carrying plastic. But if you apply for a card and get a credit card no or a rejection of your application, don’t panic. Just because one card company turned you down it does not mean that other credit card companies will say no to you.

What companies look for on your credit card application is a track record of good borrowing and timely repayment of your debts. So first of all, lots of people who are applying for a credit card but have never had one before are faced with a challenge. Since they do not have a credit card they also do not have any credit history, and they me get a credit card no acceptance reply. In that case they should talk to their bank about ways to take out small loans, pay them back, make sure that the loan history is conveyed to credit card reporting agencies, and in that way gradually build up a paper trail of good borrowing and credit history.

Other reasons for credit card no acceptance answers from your application could be that you do not have enough income to adequately cover your debts. In that case you can reduce your debt by paying it off while trying to increase savings. Or you may get rejected because you or your spouse or ex-spouse has a bankruptcy or foreclosure on their credit record. In that case take some time to clean up your credit history, improve your credit score, and then try again.

If you meet with repeated credit card no-go answers each time you do a credit card application, you can still get an approved card, however, by using what is known as a secured card. You deposit money into a bank account attached to the card and the amount you keep on deposit determines your credit limit. Use the card responsibly to build a credit track record and then soon you will be able to apply for a conventional non-secured ordinary credit card.

Not that long ago the whole idea of doing any financial transaction over the Internet was looked at with great skepticism and a bit of paranoia by the average consumer, but that has all changed. These days the online credit card account is a common resource for most people who can use online banking and Internet credit card tools to do everything from online credit card applications to bill payments and online credit card travel arrangements or shopping.

The only difference between traditional credit card use and online credit card management is that instead of dealing through the mail, over the phone, or in person at your bank you handle transactions and other procedures virtually – by using email or going to your online credit card company’s website. You can even get credit card offers through email, respond to them on your computer, fill out an online credit card application, and get a new credit card approved in your name – all with a few clicks of the computer mouse.

The big advantage of online credit card accounts and online banking is that you can access the account, pay bills, check your balance or statement, and do dozens of other tasks 24 hours a day, seven days a week, just by getting to a computer that has an Internet connection.

Once you establish an online credit card account you can schedule bill payment, for example, so even if you are traveling you can still pay your bills on time. You can schedule automatic payments for a future date of your choosing, and you can use your online account to manage your budget, your credit card rewards program, and even your year-end tax accounting. Nowadays you can even pay for things like your license plate registration renewal or real estate property taxes with an Internet credit card. Plus, doing this kind of activity and getting your online credit card statements sent to you electronically reduces the need for paper printouts, paper documents, and mailed statements – which is a greener solution that is better for the environment.

So you are one of those millions of Americans who loves to shop on eBay, and you’ve noticed that within the past year or two almost every single merchant on eBay prefers PayPal payments. In fact, many – if not most – of the sellers on eBay only accept one form of payment, and if you don’t use PayPal then you cannot transact business with them. That’s not necessarily a bad thing, mind you, but PayPal accounts are generally tied directly to your checking account. You buy something, you pay for it on PayPal, and the money gets electronically deducted from your bank account to pay the seller. That’s great, and it’s really fast and convenient – but it does nothing to help you earn more rewards points on the credit cards that pay you in airline miles or other perks every time you choose to use plastic instead of cash.
 
Not to worry. You can still fuel your travel miles account while shopping on eBay and paying with PayPal. Here’s what you do: Once you get to your PayPal account, you will be presented with a page that shows you the details of your purchase, explains the shipping charges if there are any, and gives you a chance to double check and verify your shipping address and other pertinent details. But if you take time to study the page you will also notice that you have more than one choice for how you want to fund the transaction. The default or automatic setting is for it to take the money from you primary source of funds – which is usually going to be either your bank account or your special PayPal credit or debit card if you have one of those.

To use your purchase power to accumulate rewards on a special rewards card, however – such as an air miles card – you should list that particular card as your “back up source of funds” on PayPal. Then it will show up as one of the choices or sources of funds. Check that card – instead of automatically paying through your bank account – and it your charge will go on your designated rewards card. You’ll get your rewards points. You may not be entitled to special purchase protection plans from eBay or PayPal, so that is something you may want to consider. But chances are that your credit card company offers its own types of protection, so that may not be an issue after all.

If you miss a credit card payment deadline – even by just one day – it can cost a considerable amount of money and aggravation. You are charged extra fees, your credit score can be negatively impacted, and it can lead to higher interest rates or a lower credit ceiling.

Avoid that outcome by taking advantage of features that help you make payment on time. One nice one is the email account alert feature that is offered by many card companies. Basically it is just a reminder that your credit card payment due date is approaching, and it is automatically sent to you about two weeks before a payment is due.

Check your email for the reminder and if you are ready to pay, just clink on the handy Internet link provided within the email. It directs you to the sign-in page for your account where you have several online payment options, including an option that lets you schedule the payment on any date you choose so that it hits your bank account when you want it to, not unexpectedly.

But if you waited until the last minute to pay and you aren’t able to pay by computer you still have ways to beat the deadline and save yourself penalties and hassles. Most card companies let you pay over the phone using a special speed-pay service. You will be charged about $15 to use the service, but that is probably less than the late penalty – plus you won’t get a bad report sent to the credit rating services and you won’t be flagged as a delinquent cardholder, as long as you make the phone payment within the specified amount of time to get your payment in before the deadline.

These kinds of features are especially useful if you are traveling for work or vacation and will not get home in time to see your mailed monthly statement and pay the bill. In that situation you can just set up an online account for your credit card. Go to any Internet connection, view your statement, pay your bill, or schedule an automatic payment. Then relax and enjoy your trip.

Credit card companies keep raising fees and interest rates, because they are struggling to survive one of the worst economic climates in history. Every day the headlines describe how another credit card company cut back lines of credit or spending limits while it raised interest rates that were already out of control. But if you are a good customer who has not given your card company any legitimate reason to be hard on you – if you pay your bills on time and do not exceed your spending limits – then you may be able to successful turn things around in your favor. And all it takes for many cardholders is a polite and simple five minute phone call.

Call the card company customer service line, and politely but firmly explain to them that you have been a loyal customer and are satisfied with your card – except that you are able to get a much more attractive rate from another card company that has extended offers to you. Let them know that you will stay with their company only if you can justify doing so by getting a more reasonable rate, and ask them what they are willing to do for you.

If your current interest rate is 20 percent, for instance, you may want to ask for 15 percent instead. If your rate is 15 percent now you might try to get them to lower it to 10 or 12. Usually the customer service representative is already authorized to give you a small rate discount, as long as there are no problems with your account. They will often offer you a lower rate on the spot, and if they don’t you have nothing to lose.

But if your phone call only gets you from 20 percent to 18 percent, for example, you can pat yourself on the back. You just scored a whopping 10 percent discount and it only took five minutes. That’s a much better rate of return than most Wall Street wizards can boast.