Credit Card Tips / Terms

We all know by now – after feeling the negative impact of the recession, the credit crunch, and the high rates of unemployment – that it pays to be smart about how we use credit and manage our levels of debt. Right before the worst of the global recession and credit crisis hit, for example, the average American consumer was carrying such a large burden of debt that he or she was actually earning less each month that was being spent.

 

You cannot continue to balance your finances if you are spending more than a dollar for every dollar you bring home from work, but that is exactly what millions of Americans were doing. That’s why the average USA saving rate – which calculates how much money the typical household saves versus how much they spend – was in negative territory when the credit crisis hit. That was the first time it had been in negative territory since the Great Depression, and many economists now blame that lack of saving and obsession with living off of borrowed money for helping to usher in the hard economic times we are all now trying to weather.

 

But understanding a little bit about the history of economics or the national recession might not make it any easier to manage your credit cards and monthly budget, so here are a few tips that may help.

 

For starters, if you are accustomed to carrying a balance on your credit card then this year would be a good time to update your strategies for doing that. It used to be that you could carry a higher balance – or a bigger portion or percentage of your credit card balance – without much trouble. But banks and credit reporting agencies have tightened their policies, and now if you continue to carry balances that exceed 25 or 30 percent of your total credit line or limit, your card company might raise your interest rates and fees. A better strategy is to either carry a lower balance of borrowed money or divide it up between two cards. If you have a credit limit of $5,000 on two different cards for example, and an outstanding balance of $2,000 on one of them then you might be better off keeping only $1,000 on each card.

 

You can, of course, also take advantage of an attractive introductory offer to do a balance transfer at a low or zero percent interest rate. But those offers have also seen some significant changes in recent months. The offers may still have great rates attached to them, but most of the offers are for shorter periods of time. Instead of enjoying the new low introductory rate for the first year you have the credit card, for example, your teaser rate will likely expire after only six months.

 

In addition to shorter introductory periods banks are also charging customers a fee to do the initial balance transfer, so you might get hit with a fee worth five percent of the amount you are transferring. That could make a balance transfer less profitable for you so you should do the math and crunch the numbers to help you leverage credit card debt in a way that works out best for you. Plus, don’t forget that even if you have a fantastic zero percent rate on your card you can lose it overnight if you just make one late payment.

 

Even if you mail your payment and it gets delayed en route to your credit card company, or you make an online payment or payment by telephone but you miss the deadline for the transaction to get credited to your account on time, you will suffer the consequences. You may have a zero percent interest rate and if your payment gets credited to your account just one hour too late, that rate could quickly jump to 25 percent or higher. So the first rule of credit card management is to always make your payments in a timely fashion. Forget that rule and it could wipe out all of your other savings strategies instantly.

Other ways to save money in a big way on your credit cards involve improving your credit score or persuading your credit card company to lower your APR. Raise your score by reducing the ratio of your overall debt to your monthly income and then you’ll be a stronger bargaining position because you will become a more preferred and low-risk customer. Then you can phone your card company and ask for a reduction in your interest rate, telling them that if they cannot offer that you then you may need to take your business to their competitor. If your track record of payments is good and your credit score is high enough they may agree in order to keep you on as a customer.

 

Of course if your credit score is in trouble and you are having lots of problems managing your credit card debt and monthly expenses, you may want to seek help from a non-profit credit counseling service. These professional organizations can show you ways to reduce your debt and get spending back under control, and if necessary they can intervene on your behalf and negotiate with your creditors to get you the debt relief you need.

Almost everyone likes to do retail shopping, and it is especially fun when stores are offering sales and discounts. But there are lots of times when it is better to ignore the retail store credit card offers, despite the allure of getting a discount on your first purchase at the cash register, and instead stick with paying by cash or with your regular go-to credit card. For starters, there are really no additional benefits that come to you for owning a retail chain’s credit card – except for occasional discounts on purchases or special offers. If you get a card for a clothing store in the mall, for example, you cannot use it to pay for a hotel room, a meal in a restaurant, or your purchases at stores in the mall that are not owned by the same identical company. You might be able to use your Gap card at Banana Republic because they are both owned by the same conglomerate corporation, for instance, but if you try to use that Gap card to pay for groceries or rent a car you won’t get very far. That’s because these in-store cards are not affiliated with major card companies like Visa, MasterCard, or American Express. They aren’t tied into the banking ATM system, either, so they will never offer the kinds of flexibility and convenience that comes from carrying a conventional credit card.

Then there is the issue of your FICO score and credit history. Although store charge cards don’t offer the perks of a Visa or MasterCard, they do report to credit rating agencies. So while you might get an instant 10 percent discount on your purchase at a retail store because you applied for their credit card, you might also lose 10 percent of your all-important credit rating because it will show up on your FICO report that you have an additional source of potential debt – namely a new credit card. Each time your credit score is accessed as part of a credit card application, you also take a hit on your credit score. So applying for 2-3 retail store cards during a shopping spree could really torpedo your overall credit score and then make it hard for you to buy a car, get a mortgage, or apply for a traditional credit card.

The interest rates charged on most retail store cards are really high compared with regular credit cards, too, so if you use your card and then carry a balance, you will instantly give back a portion of that savings you enjoyed by getting a store discount when you applied for your card. Let’s say, for example, that you buy a $200 wardrobe and get a 10 percent discount. You save $20 right off the bat. But if the interest rate is 20 percent and you carry a balance, you’ll wind up paying at least $40 a year just in interest. So if you carry the balance and pay it back over a period of three or four months you might also pay $10 or $12 in interest – so you really only saved $8 or $10 at the cash register. Keep using your card and charging new purchases while carrying a balance, and you can wind up forking over a ridiculous amount of money in interest payments. Let’s say you keep a running balance of $500, for instance, at 20 percent interest. That’s going to cost you around $100 a year – which can buy a lot of clothes at a seasonal sales event. If you happen to make a late payment, you’ll get hit with penalties and a much higher permanent interest rate, so you’ll totally wreck any plans to save money and will wind up paying so much more for those store purchases than you ever anticipated doing.

When it does make sense to use a store credit card is when you are a frequent customer and you also never carry a balance but pay off whatever you owe as soon as your store charge card bill arrives. Then you might save money on shipping if you shop online – because some stores offer free shipping to those who use their retail charge card – and you might get some special member or VIP discounts now and then.

But for most consumers – even if you are a frequent shopper at a particular store or chain – a standard credit card usually makes more sense. You can get a rewards card that offers you cash back or rebates, for example, so that instead of waiting around for a retail store discount you can accrue some incremental discounts all the time – on all of your purchases.

Now that new credit card regulations are in place, card companies have become more transparent about explaining to consumers the mechanics of credit card use. The new laws that went into effect in February of 2010 were passed to help protect consumers from being overcharged on their credit cards, having their payments credited too late, or being forced to pay extra steep interest rates on their card balances.

 

The new credit card laws require, for example, that card issuers apply payments made by cardholders differently than they used to. So rather than the card companies charging higher interest over a longer period of time the money paid on a credit card can be applied sooner toward debt reduction. The way that is done is that when you make the minimum payment due it now must be used to reduce your highest interest rate balance first. Banks used to apply that kind of payment to the lowest interest rate balance so that it got paid down faster, which left you still paying the higher rate on the debt you carried forward month to month.

 

Several cards have turned this new legislation into a marketing asset, by using the new regulations in a creative way that actually benefits the cardholder even more. With cards like the Slate from Chase, for example, you can easily figure out what expenses or purchases you want to pay off first, and then the card helps you to do it automatically. You can set up your own individual payment plan with these kinds of card features, and as you schedule your payments you can monitor your progress.

 

Just review your account online, for instance, to instantly find out what debt you are paying off and how much money you are saving by eliminating debt that charges high interest. You can also use these handy new card features to automatically pay for some designated purchases in full every month, so that you never have to pay interest on those items. If you buy gasoline each month with your card, for example, you can set up the account so that none of your gasoline purchases are carried forward. Select from the menu of plans to establish the one that works best for you, and start managing and saving by leveraging the power of these new credit card balance budgeting tools.

These days consumers are watching their expenses more carefully than they have in decades, and any opportunity to save a few dollars is greeted with eagerness. Credit card issuers know what makes consumers tick, and these days they are using their marketing campaigns to appeal to the urge to save while Americans struggle to pay their bills. But credit card cash back programs, rewards card offers, and advertisements for the newest and most exciting rebate card should be read carefully before signing up on the dotted line. That’s because many of these offers have contingencies or terms that need to be met in order to qualify.

 

Some rewards come in the form of gifts or merchant discounts, for example, but those will only be valuable to you if you shop for those items or with those particular retailers. Other rebates kick in after an introductory period or only if your spending limits reach a certain amount. Then there are cards that offer a higher percentage of rebate or reward for specific categories of purchases – but in other categories the perks are less. Card companies naturally emphasize the topmost rewards and highest values in advertising, so the prominent reward or percentage in an ad or mailed offer may only apply to some situations, while the average rebate is smaller.

 

Almost all of them offer perks, for sure, and many are rewarding and valuable. But to make sure you get the right card for your particular needs, be sure to read the smaller print. Thanks to new federal rules and regulations regarding transparency and clarity, that smaller print may have gotten a few font sizes larger in recent months. The consumer protection laws have forced card issuers to be more up-front about the terms of their agreements, and they are starting to use more user-friendly language. So generally speaking card statements and offers are now easier to comprehend. But smart consumers are choosing their credit cards carefully and avoiding the habit of carrying lots of different cards. So if you are searching for the ideal rebate card for your spending and savings needs, read the entire offer and the small print so that you can make a wise and informed decision.

During any economic downturn the prevalence of fraud increases, and in 2010 consumers need to be more vigilant than every about various scams to steal their money, financial identities, or both. Here are three ways to help protect yourself and your bank and credit card accounts from thieves and criminals intent on sabotaging your savings and taking advantage of your good name and credit history.

Invest in a Paper Shredder

Old bank statements, canceled checks, purchase receipts and various other financial documents may be your trash, but they are a con artist or thief’s gold mine. Buy a shredder and use it to shred up all documents related to your finances or other personal information, otherwise they may be plucked from your garbage or even from a public landfill and used against you.

Check your Credit History

Without paying for it you can order a copy of your credit report once a year and review it for discrepancies, mistakes, or evidence that someone else is tampering with it. Take advantage of this opportunity – otherwise someone with bad intentions may take advantage of you.

Guard Passwords and PINs

Once a thief has your password on personal identification number they can burrow down deep into your personal data and – if they are so inclined – wreak havoc on your finances or steal you blind while you aren’t even looking. So protect vital info like passwords by never writing them down and frequently updating them and making them harder to figure out or decode.

Beware of Phishing Schemes

One of the easiest ways to steal is to send you a notice by email that looks just like it came from your own financial institution. Cyber criminals can even use the same logo or create a fake website to convince you, but you should never reply to an email asking you to reply with any confidential info such as your social security number or account password. If you get an email and cannot tell if it is legitimate or not, just phone your bank or credit card company instead.

Shredding and guarding in 2010 could save you from a really damaging victimization by a financial fraud scheme, so be alert, follow common sense guidelines, and then enjoy a more stress-free and safe 2010.

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.