Credit Card Tips / Terms

The traditional way to pay a credit card bill is to detach the “return this portion” of your statement that contains your name, address and account number, along with the address of the payment processing center.

You fill in the amount you’re paying and insert the portion, with your check or money order, in the envelope provided, making sure the center’s address shows through the window of the envelope. Affix a 42¢ stamp (44¢ after May 10) and mail, at least five days before the due date.

The further you are from the center, the more time it will usually take to get there. And vice versa. If you find out there’s a closer center than the one shown on your statement, ask the card company to list that one instead, to save a day or two of transit time.

In case you never noticed, there’s a series of five vertical lines to the left of where you stick the stamp. This indicates to the sorting machine at your local post office’s that there’s a barcode beneath the address, which the machine reads to speed up the processing. If you address a closed-face envelope instead of using the window envelope, this automation is lost and your mail may be delayed.

And that’s important, because if your payment is posted even a minute after the time noted on the back of your statement—e.g., 3 pm ET—on the due date, you’ll be hit with a late fee of $39 or so. Even if it arrived much earlier that day but a clerk didn’t get around to posting it until after the deadline.

It’s hard to ignore Suze Orman.

She was recently profiled in Time. (Calling her “the most recognizable personal-finance expert in the world,” the article said she has about $25 million, almost all of it invested in municipal bonds). She’s been parodied (dead-on) on Saturday Night Live. She’s often on the Oprah show, public television, and other TV shows, and has her own highly rated show on CNBC. She does public speaking (for up to $80,000 per talk), writes magazine articles, and has authored nine books, all best-sellers.

Her most recent book is Suze Orman’s 2009 Action Plan, a $9.99 paperback. It presents numerous situations and then proposes a solution to each. For example:

“Situation: You thought the interest rate on your credit card was fixed at 5%, but it just shot up to 30%!

“Action: There is no such thing as a permanent fixed interest rate on your credit card. The rate is fixed only until the credit card issuer decides it isn’t. It’s a marketing ploy. And credit card companies have all sorts of reasons (embedded in the agreement you accepted when you opened the card) to raise your rate.

“In 2009, you better believe more and more credit card companies are going to jump to increase a low rate on a credit card if you make them nervous in any way....

“You have two options: don’t run up a balance in the first place; or, if you have an unpaid balance, get it paid off.

“When you have a zero balance, what do you care about the interest rate?”

How to eliminate credit card debt—once and for all—is a common topic for personal finance writers. And a popular way to do so, they write, is as follows:

The objective is to eliminate the carry-over balance on one card at a time, until all your cards have a zero balance. The credit card issuers will hate you for doing this, of course. But if you don’t do it, you’ll continue to pay hefty interest charges every month and will owe a balance until you die. Even then, if any relatives or friends are authorized to use your card, those charges will continue until they die.

If you have several credit cards—as most people do—all with carry-over balances every month, select one card and call it Card A. Call the others Card B, Card C, and so on. Then start paying more than the minimum on Card A, while paying at least the minimum on the other cards.

Now here’s where the personal finance writers are divided. Most say that Card A should be the card with the highest interest rate. That’s because—all else being equal—this card accounts for more finance charges than the other cards.

The problem is,”all else” is usually not equal. The carry-over balances are probably all different. Therefore, a few other personal finance writers argue, you should designate the card with the lowest balance and pay that off first. Then you’ll have a card with a zero balance, and anything you charge on it will not be socked with a finance charge—if you pay the balance in full each month.

Naturally, if one particular card has both the highest interest rate and the lowest balance, that’s definitely the card to pay off first.

As soon as you pay off Card A, select another card and start paying off that one, too.

Except when you take a cash advance, most (but not all) credit cards give you a 20-day, 25-day or 30-day grace period.

That’s the amount of time you have to pay for a new charge before any interest charges are applied, assuming there’s no balance on your card at the time. If there is a balance, even if it’s only a few cents, then there’s no grace period at all.

To find out how long the grace period is, read the fine print on your statement. (You may need a magnifying glass.) Read it often because, like most everything else relating to credit cards, it’s subject to change without notice.

Obviously, a 20-day grace period gives you the least amount of time, while a 30-day grace period gives you the most amount of time. If you have a choice when making a purchase, use the card with the longest grace period. (Or, better yet, pay cash.)

It’s also important to note the closing date each month. That’s when all your charge transactions and interest charges for the past 30 days or so are added up and your statement is prepared. If you’re planning to make a credit card transaction around that time, try and hold off until after the closing date, so it won’t appear on the statement being prepared.

And it’s worth repeating: When you take a cash advance—or use a so-called convenience check—there’s no grace period at all.

You're Responsible

When you're in the process of getting divorced, there are dozens, if not hundreds, of things to deal with.
Even so, it's important not to overlook your credit card accounts-especially any joint accounts you may have. That's because you're both responsible for any balance or debt.

So if, after your divorce, your ex-spouse uses a joint-account card to the tune of hundreds or thousands of dollars (depending on the amount of available credit), but doesn't pay for those purchases when the statement arrives, you will have to pay. If you don't, your card may be cancelled and your credit record will be negatively affected. Also, the interest rate on your other cards may be increased.

Therefore, before it's too late, contact the card issuer and ask that your account be converted to an individual account, in your name only. They may do so without any fuss. On the other hand, depending on your record with them or how they currently feel about risk, they may close your account and ask you to reapply on an individual basis. If that happens, they will either accept your request (perhaps with a lower credit limit) or deny it.

Besides credit card accounts, divorce can affect your mortgage, home equity loan, car loan, etc. Don't risk having your ex-spouse run up charges on your credit cards. Cancel or convert any cards that are joint accounts.

This is a guest post from Mr Credit Card from AskMrCreditCard.com. While many people fall prey to credit cards by carrying a balance, paying in high interest rates and getting late fee charges, Mr Credit Card is going to give a few tips on how to actually win the credit card game. You can subscribe to his blog feed here.

For those who carry a credit card balance, you have to be extremely careful these days. One late payment could send your APR skyrocketing. But for those who pay their bills in full, credit cards is and always have been a wonderful to earn rewards and benefits. In fact, only by paying your balance in full and FULLY taking advantage of rewards will you ever win the credit card game.

The 2 primary means of getting something back from your credit card is cash rewards or reward points. I've met many friends who pay their credit card bills in full every month. Yet, they carry a typical vanilla Visa or MasterCard that was issued by an obscure bank and also charges an annual fee.

The first thing I say to them is that they are leaving money on the table. If they are willing to pay annual fees, then at least get a good reward credit card where you can earn points that can be converted to various items like airline tickets or gift cards. Another idea I toss to them is to actually get a cash back credit card, where you can actually get a small percentage of the amount that you charge back as cash rebates.

The first question my friends would ask me is how is that possible to earn rebates. Well, credit cards earn their money from either charging annual fees, merchant fees and from interest they charge those who carry a balance. To entice new customers, credit cards give some of their profits back in the form of rewards.

Here are the steps you need to take to win the credit card game.

Win by Paying Your Bills in Full:  The first in winning the credit card game is to pay your bills in full. If you only pay the minimum required payments, it will take forever to be free of your credit card debt.

Win by Earning Reward Points:  One you get into the habit of never carrying any credit card debt, the next step is to take advantage of rewards that credit cards offer. The most basic form is to pay customers 1% cash rebates for every dollar that they spend on the card. This is much better than earning nothing. However, due to the competitive nature of the credit card business, issuers are offering better deals. For example, some cards are offering more than 1% rebates if you use your cards to buy certain items. For example, gasoline purchases, supermarket spending, restaurants and travel spending can earn you anywhere from 3% to 5%.

Win by Earning Extra Frequent Flier Miles:  Then there are also frequent flier credit cards which are credit cards linked to frequent flier programs. You can earn air miles of a particular frequent flier program when you use that card. Hence, it gives the frequent traveler an additional tool to earn extra air miles to help him or her get the coveted free airline ticket. These cards though, tend to come with an annual fee.

Win by Taking Advantage of Other Perks:  But aside from rewards, credit cards have a lot more to offer. They offer things like car rental insurance so that cardholders do not have to pay extra insurance to the rental companies when they rent a car. Many also extend warranties for products you bought with the credit card for longer than the manufacturer's warranty. 

Summary:  The first things you have to do to win the credit card game is to actually pay your balance in full every month without fail. Better still, set up automatic payments with the credit card company. That way, they have no excuses ever to hit you with a late fee.

Next, you should figure out whether cash rewards or reward points would work better for you. Do some research and pick the right card for yourself.

When you take the above steps, then you win the credit card game. You are using it simply as a convenient tool to pay for your purchases and yet at the same time taking advantage of rewards and cash rebates that the credit cards offer. It is people who carry a balance that do not win the game.

The use of credit triggers to minimize risk or aid in collection may strike most people as legitimate practices for lenders.  But lots of people are driven absolutely wild by the idea that someone can access their credit history in order to sell them a product.

Marketing, however, is now a major reason that lenders subscribe to credit trigger services offered by the three major credit bureaus.

The biggest complaint is loss of privacy.  Why is it Wells Fargo’s business if you are talking to Bank of America about refinancing your house?  What gives Chase the right to discover that your credit profile makes you a prime candidate for its new brand of plastic?

Well, in fact a federal law allows them the right to do this and the Federal Trade Commission (FTC) is quick to defend it. 

The Fair Credit Reporting Act permits the use of information from an individual’s credit report in order to provide “prescreened offers” of credit.  In other words, mortgage and credit card lenders are entitled to such access only if they are actually offering a person credit.  This is the reason people find themselves approved for or even sent checks or cards to access credit for which they have not applied.

As with the risk alert and collection assistance credit triggers we discussed earlier, lenders can specify exactly what kind of customer they would like to court and the three credit bureaus will provide them with suitable names.  Perhaps Citi wants to market a new low mortgage rate to people with existing rates over 7 percent.  Maybe Chase is wants to market its new Triple Titanium card to customers in high-income zip codes or a pre-paid card to people with bad or very little credit.  For a price the credit bureaus are happy to churn out such lists.

Lenders also use triggers to retain valued customers when they find, through triggers, that they are shopping around for new or additional credit services.

Defenders of this credit trigger marketing claim that it works to benefit consumers by forcing financial institutions to be competitive in the rates, terms and conditions of their loans, thus giving better deals to borrowers.

The FTC says on its website that, while clearly lenders benefit from the practice, consumers can benefit, too.  “Prescreened offers can highlight other available products and make it easier to compare costs while you carefully check out the terms and conditions of any offers you might consider.”

If this doesn’t convince you, you have the right to insist your credit not be utilized in this way.  Every prescreened offer you receive must contain a phone number you can call to stop that lender from sending these offers to you.  Or, more effectively, you can call 1-888-5-OPTOUT (1-888-567-8688) or visit OptOutPreScreen.com to stop all three credit bureaus from providing your information for marketing purposes.

Ever inquire, even casually, about refinancing your mortgage or ask your bank about their newest Rewards Card and mere days later find your mailbox stuffed with mortgage or credit card offers? 

Its neither ESP nor coincidence; you’ve hit a credit trigger.

All three of the major credit bureaus – Experian, TransUnion and Equifax – market credit triggers to corporate subscribers.  There are differences in their methods but broadly speaking they sell their ability to inform subscribers about credit activity in one of three areas; risk, collection assistance, and marketing.

Triggers have been around for a long time but have become both more popular and more sophisticated in recent years.  The credit bureaus customize their product to fit customer needs and will provide information on a daily to a quarterly basis.   

For example, a credit card company may buy a trigger subscription hoping to lower risk.  They could ask to be notified when one of their borrowers takes on or appears to be shopping for a lot of new credit lines which can indicate that customer is preparing for or is already in financial difficulty.  Or the trigger could be a sudden pattern of late or insufficient payments on other debts.  Based on risk alerts the creditor may choose to reduce the credit line available to that customer or to monitor his account closely for any further negative developments.

  

In the area of collections assistance, a customer who picks up the pace of payments on overdue accounts may be demonstrating an improvement in his financial condition.  The subscriber, learning this, could target that customer for more intensive collection activity.

Another collections use is as a 24/7 skip trace.  A subscriber can submit the name of borrowers who have gone missing and the credit bureau will alert them when it picks up a new address or an indication of new employment.

The newest and most sophisticated use of triggers is in marketing.  It is also very controversial, so much so that the Federal Trade Commission has taken note.  This is a subject that deserves a discussion of its own and that will be coming up.

Using balance transfers is a valid credit card management technique.  Why pay 13.99 percent interest to Citibank if Chase is only asking for 9 percent?  For that matter, why pay Chase 9 percent if Bank of America charges 1.99 percent? 

Balance transfers have long been a perk offered to new customers and lots of people think that there is only one opportunity to utilize them.  Several people are able to play “musical credit cards” and never pay interest on a credit card - even if there is always a balance.  When one promotional offer is about to run out, they quickly apply for a new credit card from a different issuer and transfer the existing balance for another 12 to 15 months interest free.

However, it can be a pain in the neck to constantly apply for new credit.  Happily, it isn’t necessary.   Many issuers offer their good customers an option to transfer balances at any time.

Chase, for example, offers four options for balance transfers to existing customers who take the trouble to look for them.  Pick the discounted rate and the length of the promotion, weigh the trade-offs between rate and fees, and, as long as the amount you want to transfer is within your credit limit no further approval is required.

If you are working to pay off your credit card balances, here’s a trick we like to call musical credit cards. 

Find and apply for two credit cards that promote balance transfers.  It might take a telephone call to customer service or an on-line live chat to make sure that transfers are always available. Many credit card companies don’t publicize this.  Use one credit card for current charges and one credit card to accommodate balance transfers.   Transfer all outstanding credit card balances to the second card and work on paying that off, using the first credit card for purchases only when absolutely necessary.

When the promotional period runs out, transfer the balance from the second card to the first card and use the newly zeroed out card for ongoing purchases. 

Chances are likely that the balance transfer interest rate on both cards will be lower than almost any regular interest rate, and if you pile on the payments you soon won’t have a balance left to transfer.

    While the economy has taken a turn for the worst, it seems some banks are creatively striking out other ways of generating revenue. Several months ago the Wachovia bubble burst, sparking interest in several big name suitors including Wells Fargo and Citi. Shortly after Wells Fargo took over, they let Wachovia know that they meant business.

    By firing all but one of their top executives, Wells Fargo was sending a message to their newly acquired employees that their resumes should probably be circulating the streets by this point. But more importantly, it let the consumers know that protocol at their financial institution might be changing. So like any person worried about their money, I attempted to contact Wachovia on the matter. Since I am from Durham, I simply searched in Google for the terms "Wachovia Durham" and called the first (800) number that came across the result. I expected to get a low chain receptionist from corporate, but boy, was I wrong.

    Instead of getting a helpful Wachovia employee, I received a "Wanna get with the sluttiest girls your nasty mind can think of?" and my personal favorite "We can pleasure you spread eagle or on hand and knees". While I'm not condoning Wachovia's efforts to create alternative revenue streams, this instance takes it a little too far. It seems 1-800-462-7538 is a win-win situation. Pleasure for you, revenue for them.