Credit Card Advice | CreditCardAdvice.com

Why Are Credit Card Interest Rates Rising?

walter — Fri, 25 May 2012 15:38:16 +0000

It might not make sense to most of us. Even though interest rates on home mortgages have fallen to historic lows, and the interest rates we earn on our savings accounts and CDs are near 0%, interest rates on credit cards seem to be rising. Why exactly is this happening?

Not surprisingly, there are a number of different opinions, and doesn’t necessarily appear to be any single element that’s leading to the credit card rate increases. It’s probable that rising credit card rates are due to a number of different factors, although it’s difficult to know exactly how much each factor contributes to the increase.

Here are some of the possible causes on why credit card interest rates are rising.

Credit CARD Act. Some observers attribute the recent rise in credit card rates to the 2009 Credit CARD Act. The purpose of that law was to reduce or eliminate certain types of fees that credit card companies could charge its customers, and to increase customer transparency into the practices of the credit card companies. It’s possible that when the credit card companies became legally prohibited from charging certain types of fees to its customers, they looked to make up those fees elsewhere – primarily in the form of higher interest rates.

Increasing Delinquency Rates. Other observers believe that increases in credit card rates are simply due to an underlying increase in repayment delinquency. As more consumers default or become delinquent on their credit card obligations, the credit card companies cover these losses by increasing their interest rates.

Traditional Economic Forces. Some suggest that when you look at the state of the overall economy, and other traditional economic measures, credit card interest rates are actually not that high. Rather than comparing credit card interest rates to home mortgage rates and savings account rate, it would be fairer to compare them to historic credit card interest rates. By this measure, credit card rates are not actually as high as we might expect. Instead, it’s possible the market inefficiencies and government support for home mortgage rates has led to that measure being unreasonably low, which makes them an unreasonable comparison point.

Rates Aren’t Necessarily Rising For Every Customer. Finally, the statement that credit card rates are rising might not be entirely true. There’s some evidence to suggest that credit card rates for some customers are holding steady or actually falling. The fact that interest rates are rising for some customers may simply be an indication that the credit card companies are doing a better job at identifying the various levels of credit risk of its customers, and providing its “safer” customers with a lower interest rate.

Of course, the best possible solution for individual consumers is to work themselves into a position where the underlying interest rates on their credit card accounts simply don’t matter. Do everything you reasonably can to pay off your credit card balances each month and you won’t be affected by any increasing rates.

How to Do a Better Job at Managing Credit Scores

walter — Tue, 15 May 2012 15:28:13 +0000

Perhaps more than any other single number, your credit score has a significant impact on your financial health. With a better credit score you’ll be able to pay a lower interest rate on your credit cards, car loan and home mortgage loan. On the other hand, if your credit score is too low you might not be able to get certain types of loans at all. It’s therefore vitally important that you manage your credit score and keep your number high.

In order to do a better job of managing your credit score, you’ll need to be proactive. If you only react when bad things happen, you’ll end up spending a lot more time and effort to repair the damage, all the while suffering the negative effects of the lower score.

Here’s some credit card advice to help you proactively manage your credit score.

Review Your Credit Report Annually. You might already know that you can request a free credit report each year from three of the major credit bureaus (Equifax, TransUnion, and Experian), and that you can always get additional copies more frequently than that if you’re willing to pay for them. If you’ve already made a habit of requesting your reports each year, that’s a good start. But it’s essential that you take the next step; actually reviewing each report. Don’t assume that because you’ve reviewed a report from one of the agencies you’ve learned everything you need to know. The various credit bureaus often have different (and sometimes conflicting) information, so it’s important to review them all.

Set Up Fraud Alerts. While periodically reviewing your credit reports is important, it’s also important that you find out as soon as possible whenever things happen that will negatively impact your credit score. If you ever believe that your credit card or any other personal financial information (such as your Social Security Number) has been compromised, you can set up a fraud alert with the credit bureaus. With a fraud alert in place, each time someone tries to open a new account in your name, the lender or department store should personally contact you to verify that the request is appropriate. This should make it difficult for an identity thief to run up debt in your name and damage your credit score.

Set Up Banking Notifications. Many credit card companies and financial institutions offer the ability to receive notifications (generally either by email or SMS text message) each time there is a change made to your account. Because a compromised checking account often goes hand-in-hand with compromised credit card accounts or identity theft, learning about unauthorized checking account access immediately after it happens can be important information.

Don’t Open Too Many New Credit Lines. Many department and discount stores have recently placed a renewed emphasis on a tried and true promotional technique – offering discounts on a purchase you’re making if you sign up for a store credit card. Opening too many new accounts in too short a time period often damages your credit score, so think twice about getting a new store credit card just to save $5 or $10 on one day’s purchase.

Finally, don’t forget that the foundation for managing your credit score is to make sound financial decisions. Pay down your credit card balances and keep them low. Don’t live beyond your means. These basic guidelines, together with the steps outlined above, will help you keep your score as high as possible.

Stick to a Plan of Reducing Credit Card Debt

walter — Tue, 08 May 2012 14:35:21 +0000

One of the biggest hurdles that many individuals and families face on the path to financial independence is digging out from credit card debt. It doesn’t take long for the balances on multiple credit cards to climb to the point where just the interest charges can amount to several hundred dollars per month. When the first few hundred dollars you pay each month do nothing to reduce your indebtedness, it’s time to come up with a plan to reduce that credit card debt.

While it’s generally not difficult to come up with a plan to lower the credit card balances, it’s sometimes a challenge to stick to that plan.

Here is some credit card advice for getting a plan in place, and making sure that the plan is followed.

Figure Out Where You Are Now. For many people the hardest step to reducing credit card debt is the first one; figuring out exactly where they are now. That’s not to say that it’s actually difficult to sit down and add up the balances of your various credit cards – instead it’s that if someone has been living in denial of their indebtedness, seeing an accurate number can be a harsh wake-up call. When you make this calculation, make sure to note the interest rate for each credit card on which you currently pay a balance.

Call Your Credit Card Companies. The next step in the plan to reduce credit card debt is to try to reduce the amounts you pay each month in interest fees. The quickest way to do this is to call each company and simply request a lower interest rate. If you’ve had a good repayment history, then you might expect to get a positive response from a few of them.

Prioritize Your Repayments. While you could start paying down more on the balances of each of your cards evenly, there are other techniques which might speed repayment. For most, the best technique is to focus on paying down the balance on your highest interest credit card. Simply pay the minimum amount on all your other cards (and make sure to do so on time, every month), and put all your effort and available repayment funds towards the highest interest rate credit card. Once the balance is eliminated, go to the next highest interest rate card and repeat the process. This technique is generally the best from a purely financial perspective, but other people have used another technique to help keep them on track. This technique directs you to pay off the balance on your lowest balance credit card. This way you can quickly have one credit card completely paid off, which can give a sense of accomplishment that helps you stick to your repayment plan.

Spend Less. In order to make sure that you have the most funds available to reducing your credit card debt, it’s important that you begin to learn new habits. The most important habit is to spend less each month. It’s generally much easier to reduce your expenditures than it is to try to increase your income, so focus on ways to reduce your expenses and the credit card balances will come down more quickly.

If your current credit card balances are high, don’t expect that any plan will help you pay them off in a month or two. But as long as you are ready to put forth the time and effort to reduce your credit card debt, you’ll eventually succeed.

Advice on How to Maximize the Benefits of a Rewards Credit Card

walter — Thu, 03 May 2012 15:17:47 +0000

In order to distinguish themselves from one another, many credit card companies have taken to offering rewards programs to their customers. These programs can take different forms, ranging from programs that allow users to accumulate points that they can use to redeem for products, airline tickets or even cash. Perhaps you already have or use a credit card that includes a rewards program.

If they’re used properly, credit card rewards programs can be a great way to get some extra value out of your credit card.

Here is some credit card advice and information to help you maximize what you get out of your rewards program.

Make Sure You’re in the Best Program. The best credit card rewards program is the one that gives you the most benefit for the least effort and expense on your part. But keep in mind that the best “benefit” is going to be different for different people. For example, a rewards program tied to a particular airline might be extremely valuable to an individual who travels a lot, but it will have very little value to someone doesn’t often travel or who doesn’t live near an airport serviced by that airline. Furthermore, unless you’re quite confident of the value you’ll get out of a rewards program, avoid paying an annual fee just to participate.

Don’t Spend More Than Normal. Beware of changing your spending or credit card usage habits simply for the sake of getting more rewards or more frequent rewards. If you spend in ways that you otherwise wouldn’t, you’re drastically decreasing the real value you’re getting out of the rewards program.

Spend Strategically. Even though you don’t want shouldn’t spend more than normal, you can spend strategically in order to maximize the benefits you receive. For example, sometimes your credit card company might offer promotions whereby certain types of purchases (gasoline and groceries are common examples) made within a particular month or other promotional period will receive increased rewards. If you can change the timing of some of your purchases to align with these promotions, you’ll get more out of the program.

Pay Attention to the Fine Print. Don’t make any assumptions when it comes to your credit card rewards program. For example, some credit card companies with airline miles rewards programs limit (through blackout dates or other restrictions) the ways in which you can redeem your points for airline tickets. If you’re not able to use your rewards in the way that’s most beneficial to you, then the program may not be as valuable as you might assume. Also pay attention to whether any of the rewards or points you accumulate are subject to expiration. It can be very frustrating to lose the points you’ve saved.

The first step to maximizing your credit card rewards program is to view it in an appropriate light. Look to find ways to get the most out of the program, but don’t chase after rewards and don’t spend extra money just to get a little bit extra back in the form of increased rewards.

How to Get a Student Their First Credit Card?

walter — Mon, 23 Apr 2012 15:52:44 +0000

As your student begins his or her new life on campus, they’ll need to be much more responsible for their own life as compared to when they were still living at home. Many of these new responsibilities will include taking care of themselves and making sure that they satisfy their academic obligations. But another aspect of this new independence will be financial.

Even students who live in dorms need to be able to manage the financial components of their lives. Since much of adult life involves the use of credit cards (even if it’s just for convenience or financial tracking purposes), it’s not unreasonable for students to want to use credit card themselves. But getting that first credit card can be difficult.

Here’s some advice on how to help a student get their first credit card.

The Credit CARD Act of 2009. Up until just a few years ago, it was very easy (some people might argue it was too easy) for college students to get credit cards for themselves. Credit card companies would set up promotional displays all over campus and give away t-shirts, coolers and other fun items to any student who signed up for a card. Proof of income, or even a demonstrated ability to repay any credit card debt, was generally not a part of the application process. Not surprisingly, many students built up tens of thousands of dollars in debt before they even graduated and found a job. In response to the problems this created, The Credit CARD Act was signed into law in 2009.

Cosigners Now Generally Required. Ever since the Credit CARD Act became law, an individual under the age of 21 must have a co-signer unless they can document that they have their own source of income. This means that if you want to help your student get a credit card, you’ll generally need to cosign with them on the application. Keep in mind, though, that the card will be theirs and they’ll be able to use it up to the amount of the credit limit. As a co-signer, you’ll ultimately be responsible for those debts if they’re unable to pay.

Piggybacking. Another way to get a credit card for your student is through a technique known as “piggybacking.” Through piggybacking, the student is added to a parent’s credit card account as an authorized user. This technique allows the student to help build their own credit score by piggybacking on the good score of their parent. In addition, because the parent is in control of the account, they can monitor what exactly their child is spending money on with the card.

Start Small. Once the student has a line of credit, and is on their way to building their own solid credit history, it’s important not to apply for too many cards for themselves too quickly. With a relatively short credit history, applying for multiple cards in a short time span can result in a hit to an already low credit score.

Remember that getting your student a credit card is only the first step. You should also work with them to make sure that they use the card responsibly, so that they don’t get themselves (or you) into financial trouble.

Opening a New Credit Card for the Sign-up Bonus

walter — Thu, 05 Apr 2012 15:46:23 +0000

Many of us receive offers in the mail every week to open up new credit card accounts. Sometimes these offers come with a bonus for signing up for a new account. Often this bonus is a preferable interest rate (potentially even a 0% rate) for any existing credit card balances that you transfer into the new account. For credit cards that have a rewards program, a common sign-up bonus is to award a fixed number of miles or points for opening a new account.

The prospect of a low or 0% interest rate (or getting thousands of points or miles in a rewards program) is certainly an attractive one. But before you open a new credit card account just for the sake of getting the bonus, there are some additional factors you need to consider.

Here is some credit card advice to take into consideration if you are thinking about opening a new credit card for the sign-up bonus.

New Credit Card Fees. Take a look at the fees that are associated with the new credit card. Look at the annual fee, as well as any ongoing fees (including the interest rate for new charges you make on the account). If the new card program is more costly than your current credit card, then opening the new account might not be such a good deal.

How Much Could You Save? If the sign-up bonus is a 0% interest rate (or a rate that’s lower than your current rate) for any balances you transfer to the new account, then calculate how much you might save by making the switch. Be realistic in how long you think it will take you to pay off that balance, and how much you could save in that time.

How Long Does the Bonus Last? Pay attention to how long the credit card sign-up bonus lasts for, and what happens when the promotional period ends. You might get a 0% interest rate for six months on any balance transfers, but after that the rate might spike up to a level that’s much higher than your current card. If the balance is one that would take you longer to pay off than the bonus period lasts, then you won’t save quite as much in interest charges.

Other Recent Credit Activity. Because your credit score is calculated using a number of factors, including how many times you’ve applied for new lines of credit, you might not want to open a new account if you have lot of other recent credit activity. If it turns out that opening a new account in order to get the sign-up bonus lowers your credit score, then any savings you get from the new card might be wiped out from extra fees and interest you might pay when it comes time to apply for a loan for a new car or home.

Be sure to consider all of the effects of opening a new credit card account will be when you’re thinking about trying to chase the sign-up bonus. If it ends up costing you more than you save, then you might want to steer clear.

Advice on Using a Windfall to Pay Off Credit Card Debt

walter — Tue, 27 Mar 2012 14:26:08 +0000

Not all unexpected financial developments are bad things. For example, you may find yourself the recipient of a cash windfall. A windfall can come from a number of different sources, including larger than expected tax refunds, inheritances or even winning a contest or sweepstakes.

Since a windfall is not money that you planned on receiving, the amount won’t already have a place within your budget. This means that you have options for what to do with the money. You could spend it all on indulgences, of course, but there are more productive uses that you should consider first. One great option is to use the windfall to pay down – or even completely pay off – your credit card debt.

Here is some credit card advice on what to do if you are lucky enough to score a cash windfall.

Save on Interest Charges. Reducing your total credit card debt can help you save a significant amount in interest charges over the long run. For example, if you have a credit card that charges interest at a 20% rate, then paying off just $5,000 of the balance can save you $1,000 a year in interest charges. If you tend to carry a credit card balance for a long period of time, the savings can be substantial.

Free Up Cash For Other Things. When your credit card balances are lower, you won’t need to pay as much each month in interest and/or to reduce the principal debt. This means that you’ll have more cash each month in the future available for other things. When you’re paying less to the credit card companies, you’ll be able to save more towards retirement, a college fund for your children, your “rainy day” fund or perhaps all of these things.

Improve Your Readiness for a Financial Emergency. By paying down your credit card debt, you’ll have more of a cushion available in your emergency fund in the event of a financial emergency. When you’re balances are low, you can charge or get a cash advance for a greater amount if you absolutely need the money. (Of course, you’ll want to access your “rainy day” fund before you borrow for a financial emergency, but sometimes even that fund will not be enough.)

Improve Your Credit Score. Finally, using a windfall to pay down your credit card debt will improve what is known as your “credit utilization” ratio. This ratio compares the balances of all your credit cards to the total credit limit of those cards. Having a high credit utilization ratio means that you are using much of your available credit – and this tends to lower your overall credit score. By lowering your ratio, you will improve your score and make it easier to obtain more favorable rates when you borrow for big ticket items like a new car or a home purchase.

You might decide to take a small portion of your windfall to treat yourself to something extravagant, but don’t pass up the opportunity to greatly help your overall financial situation by using most of those funds to pay off your credit card debt.

How to Get a Credit Card if You Have a Low FICO Score

walter — Mon, 19 Mar 2012 14:27:37 +0000

Many people view having a credit card as a requirement in order to function in today’s consumer economy. For example, you need a credit card to rent a car, shop online or reserve a hotel room (or be prepared for significant hassles and headaches if you try to do any of those things without a credit card).

But what do you do if you have a low FICO score? With a bad credit rating it can seem like it’s virtually impossible to get a credit card. While it’s not impossible, it will take some work and creativity on your part.

Here is some straightforward credit card advice for getting a credit card if you have a low FICO score.

Use a Secured Credit Card. If you aren’t able to get a traditional credit card, you might consider a secured credit card. A secured credit card is actually similar to a debit card because you can only use the card to purchase in amounts up to the amount you’ve previously put on deposit with the card company. So, for example, you might place $500 on deposit with that company, and you’ll be issued a card that lets you purchase up to $500. As you pay down the card balance you’ll be able to purchase again, up to that same $500 limit. These cards might not help you improve your low FICO score directly, but they can give you much of the convenience associated with traditional credit cards.

Get a Store Credit Card. In many cases it’s easier to obtain a store credit card then it is a bank issued Visa or MasterCard. Store credit cards are more limited, of course, because they only let you purchase at the issuing store and generally have a much lower credit limit compared to a bank card. But they do give you the flexibility to shop at that particular store on credit and, perhaps more importantly, store credit cards can help you rebuild your credit score so that you can get a bank issued credit cards later.

Get a Co-Signer. If a close friend or family member is willing to cosign with you on a credit card application, then their credit rating will be used together with yours when the application is being evaluated. Your cosigner is jointly liable for any debt you incurred, however, so if you have problems paying off the balance they’ll either be responsible for paying or suffer damage to their own credit rating.

Ask Again. If you’ve applied for a credit card but were rejected, you might also want to call the credit card company to discuss your application. If you believe that your application was adversely affected by one or two incidents that contributed to your low FICO score, you may be able to explain your situation and have your application reevaluated.

Finally, you should always be working to improve your FICO score. Make sure you don’t make any late payments on any financial obligations you have, and eventually you’ll be able to obtain your own credit card through the traditional application process.

What Should You Do With Your Gift Cards?

walter — Mon, 12 Mar 2012 14:33:25 +0000

If you’re like most people, then there’s a good chance you received at least a few gift cards during the recent Christmas and holiday gift giving seasons. Each year it seems that gift cards are an increasingly popular option for people who may be pressed for time, aren’t sure what to give as gifts or simply want to let the recipient choose a gift themselves.

So now that you have a small stack of gift cards, what do you do with them? If the gift cards are for stores that you don’t normally shop at, for example, you may feel a little bit lost.

Here is some information and advice for getting the most out of those gift cards.

Exchange Them. If you received a gift card for a store or merchants that you truly have no interest in, don’t worry. There are numerous online gift card exchange and trading markets where you can exchange your gift card with someone who has a gift card for a store or merchants that you are interested in. You’ll have to pay a small fee to participate in these online exchanges, but if you can trade your unwanted cards for cards that you’ll actually use, then it’s a small price to pay. You might also be able to skip the online exchanges altogether and simply trade cards with your friends or family.

“Re-gift” it. The tradition of “re-gifting” – taking something you received as a gift and giving it to someone else as a gift – shows no signs of slowing down doing. With a gift card the practice is even easier, since gift cards generally have a broader range of appeal then a particular individual product. This means that you have more opportunities to re-gift cards that you’re not interested in using yourself. But be aware that many gift cards have expiration dates, so you wouldn’t want to re-gift a card that is nearing (or past) its expiration date.

Save Them Until You Need Them. Just because you’ve got the gift card in your pocket doesn’t mean that you have to use it right away. Keep the card in your wallet or your purse, and the next time you happen to need something from that store, you’ll have some or perhaps all of your purchase covered by the gift card.

Go Ahead and Splurge. Chances are the person who gave you the gift card wanted to treat you to something, perhaps something extravagant, and almost certainly something that you might not have bought for yourself. Even if the store isn’t one that you normally shop at, go ahead and shop there anyway. Buy something crazy and enjoy it in the way the gift giver intended.

There are many different ways to use gift cards that you received over the holidays. Whatever you do with your gift cards, just make sure you don’t let them expire! Finding out that you’ve simply let a gift card become worthless can be very frustrating and a wasted opportunity.

Advice on How to Handle Missing a Credit Card Payment

walter — Tue, 28 Feb 2012 15:59:24 +0000

With online banking and bill pay services, it’s become easier than ever to pay bills without having to write a single check or address a single envelope. But sometimes this convenience has a downside. Some people have gotten out of the once common ritual of sitting down at the kitchen table, checkbook in hand, to pay the monthly bills – and this can lead to missing a payment.

Missing any bill payment is a bad thing, of course, but missing a credit card payment can be especially problematic. A single missed payment could result in your credit card interest rate being increased, late fees being assessed on your account and the late payment reported to credit agencies (which can lower your credit score).

Here’s some information and advice for how to handle a missed credit card payment.

Call Your Credit Card Company. The worst way to handle the missing credit card payment is simply to ignore it. If you call your credit card company and explain the situation as soon as you realize what’s happened then you may be able to avoid one or all of the penalties.

Consider Changing Your Spending Habits. If you missed a credit card payment because you didn’t have enough money to pay the bill, then you should immediately figure out how you can change your spending habits to ensure that there are no late payments in the future. Depending on why you didn’t have enough money (a significant one time expense breaking your budget is different than being short of cash or missing your budget every single month), you might also wish to discuss this with your credit card company. If the missed credit card payment is a symptom of a significant problem, for example, then you’ll want to try to work with your credit card company to come up with a payment plan for your account balance.

Identify Why You Missed the Payment. The most important thing to learn from missing a credit card payment is identifying whatever made you miss a payment in the first place. Perhaps you put all your bills in a pile on your desk, and go through them whenever you have time. If you’ve missed a credit card payment then your current system has failed and you need to implement a new system.

Don’t Let it Happen Again. Set up a new system for paying your credit card (and perhaps your other bills as well) to avoid any late payments in the future. This might include setting up automatic minimum payments from your checking account, or perhaps e-mail reminders for you to pay the bills on time. It might even be as simple as setting up an online payment from your checking account on the very day you receive the bill (even if you schedule the payment date for two or three weeks in the future).

Credit cards can provide a significant level of convenience in today’s society, and in some respects they’re practically a necessity. But missing payments on your credit cards could lead to the accounts being closed, and significant damage to your credit score, so make sure to handle any missed payments appropriately.