From violin shops to property empires, plenty of businesses have started on a credit card. Most of them have failed – but some of them are thriving a decade or more later. And some of them are Google, Inc.

The pros of using a credit card to fund a startup are obvious: you don’t give up any of your equity to others. You don’t need anyone’s approval. You don’t have to pay interest on loan money that you’re not using.

Of course, the cons are many: if your business goes bust, it’s you and your personal credit history that take the full brunt of the failure. There is typically a limit of about $50,000 on business cards, although it does go as high as $100,000. If you don’t pay your balance in full at the end of the month for some reason, things will spin out of control very quickly as credit card interest rates are usually well over 15 percent. And if that’s not deterring you, a 2009 study found that credit card debt reduces the probability of a startup surviving the first three years.

And yet 60% of businesses said they relied on a credit card in some way for their funding.

Frank Gormley

Frank Gormley, a Dubliner who went on an odyssey and now has properties in Ireland, Britain and South Africa, as well as operations in the U.S. and the Middle East, launched his real estate empire with a credit card. In 1987, he first moved to London and was unable to get financing for his development business. So Gormley got a gold card with a £10,000 credit line that he used to buy a small building in Putney. That was all he needed. He “has taken around €1 billion of property” since then.

Allen Shatto, Mike Hosford & Kevin Mullendore (Encore Productions)

Three buddies with jobs at the Tropicana Hotel and Casino in Las Vegas bet on growth in the audiovisual show market and decided to start Encore Productions in 1988. Between the three of them, they could not pull together more than $3,000 for their startup – so they applied, and applied, and applied, until at one point they had about 100 cards and $500,000 in credit. Encore grew into a $16 million company by 1995. Its clients today include a slew of big names from IBM to Nike.

Kevin Smith (Dogma)

In 1993, 24-year-old Kevin Smith maxed out 8 or 10 credit cards, sold his comic book collection, and used the $27,575 thus raised to make the movie Clerks – and the legend of Jay and Silent Bob was born. Six years later, Smith’s Dogma earned $30 million in the box office.

Joe Liemandt (Trilogy)

In 1989, at the age of 30, Joe Liemandt dropped out of Stanford and founded the software company Trilogy. He used 22 credit cards to finance his startup – which 10 years later would have been valued at over $1 billion had he gone public. Its clients today include Ford, Daimler-Chryslter, Prudential and IBM, among many others.

Dixie Huthmaker (Huthmaker Violins)

Dixie Huthmaker says she didn’t know any better when she decided to open up a violin shop in Duluth, Georgia. She had no business history so a loan was out of the question, so she charged up just enough to open her doors. Today, Huthmaker Violins is the largest violin store in the Southeastern United States.

Illana and Kevin Bittner (Pixel Workshop)

In 1992, Illana and Kevin Bittner, two 23-year-old broadcast freelancers, decided to start a business to help them find work. They used a credit card to amass $30,000 worth of video equipment. They really got into digital video editing (this was long before Toy Story) and launched a company called Pixel Workshop. Today, they run a 7,000-square-foot studio in Columbia, Maryland, with clients that include ABC News, the U.S. Air Force, ESPN and the Discovery Channel.

Charles Huang (RedOctane)

In 2005, Charles Huang was having a hard time getting financing for a new project by his company RedOctane. He maxed out his credit cards, developed the game, and RedOctane went on to release Guitar Hero, which sold over 30 million units over the next few years.

Larry Page & Sergei Brin (Google)

In 1998, two friends had an idea for a better search engine. Strapped for cash, they bought used equipment, used open-source software, and helped finance their company on three credit cards. They did attract VC funding eventually, by which point the company was called Google.

Credit card experts advise potential Larry Pages and Sergey Brins to look around for low-interest or no-interest introductory offers, and paying off balances in full at the end of the month. If you do get in trouble, consider balance transfers to another low-interest card, but remember that while in Australia such transfers often don’t incur charges, in the U.S. and U.K., for example, they cost 2 to 3% of the balance, which can add up.

This is another post from Credit Card Compare Blog - The Credit Letter, a creative personal finance blog where we love to share money saving tips and credit card reviews to optimise your wallet!

But a select few stand out for continuing to charge extra for paying with a credit card, despite a worldwide attempt to curb the practice and save consumers millions in the process.

Qantas
Qantas has reportedly made a cool $204 million from charging credit-card-using customers $7.70 for domestic and $30 for international flights, according to consumer advocacy group Choice. Earlier this year, the RBA has given credit card companies free reign in curbing such fees to what it actually costs to process the payment – ranging from 0.8 to 3 per cent. But Qantas CEO said he did not think the rules apply to them.

Jetstar
Budget airline Jetstar charges $8.50 for credit card purchases on domestic flights and $12.50 on long haul international flights, irrespective of the purchase price – which often translated to the equivalent of an extra 20 per cent on a low-cost ticket. In April, a Gold Coast businessman started a Change.com petition demanding that the company drop the fees. Once he got 35,000 signatures, he printed them and made a paper airplane to deliver to the company’s Melbourne headquarters. Jetstar’s response? ‘While Jetstar doesn’t have a credit card surcharge, we are aware of the new RBA standard applying to Card Schemes.’ Apparently, because it’s ‘a booking a service fee’.

Air New Zealand
Air New Zealand is under investigation for its credit card fees, the second time in a year in potential breach of the Fair Trading Act. It charges $4 credit card surcharges per person on domestic flights – but that rises to $6 for trans-Tasman and short-haul Pacific flights, to $12 for a jaunt to Bali, and $17.50 if you want to get out of the Pacific entirely. A NZ Air spokesman said that the airline spent $20.5 million on merchant service fees and recouple just $19.1 million of it.

The United Kingdom’s Office of Fair Trading has also issued rules protecting consumers from surcharges on such budget airlines as RyanAir, EasyJet and Aer Lingus, after calculating that it cost consumers around £300m annually. As of April 6, however, UK companies are explicitly banned from imposing ‘excessive charges’. Britain decided to bring the ban a year before an EU-wide regulation.

The ban, however, could not foil the clever budget airlines – who now charge ‘administration fees’ rather than credit card fees. Nonetheless, of the three budget airlines, only Aer Lingus does not impose any additional fees for using credit cards – it merely charges a €7 / £7 admin fee. But it does charge a separate security surcharge – and heaven forbid you miss your flight or check in late (£75 fee).

EasyJet
EasyJet now charges a £10.00 ‘administration fee’ on all bookings. But not to worry – credit card payments will incur an additional 2.5 per cent fee. Furthermore, while flight transfers and name changes to exiting bookings are free for some credit and debit cards, it will cost another 2.5 per cent to anyone daring to pay with a Visa, MasterCard, American Express or Diners Club.

Ryanair
Not to be outdone by EasyJet, Ryanair has also introduced an ‘admin’ fee since the April ruling by UK’s OFT. Perhaps because it is more budget than EasyJet, however, its admin fee is a mere £6 – and a credit card payment incurs just a 2 per cent additional charge. If you’re curious, however, do check out all the other fees hidden in the middle of its Terms and Conditions page (such as €70/£70 to reissue a new boarding card).

This is another post from Credit Card Compare Blog - The Credit Letter, a creative personal finance blog where we love to share money saving tips and credit card reviews to optimise your wallet!

As many property owners have been made painfully aware of in recent years, what goes up can also come down, often with a thud. No-one is denying it’s a tough economic climate but it’s in just these conditions that smart investors see opportunity. Many a fortune has been made in tough times, but how can you get your hands on much-needed money when your own portfolio needs resuscitating?

1. Shop Around

“If you want to refinance because you need to access more equity there are some challenges, but they can be overcome,” says Head of Mortgage Solutions at Investors Direct Vincent Power. “If more access to equity is your goal, it’s probably better to look for another lender.”

“Banks simply don’t want to know that the value of a property they lent money against three years ago is now even lower than when they lent it to you; and what they thought was an acceptable Loan-to-Value Ratio (LVR) has now become a riskier one to them.”

“Most serious investors will look to use 80% LVR as the normal lending limit for a property, avoiding Lenders Mortgage Insurance (LMI). Whether you need the 80% or not is irrelevant, it’s best to get it. Whatever funds you don’t need, simply place back into the debt until you do need them. It’s far safer to have the funds available than have to approach a lender again later when you need it.”

2. Pay Off Your Loan

“Improve your equity position by paying it off,” says Director of Operations at State Custodians Mortgage Company Heidi Armstrong. “A lot of investors think [only as far as] my plan will be to buy properties, the market value will increase, and that’s when I pull out the equity and invest further. But in a soft market the only other way is that you buy, pay off the loan, and build up your equity that way.”

3. Improve Your Credit History

Make sure you pay all your bills on time, no matter how small. If you don’t have any credit history, get a credit card and pay your bills off each month.

4. Understand All the Features of Your Mortgage

It’s not all about the rate. You need to have flexibility, so you can draw down your loan and use that equity.

5. Avoid Cross-Collateralisation

“It’s a classic mistake investors make and banks are the worst offenders of this,” says Armstrong. “An investor will approach a bank wanting to release equity in one property to buy another. The bank says ‘no problem, here’s the loan approval for the full amount, buy your property. But what the bank has done has crossed the two securities [on both properties] and the loan contract is now tied to both.”

She says this causes problems down the track.

“For example, if one of the properties has great growth and you want to sell it, then the bank will revalue your entire portfolio, and force you to put the $40,000 you made into the loan to keep the LVR acceptable on the original property,” she says.

Armstrong says investors must keep the loan split between the two to avoid those wider implications.

“On the existing property, have one loan with two splits [the original loan plus the new deposit] and then take out a completely separate loan, maybe with a different lender, for the purchase of the second property.’

6. Don’t Panic

“Some people panic when the market goes down but they don’t realise just because the property’s value has dropped, they are still at 60% LVR and there are opportunities,” says Armstrong.

“Between zero and 80% LVR, there’s a lot of room to manoeuvre. You may just have to rethink the size of the purchase … maybe you were thinking $400,000, so now you have to think $200,000.”

“If you are under the 80% LVR, there are opportunities and the more you are under, the more flexibility you have in a softening market. It’s this time when you want to take those opportunities.”

7. Rethink What You Need the Cash Out For

If your property was re-valued at a lower price and want to access the money, be clear about what you need the money for. For example:

Estimated property value: $400,000
X 80% LVR: $320,000
Less existing debt: $250,000
Potential available: $70,000

But if, like in many places around Melbourne and Brisbane, reality hits and it will look more like this:

Actual bank valuation: $375,000
X 80% LVR: $300,000
Less existing debt: $250,000
Potential available: $50,000

So there’s still $50,000 that you can access. But is that enough?

“It’s important to know what you want the money for,” says Power, “If you only want a lower rate, then this result might be acceptable. But if you need the $70,000, then you need another solution.”

8. Go to Another Lender

“You could try another lender and hope for a better valuation, but the problem is most lenders use the same panel of valuers, so odds are you might end up with the same valuer and therefore the same result. Even lenders, who let you get a valuation done prior to the application, don’t let you choose your own valuer so ultimately you don’t get control over the process.”

“Most lenders will let you dispute a valuation if you insist, but you need to provide comparable sales within a three-month period for the valuer to review. Generally the valuer has already done this so the chances you will find something they did not is very, very small. Also, in my experience, a valuer is usually reluctant to change a valuation they have already signed off on, regardless of what info you provide.”

9. Use LMI

Power says your best option, if you really need the $70,000, is to accept the low valuation and use LMI to enable you to borrow past the 80% level.

It would look like this:

Actual loan required: $320,000
Divided by bank valuation: $375,000
LVR: 85.33%

“Because this puts you over the 80% LVR, you will require LMI but you can capitalise the cost of this onto the loan, rather than further depleting your reserves. And you end up with the $70,000 you need,” he says.

10. Use a Professional

Power says presenting yourself positively to lenders is complex and you need assistance.

“I always recommend using a professional when putting your finance application together. There are so many different layers to finance that it is easy to overlook an important aspect simply because you aren’t aware of the importance of it,” he says.

11. Maximise Your Valuation

Personal Mortgage Adviser, Scott McCray, at Smartline Personal Mortgage Advisers says you can do this by preparing your property.

“Present it well. Tidy the gardens, give it a paint job and keep it neat and clean. If you want to add value, make cosmetic renovations such as adding carpets, painting, new lighting and tap fittings, or minor upgrades to the kitchen and bathroom. Better still, why not add another room? Sometimes you can create another bedroom within the existing structure. Or fill in the veranda for a more impressive outdoor area or add a carport.”

McCray adds that if you want to increase your rental yield, you need to make regular reviews as a higher rent influences valuation. But don’t forget you can create equity by purchasing well. “If you buy under market value then it’s easier to gain equity,” he says.

McCray also advises that investors shop around as banks “vary considerably on valuations.”

“If you are not happy with the valuation from your current bank, go to a broker. They can order a valuation up-front from another bank. If it’s higher, then re-finance with that bank,” he says.

“If you are still getting a low valuation, then wait three to six months. And if the market has moved up by then, order another one.”

McCray says if all else fails, you can up your LVR to as much as 95%. “Banks allow you to purchase at 95%, but only allow you to draw up to 90% to access equity. Yes, it will cost you more in LMI initially at purchase, but you can add the LMI to the loan and can keep more cash ready for the next deposit and property.”

This is another post from Credit Card Compare Blog - The Credit Letter, a creative personal finance blog where we love to share money saving tips and credit card reviews to optimise your wallet!

There are those that get to the millionaire status by doing the flying: Thomas Stuker, a Chicago car salesman, took 29 years and almost 6,000 flights to get to 10 million miles on United Airlines, which in turn named a plane after him. The Guinness World Record for most miles travelled belongs to Fred Finn, a retired synthetic pencils licensing specialist from England, who as of January 2013 has racked up over 15 million miles (that includes 718 flights on the Concorde).

And then there are clever hackers…

The Pudding Guy

Among the hackers, still the best-known is American civil engineer David Phillips, who amassed 1,253,000 frequent flyer miles in 1999 by mailing in barcodes from 12,150 chocolate pudding containers (which he donated to Salvation Army, for an $815 tax deduction). He didn’t stop – by 2011 he had 6 million miles.

The Ex-Auditor

Daraius Dubash, founder of Million Mile Secrets, started accruing miles flying for work, as an auditor. Now he keeps a rotating rolodex of around 15 credit cards (his March ‘App-O-Rama’, applying for 6 cards, netted 265,000 miles). He travels a dozen times a year, flew his mother-in-law first-class to India last autumn, and has around a million miles put away for a rainy day.

The Frugal Travel Guy

Rick Ingersoll, a retired mortgage banker and author of The Frugal Travel Guy Handbook, has collected over 5 million frequent flyer miles, flew to 63 countries and went five years without paying for a single flight for him and his wife. His bank-roll is usually at a healthy 1.5 million miles.

The Man with the Plan

Chirs Guillebeau, founder of the Travel Hacking Cartel, as well as the sites travelhacking.org and frequentflyermaster.com, maintains a war chest of close to a million miles across several accounts – but he has been using half a million miles every year in his quest to visit every country in the world before he turned 35. In early April 2013, he celebrated his birthday in Norway – the last country on his list of 193 United Nations member states.

The Original Road Warrior

Randy Petersen, editor and publisher of InsideFlyer magazine and founder of Flyer Talk, has been at the game since the early 1980s. Credit card and airline companies call him when they launch a new frequent flyer mile promotion. Not surprisingly, Randy’s fortune, by his own estimate for Forbes.com, was 17 million miles in 2010 – but he’s quick to mention that several of his customers have more…

A Cautionary Tale: The Frequent Flyer Cello

Lynn Harrel, an American cellist frequently on the road, buys a separate ticket for his $5 million 300-year-old cello every time he flies (as do many cellists). In 2001, Lynn opened an account in the cello’s name with Delta Airlines – ‘Paging Rose Cello!’ – and accrued miles on both accounts. Alas, last year Delta sent him (and the cello, one presumes) a letter terminating both accounts, with no possibility of reopening them.

Obtaining a million miles is not as easy as it used to be, but certainly something anyone can achieve with enough patience and some spare time. Sites like flyertalk.com, australianfrequentflyer.com.au and pointhacks.com.au keep track of current offers and give tips on the best award redemption options. Also, don’t miss our comparison of frequent flyer cards from airlines operating in and out of Australia. You might also be interested in our list of credit cards with sign up bonuses, one of the easiest ways to boost your miles balance.

This is another post from Credit Card Compare Blog - The Credit Letter, a creative personal finance blog where we love to share money saving tips and credit card reviews to optimise your wallet!

The majority of Australian retailers do not tack on a surcharge on credit card payments – but about a third, or around 100,000 companies, levy an additional 2 to 4 percent of the transaction value. An RBA review found that only 23 per cent of small business tack on a charge, compared to 44 per cent of large retailers. Notorious examples exist as well, such as the 10 per cent surcharge levied on taxi fares paid with credit cards, as well as ‘flat’ fees charged by several airlines which often tack on a surcharge on cheap flights amounting to well over 20 percent of the ticket price. That is all likely to change this year.

Credit Cards Hit Back

The new ruling allows credit card companies to limit the surcharges to the cost of processing a credit card, which ranges between 0.86 per cent for Visa and MasterCard and 2 per cent for American Express and Diners Club. Currently, Visa and MasterCard transactions get levied about 2 per cent, while American Express and Diners Club cards get hit with 3 to 4 per cent.

The new regulation is likely to impact different aspects of the economy, according to Dr Harald Scheule, associate professor in the Finance Discipline Group at Sydney’s University of Technology Business School.

‘Australians may be more likely to use credit cards at lower fees,’ he said. ‘Service providers may explore other ways to generate revenues’.

Dr Scheule also points out that charge fees that are based on credit card company fees do not involve cross-subsidies from cash payers to credit card payers; charge fees in excess of costs, however, involve cross-subsidies from credit card payers to cash payers.

“From a welfare standpoint it would be best if retailers would pass on their credit card costs to the consumer using credit cards,” Dr Schele said.

As of March, credit card companies can ‘outlaw’ excessive fees through a system of warnings, fines and threat of contract termination. Visa is the first credit card company in Australia to ban surcharges. A spokesperson for American Express told the Sydney Morning Herald that the company has also updated its terms and conditions following the RBA ruling.

Since the ruling, Visa has received more than 50 consumer complaints, and it’s pushing back. A Sydney travel agency, for example, was forced to half its 2.5 percent surcharge following a consumer complaint.

The biggest culprits, however, appear entrenched for a long battle.

Taxis

Cabcharge’s 10 per cent surcharge was estimated to have fetched the company $90 million in 2012. Company founder Reg Kermode has said Carcharge was not obligated to comply with the ruling. While Cabcharge’s surcharges are the highest in the industry, other booking apps go up to 8 per cent. The Professional Driver’ Association, however, thinks the Australian taxi industry is to be change forever, due to a combination of the Victorian Taxi Inquiry to reduce card surcharges, RBA recommendations and Visa and MasterCard investigations into high surcharges.

Airlines

Jetstar insisted that it only charges a ‘booking a service’ fee of $8.50 per passenger ($12.50 for long haul international flights). Even for single-ticket transactions, customers often report paying a $17 fee. Considering that the budget airline often sells tickets under $100, the service fee often translates into a 10 to 20 per cent surcharge. A petition on Change.org asking the CEO of Jetstar to drop the charges has received 42,000 signatures by April 29.

A Qantas spokesperson said in March that the income it receives from surcharges does not exceed the airlines costs and ‘never has done.’ Last year, consumer advocacy group Choice said Qantas brings in $204 million in card fees, from the $7.70 charged for credit card payments on each domestic flight and $30 for international tickets (up from $25 in 2010).

Many doubt the RBA’s efficacy in enforcing the ruling, but it appears a concerted effort by credit card companies, industry associations and consumers themselves could make 2013 the beginning of the end of obnoxious surcharges.

This is another post from Credit Card Compare Blog - The Credit Letter, a creative personal finance blog where we love to share money saving tips and credit card reviews to optimise your wallet!

How much does your credit card affect your ability to buy a house or refinance your mortgage? And is it possible to use your credit card to buy a house? This calls for a new blog post about your credit card and the castle you live in … or want to live in.

First, a little bit of context about what you need to know about the housing market. Some countries took a big hit though the GFC most notably the United Kingdom, the Republic of Ireland and the United States. Other countries such as Belgium, Canada, Hong Kong, New Zealand and of course Australia actually saw house prices go up and stay up. The Economist have a very helpful residential house price tool to plot house prices across 20 different countries.

Fast forward to today and at the end of March 2013, the Housing Industry Association (HIA) reported that the housing market in Australia was in a period of subdued stability with little prospect of large price swings. There’s “relatively weak by historical standards in terms of transaction volumes” and there has been “anaemic price growth over recent months.” So, no change there then: house prices remain stubbornly high.

According to RP Data and the ABS, the average person earning a wage will need to pay 5.5 times their earnings in order to buy a house. This is still well above the average from 1990 until today. See below:

Those That Have Not

However, for many Gen Y’ers feel frustrated. It feels like we’ll never find more than an old weatherboard home in the “burbs” to live in. If not a shack, then it’s a two bed apartment within striking distance of work in a major city. The general vibe among a lot of potential entrants to the housing market is that it’s like we’ve arrived late to a game of monopoly – all the good stuff has been snapped up long ago and only the junk has been left for sell … and even then its going for big bucks.

The same goes for new house and land packages as builders will tell you with a lot of their business having dried up long ago. According to a March 2013 Master Builders National Survey of Building and Construction builders expect the industry to improve in the medium term, but are still struggling right now.

Melbourne TV producer Tom Whittyer voiced his frustrations in a recent column about his personal search for somewhere to live in Melbourne. It caused a bit of a stir as you can see from the comments.

Those That Have

The other side of the coin is the people who already own property and are paying down their home loan, the low interest rates make it appealing to refinance. The RBA’s last interest rate meeting left things on hold last week at 3.00%. This means it could be a great time to fix your mortgage in at these historically low rates – they are as low as they have been since 2009 when the global financial crisis was most threatening.

Cost of living factors into this whole equation. We made a Cost of Living Heatmap Tool which clearly shows the increasing cost of living from the 1940s to the present day. You can see where the cost of living has increased fastest and see how the cost of goods and services has grown over time. To quote my brother and co-founder, Andy, in a recent article on Your Mortgage, “When you see the ABS pricing data in this visual format, it allows for a very interesting analysis of the price index. The increase in the cost of living is very obvious. It just lights up like a Christmas tree.”

How Credit Cards Typically Factor Into Home Loans

- Short term retail spending on small to medium size items should go on your credit card. For bigger stuff like a new car or a house extension it can cheaper in the long run to put it on a personal loan rather than rolling into your home loan.
- Banks like to package up home loan, personal banking and throw in a few credit card too. But make sure you check what’s out there for those competing products.
- Your credit card’s ‘credit limit’ has an affect on how much of a home loan you can take out in the first place.
- Practically speaking, if you’re carrying a hefty amount on your credit card from month-to-month-to-month then you’re doing two things: reducing your ability to get the home loan paid off faster and putting yourself at risk of getting into financial stress.

New Macquarie Credit Card Linked to a Home Loan

There’s an innovative rewards credit card and mortgage package from Macquarie Bank that links credit card reward options to home loan payments. In other words, you spend on your credit card as you would normally and you can earn Qantas Frequent Flyer points or Mortgage Minimiser rewards options. So imagine that, instead of earning points for a flight to Los Angeles you could trade in your points for cash rebates which are then deposited into your mortgage at $100 or $200 increments.

When the product launched in mid February James Casey, head of Macquarie Mortgages product said, “Consumers and brokers want both the Qantas Frequent Flyer Rewards option available on the Macquarie Visa Platinum Card and Macquarie’s Mortgage Minimiser option as part of an enhanced mortgage package.”

The Macquarie website shows that customers can redeem points as follows:

12,500 Points = $100 MACQUARIE MORTGAGE MINIMISER REDEMPTION
25,000 Points = $200 MACQUARIE MORTGAGE MINIMISER REDEMPTION

What do you think? Good use of points? Will we see more lenders offer products like this?

This is another post from Credit Card Compare Blog - The Credit Letter, a creative personal finance blog where we love to share money saving tips and credit card reviews to optimise your wallet!