Latest Articles by financeglobe http://www.articletrader.com/ Articles at ArticleTrader en-us Your Credit Utilization Ratio http://www.articletrader.com/finance/credit/your-credit-utilization-ratio.html http://www.articletrader.com/finance/credit/your-credit-utilization-ratio.html Sun, 14 Jun 2009 13:25:55 -0500 Most consumers who keep a close eye on their credit score know exactly what a credit utilization ratio is; it's the percentage of your total credit limits that you actually use.

A balance of $1000, with a $5000 total credit limit on all revolving accounts, equals a 20% credit utilization ratio.

A low credit utilization ratio is good for your credit score; it's recommended to keep it under about 30% of your total credit limits, and less than that is even better.

Your credit score will suffer if you use too much of your available credit; thirty percent of your credit score is based on your credit utilization ratio. Maxed-out credit cards will wreak havoc on your credit score.

It's important to be aware of how your credit utilization ratio affects your credit score at any given time, especially if you plan on applying for credit in the near future, such as a home mortgage or car loan, or even a credit card.

A better credit score saves you money in the form of better interest rates and more generous benefits from your lender or creditor.

Responsible credit card users' credit score may not truly reflect their credit habits.
The funny thing about credit utilization is that it simply shows how much you use your credit cards. But it doesn't really say anything about how well you can afford to pay your debts.

Credit cards are no longer used strictly for emergencies like they used to be, and using a credit card doesn't mean that you don't have the money in the bank.

Many use credit cards daily for the convenience of it; swiping a credit card is so much quicker than pulling out cash and waiting for change. In our fast-paced society, those few extra seconds can make a difference in our day.

And the rewards are another reason many responsible consumers choose to use their credit card for monthly bills and daily purchases, when they could just as easily use a debit card for the same convenience.

Smart credit card users know how to get free use of somebody else's money every month, by using their credit card and then paying the full balance before finance charges are assessed.

But using a credit card for most purchases brings up your credit utilization ratio, especially if your credit limits aren't much higher than the amount of credit you actually use each month.

For example, you may consistently put $2000 on your $3000 limit card every month. You never put more on your card than you can pay off each month, and you may not see the need to apply for additional credit cards or a credit limit increase because you believe you will never need more credit at your disposal.

This would seem like the habits of a smart, responsible borrower. But that kind of usage would put your credit utilization ratio at 66%, something that make creditors nervous and damages your credit score.

And keep in mind your credit utilization ratio is not a fixed number; it can change dramatically over the course of one month, depending on when you pay your bill and when the creditor reports your payment and balance to the credit bureau.

Paying your full balance each month would put you at a zero percent ratio immediately after the creditor receives the payment; that should be good for your credit score.

But what if your creditor reports your balance just before you make the full payment? Your credit score will suffer for it, no matter how good of a grip you have on your finances.

A borrower with a low credit utilization ratio may still be in over their head in debt.
A credit limit increase is normally considered to be a good thing. It shows that you've been good at handling your debt with on-time payments, and that the creditor trusts you enough to let you loose with more available credit.

It also brings your credit utilization ratio down, as long as you don't increase your debt load. A lower credit utilization ratio means a higher credit score, and a higher credit score means that you're financially in good shape, right? Well, not always.

The higher credit limits probably won't present a problem for those who are careful about how they use credit. Having more credit available doesn't mean you have to use it, and financially responsible consumers will control their spending, no matter what their credit limits are. These consumers can enjoy the privelege of a higher credit score, and the better financing deals that go with it.

But let's just say we have someone who has managed their debts well in the past, and they have several credit cards with a total credit limit of $10,000. They carry a balance of $2000, and their monthly payments rarely exceed the amount of the interest charges and new purchases each month.

So the $2000 balance is pretty consistant from month to month. With a 20% credit utilization ratio and a good credit score, creditors may eventually decide to increase their total limits to $15,000.

Some consumers in this situtation will spend a little more than usual when they get their credit limit increase. With higher credit limits at their disposal, they can let their balances grow to $3000, while still maintaining a low 20% credit utilization ratio.

A 20% ratio may be great for a credit score, but $3000 is a lot of credit card debt to carry around if you can't afford to pay it off every month, or at least within a few months. A low credit utilization ratio can give consumers the illusion of a manageable level of debt. In reality, the debt may be more than the consumer can afford to get ahead of within a reasonable amount of time.

The worst-case scenario is when a troubled borrower routinely requests credit limit increases in order to keep a good credit score, while maintaining their otherwise out-of-reach lifestyle. Credit limits keep increasing while the debt keeps growing, until the day the borrower realizes they've let their spending get out of hand.

It may eventually become difficult for them to even make the minimum payments on thousands of dollars worth of credit card debt. From there, their credit scores and financial health can be damaged pretty badly.

Be smart in handling your debt.
So, even though your credit score is important for you to get additional financing, it's important to ensure that the dollar-amount of your debt remains at a manageable level.

Someone with a relatively low credit score may own more than they owe and have plenty of money in the bank, while someone with a higher score is barely scraping by and living off of their credit cards. A credit score has much to do with the financing that's available to you, but it really has nothing to do with your overall financial picture.

A good credit score is still important. It's what makes homeownership and buying a nice car possible. It's what get you better deals on credit cards and lines of credit.

A good credit score will make it easier to attain the things we need and want, but having a good credit score, in itself, won't improve your financial situation; it only means that it's easier to borrow money.

Understand where your credit fits into your overall financial picture, and make decisions to improve your financial health, not just your credit score. With careful planning and responsible spending, someday, you may not ever have to borrow money again.

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Credit cards

Source: http://www.articletrader.com ]]> Understanding Credit Card Terms and Conditions http://www.articletrader.com/finance/credit/understanding-credit-card-terms-and-conditions.html http://www.articletrader.com/finance/credit/understanding-credit-card-terms-and-conditions.html Sun, 14 Jun 2009 13:21:32 -0500
Credit card offers are written just like any advertisement; they yell out the good stuff to get your attention, such as 0% interest and then some guy, who talks really fast, reads out the legalities. Most credit cards have something special to offer, and that is what will usually be in the biggest print on the page. While you may certainly become interested in a credit card for its special offer, you need to get the full scoop to make an informed decision about a credit card. Go to the smaller print at the end of the credit offer, and find the Schumer box. The information in this box is required, by law, and will be included with any legitimate credit offer.

Annual Percentage Rate (APR) - This is the yearly interest rate that a credit card issuer charges for the use of credit. The card's APR may be a fixed-rate, but that doesn't mean the rate can't change; the card issuer simply has to notify you fifteen days before a rate change. Variable rate card are more common than fixed-rate cards. A variable rate card's APR is directly tied to an index, commonly the U.S. Prime Rate, but some card issuers use the London Interbank Offered Rate, or LIBOR. The APR is commonly different for various types of transactions; learn the APR for purchases, cash advances, convenience checks, and balance transfers, and be aware of the default rate. A credit card user who usually carries a balance should strongly consider a card with a very competitive APR. A person who rarely carries a balance may still benefit from a credit card with a fairly high APR, if that card offers other useful perks.

Grace Period - This is the length of time before the card issuer begins to assess interest charges, typically 20-30 days with most card issuers. If you can pay off the entire balance before the end of the grace period, you are essentially getting free use of somebody else's money every month. The grace period is usually only for new purchases. Most card issuers do not give a grace period for cash advances, convenience checks, or balance transfers, unless it is part of their introductory offer to you. Also, most card issuers do not give a grace period for new purchases if there's a previous balance. A generous grace period should be an important consideration for someone who pays their entire balance every month.

Annual Fee - This fee, a set dollar amount, will be charged every year that your account is open. Many credit cards have no annual fee, but the ones that do may range from about twenty-nine dollars to over a hundred. Annual fees are commonly charged to those with less than perfect credit, but a card for people with excellent credit may have an annual fee if the card offers generous benefits or rewards, or carries a super-low standard APR. If there is an annual fee, that fee will be assessed every year, whether you use your card or not, and even if there's no balance. Know when that fee will be charged to your account each year. If your balance is nearly at the credit limit when the fee is due, it could cause you to be penalized for going over the credit limit. Not fair, but it has happened to others.

Minimum Finance Charge - This is the smallest amount you will be charged if any finance charge is due. If you had a really small balance, it would be a waste of time for them to add a twenty-nine cent finance charge to your bill. So they round up, to simplify the process and to cover the maintenance costs of a small account. Many card issuers have a minimum finance charge of one dollar.

Balance Calculation Method - Card issuers have several different ways to compute the balance that they will charge you interest on each month.

•Average Daily Balance is the most commonly used method. The card issuer adds up the balances of every day in the billing cycle and subtracts any credits or payments. Cash advances are usually added to the balance, but some card issuers may not include new purchases. Then they divide the total by the number of days in the billing cycle.
•Adjusted Balance is the method that's usually best for the cardholder, since it gives them a chance to pay their bill before finance charges begin to accrue. The adjusted balance is figured by subtracting payments and credits received during the current billing cycle from the balance of the previous billing cycle. Purchases made during the current billing cycle are not included.
•Previous Balance is the amount the cardholder owed on the last billing statement. Payments and new charges are not included.
•Two-cycle Balance may be computed by various methods, involving the last two billing periods.
Miscellaneous Fees - The credit card issuer must disclose any other fees that may be charged to your account.

•Penalty fees may be charged for a late or missed payment, even if it's only late by a day. Pay on-line to avoid late fees for last-minute payments. Most card issuers let you pay this way; go directly to the card issuer's website with your checking account information. Card issuers typically apply your payment the minute you approve it. If you pay through your bank's on-line bill pay service, it may take up to three days for your payment to go through.
•You may also be penalized for going over your credit limit. If you realize that you mistakenly went over your credit limit, check with the card issuer right away; some issuers may forgive you if you pay the over-limit amount before the end of the current billing cycle, but some will charge you that fee if you're over your limit even for a day.
•Cash advance fees are usually a percentage of the advance; about 3% is pretty typical. This fee is in addition to the interest charge for cash advances. Many card issuers charge a significantly higher APR for cash advances, when compared to the purchase APR, unless cash advances are part of their low-interest introductory program.
•Balance transfer fees also tend to run about 3% of the transfer amount, but a few issuers do not charge a balance transfer fee.
•Any other fees that may be charged for transactions must be listed.
The basic information will be found in that chart-form listing called the Schumer box, but also read the tiny print that follows it. They may have other information regarding state-specific laws, perks and rewards, special situations, how the payments are applied, terms of specific types of transactions, or other pertinent details. This will usually be a limited explanation of the card issuer's terms and conditions, and you won't get every specific detail until you actually open your account. With your new credit card, you will receive a pamphlet called the Cardholder Agreement. Read and understand your Cardholder Agreement; it is a contract. If you there's something you don't like in that contract, don't use your card and close your account.


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0% Balance Transfers

Source: http://www.articletrader.com ]]> Preventing Unauthorized Use of a Credit or Debit Card http://www.articletrader.com/finance/credit/preventing-unauthorized-use-of-a-credit-or-debit-card.html http://www.articletrader.com/finance/credit/preventing-unauthorized-use-of-a-credit-or-debit-card.html Tue, 07 Apr 2009 09:52:59 -0500 Electronic payments are safer than cash. Credit and debit cards are such a convenient way to pay that many consumers use a card for nearly every purchase.  And not only are cards convenient, but they're safer than carrying around lots of cash. 

A cautious person whose paying at the register, with a wallet full of cash, instinctively looks around to make sure nobody has noticed how much money they're carrying.  You never see that from a person with a wallet full of credit cards.  And if cash is lost or stolen, it's likely to be gone for good.  Credit and debit cards have a liability limit, depending on the circumstances and how quickly you report it to the financial institution or card issuer.

The Fair Credit Billing Act (FCBA) and the Electronic Fund Transfer Act (EFTA) offers procedures in the case of credit or debit card loss or theft.  Report the loss or unauthorized use of your credit or debit card as soon as you find out about it.  Call the customer service department number located on the back of the card; this number can also be found on your account statements if your card is not in your possession.

Credit card loss or fraudulent charges (FCBA) Federal law states that the consumer's maximum liability for unauthorized charges on a credit card, under any circumstances, is $50.  If you report the loss before the card is used, then you will have no liability for fraudulently incurred charges.  If the card has already been used by the time you report it, then your maximum liability is $50.  Y ou have zero liability if the loss is of only your account number, and not of the card itself.  It's likely you won't even know about this kind of theft until you receive your monthly account statement and notice charges that you didn't make.  In this case, it may be necessary to close your account and be issued a new account number, since you won't know if or when the thief will try to use the account again. Debit or ATM card loss or fraudulent transfers (EFTA) Debit and ATM cards are a little trickier, and potentially more costly in the case of loss or theft.  Your ATM or debit card gives access to all the money in your bank account, which can amount to a huge loss if you don't catch it quickly enough. If you report the loss before your card is used, then you have no liability for unauthorized charges. If you report the loss within two days of noticing the loss, then you won't be liable for more than $50. If you fail to report your card missing within two days, you could be held responsible for $500 because of an unauthorized transfer.  And your loss could be as much as all the cash in your bank account, as well as your overdraft line-of-credit, if you don't report the unauthorized use within 60 days of receiving your account statement in the mail. If the loss is of only your account or card number, and not of the card itself, then you will only be responsible for unauthorized transfers made after the 60 day period of receiving your statement, if you haven't yet reported the loss.  So say you receive a bank statement, and notice a transfer you don't remember, but can't say for sure you didn't authorize it. 

Then the next month you see another transfer and are now positive that you didn't authorize it.  Report it to the financial institution immediately, and you won't be liable for the charges.  You be responsible for any charges that occur after the 60 day period if you put off reporting it any longer.

A quick response is key to limiting fraud losses.   The first and most important reaction to unauthorized use of your credit or debit card or account number is to report it promptly.  Don't wait for any reason.  Even if you aren't sure, it's better to let the card issuer or financial institution assist you in finding out where the suspicious charges came from.  You may find that it was fraud, or a simple oversight on your part. A merchant you've done business may show up as an unfamiliar corporate name on your statement.  Or maybe you had signed up for a membership and forgot that the subscription would be automatically renewed through your credit card, long after you've stopped using their services.  That's okay, some of use our cards so routinely that it's difficult to keep track of it all.  It's better to verify charges immediately, for your peace of mind if nothing else. Protect your cards and their numbers.      

  • Use a credit card for on-line or over the phone purchases, not a debit card.
  • Use Pay-pal if you want to make an on-line purchase with money in your bank account.  You'll only have to give your bank information to that one company, instead of many.
  • Never give a credit or debit card number to anyone who initiated a phone call, unless you are sure of who you're dealing with.
  • Safeguard your ATM card PIN and keep it separately from your card.  Better yet, memorize it and destroy any document that contains it.
  • Never put your account number where is it visible on your mailed correspondence.
  • Don't sign blank credit card receipts, and draw a line through any blank spaces so the total charge cannot be altered.
  • Carry only the cards you anticipate using, and put the rest in a safe.
  • Keep a record of all your credit and debit cards in a safe place so that you have the needed account and phone numbers in case you need to report a loss.
Card registry services With an annual subscription fee, a card registry service will notify all your card issuers in the case of loss or theft, and will often assist you in getting replacement cards.  The main benefit is that you only need to report your loss with one phone call, as opposed to phone calls to all your card issuers. It's up to you whether a card registry service is worth the expense, about $25 or so a year, depending on who you go with. Credit card registry services may be useful for those who often travel outside of the U.S., since it becomes more complicated to replace lost cards while travelling in foreign countries.  Or it may be a good idea for someone who has a large number of cards; it may not be worth it for someone with just a few. Many of the credit card registry services I found on the web are for Canadian credit cards, but a few U.S. card issuers offer their own card registry services. But to me, it seems similar to paying for insurance you'll probably never need. Really, how often does the typical person lose their entire wallet? While there is always the possibility, I think it would be safe for most reasonably cautious people to believe that it would never happen, or maybe happen once in their lifetime. I am willing to take a risk that I would have to call all my card issuers personally if it did. (Watch me lose my wallet this week.)

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Finance Globe is an independent personal finance research firm.

Source: http://www.articletrader.com ]]> Getting the Most From Your Rewards Card http://www.articletrader.com/finance/credit/getting-the-most-from-your-rewards-card.html http://www.articletrader.com/finance/credit/getting-the-most-from-your-rewards-card.html Wed, 29 Oct 2008 00:00:00 -0500
Rewards cards typically give you one point for every dollar spent, and some cards give you bonus points if you shop at particular merchants, or for certain types of purchases like gas and groceries.

Read and understand the details of your card's rewards program to ensure you actually benefit from it. Also, pay attention to special promotions that may help you accelerate your points earnings; my rewards card occasionally gives me 5x the points when I use my card for bills within a specific time-frame.

Consider the cost of your rewards
Those with excellent credit can often qualify for a generous rewards card with no annual fee. People with average to good credit may have to pay an annual fee to get the rewards card they want. It may be still be worth paying a fee to earn rewards that you can use if you use your card often enough to benefit. Do some calculations and figure out if your annual credit card spending justifies paying a reasonable annual fee.

Keep in mind that a rewards card is not the best choice for those who normally carry a balance. The APR on rewards cards tend to be significantly higher than a similar card with no rewards; the higher interest charges could easily cancel out any benefit you'd get through the rewards program, and can even cost you more than they're worth. Pay your full balance every month by the end of the grace period to avoid finance charges and to ensure you really get the most from your rewards card.

And a rewards card is often not a good choice for "emergency only" usage. Definitely not worth it if there's an annual fee, since you wouldn't use the card often enough to build enough points in a year's time to redeem for much of anything. Even if there's no annual fee, it could possibly takes years to earn a blender or toaster or $25 gift card, and you're paying for it with a higher APR than a non-rewards card.

Racking up rewards points is good, as long as you would have spent the money even without the rewards. But don't spend any more than you would if you had to pay cash. This advice really applies to any credit card, but some consumers find it even easier to justify over-spending when they've got their eye on a gas grill or a luxury weekend vacation on the card issuers' reward-redemption shopping site.

And what are your rewards really worth?
Let's put the value of rewards into perspective. You get one point for one dollar spent. And, generally, a point is supposed to be worth about a penny's worth of reward, meaning you get back one cent for every dollar you spend, one dollar for every hundred, and ten dollars for every thousand. That doesn't sound like much, and it really isn't - especially when you consider that many card issuer's don't even give you the full value of the rule-of-thumb penny for a dollar.

Point values can vary by the card issuer, so check your card's rewards program guidelines for the full details.

Cash-back rewards often require you to reach a certain spending point before you can redeem your points for cash. Or, you may not get back a full percent for each dollar you spend until you reach a certain level. Even if they don't give you a penny for a point, at least you'll always know the full value of what you're receiving. It really isn't a lot of money for the amount of spending required to "earn" it, but it's cash. And you were going to spend the money anyway, even without the rewards. So it really is free money.

Gift card rewards can be the best deal if you get a gift card for a merchant that you normally shop with. Save up your points for gift cards of larger denominations; low-value cards typically cost more on a per-point basis. For example, a $10 gift card may cost 1500 points, but a $100 gift card may be 10,000 points. Compare the different denominations with your card issuer, and delay redeeming your points until you've reached the level where you won't be losing by redeeming too few points at a time.

Merchandise rewards are fun, you can occasionally pamper yourself with some of the luxuries you may not have bought outright. But before redeeming your rewards points for merchandise, check around to see what the items are really worth. You'll often pay a premium for the merchandise; I checked directly with the merchants online for some of the items that my card's rewards program offered. Some examples:


  • ADIDAS Tour 360 II Golf Shoes cost 23,000 points but retails for $180,
    and many dealers currently have them on sale for $120.

  • Razor RipStik costs 15,500 points but sells for about $75 at most
    retailers.

  • Beer of the Month 3-month subscription looks like a $125 value at 12,500
    points, but actually sells for $99 at the company's website.

  • The Fossil Classic Sport Watch, retailing at about $115 was actually a
    good deal at 7750 points, equivalent to $77.50 in rewards points.


Travel rewards may offer a good value on a per-point or per-mile basis, but they can also be difficult to use. Before redeeming your points on travel discounts, check on blackout dates, fees to book your travel, and other restrictions that may complicate your travel plans.

Charity donations don't give much bang for your points. You won't be able to deduct the amount of the donation on your taxes because the donation will be made by your card issuer, and not in your name. If you itemize your deductions, you would be better off if you used a cash-back rewards card, donate the cash reward, and take your charitable contribution deduction.

One or Many Rewards Cards?
Look into rewards cards that offers bonus points; some cards give you 2-5 points on purchases that qualify for bonus points, and then one point for everything else. You can really rack up points by using a couple of different rewards cards based on the types of purchases you make most, and then use the card that gives you the biggest benefit for any given purchase.

A cardholder with a large family and a spouse that often travels for business can accelerate their point accumulation with two rewards cards, one that gives bonus points on gas and groceries and another that gives bonus points for hotel stays and travel costs.

Or, consider using only one rewards card regularly, rather than several. Using one all-purpose rewards card can make it easier to keep track of your balances and due dates, as well as earn the bigger-ticket rewards faster, since all your points or miles will be concentrated on the one card. Too many rewards cards, and you may dilute your efforts in point-building. One card may suit you if it offers bonus points on the types of purchases you spend the most money on.

Maximizing your rewards
Be aware of any restrictions on redeeming your rewards, including expiration dates, maximum point limits, blackout dates on travel.
You can use your rewards card for many types of expenses: gas, groceries, shopping, entertainment, travel, utility and medical bills.
Paying other debts and some utilities with a credit card may be possible, but there may be fees associated with making a credit card payment. Paying a "credit card processing fee" could easily cost more than the value of your rewards.
Only use your rewards card for purchases you were going to make anyway.
Pay your balance each month to eliminate interest charges and to ensure you are actually being rewarded by your normal spending.
Rewards points are not usually earned on cash transactions, including cash advances at an ATM or at check-out, convenience checks, or balance transfers.


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Finance Globe

Source: http://www.articletrader.com ]]> Credit Card Convenience Checks http://www.articletrader.com/finance/credit/credit-card-convenience-checks.html http://www.articletrader.com/finance/credit/credit-card-convenience-checks.html Wed, 29 Oct 2008 00:00:00 -0500 Convenience Checks
Anything that has "convenience" in it name should signal that you're going to pay for that convenience. Convenience foods save time and cost more because of it, convenience fees are added to online purchases for concert tickets, and convenience checks are one of the most expensive ways to access your card's credit line.

If you have a credit card, chances are that you've already received some of these convenience checks; they're often mailed to you without you even asking for them. The card issuer tells you that you can use them for anything, and you can pay anyone with them. Well, yes, it's true.

But before you use one of those convenience checks to pay your nanny, your landlord, or even yourself, take the time to find out what it will cost you. Those blank checks may be tempting to use, but it's usually a big mistake to take them up on their offer.

Convenience checks are more expensive than using your card for purchases
Convenience checks are considered to be cash advances, and carry the higher cash advance rate of anywhere from 18% to 21% APR, or even more. There is often a fee of 3% to 5% on top of the APR, and may have a minimum charge of anywhere from $10 to $25. Also, there is no grace period on cash advances, including those accessed by a convenience check. Interest will begin accumulating as soon as the check is used.

It may take a long time to pay off a convenience check purchase at a higher APR because most credit card issuers will apply your payments to the lowest-interest charges first. For example, if you carry a balance of $1000 at 12% APR and use a convenience check for $1500 at 20% APR, all your payments will go towards the 12% debt until it's paid off. All the while, interest will continue to accumulate at 20% on the $1500 check purchase. Very bad news if you normally carry a balance.

Some card issuers will give you a promotional rate or an interest-free period, or use a number of other tactics to encourage you to spend money on credit. They may encourage you to use your convenience checks to pay off other debts or to transfer balances from another credit card. While an interest-free period may work out to your benefit in a balance transfer, keep in mind that there is likely to be a balance transfer fee of 3% to 5%.

Also, keep in mind that card issuers' "pay the lowest-interest balance first" policy can work against you if you carry a balance and use a zero-interest convenience check. Let's say you have a current balance of $500 at 12% APR. You think you're getting some interest-free time with a convenience check and decide to splurge on a cruise for your family for $2500. Your payments will only be applied to your interest-free balance until your vacation is paid off, all the while your $500 balance continues to grow at 12%.

Read the entire document, including the teeny-tiny print, to get all the details. If the interest rates aren't included with your convenience checks, you may have to call your card issuer to find out.

Convenience checks don't give you as much protection as a credit card purchase.
The nice thing about credit cards is that your card issuer will help you by dealing with the merchant if there's a dispute about the merchandise; convenience checks don't offer the same kind of protection. You may just be out of luck if you buy something with a convenience check and it breaks the next day, or if you order something and don't get what you thought you paid for.

You can still dispute a purchase if it was made with a convenience check, but your card issuer really has no obligation to help you out. Credit cards gives better protection, brought to you by the Fair Credit Billing Act.

If your convenience checks end up in the wrong hands, they can provide a thief with access to your credit card account.
With convenience checks sent to some households with every billing statement, there's bound to be some checks that end up in the trash with the junk mail - a perfect opportunity for dumpster-diving crooks to cash in on your credit line. Treat those convenience checks just as you would any of your other private information; safe-guard them or shred them.

You can try calling your card issuer to ask them to stop sending them if you're afraid of someone stealing them. Your card issuer may honor your request, or they may keep sending them in hopes that you can no longer resist their offer. At least it's worth a try.

Resist your card issuer's attempt at getting you to spend more.
A credit card is accepted at nearly any merchant, but card issuers want to make sure you have a way to pay for things that you can't with a credit card. So, convenience checks are the next weapon in their arsenal of "getting you to spend more". Card issuers want to make sure you have as many options as possible in accessing your credit line - like having only a credit card isn't temptation enough to spend. The more ways you have to run up your balance, the more ways they have to make money. Just make a smart decision in your use of credit, whether your spending is by charging it on your credit card or by using a convenience check.

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Finance Globe

Source: http://www.articletrader.com ]]> The Student's Guide to Credit Card Use http://www.articletrader.com/finance/debt/the-students-guide-to-credit-card-use.html http://www.articletrader.com/finance/debt/the-students-guide-to-credit-card-use.html Tue, 08 Jul 2008 00:00:00 -0500 student credit card.

Credit card issuers set up booths around campus, offering freebies to anyone who applies for a student card. Student cards are targeted to young adults who don't have much credit and debt experience. Unfortunately, many college students are quick to apply for credit card after credit card, without a sound debt management plan. Six years of pizza, beer, and minimum payments often leave a young adult with a substantial debt before they've even secured the job that they've received their education for.

It may be difficult for an inexperienced credit card user to fully grasp the consequences of over-using a credit card. Everywhere they go, credit cards are an accepted form of payment. Their friends may pay for all their purchases with the swipe of a credit card. The minimum payment is so affordable; they may believe they can pay the minimum and continue their lifestyle until they start making the big money after graduation.

The problem is, that many don't realize just how hard it will be to pay off the debt once they do graduate. Life doesn't become much easier once college is finished; it's often even more complicated. Rent, utilities, groceries, student loans, and other debts are a few of the expenses that will take a big bite out of the graduate's paycheck. And they will still have many of the same additional expenses that they had in college; you don't lose the desire to own up-to-date electronics, wear nice clothing, and go on vacation just because you're finished with school.

To top off the additional expenses, many students don't enter the workforce making what they may have anticipated. The job market may be tougher than when they enrolled, and they may have to take entry-level positions with lower pay. When that lower income is further reduced by income taxes, they could end up bringing home way less than they thought. They may have thought out their after-college debt repayment plan, but it can't happen if the income's not there to support that plan.

So should a student by-pass all the credit card booths on campus and vow to spend on a strict cash-only basis? No, it's important for a student to add Debt Management to their list of required studies. Credit cards are practically a necessity in our modern world; I am not suggesting that a student cut up all their credit cards. Responsible use of credit will build a credit history and increase the student's credit score. A healthy credit score is necessary for the best rates and terms for all types of loans in every stage of life.

The student should get some practice in managing their debts during their college years; college is all about learning. Right? The student is smart to start off with one, maybe two credit cards. More than two is over-kill, and only provides the student with more payment due dates to remember and more balances to keep track of; more opportunities to miss a payment and more chances to exceed a credit limit. Even one late payment or over-limit for one day is reason enough for many credit card issuers to apply the default rate; the default rate is commonly as much as 28% APR!

There are plenty of cards with no annual fee; look for these to save money. Be aware that if the card has an annual fee, they will not send you a separate bill for it. It will simply be charged to your credit card account, which will immediately reduce your available credit. Also, this annual fee will be assessed every year, whether you use your card or not. You may be able to have the fee waived if you have never exceeded your balance and you've made all your payments on time for a year or more; check with your card issuer's customer service department.

With every swipe of the credit card, the student should be very aware of their credit card balance and their available credit. Student credit cards may have a credit limit of only several hundred dollars, which makes the limit even easier to accidentally exceed. Don't count on the card issuer to cut you off when you have reached your credit limit; they will probably approve a charge if it exceeds your limit by just a small amount and then they'll charge you for it. Forgetting that the annual fee payment is due when your card is maxed out is all it takes to get hit with over-limit fees and default rates.

Read the entire credit card statement every month. Don't make the mistake of only checking on the available credit and the minimum payment due; that will pave the way for poor debt management. Check that your APR is still what you thought it was; a credit card rate can change to the default rate if you fail to adhere to all the credit card's terms and conditions. Some credit card issuers will increase your APR if you have other delinquent accounts, even if you're still in good standing with them. This common practice is known as "universal default", and can punish you for mishandling any of your debts.

Pay the balance in full every month before the end of the grace period to avoid any finance charges. The minimum payment is designed to keep a credit card user in debt for literally decades, and the higher the balance, the worse it is. If you can't pay off the balance every month, at least pay as much as you can afford. It's a hard habit to break, if a credit card user get accustomed to paying only the minimum payment. Be sure that your debt management experience teaches you how to handle debt wisely, and don't fall into the same trap that many other credit card users have fallen into.

Be sure to pay your credit card bill in plenty of time to avoid late fees and default rates. On-line bill paying is a fast, secure way to ensure on-time payments. If you bank on-line, you can set up payments in advance with a pre-determined pay date. Be aware that it may take several days to a week to post to the credit card issuer; your bank will probably give you an expected post date when you set up the payment. Also, many credit card issuers allow you to make secure payments directly through their website. They will require your bank account info, and they'll withdraw the payment directly from your checking account. These types of payments typically post to your account the minute you pay on-line, and is a quick way to pay when you "almost" forgot the payment was due.

If you want to be sure to never miss a payment and be charged late fees, listen up. This will be the one time I recommend paying the minimum payment. Set up a recurring on-line payment to your credit card with your bank. Set the payment date for a week before the credit card payment due date, and set the payment amount as your typical minimum payment. Read the credit card's term and conditions and cardholder agreement to find out how they compute the minimum payment. The minimum payment is normally 2% of the current balance, with a minimum of $10 or $25, depending on the card issuer. If you want to be totally safe, compute the minimum payment by figuring your balance as your credit limit, so even if your card is maxed out, you will have paid enough. With your recurring payment in place, you will have never missed a payment.

In addition to your automated recurring payment, you should still make a larger payment every month. Subtract the amount of the automated payment from that month's balance, and pay the whole thing off before the end of the grace period. If you remember to do this before the payment due date, you will avoid all finance charges. If you forget to pay until after the credit card bill was due, at least you won't be paying late fees, but you'll pay a month's worth of interest. Get in the habit of only charging what you can afford to pay back each month. Doing this will ensure you develop sound debt management skills, prevent you from living beyond your means, and provide you with free use of somebody else's money every month.

--
Finance Globe

Source: http://www.articletrader.com ]]> Balance Transfer Credit Cards http://www.articletrader.com/finance/credit/balance-transfer-credit-cards.html http://www.articletrader.com/finance/credit/balance-transfer-credit-cards.html Fri, 11 Apr 2008 00:00:00 -0500 The credit card balance transfer is popular with credit card users.

The balance transfer can offer interest-rate savings on credit card debt. A
balance transfer simply means moving debt from one or several credit card
accounts, to a low or no-interest credit card account. These super-low teaser
rates will last for about six months to a year, on average, with most card
issuers. A cardholder may be offered a low-interest balance transfer rate by one
of their current credit card issuers, or they may choose to apply for a new
credit card to get this tempting rate.

Before you consider any credit card for any reason, know what you're getting
into. Start by reading and understanding all the terms and conditions of the
credit card, not just the ones pertaining to the transfer in big, bold letters.
Find out the annual fee, default and other rates, and know what the card's APR
will be when the introductory period is over. I can't count how many times I've
received an offer that looked interesting until I got half way through the fine
print on the back page.

Credit card issuers still plan on making money from this deal.

Before you decide if a balance
transfer credit card offer is right for you, you should consider the other
side of the coin. Why would the card issuer offer such a low rate to begin with,
and what's in it for them? Understand that when a credit card issuer offers a
low-interest balance transfer, they are making an investment. Why else would
they loan you money for free? Credit card issuers are in the business to make
money, and this is a creative way for them to potentially increase their profits
in the long run.

To begin with, many card issuers charge a balance transfer fee; 3% of the
balance is pretty standard, now. So, add that 3% to whatever rate they're
offering you, to get a realistic idea of the balance transfer savings. There may
be a dollar-amount cap on the fee, which may range from fifty dollars to
three-hundred, or no cap. These fees are usually charged immediately when you
start the balance transfer process. It's important to know what up-front fees
you'll be paying for the interest savings; read all the fine print carefully.

Know that their best rates are reserved for consumers with excellent credit.
The credit solicitation may have "0% balance transfer" in big bold letters on
the front of the credit offer, but that will be the best terms possible to those
with perfect credit. Receiving a pre-screened credit offer does not guarantee
that you will get the best terms that are advertised. If you respond to the
credit offer with less than perfect credit, the credit card issuer may adjust
the introductory rate to one that they deem appropriate for your credit
standing. Those with credit blemishes or new credit histories may not realize
that they are transferring a balance to a new card that doesn't offer much
benefit in the way of interest savings. Be sure to check out the actual rate
you've been given once you receive your new credit card.

Also, see if the interest rate applies only to the transfer amount, or if new
purchases will also get the low rate. If different rates apply to new purchases
and balance transfers, many card issuers will apply your payments to the lowest
interest debts before they apply it to your higher rate debts. So if you
transfer a balance of $5000 at 0%, and your new purchases get the standard 18%,
you'll be paying that higher rate on everything you buy, without a grace period,
while you're trying to pay off the original $5000. If you choose a credit card
that works this way, the best thing to do is to not use the card at all, until
you knock down the amount transferred.

Be sure you are able to keep up with the payments if you choose to move all
your debt to one credit card. Many cards that offer super-low introductory
balance transfer rates are often the ones that charge extremely high default
rates. If you don't keep your end of the bargain, they will more than make up
for what they gave you. Some card's default rates are as high as 28%, which is
enough to bury someone in the debt they were trying to get out of. One day late,
one returned payment, or one dollar over your credit limit is enough for many
card issuers to apply the default rate.

In addition, card issuers are banking on the chance that you will not pay the
debt off in time. Not only do many consumers fail to pay off the debt, but
oftentimes the debt is higher than they started with, due to new purchases. This
leaves the cardholder with a substantial debt to pay interest on. In order to
make up for their 0% interest offers, credit card issuers must recoup their lost
profits when the introductory period ends. The APR that the card will revert to
may possibly be anything but competitive.

You can benefit from a balance transfer if you are diligent in paying off the
debt and controlling new purchases. If you are considering a balance transfer,
you're probably hoping to save interest fees and to get ahead of your debts.
Develop a realistic plan to pay down your debt before the teaser rate period
ends. It will do no good to transfer thousands of dollars in debt to another
card, only to pay the minimum payments until the rate skyrockets. Paying the
minimum payments on credit cards can literally keep you in debt for decades;
take advantage of the low-interest period to make a serious dent in your credit
card debt.

Be cautious about whether to keep the other credit card accounts open once
the balances have been transferred to your new account. Nobody likes to admit
they are irresponsible with credit, but if overspending is what brought you to
consider a balance transfer to begin with, then closing the old accounts may be
your smarter choice. Someone who really loves to shop or splurge is likely to
see the zero balances on all their other credit cards as an invitation to spend
money. If old accounts are run back up after a balance transfer, you can easily
end up with twice the credit card debt than you were trying to pay off to begin
with!

Closing the old credit card accounts may be the wiser choice, but be aware
that it can your hurt credit score by reducing the average age of your credit
accounts. You may be better off keeping a credit card that you've had for a long
time, and especially if that card's APR is better than what the new card's
normal rate will become after the intro period. There's no reason to give up a
card with otherwise excellent terms unless you know you'll run the card back up
if you keep it open.

Some credit card users have perfected the balance transferring act, and move
from card to card to chase those teaser rates, in an attempt to delay interest
payments on their credit card debts. This system can work if you are determined
to pay off your debts as soon as possible. This system can backfire if you run
up new debt or show a habit of jumping from card to card. Card issuers will
recognize someone who overuses the balance transfer, and may stop offering
low-introductory rates to those they suspect will flee before they can make any
real money from them. Also, as said before, continually closing accounts can
hurt your credit score if you don't have other accounts for some time, as it
prevents you from establishing long term credit history.

The credit card industry is fiercely competitive; they continually come out
with some new ploy to earn new customers, but if it doesn't work out for them,
they may discontinue certain offers. It may become difficult for them to make
money on the deal, due to increased competition and lack of consumer loyalty.
It's better to use a balance transfer as a temporary measure to finally get
ahead of your credit card debt, as opposed to being a permanent debt management
trick. You never know when you'll get your last offer for a low-interest balance
transfer.


--
Balancetransfers.com
Balance Transfer Calculator

Source: http://www.articletrader.com ]]> Loan Sharks: Today's Predators http://www.articletrader.com/finance/loans/loan-sharks-todays-predators.html http://www.articletrader.com/finance/loans/loan-sharks-todays-predators.html Tue, 25 Mar 2008 00:00:00 -0500 History of Loan Sharking

Loan sharking is the practice of lending money
to desperate people at extremely high and illegal rates of interest. Loan
sharks, or shylocks, make a big profit from people who can't get loans from
legitimate sources, such as banks or other lending institutions. For as long as
people have needed money they don't have, there have been loan sharks there to
provide their services for a fee. They introduce themselves as a solution to a
problem; they are businessmen who want to help a borrower get out of a bind.
Prey to these sharks can be compulsive gamblers, single parents, the elderly,
illegal immigrants, white-collar executives, or anybody else who desperately
needs more money than they have access to.

Most people associate loan sharks with
gangsters and organized crime. Loan sharking is a very lucrative business for
criminals, and it's a major source of income for the crime families. They
receive a very good rate of return on their investment, and in a short amount of
time, often a matter of weeks. They may charge interest at rates of up to 20%
per week, and possibly even higher. In one New York investigation, it was found
that a loan shark syndicate was netting 3000% annual interest! Dallas mobsters
were more competitively priced, they charged only 585% annual interest. These
were rates in the ghetto. Shylocks would be more competitively priced for
corporate white-collar businessmen; rates might be more in the 5% weekly range.

In the mafia world, shylocking is also known as six-for-five; you borrow five
and pay back six at the end of the week. You can see how this can turn very
expensive. If someone borrowed five hundred and did not have the full payment,
the loan shark would accept the interest payment of one hundred and extend the
loan for another week, with interest. If they can't pay when they're supposed
to, they would be forced to take out another loan, interest is added on top of
interest and the debt can quickly become impossible to get out of.

The funds for shylocking would usually come
from the top, the family boss. The boss would loan money to his capos
(lieutenants), knowing he could trust them to pay him back with interest. The
capos then loan money with interest to the lower ranking members of the mob.
These are the loan sharks that made loans to the common citizen, and enforced
payment.

Loan sharks ensured payment with threats of
violence. They require no collateral other than the borrower and his family's
well being. "Leg-breakers" were often employed by loan sharks to be sure they
receive payment. It's not true that people were always killed if they didn't
pay. Dead people can't pay back their debts, so it would not be good business
practice to eliminate resources. They would occasionally "make an example" of
some who owed very little to be sure other borrowers took them seriously. The
borrower, worrying about life and limb of himself and his family, would have no
option but to pay the shylock even if it meant he had to lie, cheat, or steal.

Modern Day Predatory Lending

There is no legal definition for predatory
lending, but it generally includes the use of unethical practices by lenders who
use tactics that skirt around the law. They might give unfair loan terms, use
confusing language, charge hidden fees, and use high-pressure sales methods.
They make money as long as they can keep borrowers in debt to them. They
commonly target the elderly, low-income, minorities, or people with poor credit,
but anyone can be a victim of these unscrupulous lenders. Predatory lenders
thrive on consumers who need or want more than they can afford to have, and
trick borrowers into believing the loans are necessary and affordable.

Many commonly accepted loan services are
available to consumers that work on the same principles as a mob shylock. There
are laws regulating the amount of interest that can be charged for a loan, but
lenders can charge "service fees." Check cashing places offer "payday loans",
you can write them a post-dated check for the amount of the loan, plus a hefty
fee for use of that money for a week or two. The fees can amount to 400% APR,
these places are happy to loan as much as possible based on the borrower's
expected paycheck. Then what happens when he gets his paycheck and realizes that
it's already spent? He'll go back to take out another payday loan so he can pay
his bills and buy groceries. This cycle of borrowing more to pay back a loan can
trap a person into being perpetually in debt and never getting ahead. These
places are usually found on the same block as a liquor store in low-income
neighborhoods. These lenders prey on people with limited means and encourage
them to live paycheck to paycheck.

Title loans are another way people are getting
ripped off. People who own their car free and clear can bring in their title and
an extra set of keys, and drive away with up to half the value of their car.
They agree to a loan at an extremely high rate, or with a large balloon payment
without realistically being able to pay. The title loan companies don't care
what kind of credit the borrower has, because they win either way. They receive
an excellent profit on the interest charges or they repossess the car and sell
it for twice the loan amount. Sounds like a "can't lose" situation for them, so
it must be a "can't win" situation for the borrower.

I've heard predatory commercials on the radio
from car dealerships. The announcer might say something ridiculous like, "We'll
give you $5000 for your trade on anything you can push, pull, or tow in here,
and we don't care how ugly it is!" We'd all be rich if we could sell junk cars
for $5000, but who would buy one? These predatory lenders just add that $5000
that they "gave" you to the price of your new car being financed. You'll drive
away in a shiny new car and you'll get stuck with a loan for $5000 more than the
car is worth.

What if you owe more on your trade-in than it's
value? It's known as a negative equity loan or an upside down loan. This is
quite common, considering car dealers want to sell expensive cars more than
cheaper ones, and consumers want to drive the best car they can get a loan for.
Cars depreciate faster than the loan can be paid down, and when you spread the
payments over five or six years instead of three, this can amount to thousands
of dollars. Eager to sell you another new car, dealerships work with lenders and
add the difference to your loan amount, ensuring that vicious debt cycle.

It is appalling that greedy predatory lenders
would go so far as to trick people out of their homes, but it happens. Abundant
offers for second mortgages to pay off credit card debt come daily in the mail.
It's shocking that lenders would encourage you to take equity from your home to
buy a two-week vacation, a hot tub, a motorcycle, or other big "toys". Would a
sensible person really want to pay 15-30 years with interest for some
unnecessary material items that make life just a little more fun? These
predatory lenders like to remind you of all the improvements you could make in
your life if you just had access to the equity in your home. They encourage you
to dream of everything you're missing out on because your assets are tied up in
your house. They sell you on the idea that you'll "save" money by consolidating
your high interest debt. You might have smaller monthly payments… but the debt
is stretched out over many years, increasing your total interest costs. Many
borrowers just rack up new debt after getting that second mortgage to pay off
bills because their formerly maxed out credit cards are now freed up again. When
the borrower can't afford his mortgage, second mortgage, and new credit card
debt, the home goes into foreclosure and the borrower loses everything he's
worked for.

Home-improvement scams have also hit America
hard, particularly the elderly. Someone who has been making regular mortgage
payments for many years has most likely built up lots of equity in their home,
which makes them a prime target for these ruthless predators. Contractors offer
to make repairs or improvements to the home, and can even be so "helpful" as to
set up financing for the unsuspecting homeowner. An elderly widow, who can't do
the work herself, is grateful for the nice young man who can help her get her
home back in shape. When it comes to the confusing legal jargon in the contract,
she trusts him and his simple explanation of what it is she's signing. She
unknowingly agrees to take out a high-interest second mortgage that requires a
balloon payment at the end. She later finds out that all her payments have gone
to pay mostly interest, barely making a dent in the principle owed. She can't
pay the huge balloon payment when due, and loses her house in foreclosure. It is
unfortunate that these predators are willing to put someone's grandmother out of
her home to make their fortune.

My neighborhood is several years old and a part
of it is still in construction. This addition draws many first-time homebuyers.
When I shopped for mortgages, I thought it was odd that my builder's mortgage
lender approved my loan for an amount about 30% more than a regular mortgage
broker could get for me. Don't we all want the best house we can afford? It's
tempting to take a mortgage that's barely affordable, to get that bigger house
with more options. It's interesting to note that there are quite a few
foreclosures in this neighborhood, usually the houses that are about two years
old. On brand new homes, you would only pay taxes on the value of the empty lot,
that is, until it is reassessed with the value of the house on it. This happens
where I live about a year and a half after the home is built and closed on. The
mortgage lender does warn you that your payments will go up in a couple of years
after the taxes are reassessed, but still approves your mortgage based on your
current income and the tax on the empty lot. You might not think much of it then
because you believe you'll figure something out by the time your payments go up.
About 18 months later, your PITI payment increases by a couple of hundred
dollars a month, but your income hasn't. Many families have lost their homes to
foreclosure because they weren't prepared for this dramatic increase in payment.

Predatory lending has many more faces; I gave
just a few examples. You've heard of scams people have reported in the
newspapers. You can read about victims in internet blogs. The nightly news is
always showing a new story about a new way predators are trying to take our
money. You've seen the ads that the lenders themselves have run. These
unscrupulous businesses may be fraudulent, or just plain tricky. They thrive on
the "Gotta have it now" attitude that many consumers live by. The only way to
protect yourself is to educate yourself. I've referred to the borrowers several
times as "victims", but truly they are victims of their own lack of awareness.

Protect Yourself From Predatory Lenders


  • Use your financial common sense; if you
    can't afford it, you shouldn't buy it.

  • Plan a realistic budget and stick to it.

  • Have a savings plan so that you'll be
    prepared in case of a true emergency.

  • Keep your credit rating high so that you
    won't be forced to go with "sub-prime" lenders, where predatory lending is
    common.


  • Be skeptical about quick fixes and easy
    money.

  • If it sounds too good to be true, it
    probably is.

  • Bad credit, no credit, no problem! This is
    one of predatory lenders favorite lines.

  • Buy here, pay here! Rent to own. No money
    down! You must act now! Some of their other favorite lines.

  • Any loan, including your first mortgage,
    which uses the equity in your house as collateral should be looked at very
    carefully.

  • Know what it is you're signing, and never
    sign documents that don't have all the terms filled in.

  • If you don't understand the contract in
    question, consult an attorney. Lawyer fees can be a bargain compared to the
    potential loss.

  • Shop around for loans of any kind; never
    say yes to the first offer.

  • Don't let salesmen pressure you into
    something you aren't sure about.

  • Refuse to take out more loans to pay off
    already unmanageable debts.

  • Beware of the temptingly low interest
    rates that skyrocket after you've had enough time to shop more than you
    should.

  • Take responsibility for your financial
    well-being.

  • Predatory lenders are out there taking
    money, but don't let them take yours.




--
Loan Sharks

Source: http://www.articletrader.com ]]> Your Credit Score http://www.articletrader.com/finance/credit/your-credit-score.html http://www.articletrader.com/finance/credit/your-credit-score.html Thu, 28 Feb 2008 00:00:00 -0600 Your credit score is the three-digit number that lenders obtain from a credit
bureau in an attempt to sum up your credit risk. Your credit score gives lenders
a snapshot of your credit and debt situation and plays a big part of whether or
not credit will be granted, as well as the terms and conditions of your loan or
credit card. Your credit score is determined
solely by the information found in your credit report relating to past and
current credit accounts, and public records such as liens and bankruptcies. When
you apply for credit, lenders take into consideration your credit score, as well
as your income, length of time at your current employment, and the type of
credit you're applying for.


Your credit report contains identifying information about you, including your
name and names used in the past, your address, your social security number, date
of birth, and employment information. Things that do not affect your credit
score include your income, race, religion, sex, age, marital status, and
employment status. It's important to check your credit report at least annually
to be sure that your credit score is calculated based on accurate information.
Some creditors only report to one or another of the three credit bureaus, so you
need to check your report with all three to get your complete credit report.
It's very possible to have information in your report that is outdated or
inaccurate, an account that belongs to someone else with the same name, or even
fraudulent accounts opened by an identity thief. Nobody can find inaccuracies in
your credit report but you, so be sure you take the steps to protect your credit
rating. Go to www.annualcreditreport.com to
get your free credit report from all three credit bureaus. The credit reports
will be free, but you will have to pay for your credit scores. You can purchase
your credit scores from the site at the same time you order your free credit
reports.


The FICO score, developed by Fair, Isaac, and Co., is the industry standard;
75% of lenders and 23 out of 25 credit card issuers base their decision on your
FICO score. Each of the three major credit reporting agencies: Experian,
Equifax, and Trans Union has their own exact method for computing your credit
score, but their credit scoring methods are all based on the FICO scoring model.
Due to each credit bureau integrating their own scoring method, and the
possibility that their report does not contain your complete credit history,
your credit score is likely to be slightly different with each credit reporting
agency. Experian uses the Fair Isaac Score, and credit scores range from
330-830. Equifax developed the Beacon Score, ranging from 340-820. Trans
Union's system is called the Empirica Score, and scores can range from
150-934. Higher is better with all scoring methods, and a credit score of about
700 is the American average.


Fair, Isaac, and Co. does not disclose the exact method of computing your
FICO score, but they do let us know the approximate weight that various factors
carry in determining your credit score.



35% of your FICO score is based on your payment history. Your credit
score can be lowered by late payments, collections and bankruptcies; how
much it can be lowered is dependent on the severity of the delinquencies
and how recent they are. Your score can be raised by showing a long
history of on-time payments.


30% of your FICO score is based on your utilization of available
credit. If you have very high balances on your revolving credit
accounts, such as credit cards, this can lower your credit score.
Keeping a low balance shows you can manage your debt levels and
generally increases your credit score. It's good for your credit score
to keep your revolving balances under 30% of the credit limit, but even
less than that is better. Closing your unused accounts can hurt your
credit score if you have balances on other accounts, because it raises
the amount of credit you are using compared to the amount of credit you
have available to you.


15% of your FICO score is based on the length of your credit history.
This factor includes the age of your oldest and newest account, and the
average age of your other accounts. Closing your oldest accounts can
hurt your credit score if you don't have a long credit history, as well
as opening several new accounts in a short period of time. If you are
new in the credit market, it will take time to establish proof of
responsible credit use. Showing a long history of on-time payments and
responsible credit use raises your credit score.


10% of your FICO score is based on how much new debt you've taken on.
Recent inquiries on your credit report, as well as new accounts are
factored in. Suddenly applying for lots of credit and running up new
debt raises a red flag, and can lower your credit score; it may look
like you've come across financial difficulty and are using credit to
make ends meet. Using credit wisely and consistently after trying to
overcome a negative credit history can raise your credit score.


10% of your FICO score is based on the types of credit used. Though
it's not a key factor in your credit score, your credit score could be
affected by whether you have mortgages, installment loans, and revolving
credit accounts. This portion of your credit score may have more weight
for someone with a limited credit history. The number of each type of
credit account can affect your score, though we aren't given a magic
number for how many is too many.



In addition to the classic FICO scoring method, Fair, Isaac, and Co.
developed its NextGen FICO scoring method in 1999. The NextGen FICO is called
the Pinnacle Score at Equifax, the FICO Risk Score, NextGen at
Trans Union, and the Experian/Fair Isaac Advanced Risk Score at Experian.
The NextGen FICO was designed to better identify a person's true credit risk
while giving less weight to factors that are not thought to have as much bearing
on a person's likeliness to repay. Under the new scoring model, many people have
a better credit score, making it easier for them to get loans and better rates.
Though Fair Isaac touts this new scoring model as a breakthrough in the credit
scoring system, many lenders are hesitant to use it due to unfamiliarity with
the new system, as well as a lack of time-tested proof that the new scoring
model is indeed better than the tried and true classic FICO system. You will
probably see a gradual shift in the use of the NextGen FICO credit score in the
future, but for now, the majority of lenders still go with the original FICO
scoring model because it's what they know.



Sources:
MyFico.com
FairIsaac.com

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Finance Globe is a professional contributor of personal finance publications, and research on USA credit cards.

Source: http://www.articletrader.com ]]> Getting Your First Credit Card http://www.articletrader.com/finance/credit/getting-your-first-credit-card.html http://www.articletrader.com/finance/credit/getting-your-first-credit-card.html Fri, 11 Jan 2008 00:00:00 -0600
credit cards that offer better rates, perks, and rewards. One day in the future you may want to own a home, or buy a nicer car. Using your credit card responsibly will improve your credit history, so that you can eventually qualify for the best terms possible on home mortgages or car loans.

A credit card will allow you to make hotel reservations, rent a car, and make purchases online or by phone. A credit card offers the convenience of pay-at-the-pump at gas stations. You can go out for dinner or a day of shopping without needing to make sure you have enough cash on hand. A credit card is a wonderfully convenient way to pay at nearly any merchant, as long as you are in control of your credit card use.

If used properly, your first credit card can help you build your credit, keep track of your spending, and develop a budget. It's amazing how we lose track of spending when we pay for everything in cash everyday; when you see it all in black and white on a monthly credit card statement, you may gain some insight on where your money really goes. When you use your credit card, be sure that you are only using it for the convenience of replacing cash that you already have in the bank, or will have by the time the credit card bill arrives. It's very important to develop good credit habits now; if you can use one credit card responsibly, you'll be more likely to be in control of your finances when your credit is better established and you have more credit cards at your disposal.

If used carelessly, a credit card can be the first bad habit that will lead to a mountain of debt. The problem many people have with credit cards is that they spend without making sure they are able to pay their balance in full each month. They figure they'll pay it off later, since the minimum monthly payment is so low. What these people aren't thinking about is that they will grow accustomed to the overspending that a credit card allows, and it's a habit that's hard to break once you've become used to it. They look at a credit limit as extra money, instead of the debt that it really is. Interest charges accumulate if the debt isn't paid off every month, and a credit card can quickly become a major expense rather than a valuable money management tool.

If you are in the market for your first credit card, then you probably don't have an established credit history. You will be more limited in your choices of credit cards, but many card issuers offer credit cards for people with limited or poor credit. Since you have not yet had the opportunity to prove your credit-worthiness, it is a simple fact that you will not be offered the best rates and deals that are reserved for people with a proven credit record. Most credit cards for people with limited credit histories do not offer rewards of any kind. You'll most likely be required to pay an annual fee, and the interest rate is probably going to be on the high side.

Secured credit cards are a popular way for people to establish or rebuild their credit. You are basically paying a security deposit, so that in case the debt is not repaid, the card issuer will get their money back. This really isn't as bad as it sounds. Your money will most likely be put into an interest earning account, like a CD, and is just another place you can keep some savings. After you've proven yourself with the credit card issuer, maybe after a year or so of responsible credit card use, they will allow you to withdraw your deposit. Or, you could just leave it there to accumulate interest, and consider it your emergency savings.

Be sure that if you go with a secured card, that the issuer will be willing to upgrade it to an unsecured card once you prove yourself to their standards. Be wary of "banks" you've never heard of; I suggest going with a nationally known bank that offers credit cards to people of various credit histories. Then you'll probably be able to upgrade to a better card while keeping the same account number, which is better for your credit score. The security deposit and an annual fee are pretty standard and are to be expected, but don't apply with a credit card issuer who wants to charge you application fees, monthly service fees, or other fees just to open your account.

If you have a good business relationship with a local bank or credit union, they may be more likely to give you an unsecured credit card than an issuer that you have no relationship with. You may be able to get a credit card if you have had a checking account with them for some time and have never bounced any checks. They may qualify you for a credit card if you've had an auto loan and made your payments on time, even if there was a co-signer on the loan. They will probably start you off with a pretty low limit, but it will still help you build your credit history.

If you're in college, you have quite a few choices in credit cards for students. Student credit card issuers are usually more flexible with the applicants, since they understand that most students are young people with limited credit histories and limited income. They know that you are probably still financially dependent on your parents, which means that Mom or Dad will be likely to help out with the bill if needed. They also know that it's easier to mold a young mind, so if they issue you your first credit card, you'll most likely be their customer for years to come. If you are qualified to apply for a student credit card, take advantage of it while you can. It's usually easier for a student to get a credit card than a young, independent adult who pays his own bills on limited income.

Be sure to read and understand all the terms and conditions of the credit card offer before you apply; unscrupulous credit card issuers often target people with limited or poor credit. There are fees that are necessary and common; late fees, over-limit fees, cash advance fees, bounced check fees are a few of the ways that credit card issuers can recoup the cost of maintaining an account that costs them more or isn't paid as agreed. They're in business; if they didn't charge those fees, everybody would pay late and the credit card business would be in trouble. Some fees are required so they can continue to give their best deals to people who have proven themselves with an excellent credit history. Some fees take advantage of people who are trying to establish their credit, one little mistake and you could be hit with fee after fee. Be aware of any and all fees that could be assessed before you use your card.

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Finance Globe is a professional contributor of personal finance publications. All inquiries pertaining to this aricle should be submitted to them.

Source: http://www.articletrader.com ]]>