Credit Cards

Archive for the ‘Credit Cards’ Category

Getting a mortgage with a low credit score

Friday, August 21st, 2009

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I recently had a very good question submitted to us from one of our visitors, she wrote:

“When I first decided to buy a house it seem like only a dream, my scores where in the low 500, the mortgage company told me about all the things on my credit that I need to pay off, and also all the things I need to keep in good status. I then paid off all the things on my credit and kept my car loan up for the last past year….now my credit is at a 615 what is that I must do to make my credit score rise more, they want it to be at least a 620 to get the loan… please help me!!!!”

Sounds to me like you have had some trouble in the past with late payments, and probably high credit card balances. If you’re able to get your credit score up to 620, that’s a huge improvement over the low 500’s, and I think congratulations is in order. A credit score in the lower 600 range will not get you the best interest rates, but you are well on your way to improving your credit score.

First thing’s first

Here’s a good idea of how your credit score is determined:

Payment history: 35% of your score
How much you owe: 30 % of your score
Length of credit history: 15% of your score
Newly opened accounts: 10% of your score
Types of credit accounts: 10% of your score

Payment history

As you can see above, #1 factor is your payment history. Have you made your payments on time in recent years? How late have you been, if at all? Being 60 days late hits your credit score harder than a 30 day late payment does. Maybe you’ve had some trouble in the past with this, you can’t change history, but you can help shape your future. Just make sure you pay your bills on time, this is key.

How much you owe

The importance of this is right up there with payment history. Pay special attention to your credit card balances. It’s best to keep your credit utilization ratio below 25%. This means if you have a total credit line of $10,000 (total of all the limits on your credit cards), you should keep a total balance no more than $2500 on those cards. The closer you move to having a 50% debt to limit ratio, the lower your score will go. And once you go over 50%, your credit score takes a big hit. So pay special attention to this part and work very hard on keeping your balances low.

Length of credit history

This one you don’t have much control over. One thing to keep in mind is keep your oldest accounts open, such as credit cards. If you have too many open accounts, and you must close some, cancel your newest accounts and keep the oldest ones active. You want your credit history to look as old as possible, closing old accounts will make your credit history look shorter.

Newly opened credit accounts

Opening many credit accounts in a short amount of time is not good for your credit score, even if you don’t carry high balances on these accounts, and pay your bills on time. Every new account you open will ding your score, so open new accounts only when you really need to. Time to say no to the store clerks who want you to open a credit account at their store and save 10% on your purchase. It may save you money now, but if you’re trying to maintain or build a good credit score, it’s a good idea to just use the credit card you already have, or pay with your debit card instead.

Types of credit accounts

Lenders and creditors like to see how you handle your credit accounts of all types. Auto loans, mortgages, credit cards, student loans are some good examples. If you only have credit cards on your credit report, and no installment loans like student loans or auto loans, you may appear to be at higher risk because the lender can’t look at your credit report and see how you handle installment loans. If this is the case for you, you may end up paying higher interest on your first loan, or they may ask that you have a co-signer on your loan.

Again, don’t open new loan accounts just for the sake of improving your credit score. Only open new installment loans as needed, and be sure to pay your bills on time.

On the road to a higher credit score

If you’re trying to further improve your credit score, be sure to pay your bills on time every month, keep low balances on your credit cards, don’t open any new accounts unless you absolutely have to (this includes department store credit cards). If you already have some dings on your credit report, time will heal these, just hang in there and your score will improve.

Credit score estimator

If you are having trouble figuring out what things to focus on first when trying to improve your credit score, check out our credit score estimator. You can plug in different scenarios and see which events affect your score the most. It’s a great financial tool, check it out.

Posted in Credit Cards, Credit Reports, Credit Scores, Debt, Loans | No Comments »

Portion of new credit card law begins today

Thursday, August 20th, 2009

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Part of a new credit card legislation, signed in May by President Obama, goes into effect today (reports USA Today). Credit card companies must now give consumers 45 days notice before any significant changes to their accounts. Also, they can no longer label a payment as late, unless the credit card bill was sent at least 21 days before its due date.

But what is a significant change?

Unfortunately there are some holes that need to be plugged. Under this new legislation, account closures and credit line decreases do not qualify as “significant changes”. I think most people would agree that both of those changes would be quite significant, and should fall under the” 45 day notice of major changes” category.

This still leaves the door open for consumers to receive sudden cuts in their credit line, which raises their “credit utilization ratio” and can be very damaging to their credit score. This could cause the consumer to appear to be a higher risk borrower, which could lead to higher interest rates or possibly credit or loan applications being denied.

Still providing advantages

While this new legislation has some holes, it still provides some protection for consumers which did not exist before. Among other things, it will give consumers more time to pay their bill, without receiving a late fee. That’s a big plus.

The most significant pieces of the legislation don’t take effect until Feb. 2010. So look out for those. In the mean time, enjoy the extra time to pay your credit card bills!

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Which is best, Credit or Debit?

Wednesday, August 19th, 2009

iStock_000001262075XSmall In light of the recent large scale credit and debit account theft scheme (read more on that), it’s definitely worth asking the question – which is best, credit or debit?

Quick answer – credit is best. Stick with only using your debit card for ATM withdrawals.

Why? Federal law states that credit users will not be liable for any fraudulent charges over $50. While the limit for debit users is 10 times that amount, or $500. Your results may vary based on your financial institution, many credit card issuers have zero liability policy.

Credit VS Debit

Credit card accounts have better fraud protection. Accounts with some of the best fraud protection will actually catch possible fraud before you do, and avoid the problem altogether. Debit card accounts normally don’t have this sort of protection.

Recovering the cost of the fraudulent charges will be easier for credit card users than for debit users.

Some credit card accounts provide cash back, or rewards for every purchase you make. My credit card gives me points for every retail purchase I make, I can then buy things with those points, including various gift cards or specific items (I usually go for the gift cards). I have yet to see a debit card account offer to give rewards for spending your own money.

Cash or free loan?

Using debit cards requires that you have the cash immediately available, and immediately withdrawn from your account. Credit cards on the other hand are similar to borrowing the money at no interest, and paying it back in a month. You don’t need that money available in your account at the time of your purchase.

This can actually be very beneficial to you. Instead of paying for that new LCD flat screen TV with your debit card, you can use your credit card instead, and keep that money in an interest bearing account until it comes time to pay your credit card bill. It’s like borrowing money for free for a month, as long as you are sure to pay your balance in full.

Use, don’t abuse

As always, you need to use your credit cards wisely. Try not to overspend, or buy more things than you can afford just because you don’t have to pay it back right away. Pay your balance in full each month. Be sure to pay your bill on time, credit card companies have no problem slapping you with a $39 fee for late payments, even if you are just a day late.

Used wisely, credit cards can be a great asset, and provide more fraud safety than debit cards. Abused, credit cards can be a financial nightmare if you build up a large balance, and are not able to pay it off on time. Believe me, I’ve been there and back, it’s not fun.

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Miami man charged with largest case of ID theft ever

Tuesday, August 18th, 2009

Credit Card Security

On Monday, Albert Gonzalez of Miami, Florida was charged with the largest case of credit and debit card theft in the history of the United States. The ex government informant, after already swiping 40 million accounts, had plotted to steal 130 million more, by hacking into retail networks and retrieving the data. He and two other unnamed suspects had planned to take the private information and sell it to others. Read more at newsday.com.

This case, as large and damaging as it could be to millions of people, is an excellent reminder of how important it is to be vigilant in guarding your accounts from fraud, and protecting yourself from identity theft.

What to do if you’re a victim

At this point it’s probably too early for all those who’s credit and debit card information has been compromised, to be notified individually. So the best thing you can do now is check over your credit card and bank accounts online for any suspicious activity. If you notice any charges or debits that you did not authorize, report them immediately to your financial institution. Early detection is the best way to protect yourself if your account information has already been compromised.

It costs time and money

On average, identity theft victims lose an average $1,800 to $14,000 in wages dealing with their cases. Average time involved in reparing the damage done – 3 to 5,840 hours (data from spamlaws.com).

Imagine this times all the millions of accounts that were compromised. The information stolen in this case seemed to only be credit card and debit card information, so the problem probably would be contained there, still, unfortunately, could bring damaging results for the victims.

Which is safer, credit cards or debit cards?

Typically you will be safer using credit cards over debit cards. The reason is that credit card companies often limit your liability to no more than $50 of the unauthorized charges (many cards actually have zero liability). Where your liability with a stolen debit card could be 10 times that amount if you don’t notify them of the event quick enough.

Not to say you shouldn’t use a debit card, just be careful with it and notify your bank immediately if you think someone has stolen your account information, especially if your actual debit card has been stolen.

Whether you use a debit card, credit card, or both – keep a close eye on your accounts for unauthorized charges. If you see anything suspicious, notify your bank or credit card company of the activity immediately, it could save you a lot of time and money if you spot the fraudulant charges early.

Posted in Credit Cards, Identity Theft | No Comments »