Tips for Travel Rewards Credit Cards

Credit cards have become an integral part in the financial lives of many people. If used properly, a credit card can be a great financial asset that assists you (assist by way of a good credit score not by way of purchasing power) in making big purchases and enabling you to get important loans. However, if abused, credit cards can make your financial life a living nightmare. As such, always practice sound credit card and debt management. That being said, it is important to note that not all credit cards are created equally.

Companies are doing everything these days to entice people into obtaining a credit card. For example, many companies will offer no interest on cash advances, balance transfer, or purchases for the first year that you own the credit card. Some companies offer a great introductory interest rate and follow that up with a low, fixed interest rate. Still other credit card companies offer rewards in the form of points or airline miles that can be redeemed once the credit card owner obtains enough points. Of all of these rewards, airline miles can be the most beneficial.

If you are the kind of person that uses a credit card for one particular task (e.g., getting gas for your car/truck), a rewards card may be a great option for you. A rewards card is a great option because your credit card use is going to continue regardless. As such, why not get rewarded in more than one way for consistent and proper use?

With the price of fuel increasing and airlines going out of business, it seems that the average airline ticket has greatly increased in price. Additionally, things that used to be complimentary (e.g., an in-flight beverage, checking more than two pieces of luggage, and an in-flight snack, to name a few) now cost money. As such, using points to get discounts on or even free airline tickets, hotel rooms, and/or rental cars (especially if you travel a lot) can save you a lot of money. Therefore, a travel rewards card may be in your best interest.

Basically, a travel rewards card works the same as a "points" rewards card. Each dollar spent equals a certain amount of travel points. Once you have accumulated a predetermined amount of travel points, you can redeem them for flights, hotel rooms, and/or rental cars. However, if you get a travel rewards card, you still have to make sure it is a good credit card. For example, you should not pay an annual fee simply because it is a rewards card. Additionally, the rewards card interest rate should not be higher than your other credit cards merely because it is a rewards card.

Do not fall into the trap of paying too much for a rewards card merely because it offers rewards. Make sure that there is no annual fee, a low interest rate, and that the points can be redeemed for any flight at any time (i.e., no blackout dates). If your rewards card has these attributes, you will have added a great credit card to your financial arsenal.

Credit Card 101: Facts About Credit Cards

There are many things that you should know about credit cards before applying for one. For example, not all credit cards are the same. Some credit cards are secured and some are not secured. In addition to this difference, there are usually "hidden" provisions in a credit card agreement that most people neglect to read. Such provisions include the differences between the interest rate for a purchase and a cash advance, and whether or not the credit card company from which you obtained a credit card engages in the practice of universal default.

A secured credit card is a credit card that is that is tied to a monetary fund of some kind (whether it is a deposit, bank account, or some other account). The monetary fund can be accessed and used by the credit card company in the event that the credit card holder defaults on a payment. These kinds of credit cards usually have an obscenely high interest rate and an inordinate amount of fees. Basically, they are terrible credit cards that target people with bad credit.

As an alternative to getting a secured credit card, you should look at non-major credit cards. These types of credit cards include credit cards from various retail stores, department stores, and even gasoline cards. These cards usually have a high interest rate, however, the usually have no fees attached to them as secured credit cards do. Additionally, these "non-major" credit cards are unsecured, therefore, you do not have to put up a big deposit or tie the credit card to a bank account. It is easy to qualify for non-major credit cards, and thus, they provide an attractive alternative to secured credit cards should your credit be bad.

In regard to the different interest rates for purchase and cash advances, if you look at your credit card statement, you will see a section that shows you your interest rate. There are usually two interest rates shown: (1) your purchases interest rate; and (2) your cash advance interest rate. I can almost guarantee that the cash advance interest rate will be several points higher than your purchases interest rate. For example, you regular purchases interest rate may be 12.95% while you cash advance interest rate may be 19.95%. Why the big difference? This difference exists because your monthly payments will not count towards your cash advance balance until you fully pay off your regular purchases balance. Therefore, the credit card company will be able to charge you a higher interest rate while you are paying off your primary debt.

Universal default is a credit practice where you will be in default on one card because you are in default on another unrelated credit account. For example, let us pretend you have two completely unrelated credit cards; Credit Card A and Credit Card B. Further, let us pretend that Credit Card B has a universal default provision in the credit card agreement. Now, pretend that you are late or default on a payment to Credit Card A. The credit card company that gave you Credit Card B can now put Credit Card B into default even if you have never missed nor been late on a payment to Credit Card B.

The effect of this is that it is possible for you to be charged a credit default fee for Credit Card B (even though you have never missed nor been late on a payment to Credit Card B) and that another negative impact will occur on your credit report.

These are just a couple of credit card facts of which you need to be aware before you obtain a credit card.

How Does a Credit Card Work?

Credit can be a very powerful financial tool. Having good credit can help you get loans, can lower the interest rate that you pay for such loans, and get help you get favorable loan terms. Therefore, having good credit will help you get loans and will help you save money. On the other hand, should you have bad credit the exact opposite will happen. You will most likely be denied for loans. Additionally, should you get a loan, the interest rate will be very high and the loan terms will not be favorable to you. As such, you should strive to obtain and maintain a good credit score. However, in order to obtain a good credit score you have to known how credit works.

You should always think of credit as a loan. If you think of credit as a loan, it will put you in the proper mindset when you use your credit cards. In other words, you will not forget that using the credit card means that you have to pay back the amount that you charge. If you think of a credit card as a second bank account, you are going to get into a lot of financial trouble. Basically, you will not keep track of your charges, and you will not be responsible with your credit card use.

How credit works is very simple. When you obtain a credit card you are given a particular credit limit. This credit limit is the total amount of money that you can borrow on your credit card. You can utilize your entire credit limit at once or you can use your credit card for a bunch of purchases until the total amount of the purchases equal the credit limit.

Basically, when your credit card is swiped by the store, restaurant, or other location from which you purchased something, the credit card company pays the store, restaurant, or other business the amount that you owe. In exchange for this service, you are able to defer your payment of such a bill until a later date. In addition, credit card companies allow you to pay over time instead of in one single lump. In exchange for allowing you to pay this debt over time, the credit card company charges you an interest rate. Your credit card agreement will dictate how often the interest rate is charged on your outstanding balance.

In a nutshell, a credit card purchase is a loan from your credit card company. The most amount of money you can borrow is dictated by your credit limit. You have to pay back this loan either at one time or over time in the form of monthly payments. Should you choose to pay over time, the credit card company will charge you an interest rate on your outstanding balance. This is how credit cards work.

Can Applying for Loans Bring Down Your Credit Score?

A credit score has many components. Each component weighs differently on your credit score. For example, having a late payment recorded on your credit report will cause more damage to your credit score than will having too many inquiries on your credit report. However, it is important to know that regardless of what the negative information is, such information will stay on your credit report for many years. As such, you will want to weigh the consequences of the negative impact on your credit score against the advantage of applying for and obtaining a loan.

Applying for a loan can negatively impact your credit score in more than one way. First and foremost, whenever you apply for a loan (whether it is for a house, a car, a student loan, a personal loan, etc.) the bank or lending institution to which you applied is going to run a credit check on you to calculate the risk involved in lending you the money. The riskier you are, the higher your interest rates and/or fees will be. If you are too risky, you will be denied a loan.

When the bank or lending institution conducts a credit report check to calculate the risk level involved, each check is recorded as an "inquiry" on your credit report. Banks and lending institutions look to see how many inquires are on your credit report for a set period of time. If you have "too many" inquiries, this tells the bank or lending institution that you are trying to borrow money and thus, this means that you are acquiring or attempting to acquire a lot of debt. As such, you may not have the money to pay back a loan. Therefore, this makes you a risky loan and you will either have to pay more interest and fees or will be denied outright.

However, even though these inquiries are recorded on your credit report, this does not mean that every one of them negatively affects you credit score. The key is not to get "too many." The exact number that crosses the "too many" threshold is not exact, but to be on the safe side, you should try to keep the inquiries to no more than 3 per year. Remember, every time that you apply for a credit card or any type of loan, an inquiry is recorded on your credit report.

The other way that applying for a loan can damage your credit score is if you are approved for the loan. If you are approved for a loan, it will affect your credit to debt ratio. If you get a loan, this will create more debt. The closer you are to "maxing out" your credit limits, the worse off your credit score will be. The reason for this is because if you have no available credit, banks and lending institutions will be concerned that you have reached your limits and will have trouble paying off your debt. As such, there is a higher chance that you will default and thus, a higher chance that the bank or lending institution will not get paid.

As stated above, because of these negatives, you have to weigh the cost of getting a loan against the benefits of obtaining the same. Make sure you are applying for and receiving a loan for a good purpose (buying a home that you can afford, getting a college education, making a good investment) and are not obtaining a loan for something you do not need.

Should the Government Regulate the Credit Card Industry?

The truth is, there is no industry that does not have some sort of government control over it. The credit company is no exception. Granted, a large part of the sector does remained "unregulated," however, there is government regulation is some respects. For example, the law states that a credit card cannot be denied based upon discriminatory reasons, credit card companies have to pay taxes and abide by other state and federal financial laws, and if you have a grievance, you can sue a credit card company. All of those examples show that there exists some level of government control over the credit card industry. However, many people believe that the government should regulate who gets a credit card, how many credit cards one should have, the maximum amount of credit one can have, and the maximum interest rate a credit card company can charge. Doing so would effectively cause the government to take over, and not regulate, the credit card industry.

It is important to note that nobody is forced to obtain a credit card. A credit card can be a powerful financial tool, but this does not mean that it is mandatory for a person to get one. Additionally, each individual person makes the decision on how to use or abuse his/her credit card privileges. As such, the credit card company is not to blame when somebody defaults on a payment.

Some argue that the credit card companies raise your credit limit so that you will spend more money. This is absolutely true, but it does not change the fact that each human has free will. Therefore, just because your credit limit is raised does not mean that you have to use the additional amount of available credit.

Another argument pressed by proponents of government regulation is that the interest rate on credit cards is too high because there is no limit on the amount of interest a credit card company can charge. Theoretically, this is true (however, I find it hard to believe that if a credit card company charged a 60% interest rate that lawsuits would not rain down upon that particular credit card company), but once again this argument negates a person's ability to choose. A person does not have to apply for, or accept a credit card offer that charges a high interest rate. Therefore, it is again not the fault of the credit card company if the person applies for and obtains such a card.

The bottom line is that credit cards are a privilege and not a right. As such, there is no need for government regulation as to the practices of credit card companies. Every person has the right to choose the card he/she wants and whether or not he/she wants a credit card in the first place. The answer is to educate people about responsible credit card use. Credit cards, like all privileges, can be abused, and as such, sometimes a person needs to learn a tough lesson before they figure out the proper use of such a privilege. If the government intervenes and "bails out" these people every time they get into trouble, no lesson will have been learned and the irresponsible behavior will continue.