Are Credit Cards Attractive?

One of the biggest financial problems is people using credit irresponsibly. Many people think of credit as a second bank account. Basically, they spend until the card is "maxed out." These people do not realize what they did until the credit card bills start coming in. The minimum payments do not seem like much, but after six months of payments have barely reduced their overall debt, the realization of the debt problem occurs. They realize the mistake that they have made but only after it is too late.

This situation occurs because credit cards are very appealing. People get a feeling of power and success when they use their credit card. They seem to forget that every dollar that they charge must be repaid with interest. As such, the problems discussed above come to fruition. The interesting part about the appeal of credit cards is that many people do not learn their lesson after discovering that they have a debt problem. Instead, these people obtain more credit cards and "max out" those cards too. Eventually, the debt becomes so overwhelming that the only viable option is to file for bankruptcy.

In order to make credit cards more attractive, credit card companies have started making credit cards out of other materials instead of plastic. Additionally, credit card companies have added "cool" colors and personalization options to credit cards. Most recently, one credit card company allows its customers to put any picture that they want on their credit card. The theory is, if a credit card company offers an option to personalize the card, more people will apply for and obtain the card. Additionally, because it is personalized, the card will be used more often. Funny enough, this theory most likely has more basis in fact than in theory.

The worst thing you can do is fall for clever advertising or obtain a card merely because it looks good or is "pretty." You should obtain a credit card with no annual fee, with a low, fixed interest rate, and with a high credit limit. If your credit card does not have these basic things, it does not matter how good it looks because it is not a good credit card.

The point is, even though credit cards can be attractive, you have to avoid being seduced. If you become seduced by credit cards, you may fall victim to reckless spending and card misuse. This can lead to same very unsavory financial situations.

Credit Report Disputes

Many times, inaccurate information will appear on your credit report. In my experiences, one of the most common mistakes credit reporting agencies make is that they mix up the credit information of family members with the same name. For example, my father and I share the same name. I cannot tell you how many times my father’s credit accounts have shown up on my credit report. It is very frustrating, however, all one can do is fix the inaccuracy.

The easiest way to remove inaccurate information is to dispute the inaccuracy. The three main credit bureaus (Experian, Equifax, and TransUnion) all have options where a person can dispute inaccurate information through the respective credit bureau’s website. First, you should only dispute the inaccurate information to the credit bureau that has reported the inaccurate information. Therefore, if the inaccurate information is reported only in your Equifax report, there is no need to dispute anything in your TransUnion report because the inaccurate information is not in your TransUnion report. It is important to note that these three credit bureaus are completely separate entities. Therefore, for example, if inaccurate information appears in your TransUnion and Equifax report and you successful get the inaccurate information removed from your TransUnion report, that does not mean that Equifax has to also remove the information.

I wish the process was as easy as sending in a dispute of inaccurate information and waiting for the inaccuracy to be removed from your credit report. However, it is not that simple. Credit reporting agencies are very stubborn. Things will not be easy and you may have to dispute the same inaccuracy more than once. However, with persistence, you should be able to remove inaccurate information.

What You Should Know About Credit Card Costs

Yes, credit cards can have costs. There are two main costs associated with credit cards: (1) interest rates; and (2) annual fees. However, even though these are the two monetary costs, there exist many intangible costs (such as customer service).

First, the monetary costs. Why oh why would you pay just to own a credit card? Annual fees are just nuts! Unless you have bad or no credit, have absolutely no other choice, and desperately need credit, then it may be... NO, scratch that sentence – there is absolutely no reason to pay an annual fee on a credit card. There are far too many credit choices from which to choose. Do not get a card with an annual fee, it is that simple.

In addition to annual fees, credit card companies charge other fees of which you may not be aware. If you are ever late on a payment, there is usually a fee. If you go over your credit limit, there is usually a fee. Know what these fees are and factor them into your decision as to whether to obtain that particular card.

How about interest rates? These can be pretty sneaky. First, you should notice that the interest rate is different for credit purchases and cash advances. Cash advances always carry a higher interest rate. Additionally, your monthly payment will not count towards your cash advance balance until your credit purchases balance is paid off. Why? Cash advances carry a higher interest rate, therefore, the longer that that balance remains unpaid, the more money the credit card company makes.

Also, make sure that the interest rate that is advertised is not an “introductory” rate or a “variable” rate. Introductory rates only last a couple of months (at most, one year). After that introductory period, your interest rate resets to the default rate. The default rate is usually a lot higher than the introductory rate. Therefore, be aware of what you are getting yourself into.

Variable rates change with economic conditions, therefore, you could have a great rate one month and a terrible rate another month. Do not play a guessing game with you credit card interest rate. Get a low fixed rate and you will be much happier.

Intangible costs can ruin a credit card. Have you ever called your credit card company only to listen to an infinite amount of menu options? When you finally get a real person on the phone that person tells you that you have called the wrong department. In an attempt to transfer you, the main menu comes back up and you are back to square one. At the least, this whole process is a waste of time. Why put up with this? As I said before, too many credit card options exist for you to have to settle for one with mediocre service. Your time is valuable; do not waste it on bad customer service!

Know the costs that are associated with a credit card. By doing this, you will be able to make the best decision possible based on your needs and wants.

How to Apply For a Credit Card

Applying for a credit card is a simple process. Everything can be done online nowadays. Additionally, you can receive an answer as to whether you are approved for the credit card, usually within thirty seconds. All you have to do is complete the application (which usually consists of you name, address, phone number, social security number, employment information, date of birth, etc.), click the submit button (if applying on-line) or mail in the application if submitting a hand written application, and wait for a response. The only part of this process that is difficult is determining what card is right for you.

There are many types of credit cards that offer many different types of options. First, you need to know if you want a charge card or a credit card. What is the difference? A charge card works just like a credit card except the balance is due in full at the end of a billing cycle, meaning that you cannot make payments over time. If you charge $1,000 during the billing period, $1,000 is due on your next bill. Charge cards are usually reserved for people with disposal income or people who have an established, high credit score.

A credit card, on the other hand, allows you to pay your balance over time at a set interest rate. The obvious advantage is that you can pay a charge over time. However, the additional advantage is that certain credit cards can be obtained even if you have no credit or bad credit.

Second, you need to determine your credit bonus. Do you want reward points that are redeemable for cash, airline tickets, and other merchandise, or do you want a low interest rate card? If you do not use you credit a lot or if when you do use your card you only use it for small purchases which you usually pay off in full, you may want to opt for the rewards card. This way you can build points towards rewards and the usually higher interest rate will not be a detriment because your balances are too low and because you always pay off the balance in full.

However, if you are just starting to establish your credit, you may want to go for the low interest card. This way, if you misuse your card, you will not get severely punished by the interest rate.
If you use your card a lot, look for a nice balance between rewards and low interest.

Third, should you have a card that charges an annual fee? Simply put, unless you have no other choice because your credit is bad, there is absolutely no reason to have a card that charges an annual fee. Do not get one!

Last, the type of card (Visa, MasterCard, American Express, Discover, etc) is important. I am not the biggest fan of Discover cards because they are not always accepted, but in all fairness to Discover card, I never have had any problems with customer service. If you are getting your first card, opt for the Visa or MasterCard. These two cards are accepted virtually everywhere, and the credit cards of the major banks in the United States are usually either Visa or MasterCard. It just makes sense.

Find out which card you want, submit the application, and get your shiny new card. Just remember not to abuse the privilege.

Saving Money While Paying Off Your Credit Card Debt

Credit card debt can be a real financial drain. You have all heard the statistics and seen the commercials. If you made only minimum payments, it could take you over 7 years to pay off a debt of only $2,000! This is insane! Why pay off the interest when you could be paying off the principal? There are some simple steps you could follow in order to save money on your credit card debt.

First, you must make more than the minimum payment. If you broke down the minimum payment, you would discover that almost half of it goes to paying interest. This is money that you are paying that is not reducing your outstanding balance. If you pay more than the monthly payment, more money goes to the pay off the principal and thus, it takes less time to pay off the debt.

Second, you can utilize a balance transfer. This option is only good if your interest rate is high. Sometimes, credit card companies will offer to give you a card with a 3, 6, 9, or even 12 month interest free or very low interest rate (usually around 2%) introductory period. After the introductory period, the interest rate resets to the default rate. If this default rate is lower than you current interest rate, you should transfer your balance to this new credit card. It is a very simple procedure, you will save tons of money because you will significantly pay down your debt during the introductory period, and your default interest rate on the new card will be better than the interest rate on the current card thus, saving you more money. Everybody wins!

Last, you can call your credit card company and ask for a lower interest rate. You have to have good credit to do this and usually have to have had an account with the credit card company for over six months. However, if you can take advantage of this, I suggest that you do. Many people do not know that you can negotiate with your credit card company and raise your credit limit and reduce you interest rate. If they seem reluctant at first, threaten to close your account. Make them believe that you can receive a better deal elsewhere. Better yet, have a better deal waiting and see if your current company can match it. If they claim they cannot, tell them that you will no longer do business with them and hang up. However, do not close the account because this would negatively affect your credit score. Instead, never use the card and see if your current company comes around.

Saving money on debt is possible; you just have to know where to look and what to do. Take advantage of these easy to use tips, and you will be debt free for less money in a faster time frame!

Protecting Yourself Against Credit Card Fraud

Identity theft has hit epidemic proportions. This used to be a random occurrence, but with the rise of internet banking, debit cards, and other electronic cash alternatives, identity theft is a crime that the normal, everyday person has to safeguard against. Like taking vitamins to ward off disease, preventive measures exist to ward of identity theft.

First, you can call your bank and credit card providers and ask that they call you and get verbal confirmation before approving an amount over X amount of dollars. The dollar amount is going to be different for everybody depending on his/her threshold. For example, you could call your bank and tell them that any withdrawal or purchase over $750 needs to be cleared by verbal confirmation. Therefore, if a purchase over $750 is attempted on that credit card, the company will call you on the phone number that you have provided (usually a cell phone) and will ask if you are making a purchase of X amount of dollars. If you say yes, the amount is approved and on you go. However, if somebody else is trying to do this, the purchase will be denied and the thief will be caught.

The effect of this measure is that you account is protecting against “abnormal purchases.” This measure does not prevent you from buying something over your confirmation amount. All this measure does is create an additional layer of protection so that if somebody tries to use your credit cards, they will not be able to make a “big” purchase.

Second, you can sign up for a credit report monitoring company. By doing this you will know if a new account has been opened or if an inquiry has been made on your report. The credit report monitoring company will immediately notify you and ask whether the opening of the account or the inquiry is valid. If it is not, the account will be disputed and the thief will again be unmasked.

Third, do business with a bank that will guarantee to replace all stolen funds within a short period (24 – 120 hours). This way, damage to your account is minimized. If you check your account balance everyday, this measure will be extremely effective because you will immediately know whether a fraudulent purchase or withdrawal has been and where it was made.

Last, be careful and avoid things you do not know. For example, I have seen letters from identity thieves that were sent via US mail. The letter usually purports to be from a large bank and asks you for your account number, social security number, or some other private account information that is necessary to steal your identity. These letters will provide a phone number to call in case you have any questions. If you randomly get a letter or e-mail like this, NEVER call the number provided. Open up the phone book or call information and get the bank’s number. Call that number and see if the bank really sent out such a letter. NEVER reply to these kinds of letters through the mail. Think about the situation; why would your bank want this kind of information? The bank provides you with an account number, so why would they need to “verify” it through the mail? Additionally, why do they need you full name and address; didn’t they just send you a letter?

Protect yourself and protect your assets using these safety measures.

Getting a Credit Card with Bad Credit

Getting a credit card with bad credit is not as hard as you may think. The types of credit cards that can be obtained with bad credit is the real problem.

There exists a financial practice called adverse selection. Adverse selection is the process of singling out potential customers who are considered higher risks than the average. Credit card companies combat this risk (the risk that people will default on their credit cards) by charging higher interest rates and annual fees. However, this is where the problems begin. If I have a great credit score, why I am going to get a credit card with high interest rates and high annual fees? The answer is, I would not get the card. Therefore, because people with good credit do not want the card, only people with below average credit scores (people that are “high risk”) apply for and obtain the card. Thus, a vicious circle is created. As the credit card companies charge more interest and fees on particular cards to offset the potential of default by high risk cardholders, those particular cards are only obtained by high risk cardholders. Thus, the behavior that the credit card company set out to deter is actually being promoted by the credit card companies’ practices.

So, if you have bad credit, where does this leave you? This leaves you with bad options as to credit card ownership. First, you could get one of those high interest, high annual fee, and low credit limit cards. You will probably pay more in annual fees and interest than you will principal. However, having the card (as long as it is a major credit card; Visa, MasterCard, American Express, or Discover) and using it responsibly will help raise your credit score.

Second, you could obtain a secured credit card. This means that you have to put down a deposit. The amount of the deposit is the amount of your credit limit. It works as a debit card except that it is reported as a credit card (which is a benefit), but it also has high fees and interest rates (these are disadvantages).

Last, you could obtain a merchant credit card (Macy’s, Dillard’s, Sears, etc.). Having this kind of a card will help boost your credit score. However, the interest rate is going to be very high. These cards usually do not have annual fees, but the high interest rate is a great disadvantage.

Even though options are limited and not the best, they are options. Start reestablishing your credit today so that you can help finance your future and save money.

Evaluating the Need for Credit Cards

If you have endless cash, you will never have a need for credit. You will never have to take out a loan because you will always have the money to cover any cost. However, many people do not have this option.

As a general rule, you should not purchase something on credit if you cannot afford to pay for the item in cash. This does not mean that you have to have the entire amount in cash currently available. This means that you have to be able to use your cash, without financial strain, to pay off the bill.

In this day and age, credit cards are essential for building your credit score. Why is this important? Like I said, if you have endless cash, this is not a problem. However, like most of the people in this country, a big purchase, like a house, if something that cannot be afforded if cash was required. Therefore, in order to qualify for a big loan (like a house, car, etc.) we have to build our creditworthiness. Building your creditworthiness is accomplished by raising your credit score. Raising your credit score is accomplished by the correct use of credit cards.

Therefore, the need for credit cards is important in order to be able to afford shelter for yourself and your family and to provide a convenient mode of transportation. If used correctly, credit cards can be a very powerful financial tool. Learn to use your credit cards correctly and you will be able to open financial doors that would otherwise remain closed to you.

Should Teens Have Credit Cards?

A teen should have a credit card in order to teach him/her about financial responsibility. Of all the subjects we learn in school, we are never taught about finances, credit, or money management. This lesson is usually left to our parents. The problem with this is that many parents are not qualified to teach their children about money management. Therefore, the children walk blindly down the financial road only to meet numerous pitfalls and debt traps. One way to combat this potential for financial failure is to teach children about money management.

I use the term “children” loosely. I am not advocating that you sit your six old down and tell him/her about interest rates, credit scores, and investment risk. Absent you child being a financial prodigy, a six year old will not understand any of these subjects. However, once your child reaches fourteen, fifteen, or sixteen, lessons about financial independence should begin. I advocate these ages because these are the ages when most teens get their first job.

Bill Gates could lecture you about “how to become a billionaire,” but none of the information will be useful unless you can put the information into action. I feel the same way about teens and credit. You could lecture your teen about how credit cards work, the importance of timely payments, credit limits, and credit scores, but until a teen actually uses the card and pays a bill, he/she will never fully grasp the principles of this important financial tool. This does not mean that you should drop a $10,000 limit gold card into your teen’s hands and tell him/her to “go nuts.” However, there are many credit cards with a $300 - $500 limit that should be used as the teaching card. This amount is high enough so that your teen could actually use it, but low enough so that if your teen has a job, he/she will not get into trouble.

The credit lesson has to be taught carefully and slowly. It is very easy to lose track of how much you are spending with a credit card. Therefore, it is vital that a teen learn that a credit card is not a substitute for cash. Meaning, if you cannot afford to buy something, you should not put it on your credit card.

Teens should have credit, but only as a privilege used as a tool for financial education. A credit card, like a driver’s license, is a privilege, not a right. Therefore, teens should first be educated, and then be allowed the privilege of credit card use. They should always start small and SLOWLY build their credit limit. As a parent, you can always monitor your teen’s credit use to insure that your teen is using credit correctly.

What is Universal Default and How Does it Affect Your Credit?

Universal default can be a big problem. Have you ever looked at the terms and conditions of a credit card? Somewhere in the fine print you might discover that your particular credit card is subject to universal default.

What is universal default? Universal default is a practice in the financial industry where a loan that you have goes into default (whatever the default terms are under the agreement of said loan) when you default on another unrelated loan. In other words, if I have two credit cards, Credit Card A and Credit Card B, and Credit Card A is subject to universal default and I have NOT defaulted on said credit card but I have defaulted on Credit Card B, Credit Card A would then be in default.

Why is universal default a problem? Universal default is a problem because it can negatively impact your credit score. If you are never late on any payments, then this financial practice is unimportant, however, if by misfortune, mistake, or some other accident you are late on a loan payment (and thus in default) you can get dinged twice (once for the account for which you are in default and once for the card that practices universal default) for one accident. This in turn has a double negative impact on your credit report and credit score.

Universal default does make some sense if you think about it. A person’s credit worthiness is based on how likely a person is to pay back a loan. The more risky a person, the more unlikely he/she is to pay back a loan. Think about it like this: If a person defaulted on Loan A before applying for Loan B, that person would most likely be denied for Loan B. Why should this change if said person already has acquired Loan B? Is not that person still just as risky before acquiring the loan as he/she is during (post acquisition) the life of that same loan? Although this may be true, my thought is, why put yourself in harms way? Do not take on more risk than you have to. There are plenty of credit card companies that do not practice universal default, therefore, acquire those cards and save yourself the headache should you accidentally or even intentionally miss a payment on one loan.

Credit trap: Keeping Young Adults on the Right Track with Credit Cards

I will never forget the time I got my first credit card. I signed up on my college campus. It was great because I got a university t-shirt when I applied for the card. The people working the kiosk basically guaranteed that I would be approved. I was sold! I took the application, filled in my details, and impatiently waited for my shiny new card to arrive in the mail.

It is funny when I think back about how young and naïve I was. I did not care about annual fees, interest rates, or credit limits. If I would have known then what I know now, I would have set a booth right next to that credit card kiosk and passed out fliers about how bad the credit card offers are on university campuses.

There is a popular military strategy called “shock and awe.” Basically, a military will use overwhelming force and spectacular displays of power to paralyze the enemies on the battlefield and destroy their will to fight. The same strategy is used by these university credit kiosks. They promise young and financially naïve adults all these great benefits, but fail to inform about high annual fees and interest rates. Eventually, the college kid finds himself/herself in a debt trap from which he/she cannot escape.

My advice is to do your homework. Make sure that the credit card offer is not all smoke and mirrors. Ask about the annual fee and interest rates. If the person working the kiosk does not know the answers, do NOT get the card. There are too many places where a credit card can be obtained, therefore, you do not have settle for the sub par cards that they hand out on college campuses.

Testimonies: How Debt Can Make You Feel

Okay, time to confess a secret. At one point of in my life, I could no longer manage my debt. I did not file for bankruptcy and all the debt is now paid off (it was all credit card debt), but there was a time when I did not know what I was going to do.

The constant worry is a nightmare. You never know how you are going to pay next months bills, and you are always wondering how long you can keep it up. The funny thing about credit card debt is that it does not suddenly appear. It is a process over many months. You keep spending and paying the minimum balance. Before you know it, your cards are maxed out, and paying the minimum no longer works because the interest on your balance is more than the minimum payment.

I had trouble sleeping and when I did sleep, I would have dreams where I would lose my teeth. I looked at that particular dream in a dream dictionary and found out that dreaming about losing your teeth means financial hardship. Crazy, huh?

I decided to do something to change my situation. My solution was to do debt consolidation. The advantages were that my debt was consolidated into one, low monthly payment and that the interest rates on the credit cards were reduced. Therefore, I was able to pay down the balance a lot quicker. The disadvantage is that once you choose this option, the credit card accounts that are included in the consolidation are closed. The disadvantage of this is that it negatively affects your credit rating. Your credit rating is not substantially lowered, but the decrease is noticeable. Additionally, when you are enrolled in the debt consolidation program, a note appears on your credit report that your are enrolled in a debt consolidation program.

This is how I dealt with the debt. Today, I am very responsible with my credit. My credit score has been completely revitalized, plus more, and I am debt free. Being debt free is the best feeling. Have you ever been in a similar situation? How did you deal with it or are you still dealing with it?

How to Give your Kids a Financial Head Start

Money management can be difficult regardless of your age. However, if you want to get your young ones off on the right foot, there are some strategies and tactics you can do to help them achieve financial success.

First and foremost, you, as the teacher, have to be proficient in money management. You cannot expect a student (in this case, your children, nephews/nieces, grandchildren, etc.) to follow your advice if you say one thing but do another. Make sure you practice what you preach and make sure that what you preach is helpful!

Good credit is an important asset these days. Why not get your kids off on the right foot? There are many components to a credit score (that is an article for another day), however, one such component is the length of time a credit account has been established. Currently, there is a credit score loophole that allows an authorized user to gain the benefit of the primary account holder’s entire credit history. As of recently, the Fair Isaac Corporation, the company behind the FICO credit scores, reported that it was going to stop giving these benefits to authorized users. However, adding a person as a joint account holder will give them the same benefits as the authorized user loophole used to. Therefore, I suggest that you add your child(ren) onto one or two of your credit accounts. The accounts have to be major credit cards (Visa, MasterCard, American Express, or Discover) and the accounts and your credit report have to be pristine and have to remain that way! There is absolutely no reason to add your child to a credit account that has delinquencies, late payments, charge-offs, or any other negative information. You are trying to build a good credit score for your child, not make it harder for him/her to establish credit.

Teach your kids about the stock market early. I once read a story about a family. The grandfather taught his grandchildren how to find and read stock quotes in the daily newspaper. He also taught them how to read financials so the grandchildren could have an understanding of a financially sound company. After teaching them this, the grandfather set up an individual stock account for each grandchild. Every year on the respective grandchild’s birthday, the grandfather has the grandchild pick a stock. The grandfather then buys a certain number of shares of that stock for the grandchild. Can you imagine the portfolio these kids are going to have by the time they are eighteen? Not to mention the understanding they will have of the stock market. If you can set up such a plan for your children, I would strongly recommend you do that. If you know nothing about the stock market, find somebody who does and teach your kids from an early age about the power of investment.

Kids appreciate money more when it is their own money that they are spending. Therefore, I suggest that you have your kids get a job (when they are the appropriate age). Making money for themselves will teach them what it takes to earn an honest dollar. Additionally, you can take this lesson a step further and have your kid open a savings account. Have him/her automatically deposit 10% of every check into the savings account. Make sure you find an account with a high interest rate (you may want to stay away from the major banks and look at small savings and loans that are FDIC insured or credit unions that are FDIC insured because their rates will be far higher than Wells, BofA, Wamu, Citi or any other “major” bank). By doing this, your kid will be building a nest egg and you will be able to teach your child about the power of compound interest.

Last, teach you kids the basics of good credit management. When your kid gets his/her first credit card, teach them (among other things) to pay more than the minimum payment, to not have a high balance, and if they cannot afford an item they should not buy it on a credit card. If you helped them by placing them as joint account holders on a couple of your major credit card accounts, teach them not to ruin this head start by getting in “over their head.”

These strategies will give your child a huge head start on the journey to financial success. All of the strategies are easy to initiate, and all are inexpensive to do. Help give your child the head start that you never had.