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.

Why You should Shred your Mail and Documents

Identity theft is rampant. It seems that everywhere you look, somebody has had their identity stolen. Just recently, I saw a news story on the Orange County news about a pair of individuals that were going around to mailboxes and stealing all of the mail.

Due to all of the incidents of identity theft, you have to protect yourself at all times. There are many things you can do to protect your identity, including, (1) subscribing to a credit card monitoring service (you will get alerts if there has been a change to your credit report); (2) setting purchase limits on your credit cards (this means that you will be personal notified and have to give approval for any purchase over a set amount of dollars); and (3) you can safeguard your personal information. This list is not exhaustive.

One of the easiest and most effective ways to safeguard your information is to shred any mail or document with your personal information on it, before you throw it away. Many people get credit card offers, bank statements, and other pieces of mail that contain large amounts of personal data. People generally look at the piece of mail, and subsequently throw it away. The problem with this is that many identity thieves search through trash cans and steal people’s mail in order to gather enough personal information to steal that person’s identity. Know that it does not take that much information to steal an identity.

By running all of your mail or documents through a cross cut paper shredder (which are relatively inexpensive and can be purchased at any office supply store for around $30-$40) your mail and documents become a mass of confetti that making it near impossible for an identity thief to get information off of these documents.

Protect yourself from the frustration that is identity theft. The best way to do this is by limiting the opportunities an identity thief has to steal your identity. A simple as it may be, shredding your mail and documents through a cross cut paper shredder is a very simple, effective way to accomplish this task.

How Does a Debit Card Work?

A debit card looks exactly like a credit card. It will have the same shape, color, and magnetic strip that a credit card has. A debit card is used almost exactly the same way as a credit card. In fact, there are times when a debit card is used exactly the same way as a credit card. For example, if you are at the grocery store and you want to pay with a debit card, you swipe your cad through the machine and type in PIN (PIN means personal identification number). If the bill clears your debit is approved and on you go. However, if you are in a restaurant, you card is swiped like a credit card and instead of having to type in a PIN, you have to sign a receipt.

So, if everything is exactly (or near exactly) the same as a credit card, what is the difference? The main difference (and the most important difference) is that a debit card is secured. In other words, a debit card is linked to a checking or savings account and uses that money to pay a bill. Put simply, a debit card is a glorified checkbook. If you do not have the money in the checking or savings account, your purchase will not clear (the purchase will “bounce”) and you will thus not be able to make the purchase.

You have probably all seen the television commercials for the Visa check card. This is a debit card. If you were to get that card, you would have to link it to a checking account of some kind in order to use the card. All of the national banks offer their customers a debit card when the customer opens a checking account. Getting the debit card from your bank is incredibly easy and convenient. However, if your bank does not offer you a debit card with your checking account, you can use other debit cards (like the Visa check card) with your checking account.

Debit cards offer much convenience, however, when people use debit cards, they tend to lose track of their spending. Therefore, if you use a debit card, I recommend that you still record your expenditures in your checkbook in order to keep everything balanced.

Common Sense Credit

The term “common sense” is a misnomer. Some people believe that it is common sense to get only one credit card. Other people believe that credit cards are evil and, therefore, it is common sense to never own a credit card. Still, others believe that credit cards are a necessity in today’s financial times and, therefore, it is common sense to own more than one credit card. Who is right? The truth is that they could all be right, and they could all be wrong. Everybody has a different situation, therefore, “common sense” for their situation will dictate.

My “common sense” tells me that most of us will buy a home and/or a car in our lives. Therefore, unless you are paying cash, you will need to have established some kind of a credit score in order to qualify for the loan that is necessary to pay for these things. You cannot establish credit unless you open a credit account. The most common type of credit account is a credit card. It is true that you can get loans from your bank, but without an established credit report, you will have to secure these loans with some sort of collateral.

If you do own a credit card or credit cards, there is “common sense” advice for you to follow. First, use your credit responsibly. People do not get into financial trouble overnight. It is a gradual process that people refuse to acknowledge before it is too late. Constantly monitor your spending habits and financial statements so that you know when to stop spending or when your finances will allow you a little more leg room.

Second, pay your bills on time. You would be surprised how many people, who have the money to pay the bill, just plain forget to pay. As a result, their credit score suffers. If you are that forgetful or lazy, as the case may be, set up an automatic bill pay through your bank’s internet site. If your bank does not have such a feature, there are many companies that can set up an automatic bill pay for you.

Last, get updated, monthly credit reports from the credit reporting bureaus. By doing this, you will be able to see if any incorrect information is reporting on your credit report. By checking monthly, you will be able to dispute inaccuracies as soon as possible and, thus, minimize your damage. It will cost you about $12-15 every month to get all of your reports, however, think of it as financial insurance against inaccuracies and identity theft.

Do these “common sense” things and you will be able to obtain and maintain a high credit score and sound financial health.

What are the Pros and Cons of a High Credit Limit?

A high credit limit can be a great thing. First of all, it gives you more flexibility for purchases. Second, it gives you a lot of spending power. Last, it can increase you credit score because you debt to available credit ratio will be smaller. However, there are also some negatives that come along with a high credit limit.

As stated above, you will get more flexibility with your purchases, and you will have a lot of spending power with a high credit limit. While good in some respects, a high limit can get you into to trouble if you abuse it. If you have a high credit limit, this means that you have practiced responsible debt management. However, like most things in life, in you fall out of practice, you can get into trouble. Here, just because you have more spending power does not mean that you should utilize it unless you are making a planned purchase for a particular purpose. Do not make a big purchase just because you can. Doing this can turn the “pro” of having a high credit limit into a very big “con.”

Increasing your debt to available credit ratio can have a positive effect on your credit score. The interesting thing is that it can also have a negative effect on your credit score. It is all about timing. If you dramatically increase your debt to available credit ratio in a short amount of time, a credit reporting bureau may see this as you stockpiling credit in order to make a big purchase. This makes credit reporting bureaus nervous because they believe that you may not be able to pay off the big purchase (if made). Therefore, if you are going to increase your debt to available credit ratio, do it over a sizeable time frame and increase your credit limit in small monetary increments.

Both pros and cons exist with a high credit limit, but if you practice responsible debt management and increase your debt to available credit ratio over a sizeable amount of time, your high credit limit can be a powerful asset.

What to Do If You Have Lost Your Credit Card

Most of us carry our credit cards in our wallets or purses. What happens if the wallet or purse is lost or stolen?

First, as soon as you notice that your credit card has been lost or stolen, immediately call the bank that issued the card and report that the card has been lost or stolen (based on your situation). The effect is that the bank will put a hold on your card to prevent any subsequent purchases. Additionally, if your card has been used since you noticed its disappearance, most credit card companies will reimburse you for these fraudulent charges.

Second, find out the procedure for getting a new card from the bank. It may require some paperwork, but it is worth it to prevent fraudulent charges and to obtain a new card. If your card is stolen, you may have to file a police report in order for the bank to proceed with your request.

Third, if you use that card to auto-pay certain bills, you need to call those companies and notify them that your card has been stolen or lost and that you need to switch the account to another card (at least until you get the new card).

At this point there is not much else that you can do. I know it is frustrating and that you feel violated, however, as long as you notify your credit card company, initiate the process to get a new card, and notify any companies that auto-bill that card, you have solved the problem. One of the main things you should inquire about before you get a credit card is the procedure for disputing fraudulent charges. Make sure that you are not liable for these charges and that the dispute procedure is easy. Other than that, there is not much else you can do.

How to Get a Lower Interest Rate on Your Credit Card

A lower interest rate is a great asset to have. The most noticeable benefit is that you can save a lot of money on interest charges. However, you can also use that credit account as a bargaining chip with other credit companies. You can use the time tested “can you beat this offer” routine. Thus, the question is, how do you get a low interest card?

First and foremost, if your credit score and credit report qualify, you can apply for a low interest card. This is the easiest and most obvious way to obtain a low interest credit card. However, this method is only the easiest and most obvious if you have the credit score and credit report to allow you to get such a card. If you do not have the best credit score or report, there are some tactics you could use to lower an interest rate.

If you already have a credit card and your record with that card is flawless, you can call the credit company and request a lower interest rate. You have to be firm and you have to make a credible request. As a general rule, credit card companies want to collect at least between 8-10% interest on credit balances. Of course credit companies love when you pay more, thus, they never tell you that you can get a lower interest rate than the one originally given.

Anyway, back to the credible request. If your interest rate is 18%, asking for a 6% interest rate is just a waste of time. Even if your credit was flawless, no credit card company would drop your interest rate 12 points at one time. It is more realistic that your rate would end up somewhere between 13-15% based upon your relationship and history with the credit company and on your credit score and credit report.

The bottom line is, your options are limited unless you have a good credit score and credit report. Therefore, if your score and report are less than par, you are going to have to deal with your current credit account companies in order to get a lower interest rate. The worst thing that can happen is that your credit card company will not lower your interest rate. The best thing that can happen is that the company will lower your interest rate, therefore, why not give it a try? Just remember to keep it credible, but stay firm with your request and bring up your great history with the company from which you are trying to get a lower rate if the company seems reluctant.

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.