Credit card myths: Are they really what they seem?

The typical wallet might have at least one credit card inside it. How often it’s used depends on the owner and the terms agreed between the customer and lender, but they can sometimes be difficult to understand, especially when considering the myriad of rules governing how they need to be repaid and the impact they have on credit ratings.

creditcards

There are numerous myths circulating about how credit cards actually work, but which are the most common? Here, we explore four of the most common a little deeper and explain how they actually work in relation to repayment, the added perks and how they can affect future credit ratings:

Applying for a credit card can ruin your credit rating

If you apply for a card, it might be something one of the agencies in charge of credit ratings will take note of, but applications themselves have no impact on credit scores whatsoever. This will come as a big relief to many having second thoughts about taking out a credit card in future, but being sensible with it is important, as is paying all money borrowed back on time. A spokesperson from Yorkshire Building Society suggested:

“Set up a regular savings account and shop around to make sure you get the best rate. Ensure that you are on the electoral roll as this can improve your credit score. Review your day-to-day spending to see if you can make any cuts to increase your savings, then set up a budget for essentials and stick to it.”

Air Miles and similar rewards aren’t worth the bother

Some ‘rewards’ on offer from credit card providers aren’t necessarily worth too much in real terms. Over a short-term period, some of the added benefits that come with some credit card’s aren’t worth that much, but over time, they can actually help you to get discounts, free tickets or help save money on things like the weekly shop. Make sure to read the small print first though.

Paying back what you can is enough

If this was the case, then more of us would be using credit cards. Sadly, it isn’t. The reason why is that the vast majority of credit card providers demand that, on repayment, you must pay a set minimum amount back in monthly, weekly or quarterly instalments. Anything that comes under the minimum required payment won’t be enough to keep the lenders happy.

It’s possible to remove negative info from a credit report

Unfortunately, when it comes to negative credit history, the fact is that when credit card repayments are involved, it takes at least seven years for it to be removed. To help improve your future credit rating, being sensible with your money can help, as can paying back whatever you owe in future. Patience can pay off as long as you don’t make the same mistakes.

How to Improve Your Credit Score and Save BIG on Interest Fees in 2013

This guest post was written by Jason Bushey. Jason is a personal finance blogger and consultant.

If your New Year’s Resolution of improving your credit score already feels like it’s hit a dead end, fear not – there are some simple ways to get your credit on the right track in 2013.

Improving your credit can go a long way towards lowering your interest fees on big-ticket loan items you might have your eye on, including home loans car loans. A strong credit score is made up of multiple factors, but there are some simple practices that are easy to follow that will improve your credit over the upcoming year.

The very first thing you can do to improve your credit in 2013 is apply for a new credit card. If you have poor credit, there are some credit cards for bad credit available for consumers in your exact situation.

Bad credit credit cards can improve your score in a number of ways, the first being that a new line of credit can have an immediate positive impact on your credit score. How so?

Well, new credit lines make up 10% of your FICO scores. Along those same lines, the amounts you owe on your total available credit line make up another 30% of that score. Basically, your credit utilization ratio – the amount of credit debt you owe in relation to your total available credit – should always remain under 30% and in a perfect world it would be less than 10%.

When you open a new credit card account, right away you’re lowering your credit utilization by adding total available credit to your profile. So the impact is two-fold: you’re adding new credit and lowering the amounts you owe. This should lead to a modest boost in your credit score in 2013.

However, the biggest factor determining your credit score is your payment history. On-time payments and payment delinquencies make up a full 35% of your FICO scores, so the number one thing you can do to improve your credit score in 2013 is make paying your credit card bill on time each month a priority.

Not only will on-time payments improve your credit score exponentially – especially those made on your new credit card – but consequently you’ll be lowering your credit utilization ratio, too. That’s another win/win when it comes to rebuilding your credit, and is of course a simple practice to understand.

The third thing consumers can do to improve credit scores in the upcoming year is dispute old debts. This means obtaining your credit report – we’re all allotted one free report per year by law – and combing through for things that don’t look quite right.

If you see something fish-y or odd on your credit report, then the next step to take is to send the credit reporting agency (CRA – this would be either Equifax, TransUnion or Experian) a debt validation letter. This is a simple, to-the-point letter asking the CRA to verify or validate this debt as legitimate.

The CRA then has one month after receiving the letter to respond. If they can’t validate the debt, that negative blemish will be wiped from your report. If they do validate the debt but you’re still not sold that this debt is legitimate, you can follow up with a dispute to the creditor reporting the debt to the CRA.

Remember – the key to disputing errors on your credit report is through documentation. Don’t pick up the phone! Draft a letter, send it off and await the response. Removing errors on your credit report is one of the most important things you can do to improve your credit score in 2013, and while it might seem irksome to write letters and await responses from big agencies, think of the hundreds or even thousands of dollars you can save in interest with your healthy new credit score.

If you respond more to lists, here are three ways to improve your credit score in 2013:

  1.  Apply for a new credit card.
  2. Make on-time payments each month, no matter what!
  3. Obtain a copy of your credit report and dispute, dispute, dispute!

An active, responsible consumer with multiple forms of credit who ALWAYS pays on time is a consumer with great credit. Rebuilding your credit score might sound complicated, but the road to excellent credit is simple if you make it a priority. And if you have goals of owning a home or buying a new car, it’s imperative that you have a good credit score moving forward.

Don’t Get Bit by Snakes

snake-bite

I know what you’re thinking. What are snakes doing on a Christian Finance blog? Well, there’s a saying that says that if you play with snakes, you’ll get bit. Dave Ramsey even uses it to describe credit cards.

Well, I’ve got a great “bit by snakes” story for you. As many of you know, I’m on schedule to be completely debt free by next month. I’m still on schedule, but I hit a setback a couple days ago.

As many of you also know, I’ve been doing “credit card arbitrage” where I use 0% balance transfers and earn interest on the cash while using the cash to make payments. I don’t do this anymore, but I used a 0% balance transfer to pay off a student loan about a year ago and I made payments to a savings account to have the amount in a year so by the time the 0% was due, I would have the cash to pay it off. People can do the same thing with cheap home loans, especially when the rates are this low!

Before last week, I never had a late payment in my life. But I played with snakes and got bit! When I set my online bill payment for the credit card, I looked at the next statement date instead of the payment due date and so the payment was late. When I realized what I’d done, it was too late.

I checked my credit card account online today and almost passed out! My account “went into default” with one late payment and my interest rate shot up to 25.99% even though it was still under the one year 0% special. They also charged me a $39.00 late fee and a finance charge of $89.25!

This really wasn’t a surprise to me since credit card companies can do practically anything they want because their agreements (that you signed when you got the credit card) allow them to. So I decided to give them a call. Sometimes you can get a lot accomplished with one phone call.

To make a long story short, I got the CSR (customer service rep) to waive the finance charges and late fee and also reduce the interest rate from 25.99%! I actually was amazed at how easy it was. All I had to do was ask a few questions about the charges and then simply ask if they could be waived. It took maybe five minutes!

I’m glad I got those fees waived, but I’m still going to pay off the credit card tomorrow. This was too close for comfort and I don’t feel comfortable carrying a balance when I have the cash to pay it off. I will never use credit cards again. Lesson learned. I hope you will learn from my experience. God bless!

Post Updated November 12, 2012

What are the advantages of using a credit card?

Credit cards can be an essential aspect of modern living. Without them, many people would be unable to even out the bumps in their monthly finances and when used sensibly they can provide a useful service for the modern household.

However, credit cards high interest rates carry higher rates than secured loans, and hefty charges if payments are missed which can lead to problems if misused.

Always pay the whole balance every month.

This is the most crucial element in your strategy for using your card responsibly. If you don’t take this route then you can start to see your card a boost to your spending power, but this is the same as building up a loan in small increments. Would you borrow £3000 to casually spend? Probably not. Going down this path makes it easy to build up such a debt and with high interest rates this can spiral out of control. The worst way to use a credit card is the pay of minimum monthly amount, as this guarantees and growing debt. To ensure you are getting the best deal compare credit cards online for the best interest rates.

 

Don’t use your credit card to withdraw cash.

In an emergency, where there are no other options then it can be literally life-saving to have a credit card with a cash limit to hand. The problem with doing this regularly is that most cards charge a cash-handling fee for ATM withdrawal. As this can be up to £5 per withdrawal it is can be a significant percentage of the money you require.

Increased protection against fraud.

A credit card is a loan, so in the event of fraudulent use the criminal will not have direct access to your bank account. Most companies employ rigorous checks to prevent fraud, and will refund in the event of a crime. In the event of losing your card it far simpler to replace a credit card than a debit card making credit cards a better option for travel abroad.

Purchase protection

Many cards will insure your purchases against loss, theft or damage to purchases for a given period. At the most basic level paying with a credit card provides a paper trail that cash does not; making accounting and proving purchases a snap. Some cards also offer insurance, and will replace the item in the case of an accident. This type of insurance is great for online purchases.

Other perks

Credit card companies will often add sundry perks to their card to attract your business. You may qualify for air miles, travel discounts and access to cheaper insurance. In addition cards associated with a retailer may offer additional discounts for cardholders.

Building a credit score.

Having a good credit score will ease applications for loans, utilities and everyday things like mobile phone contracts. Having a credit card is an opportunity to show you can use credit responsibly and boost your credit rating. It’s advisable to not carry a large balance as this can have a detrimental effect on your credit rating and to pay the card in full each month

Post by Sarah 

Thank you Same Day Loan for your interest in the post

Additional Reasons to Use a Rewards Card

If you have excellent credit, even in today’s tight financial market, there is no reason to pay to use a credit card. In fact, many credit cards offer generous reward programs that you could benefit from, depending on your current interests. For instance, if you travel, the days of visiting a foreign country and paying with travelers’ checks are long over. Now, the best protection you can get when traveling is to make purchases with a credit card. Yet, don’t just use any credit card when traveling; instead, take advantage of one that rewards you for traveling or makes it cheaper for you to travel.

Capital One Rewards cards offer a variety of benefits depending on the rewards card you apply for including Orbitz Visa and Venture One Rewards. Both cards offer more than one mile per dollar spent and have no annual fee. Both also require excellent credit from applicants.

In addition to looking for a card that offers no annual fee and a generous mileage rewards program also look for a card that does not charge a foreign transaction fee. If you frequently travel out of the country and use your credit card for purchases, foreign transaction fees at 2 to 4% can quickly add up. Instead find a card that does not charge foreign transaction fees; you get the benefit of purchase protection by using the card, but you are not penalized by making purchases in a different country with different currency.

If you travel frequently and have excellent credit, make sure your credit card matches this. The ideal card will have no annual fee, a generous mileage rewards program, and will not charge foreign transaction fees. If you have excellent credit, you will find many of these credit cards are eager to have you as a new customer and will reward you generously through their rewards program.

Post by Melissa