Do not co-sign on a credit card for your college student

March 9th, 2010

Zac Bissonnette
Mar 2nd 2010 at 2:45PM

One of the results of the credit card reform legislation that recently went into effect was a dramatic change in the ability of college students to access credit. Anyone under the age of 21 will now need, according to the bill, “financial information. . . indicating an independent means of repaying any obligation” in order to sign up for a credit card.

What exactly that even means is ambiguous. Ben Woolsey of CreditCards.com tells WalletPOP that “The Federal Reserve hasn’t explicitly defined income requirements but rather has left that up to the individual issuers.”

Some banks may require a payroll stub or bank statement, and others may ask the applicant for the name of the employer and annual income. According to Woolsey, a full-time student with an annual income of $5,000 could “probably” qualify for a credit card — but with a limit of no more than $500.
Given that, most parents probably won’t need to co-sign for their kids to get credit of some kind — and given that many parents really only want their kids to have cards to start building credit, there’s really no reason to have a balance of more than $500.

But parents of students who are unable to get credit cards because of the new law will face a quandary that was non-existent just a month ago, when banks were handing 754 credit cards to any student who could name one member of the cast of Jersey Shore.

To co-sign? Or not to co-sign?

I’ll make this easy: No, you should absolutely not co-sign on a credit card for your college student, ever. Never. Surprisingly, the Bible actually has advice on this topic. Proverbs 17:18, in the New English Translation, reads “It’s poor judgment to guarantee another person’s debt or put up security for a friend.” But if you’re still not convinced, here are a few more reasons not to co-sign:

* If Junior is late on the payments, your credit score will get hit — which could cause you to pay higher interest rates on other loans you might take out — if you can get them at all. Wouldn’t it be funny if you couldn’t buy a house because your kid decided to play the “I’m going to throw all my mail from Bank of America in the trash and see what happens” game?

* If your kid decides not to pay, you will be 100% responsible for the bill. If he files for bankruptcy, he’s off the hook: but you’re not.

* You establish a bad precedent. You want to be a source of financial help and wisdom for your kid: not the person who helped him start his relationship with an industry that has led more Americans down a path toward poverty than any other. If you want to help your kid, give him cash and/or advice: not credit!

Here are the two most common arguments people make for co-signing loans/helping their kids get credit:

* “What if he needs the credit card for emergencies?”

If he needs access to cash for emergencies, set up an emergency fund with $1,000 in cash and give him a debit card with strict instructions never to use that card unless he’s in a jam with a baseball bat wielding bookie and he’s tapped out all other sources of cash. If you can’t trust him to do that, then ask yourself: Why would you trust him to use a credit card “only for emergencies?”

* “He needs to start building up his credit history.”

No, actually he doesn’t. Here’s the truth. Good credit scores get people into at least as much trouble as bad credit scores. Consider these lists:

Smart Things You Can Do With a High Credit Score

* Buy a house (and for first-time home buyers with FHA loans, you don’t even need that high of a score). There will be plenty of time to build up credit history after he has a source of income and doesn’t need a co-signer.

* Possibly get marginally lower rates on car insurance and a cell phone plan. But mainly, consumers are likely to be penalized for having a bad score (repossessions, defaults, etc.) as opposed to a limited credit history. According to Consumer Reports, drivers with top scores pay up to 31% less on their insurance premiums, but people with bad scores can pay as much as 143% more.

* Rent an apartment, but here again, what landlords are looking for is the red flag of a history of defaults and landlords left high and dry — not a recent college grad who never had a credit card. Having a limited credit history will not be a problem in the search for an entry-level apartment for a recent college grad. Alison Rogers, a real estate agent and the author of “Diary of a Real Estate Rookie,” recommends that recent grads without credit may want to offer landlords some additional evidence of responsibility like a reference character reference from a teacher or spiritual leader.

Stupid Things You Can Do With a High Credit Score

* Cancun!
* Buy a boat/car you can’t afford to pay for with cash
* Get one of those TVs they have in airport sports bars
* Lease anything
* Absolut Vodka? Abso-freakin-lutely!
* Birthday parties at high-end restaurants with fifty of your closest friends
* Dolce & Gabbana, Fendi and Donna Karan
* Pec implants
* Take out a private student loan.
* Post ex-boyfriend’s bail
* Co-sign loans for people

And remember: Your college student probably can start building his credit — if he thinks that’s a smart thing to do and can manage the card responsibly — with a small limit based on whatever part-time work he has — without a co-signer.

Bottom line? I’ve talked to lots of rich people and I’ve talked to lots of broke people. I’ve never met a rich person who is rich because he had a credit card during college.

But I have heard from literally hundreds of people in their 20s and 30s who are still digging out of the financial mess they created in college with the help of credit cards. And if you think you’re doing your kid a favor by helping him jump in front of that steam roller before he has any income, you better think again.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Why you need to discuss money with your love

February 23rd, 2010

Martha C. White

Ah, Valentine’s Day: the time of year when couples like to talk about love. But according to one expert, those lovebirds also need to talk seriously about money and credit if they want their relationships to stand the test of time.

Adam Levin, co-founder and chairman of Credit.com, spoke with WalletPop about the kinds of money conversations couples need to have with one another if they’re thinking of tying the knot or merging their finances. Especially in these financially perilous times, he says, “Everybody has to step up and increase their awareness.”

Levin says that women, traditionally charged with managing household finances, tend to take the lead when it comes to researching and obtaining credit and protecting their credit scores. But such one-sided financial management in the 21st century is a prescription for disaster, especially if the union falls apart. Those who get into the most trouble after a divorce or breakup, Levin says, tend to be the ones who were in the dark about their partners’ borrowing and spending habits.

How should you start the conversation? How about the old, “I’ll show you mine if you show me yours,” standby?

“People should sit down and show each other their credit reports,” Levin says. While the phrase “love is blind” may be romantic, Levin offers a cautionary note: “What you don’t want is a situation where people get married and six months later, there’s a bankruptcy.” Building a foundation for a lifelong union is tough enough without a major financial black cloud hanging over the process right from the start.

“You really shouldn’t say ‘I do’ until you say ‘I did have that conversation about spending habits,’ ” Levin adds. This is particularly important because that old adage about opposites attracting tends to be especially true when it comes to attitudes about money. “Often, you have one person spending [like] the Wild West and one who’s much more conservative,” he says. It’s better to talk out these differences and agree on some compromises before the situation leads to a fight, maxed-out credit cards or other financial woes.

If you’re planning to merge your finances, Levin says it’s important that you still keep your individual credit histories; for instance, keep a credit card that’s just in your name. In the event of a death or divorce, this will go a long way toward smoothing the economic transition from coupled to single. And in the event of divorce, he adds, it’s crucial to meet with a lawyer who can guide you through segregating your finances; otherwise, you risk having your ex rack up a bunch of charges and leaving you on the hook for them, which can really put a dent if your good credit score.

So what do you do if the love of your life has a credit report that’s less-than-great? (Or abysmal, even?)

Levin offers a handful of solutions, but some of them — such as co-signing a credit card for your partner — require an extension of trust and goodwill the more fiscally savvy person might not be willing to extend.

If you do decide you trust your spendthrift sweetie enough to take the plunge, Levin suggests monitoring your balance frequently — as often as daily — so you can hopefully catch any spending sprees before they mushroom. Some card issuers will let you set up email or text-message alerts if your balance drops below a certain threshold, which can also be helpful.

Another important tip: Don’t discount the value of sitting down and making a budget together, and going over (and over and over, if need be) the details. Levin advises, “It’s very important for there to be no surprises and an understanding as to how things will be handled. If one of the partners is not responsible, then both people will lose.”

In other words, the saver literally might have to teach his or her partner that really needing a sandwich and a soda is not a good reason to tap the emergency fund, or that going out for drinks with the “boys” (or girls) isn’t a good-enough reason to add to a credit card balance.

As with any relationship issue, communication is key. Money is an awkward subject for many people, but if you’re really planning to share a bathroom — and finances — with this person for the rest of your life, you need to get over it and start the conversation.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Auto insurance premiums tied to credit score

February 10th, 2010

Gina Roberts-Grey
Jan 29th 2010

You might expect a plunging credit score to affect your ability to qualify for a car loan or how high the interest rate on your credit card will soar. But too often Americans don’t realize a plunging credit score can cost them big bucks on insurance premiums.

One of the biggest mistakes insurers say people make is not realizing when their credit score is tanking.

“Credit scores factor heavily into your rate,” says Ashley M. Hunter, a construction-risk insurance specialist who owns HM Risk Group in Austin, Texas. That’s because in the eyes of your insurer, if you’ve missed a few payments to your credit card company or have written a lot of bad checks (that wound up in collection), chances are you’ll do the same thing to them.

So, they charge you more money to protect themselves. Kind of like the insurer taking out an insurance policy that they’ll get paid for the insurance plan they’re selling you.

Hunter says people with poor credit are also more likely to file a claim. And that financially stable people have been shown to have fewer traffic violations or accidents than those who are financially stressed. “So you’re charged high premiums in anticipation of the violations, accidents, or claims you’ll have in the future,” Hunter says.

Criticizing the use of credit scores
Many are speaking out against the use of credit scores in the insurance premium scoring game, claiming insurers are unfairly using credit scores. And, in many cases not notifying consumers that their credit is coming into play when determining premiums.

Eric Poe, chief executive officer for CURE Auto Insurance, a not-for-profit reciprocal exchange based in Princeton, N.J., that fights for fair insurance practices, says a credit score is just one of eight factors used to determine rates.

“Age, how long you’ve been licensed, gender, where you live, how you use your car (how many miles you drive to work or annual mileage), the car’s cost, and your driving record used to be the seven things that determined rates,” he says. “Unfortunately in the past decade, the largest auto insurance companies have introduced many income proxies such as credit score, your highest level of education completed, and your occupation to determine whether you are eligible to receive the lowest rates.”

Poe says even if a driving record is spotless, a less than perfect credit score could lead to excessively high premiums.

“It’s unfair,” says Joe Goodwin. When Goodwin’s job became a victim of the recession, his credit score dropped nearly 100 points. “I got behind on bills for the first time in my life.” When renewal time rolled around on his home and auto insurance policies, Goodwin says his premiums jumped 27%. “I had never filed a claim and was a 20-plus year customer.”

Goodwin says when he asked his insurance agent what prompted the spike in rates, he was stonewalled. “I got the runaround. It wasn’t until I started shopping around and learned [from agents] that my credit score is factored into premiums that I connected the dots and realized I was being punished for my credit dropping.”

What’s a poor credit score to do?
Poe suggests asking a lot of questions when obtaining rate quotes and before renewing any policies. “Due to the fact that all insurance companies use the seven general factors to determine rates, it is important that drivers ask an auto insurer if they use any income proxy rating factors, as this can determine how much they pay significantly,” he said.

If your agent can’t give you a straight answer as to whether or not your credit will affect your rate, tell him “thanks, but no thanks,” since there’s a pretty good chance it will.

“Studies have shown that your credit score, education and occupation can increase rates within the same auto insurance company by as much as 200%,” says Poe.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Disguised credit card statements: How “junk” mail can destroy your credit

January 27th, 2010

Gina Roberts-Grey
Jan 19th 2010 at 12:00PM

The next time you’re sorting out your mail, you’d better give everything a thorough scan before tossing out what appears to be junk mail. Some credit card issuers are sending cardholders their statements in plain white envelopes that appear to be nothing more than a solicitation — or junk. And since the average American throws out their fair share of junk mail, many don’t realize they could be tossing their credit score right into the trash. Redesigned envelopes are absent of the bank or creditors logo. Something card holders say they look for when sorting their mail. “I threw away the statements month after month because I thought it was just junk. It looked like all the other junk solicitations I get and who has time to open up and scrutinize all that junk mail,” says Meryl Brown of Tulsa.

Sure, statements that don’t look like statements can cut down the chances your credit card bill will be swiped out of your mailbox by an identity thief.

But experts say consumers should worry about another problem related to the statements that are hiding in plain sight. And that the envelope makeover can lead to big credit troubles. Brown agrees. “I incurred late charges because by the time I realized I hadn’t paid my bill one month, the payment was late.”

Payment history is responsible for about 35% of your credit score, a missed payment resulting from misunderstood “junk” can be costly.

Betty Reiss, spokesperson for Bank of America, says “Our statements include a notice on the envelope that says “statement enclosed” to alert customers and help ensure that it’s not overlooked.”

Here’s what you can do to keep unmarked bills from destroying your credit score.

Choose a route that’s safer than the Post Office, go paperless. Since most credit issuers provide historical statements online, this also lets you track purchases and expenditures.

Open all your mail, even if you think it may be junk. Yes, it’ll take an extra few minutes, but it could save you more than a few credit points.

Make a list of all of your accounts and monthly expenses. Include the bill’s due dates to remind yourself of when you should be dropping a payment in the mail, or hitting “pay now” to process an online payment.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Credit: Know Your Limits

January 20th, 2010

by Jessica Dickler
CNN Money

You may not spend much time mulling your debt-to-credit ratio, but it weighs heavily on your credit score and can determine your ability to get a loan.

Consumers know all too well that going over their credit limit can mean a nasty fee, a higher interest rate and maybe even a lower credit score.

But few people are aware that merely approaching their limit can have costly consequences as well.

That’s because your debt-to-limit ratio, or “debt utilization,” is a key component of your credit score. Your debt-to-limit ratio is calculated by dividing what you’ve spent by your total credit limit.

If you have a $5,000 limit and you’ve charged $4,000 this month, your debt-to-limit ratio is 80%, which is enough to signal to lenders that you are a high risk borrower.

As a result, lenders may increase your annual percentage rate (APR) or deny you a loan - even if you pay off your credit card balance every month and have never exceeded your limit.

About 14% of Americans use at least 50% of their available credit, according to Experian’s 2007 national score index study. But, experts recommend keeping your debt-to-limit ratio under 30%, or even under 10% if possible.

That means if your limit is $5,000, then you should aim to charge less than $500 a month.

The lower your debt-to-limit ratio, the better your credit score will be. And to that end, there are two basic ways to improve your debt utilization: raise your credit limit or lower your debt.

Raise Your Limit, Lower Your Debt

Your credit card limit is listed on your monthly bill, but it can change from one billing cycle to the next. That’s because credit card issuers can raise or lower your limit as they see fit.

But even though credit card issuers generally dictate what your limit is, consumers do have a say. You can call and request that your limit be raised, as the more available credit you have, the better your debt-to-credit ratio will be.

“If you have a good credit history your credit card issuer will up your limit, but if your history isn’t great then they can say ‘No,’ which isn’t necessarily a bad thing,” according to Bill Hardekopf, CEO of LowCards.com.

“Getting turned down for a higher credit limit may be a blessing in disguise,” Hardekopf said. Chances are it’s a signal that you should reduce your spending or pay down your credit card balances instead.

When paying down debt, it’s important to consider that your debt utilization is calculated per card and cumulatively. That means that leaving one card nearly maxed out will negate all the hard work you’ve done paying down the balances on other cards.

And a higher limit isn’t always better. “If you are a spender and the temptation is there to spend more than what you can really afford, [then a higher credit card limit] can send you into the debt spiral,” Hardekopf said.

It’s also possible that potential lenders will view a sky-high credit limit as potential debt, which can count against you if you are trying to get a mortgage or a car loan.

Ultimately, “it boils down to how you handle debt. If you handle debt responsibly, then go for a higher limit,” said Greg McBride, senior financial analyst at Bankrate.com. But, consider whether “that higher credit limit is going to represent temptation to run up additional debt.”

Ideally, you want to illustrate that you can keep your spending under control, and that means “your focus should be on paying down debt, not racking up more,” McBride said.

Pitfalls to Avoid

Signing up for new cards to boost your total available credit and make your debt utilization appear lower can work against you, experts say. In fact, opening new accounts can even lower your credit score.

“Recent credit inquiries constitute 10% of your score,” McBride said. And each new inquiry means potential points subtracted from your total.

Additionally, closing unused cards is also a bad idea.

“When you close an account the amount of ‘overall’ available credit decreases, which could cause an increase in your [debt] utilization and inadvertently lower your score,” said Deanna Templeton, director of consumer education for Credit.com.

Templeton also recommends using old credit cards periodically, just to prevent your issuer from closing them because of inactivity. “Every so often charge something small like gas or dinner, and then pay it off when you get the bill,” she said.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Fed finalizes credit card rules, limits teen cards

January 12th, 2010

WASHINGTON (AFP) – The US Federal Reserve finalized new rules aimed at protecting credit card holders Tuesday that also make it difficult for anyone under the age of 21 to obtain a credit card.

As part of a series of new rules aimed at protecting consumers, the measure forbids banks from issuing a credit card to anyone under 21: unless the consumer has the ability to make the required payments or obtains the signature of a parent or other cosigner with the ability to do so.”

The new rules, effective February 22, also prevent lenders from unexpected increases in interest rates on card balances, and limit fees and certain types of interest calculations.

The new measures implement a law passed last year by Congress.

Fed governor Elizabeth Duke said the effort “marks an important milestone in the Federal Reserve’s efforts to ensure that consumers who rely on credit cards are treated fairly.”

“The rule bans several harmful practices and requires greater transparency in the disclosure of the terms and conditions of credit card accounts,” Duke added.

The American Bankers Association praised the new regulations.

“These rules — the most comprehensive ever seen — herald a new era for America’s credit card customers,” said Kenneth Clayton, senior vice president at the ABA.

“Many practices that frustrated customers have been eliminated, and credit card users will now benefit from greater control and clearer terms for their accounts.”

The ABA said the new law “ends confusing billing practices, instituting new rules that are easier to understand.”

Due dates will be the same every month, and interest charged on a so-called “double-cycle billing” will be completely eliminated.

The measure bans fees for payment processing — such as surcharges for paying by telephone, and requires that promotional interest rates on new cards stay valid for six months.

It forbids rate increases on existing balances unless consumers are at least 60 days late paying their bill or the initial rate was a promotional rate that has expired, and requires 45 days’ notice to raise rates.

The credit card industry argued the bill could result in a tightening of credit at a time when a credit crunch is already depressing spending amid an economic crisis.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Fitch: Late credit card payments rise to record

January 6th, 2010

AP
Tue Jan 5, 2:11 pm ET

NEW YORK – Consumers still struggle with debt and it’s likely to be a persistent problem this year as unemployment remains high, analysts with Fitch Ratings said in a report released Tuesday.

Delinquent balances on credit cards reached record levels and defaults surged higher in December, Fitch said.

The rate for payments more than 60 days delinquent reached an all time high of 4.54 percent for the December index, which is based on performance data through the end of November. The rate surpassed the previous high of 4.45 percent set in June.

Charge offs — loans that won’t be repaid — crept up to 10.68 percent from 10.09 percent in the prior month but remained inside of the record high of 11.52 percent set in September 2009.

Charge offs are poised to trend even higher in the coming months as consumers struggle with debt burdens in the still challenging employment environment, said Fitch Managing Director Michael Dean.

Fitch analysts expect unemployment to peak at 10.4 percent in the second quarter of this year and remain above 10 percent throughout the year.

Charge offs peaked in the third quarter of 2009 with Fitch’s index reaching 11.52 percent in September 2009 before receding in recent months. While recent trends point to higher charge offs, future deterioration is not anticipated to be as severe given that unemployment is expected to plateau, the analysts said.

Credit card providers, anticipating regulatory changes that take effect in February will restrain their ability to control risk through fees and interest rates, have boosted interest rates ahead of the new laws.

As a result, the gross yield — the measure of interest, fees and other revenue collected on outstanding balances — continued to increase, reaching 20.2 percent. It’s the first time since April 2001 that Fitch’s Prime Gross Yield index has surpassed 20 percent.

Monthly payment rates, a measure of how quickly consumers are paying off their card balances, fell to 17.64 percent from 18.57 percent the month before. The rates are low compared to 2006 and 2007, when the MPR index routinely topped 20 percent.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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On the Fence About Refinancing?

December 18th, 2009

Janene Mascarella
December 15th, 2009

David Politis was struggling with his home’s towering interest rate when he settled on a strategy for saving money: refinancing. But first, he had his work cut out for him.

“We had terrible credit scores a few years back,” says Politis, president of Politis Communications in Draper, Utah. “After discussing our finances with our son-in-law, a loan officer who works for a mortgage broker, we made sure we made all of our house payments on time for 12-plus months — as well as everything else.” That smart step got Politis and his spouse back in the good graces with the credit bureaus, and into a fixed-rate Federal Housing Administration loan.

A year later, with an extended good-payment history, Politis pushed a streamlined refinancing through with FHA. His new rate: 5.75% fixed — down from 9.85% fixed, and a huge improvement over his 13.99% variable rate. The Politis family, now saving more than $300 each month, plans to parlay the savings to pay down consumer credit. It all came down to striking while the iron is hot: cashing in on a great opportunity to refinance last summer.

To refi, or not to refi? If you’re on the fence, wondering whether to refinance now with rates near historic lows, or wait it out to see if rates drop further, Woody Alpern, a CPA and cofounder of Capital Investment Advisors, is unequivocal: “Now is the time.”

Here’s why: the first time homebuyer’s credit has now been extended, through sales contracts written by April 30 and closed by June 30. That credit has been reduced to $6,500, but the adjusted gross income limit was raised, so many more buyers qualify. “We’re still near all-time lows, but eventually inflation will come back, and rates will creep up,” Alpern says. “Don’t try to guess the bottom. We may have already hit it.”

A (Brief) History Lesson
What does “historic lows” really mean? Mortgage rates fluctuate day-to-day, based on the performance of the bond market, because that’s where they correlate, says Karie N. Herring, senior consultant at Southwest Direct Mortgage in Scottsdale, Arizona. It all depends on supply and demand.

“Mortgage rates have gone as high in the past as 10%, 12%, or higher, especially in the 1980s,” Herring says. “Historically, rates now are super-low. You’re looking at 5% to 6%, where 20 and even 10 years ago, we were still pushing upwards of almost 10% for a standard conforming loan. Right now, for a standard 30-year conforming mortgage, you’re looking at 4.875% — still fairly phenomenal.”

But such low rates are reserved for a customer with a strong credit score of at least 720, Herring says. Beneath that, the rates would rise a little bit —- a quarter of a percent, or maybe an eighth, depending on your credit profile and how big a loan you’re seeking.

Score the Best Rates
A low credit score can keep you from taking advantage of these record lows, Alpern says. “More than ever, banks are being very careful about who they lend to. The days of ’stated’ income — when you didn’t have to prove what you earned — and lending to those with credit scores below 700 are pretty much gone,” he says. “Banks have lost literally billions of dollars by making bad loans, and they now have ramped up their lending guidelines significantly.” That’s why it’s that your credit is flawless.

If you have even one blemish on your credit report — say, you paid a credit-card bill late — be prepared to write a detailed explanation of why it’s there, and how you’ve taken measures to ensure it won’t happen again. Some underwriters accept a one-time slip and override their guidelines to get you the preferred rate, Alpern says. But in general, the better your credit, the better the rate you’ll get.

But all’s not lost if your credit score is less than stellar. Refinancing options still exist. “People who are shooting for that 4.875% are shooting for something that isn’t always obtainable,” Herring says. “If you have a credit score of 620 or 640, you can still get a low rate. You’re going to get a lot better rate than you could have a couple of years ago. We still have the FHA lending program — ideal for folks who may not have perfect credit, but who do pay their bills.”

Look Before You Leap
Before you refinance, get your paperwork in order and make sure you’re prepared for full-documentation loans. You’ll need to provide proof of income, W-2s, and your prior three years’ tax returns, Alpern says. Alpern also advises you don’t carry more than three mortgages, including any rental property you may have; new guidelines prohibit approval for Freddie Mac or Fannie Mae mortgages for anyone with more than three mortgages in their name.

If you’re hesitant, talk to a local mortgage broker or a banker who can provide you with interest rates and a quoted payment. You can also compare quotes from different banks online, so you can review all options.

But above all, you should decide whether refinancing makes sense for you. Even though the rates are low, Herring says, be sure you’re reducing your interest rate by at least one percent. Using that industry standard as a guideline, the cost effectiveness of a refi — boosted by new options and availability — may work out to your benefit.

Janene Mascarella is a New York–based freelance lifestyle writer. Her work has been published in The Washington Post, Self, Glamour, Woman’s Day, Parenting, Parents, American Baby, American Way, and many other publications.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Tips for applying for a new credit card

December 11th, 2009

Lita Epstein, Wallet Pop
Dec 3rd 2009

While many shoppers are planning to use cash or a debit card this holiday season, some will still find they need to apply for new credit. I know many at Wallet Pop will tell you that you should just spend less, but just in case you do decide to apply for credit, do it wisely. You also may find it harder to get.

“Shopping and applying for cards isn’t as easy as it used to be,” Bill Hardekopf, CEO of Lowcards.com and author of The Credit Card Guidebook, told me by e-mail interview. “Consumers should now expect higher rates and lower credit limits. Approval is no longer a sure thing.”

If you still want to apply for a new credit card, here are a few tips to think about first:

1. Start with your credit score. Lenders make their judgment about your credit worthiness based on your credit score. A FICO score of 700 or more is considered very good; over 760 will usually qualify you for the best rates (which is up from 720 several years ago).

If your credit score is less than 640, you’ll probably land a high interest rate and limited credit options. Your credit score will also be used to determine the features of your card, such as the credit limit and balance transfer terms. If you’re surprised by your credit score, check it for errors. Correcting mistakes is the fastest way to raise a credit score.

2. Before you get a credit card, be sure you know how you’ll pay off the credit card. You need to take a hard look at your financial habits to determine what kind of credit card customer you are. Will you pay off the entire balance each month on time, or will you carry a balance? Knowing the answer will help you determine the type of card you need.

If you plan to pay off your balance each month, then pay close attention to the rewards offered. The best type of rewards cards out there are those with no annual fee and cash back rewards. Rewards are skimpier than in previous years, so expect a 1% cash back reward rather than 2% or higher.

You may also find there are reward tiers based on your spending level. If you carry a balance most months, than apply for a card with the lowest possible rate. The less you pay for interest, the more you can pay toward your balance and the faster you can pay off that card. Whatever you do, do not pay a higher rate just to get rewards.

3. Transfer your balance to a card with a lower rate. It used to be easy to get a low teaser rate for a year so you could transfer your balances, especially when 0% balance transfer were common. People even used this tactic to make money. But issuers lost money on the deal, and 0% interest transfers for 12 months are nearly impossible to find unless you have a credit score that’s over 760.

Balance transfer fees have also jumped from 3% to 4% and in some cases even 5%, so don’t expect to play the transfer game as easily as you once did. If you’re thinking of doing a balance transfer or applying for a new card to get a balance transfer, Hardekopf has a recommendation: “Before you begin the process of transferring your balance to another card, contact your issuer and ask them to lower your current rate. This doesn’t happen as often as it used to, but it doesn’t hurt to ask.”

4. Pick one card and apply for it. Compare three or four cards by studying the terms and conditions of these cards. Then select the best one and submit an application. “Limit the number of applications you submit because each application is recorded as a credit inquiry on your credit report,” Hardekopf informed us. “Multiple applications are a red flag that can lower your credit score because people actively seeking credit are typically a higher risk to lenders than people who are not seeking credit.”

5. Avoid store cards. Don’t apply for a store card just because the store gives you an immediate discount on your purchase. The rates are usually much higher than an average card, and if you don’t pay off the balance in full the first month, you could pay much more in interest than the money you saved.

6. Pay attention to your rate. Most rates are now variable, and they’ll increase in the future as the Federal Reserve raises the prime rate.

The bottom line is, only apply for credit if you really need it. Think about others ways you can work with your existing cards before seeking new credit. Most consumers carry too many credit cards which only lead to further temptations to spend.

If you need help understanding your credit scores visit us at: www.creditbureauexperts.com

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Government-backed loans will soon require you to have good credit and a decent down payment

December 7th, 2009

Ever get the feeling that sometimes, just sometimes, the universe is just not going your way? That after the Big Bang, the rest of the cosmos is speeding off in one direction, while you are stuck at a bus stop in Secaucus?

Well, if you are a potential home buyer, you may soon feel that way as the government announces it will cost you more — lots more maybe — to secure a mortgage backed by the Federal Housing Administration, which may put you and that home you want light years apart.

What’s happening is the government will soon require not only that you have a higher credit score (really, do you know anyone who actually has a higher credit score nowadays?) but that you put down more than the current 3.5% minimum down payment. Speculation is you may soon have to folk over at least 5% down to get an FHA-backed loan.

More than one real estate agent is expressing concern that higher credit scores and bigger down payments may keep many first time home owners on the sidelines. Should that happen, it could nip in the bud any hope of a meaningful recovery in the housing market in the U.S.

But the government apparently feels it has little choice: The FHA may itself soon require a government bailout.

The political and/or economic wisdom of the coming increases can be argued from here to eternity (or to that bus stop you’re still at in Secaucus); but the fact of the matter is, the bottom line is YOU are likely to soon have to pony up more money (not to mention get your fiscal house in order to help improve that credit score) for the government to lend you a helping hand and to hand over to you that 30-year, fixed rate mortgage.

Charles Feldman is a journalist , media consultant and co-author of the book, “No Time To Think-The Menace of Media Speed and the 24-hour News Cycle.”

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