Credit Card Basics

As you grow up, head off to school, or get a job, you find out just how many things you end up having to buy: things like books, laundry baskets, food, and so on.  Things you can pay for those things with two types of money: debit or credit.  Debit is money that comes from a personal bank account. Credit is money that is lent to you by your bank. For example, let’s say you’ve been using a credit card. Each time you use that card to buy something, say a new couch, your bank is loaning you the money.

Sounds good, right?  It is, so long as you keep in mind that the bank isn’t giving you this money for free. They expect you to pay a certain amount of money each month, called interest, if you don’t totally pay off the balance by the due date.  Now, assuming you continue to spend via credit,  it can get very expensive very quickly, especially when factoring in the high annual interest rates, or APRs, that are charged by these companies.

Of course, the best thing is to pay off your balance in full each months.  That way, you’ll never pay a cent of interest.  Still not quite sold on credit-cards?  With all their flaws, are they really worth using? The short answer is this: as long as you avoid running up a balance, definitely!  And, if you learn what rewards are available with your cards, it could even pay for you to use your card.  

What rewards?  Most credit cards offer their users rewards, like cash back or airline miles, each time they make a purchase. For example, let’s say your credit card comes with 2% cashback. That means if you spend $500 per month, you’ll automatically get $10 back on your next statement, no questions asked.

And, as if that weren’t enough, responsibly using a credit card also allows you to build a great credit score. This is a calculated number between 300 and 850 that summarizes your credit history, covering everything from your payment history to the age of your accounts.  Most credit cards actually require a credit score of at least 600, plus at least $15,000 in annual income and a reasonable debt payment to income ratio, generally below 36%.

So, if you have a credit card, and you can pay that balance off every month, then yes, using a credit card to pay for things can be a great way to handle your finances!


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How Credit Cards Affect Your Overall Financial Picture

Credit CardsCredit cards, when used correctly, an be a valuable asset to your overall financial picture.  They can improve your credit score, leading to even higher credit limits and better interest rates, and you may earn cash back, air miles, hotel discounts, and other rewards.  However, failing to use them wisely can result in a much lower credit score, higher interest rates, and fewer options when you really need credit.  So, what are the best ways to use credit cards to your advantage?

Carry Fewer Credit Cards

Although it can be really tempting to apply for, and even carry, lots of credit cards, you really don’t need more than a couple of good credit cards.  And by good credit cards, we mean credit cards that carry the lowest interest rates, have reward options that you will actually benefit from, and that have no annual fees.  Of course, if you’re working to improve a damaged credit score, or if you have no credit, then you’ll have to start with a subprime card.  With subprime, it’s imperative that you review the terms!  Make sure you choose a starter card with the lowest interest rate and watch out for hidden fees!

Don’t Spend Carelessly

One of the biggest mistakes that people make with credit cards is spending recklessly.  We see something we think we just have to have, but then we don’t have the cash, so we use the credit card.  And that’s fine if you can pay the balance off when the bill comes.  But, nine times out of ten, we can’t, and that just makes you a little more short of cash until you get the new bill you’ve just created paid off.  If you’re not careful, you’ll end up having to use those credit cards to make ends meet when you’re over your budget because you’ve got several credit cards you’re paying on. A good rule of thumb I once heard regarding credit cards is this:  Buy it once, pay for it twice.

Of course, that doesn’t mean you should never use your credit card.  Keeping them “just for emergencies” or never using them doesn’t really help your payment history – just make sure you occasionally buy something, then pay it off when the bill comes in.  That is the best approach, by far.

Review Every Transaction

Pay attention to what you spend, where you spend it, and make sure you were actually the one who used your credit card!  If you’re close to your limit, log in to your account online and make sure you don’t go over your limit.  No one wants to pay those overlimit fees, trust me!

Pay Your Card Off Monthly

Pay your credit card bills off every month!  Save yourself the interest charges and keep your credit score on track!

Use Those Rewards

Personally, I like the cash back rewards.  I ALWAYS credit them to my account, although there are those who “save” them up all year and then have the credit card company send them a check.  And I have a friend whose husband uses his card to fly for work, and then they use the air miles for vacations.  Whatever works best for you – just don’t let those rewards go to waste!

Closing or Opening Accounts

Assuming you’re using your credit cards wisely and then paying them off each month, you probably won’t want to close the card out.  But, if you do decide to get a different credit card that better fits your lifestyle, or you close an account, be sure that you do so carefully.  Too many changes too fast can cause your credit score to drop more than just a few points.  It’s better to wait three, six, or even twelve month between opening or closing accounts so that your credit score has a chance to level out before the next change comes along.

Remember, credit cards are great financial tools, but if not used wisely, it’s really easy to get in way over your head!  And then, it can take years to pay off bills that you could have avoided creating just by thinking before you slid your card through the machine!

Gotten an Unexpected Credit Line Increase Lately?

Have you checked your credit line on your credit cards lately?  If not, you may have missed an unexpected, even unrequested, increase in your available credit.   But, before you rush out and use that extra available credit, you might want to reconsider. 

Credit CardsIn the last few months, without much fanfare, many banks have begun automatic credit limit increases for customers who are near or at their credit limit.   These “Proactive credit line increases” (PCLIs) were very common prior to the 2008 credit crisis, and infact, post-crisis rules essentially stopped the practice of increasing credit limits without customers requesting the increase.

However, since credit cards are among the most profitable loans originating in the finance industry, and with interest rates at a 20 year peak, banks have begun to find loopholes in regulations, allowing them to issue these proactive credit line increases to those consumers already carrying high levels of debt.

And why is that?  It’s all about the money.  Last year, US banks made approximately $179,000,000,000.00 (yes, that is billions) from credit card interest and credit card fees.  This year, that number is expected to be even better for banks!  Of course, that’s not so great for consumers!  Credit card debt levels are the fastest growing form of debt in our country, currently at a record high ($880,000,000,000.00 as of September, 2019), and that number will only continue to rise as people go out and utilize those credit line “surprises” that arrive with their monthly statement.

Unfortunately, many of these PCLI’s are in the subprime credit sector, where companies are extending additional credit to those who may already be overburdened by debt, who may miss payments, who may incur high penalties, etc.  All of which are extremely profitable for banks.  In fact, the number of people aged 19-29 in the USA who are more than 90 days late on their card payments just reached a ten-year high.

What should you do?  While that little surprise credit line increase may tempt you to go on a shopping spree or two, your best bet is to do nothing.  That’s right, don’t do anything.  Don’t spend it.  Don’t reject it.  Just continue on your normal budgetary path and keep trying to pay those balances down.  Remember, the ideal situation to be in is to keep your credit card balances to an absolute minimum, and then pay them off every month (or as quickly as possible).

Your First Credit Card

“It’s everywhere you want to be.”

“What’s in your wallet?”

Advertisers make sure we’re aware of the power of plastic long before we’re old enough to carry those credit cards, don’t they?   Even though choosing your credit cards based on ad campaigns is not the right way to do it, the advertisers do get one thing right:  Credit cards can be very powerful tools.  And for young adults trying to select that first credit card, making a careful, educated choice can save you a lot of money, as well as helping you to establish and build a good credit history.

When it comes time to buy a car, get a mortgage, or just rent your first apartment, the better your credit score, the better your chances are of getting that loan at an interest rate that’s far more affordable than if you had no credit history.   (Even more important, in this digital day and age, your credit score can even affect your employment opportunities.)

Potential lenders utilize your credit reports to determine how risky it is to give you a loan.  Will you pay the loan back?  Will your payments be late?  Or, will they all be on time, every time?  Essentially, the lender wants to know if you, the borrower, will be able to pay back the loan.  If your credit is bad, then you may have made some major or ongoing financial mistakes and you may be less likely to repay this loan.  On the other hand, if your credit is good or excellent, then you’ve likely established a history of paying back your debt, and the lender will most likely grant the loan.

Credit cards are effectively short-term loans that need to be paid back within a short grace period.  Getting your first credit card can be difficult, especially if you’ve not borrowed any money in the past, and don’t have much, if any, credit history.  But, how are you supposed to establish and build your credit score if no one will give you a credit card?

One of the best ways to establish credit is to apply for a secured credit card. These credit cards are secured by a deposit that you make when you sign up for the credit card. Typically, your credit limit will be the same as your initial deposit, but that’s where the similarity usually ends.  Just like an unsecured card, you’ll be able to use your secured credit card to make purchases, you’ll make monthly payments, and you’ll even have interest charges if you carry a balance on the card.  All in all, a secured credit card is a great way to build your credit if you’re just starting out.

Another effective way to build a credit history is to become an authorized user on someone else’s credit card.  Often, a parent or guardian will designate one or more of their young adult children as authorized users on a credit card.  This helps the child build credit without obligating them to pay the balance every month.  Just keep in mind that if the person whose account you are authorized to use does not handle the account properly, their mistakes could end up hurting rather than helping your credit.

Typically, establishing credit only takes a few months, then you’ll be ready to select for your first unsecured credit card.  But, before you sign up for the first ad you see, make sure that you do your research so that you choose the right card for your needs.  As yourself these questions:

How will you use the credit card?  Emergencies only?  Day to day purchases so that you can cash in on rewards?   Will you pay in full every month or will you carry a balance?

If you plan to carry a balance on the credit card, what’s the interest rate that you’ll pay on the balance each month?  The interest rate used by credit card companies is the annual percentage rate, or APR. There are cards with variable APRs, which are based on a certain index (such as the U.S. prime rate).  There are also nonvariable APRs, which are usually fixed-rate credit cards. As a beginner, you will usually want a low-rate, nonvariable APR credit card, because knowing your interest rate will give you a sense of how much money you will need each month to pay at least the minimum amount due. A low-rate, nonvariable APR card will therefore help when you create a monthly budget.

Will there be any penalties, fees, or other charges related to the credit card or it’s use?   Read the fine print – the most common fees include balance transfer fees, cash advance fees, fees for requesting a credit limit increase and online or mobile payment fees.  Most credit card companies impose penalties for not paying your bill on time or going over your credit limit.   Choosing the wrong credit card company can result in outrageous fees and penalties that could actually hurt your credit score in the long term.

What about rewards credit cards?  Many credit cards offer cash back for certain purchases, or 0 percent APR for the first six to 18 months, or other incentives.  The low interest cards are great if you’ll carry a balance, just as the cash back is excellent if you use that reward correctly, but make sure that the reward actually fits your spending pattern.  Knowing how to use these rewards can really save you a lot of money if you’re careful.  Just remember, that 1% cash back really isn’t  saving you money if you’re paying 24% interest on the balance you’re carrying every month… don’t fall into the credit card trap.  Use your cards sparingly and pay off the balance as quickly as possible.

Remember, you’re working to build good credit, and you don’t want to get off on the wrong foot!  Your payment history, the amount of credit you use, and the number of negative marks on your credit history all have a large impact on your overall credit score.   

Pay off your balance as soon as you can, limit the percentage of overall credit that you’re using, and avoid any negative marks on your credit history if at all possible. While credit cards are a convenient part of everyday life, they can also be very dangerous if not used responsibly.  Make sure you use your first credit card to establish positive financial habits that will serve you well for a lifetime.

Ready for Summer?

Now that Spring Break is behind most of us, it’s time to start thinking about summer!  That’s right, summer!  And you know what summer means?


Wait.  You’re not sure you’re going to be able to take a vacation this year?  You’re still working on your budget?  Trying to figure out how you will afford a vacation this summer? If that sounds like you, we might just have something that can help you save enough money to take that vacation!

In fact, we might just be able to help you save a lot of money.  It all depends on where you are right now in your finances.  Although most people don’t realize it, one of the easiest ways to save money is by cutting interest rates on credit cards.  That’s right.  If you can cut your interest rate, take advantage of an introductory 0% interest rate, or get just the right rewards card, you can save money without even trying!  No cutting back on anything.  No doing without.  Almost NOTHING changes, except you’ll either have more money in your pocket each month OR you’ll pay those credit cards off much sooner.  Either way, you’re saving money, or earning rewards!

Still not convinced?  Why not let us help you decide?

Can’t Find the Right Credit Offer?

Sometimes, even after you’ve perused all the websites that you can find searching for the right credit card, the perfect loan, or even the right credit reporting / monitoring vendor, you still can’t find what you want.

What should you do?  Just take whatever offer you got in the mail?  Settle for less than you want or need?  Pay more interest?  More annual fees?

Absolutely not!

When you run out of options, we encourage you to let the experts help you to find just the right credit card, or personal loan, or whatever you need.  Use the tools that you’ll find online, get your free credit scores, let them “match” you to the best credit cards for your credit score.

Otherwise, you’ll pay way too much for far too little.

Credit Cards & Catalogs

Well, the season is here again! If your mailbox is like mine, every day it is stuffed with both catalogs and credit card offers.

Buy now! Pay later! 15 months interest free! Pre-approved! Save money on interest!

But before you fill those credit card applications out, you might just want to sit down at your computer and compare what exactly you would be getting when you sign up for that new credit card.

Are you getting the best possible interest rate for your credit score? Remember, most of those mailers are based at least partly on the demographics for your area, meaning that it’s not just your credit that is considered, but also that of your neighbors, and other people around you.

Are there hidden fees? Is the length of the balance transfer offer the best one available for your particular credit score range? Read the fine print carefully. Over the past few years, there has been an increase in the number of credit card companies charging a monthly usage fee as opposed to an annual fee, especially if you’re in the lower tiers of the credit score ranges. That monthly usage fee could apply even if you don’t carry a balance on your card.

Are you absolutely certain that the offer is legitimate? Sadly, some of the credit card offers that you receive in your mailbox could very well be identity theft scams masquerading as credit card offers. Before you fill out any application (mail-in or online), verify the source!

Here at Fresh Start Card Offers, ALL of our online applications link directly to the credit card, catalog, or loan provider, so you can be sure that your personal information is safe!

Christmas is Upon Us Once Again

It’s almost impossible to believe, but it’s here again… time for Christmas shopping!

It’s literally just a little over 3 months until Christmas Day. How’s your Christmas budget this year? Do you have the cash saved up to buy all those gifts? If not, how’s your credit score? Do you have enough room on a credit card to charge it all? Do you have a credit card? Do you have credit?

You see, if you don’t have the extra cash or the credit that you need, your Christmas season quickly becomes the most stressful time of year… you try and you try to figure out where you’ll get the money for even just a few nice gifts for your family, your spouse, or your kids. And if you don’t have the money? Or a credit card to use? Relax. You still have options.

Fingerhut has long been known for working with those of us with less than perfect credit. Not only will they extend credit at times when others won’t, but opening a Fingerhut account might even improve your credit score!

So, go ahead – apply now and get the credit that you need to do this year’s shopping AND work on your credit score while you’re at it!

Don’t Cut Up Your Credit Cards!

Thinking about cutting up your credit cards?  Closing credit card accounts that you are not using?  Before you do either one of these things, you may want to think twice!

Let’s face it, at one time or another, we have all run up a credit card bill that seemed to take forever to pay off… and then, when it was paid off?  Your first thought might be to cut up the card or close the account so you won’t be tempted to run that bill up that high ever again… Don’t do it!  At least, don’t do it without looking at the effect that closing a credit card account could have on your total financial picture.

And by your total financial picture, I mean your credit score!  That’s right, closing a credit card account can really affect your credit score, and not in a good way!

When you close a credit card account, you are essentially doing two things:

  1. When you pay the balance in full, the credit utilization rate on the card will then be 0%, meaning that you are using none of the available credit on the card.  This 0% credit utilization actually offsets the balances that you may be carrying on other cards, so if you’ve got two credit cards, one with a 75% credit utilization and one with a 0% utilization rate, and you close the one with the 0% utilization rate, you will actually lower your total available credit.  Your credit utilization rate will then be 75%, and that’s not good for your credit score at all.  Remember, your credit utilization is based on how much of your total available credit you are using… if you suddenly remove a portion of your total available credit, it can really affect your credit score.
  2. When you close a credit card account, especially one that you’ve had for a long time, you could actually shave years of good payments off your credit history.  Lenders like to see a longer payment history, closing an account could remove some of that history from your credit report.

What should you do instead of closing a credit card?

First and foremost, you should look at any annual or monthly fees that you may incur just for having the account… if there are fees, and you don’t need the info on your credit report to maintain a good credit score, then by all means close the account, or even consider closing one account and opening one with another credit card provider who won’t charge any fees.  You might even qualify for a lower interest rate!

But, on the other hand, if you do need the info on your credit report, and there are little or no costs associated with keeping the account open, then keep the credit card.  Just be sure that you put the card away so you aren’t tempted to make any impulsive purchases!

Keep the balance low and keep your credit score high!

Should I Get a Credit Card to Build Credit?

A friend of mine is thinking about buying a house, in fact he’s been thinking about buying a house for a couple of years now.  However, the last time he applied for a mortgage, he didn’t have enough credit, so his mortgage broker suggested he get a credit card or two to help build his credit score.  Unfortunately, my friend didn’t know much about credit scores, credit cards, and such, so he went out and applied for multiple cards… and was rejected multiple times.

And that actually hurt his credit far more than he realized… his credit score plummeted almost twenty points.  All because he applied for multiple credit cards that were actually “out of his credit league.”   Had he been smart, he would have checked his credit score first, and then only applied for credit cards that he was likely to qualify for instead of the top tier cards that require excellent credit for approval.

What about you?  Do you know enough about your credit score and credit cards to make smart choices when applying for credit cards?  And, once you get approved for a credit card, do you know all the ins and outs?  Have you read all the fine print?  Do you understand it?  If not, you might want to spend a little time learning a little more about credit cards and the benefits and the negative connotations that go with them.  That way, you won’t be like my friend and have to learn the hard way.

Remember, using your credit cards responsibly can help you reach those big financial goals, like your first home, that new car, or even something as simple as this year’s vacation.

How do Credit Cards Work?

A credit card is really nothing more than a simple plastic card, equipped with a security chip, that is linked to a line of credit with a financial institution.  Whenever you swipe your credit card to pay a bill, make a purchase (online or in person), or get a cash advance from an ATM, you’re actually borrowing money from the financial institution.  While you don’t have to repay the full amount right away, if you don’t pay within a certain amount of time (usually 25-30 days from the date of purchase), you’ll have to pay interest on the unpaid balance.  If the purchase is large enough, and if you take a long time to pay off the balance, the interest charged against the initial purchase can be significant as it will accrue against the amount that remains unpaid every month until you’ve paid it in full.

What are the Benefits of Using a Credit Card?

One of the biggest benefits of having a credit card is so that you can handle large or unexpected expenses, such as car repairs, home repairs, and other emergencies that crop up when you don’t have the cash to pay all at once.  With a credit card, you can manage the expense by paying over time.  (Just be sure that you pay it off as soon as you can.)

Some credit cards also offer rewards, such as cash back, travel rewards, and other perks, just for using the card to make purchases.  Again, be sure to pay the balance off as soon as you can because the monthly interest charges can easily outweigh any rewards you may earn.  Some credit cards also offer “purchase protection,” where items that you have purchased may be refunded if it’s defective or damaged.  And of course, nearly every credit card offers protection against fraudulent use.  (If yours doesn’t, you need to get another credit card!)

But, for a certain group of people, the biggest benefit of a credit card is the opportunity to build (or rebuild) a good credit history.  Using your credit card to make purchases, paying your credit card bill on time every month, and keeping your total credit usage at or under 30% will demonstrate responsible credit usage, and this will be reflected on your credit report.  Available credit and payment history are the two most significant factors in calculating credit scores, and lenders consider a solid payment history when you apply for new credit or a loan, so that a healthy history of on-time payments can help you get approved with lower interest rates than if you have had one or more missed payments.

What are the Risks of Using a Credit Card?

Probably the single biggest risk of using credit cards is how easy it is to get in over your head, spending money you don’t have, and strapping you with monthly payments that you can’t afford (often for years).  For every month that you can’ pay your balance in full, the interest accumulates and increases that debt.  The best way to avoid getting in over your head is to only use your credit cards when you can pay the balance in full, or when you have an unexpected expense (such as car trouble) and need to pay for the expense over time.  Just be sure to have a repayment plan and stick to it!

There are other risks with credit cards, as well.  Paying late, missing payments, carrying a balance over 30% of the total available credit, opening and closing too many accounts can all have a negative effect on your credit score, so use your credit cards responsibly.

What Credit Cards Should I Apply For?

Before you apply for a credit card, check your credit report and your FICO score to see what kind of credit card you’re most likely to be approved for when you apply.  Remember every time you apply for a credit card, the credit card issuer reviews your credit report.  This causes a “hard inquiry,” which can negatively affect your credit score, especially if you apply for too many credit cards all at once.

(Prequalification on the other hand would be a soft inquiry, since it is not firm approval, and provides an estimation of what you could qualify for. Not all prequalifications will lead to approval, since other factors such as income would be additional factors for the approval process.)