Do your credit cards actually work for you or against you? I know that sounds strange, but when you think about credit as a whole, your credit score either helps you or hurts you. Likewise, the credit cards you carry can either help or hurt you, too.
For example, your credit might be pretty good, but if you don’t have enough credit available, it can damage your credit score. You see, your credit score is calculated based on a number of variables, one of those being how much credit you have available. And if you don’t have enough, it can hurt your score. So, while you might be limiting your credit card use, if you’re still over the recommended 30% utilization, then you probably don’t have enough credit.
But how do you know if you have enough credit? One of the best ways is to look at how much credit other people in your credit range have. And that’s pretty easy to do with all of the free credit tools available these days. Almost every one of the free sites offers a comparison of your credit versus others in your credit range, all you have to do is log in and look. Then, once you’ve figured out whether you have the right amount of credit, you’ll want to take a look at the actual credit cards you have in your wallet.
Do they offer a decent interest rate for your credit score? If it’s been awhile since you’ve taken a look at your interest rates, or if your credit score has improved since you last looked, you might want to take a good hard look because you could be paying more interest than you should.
Do you have any rewards credit cards? Are the rewards that you’re getting the right rewards for you? Would a cash back card be better or should you get a travel rewards card? It all depends on your lifestyle. What works best for someone else may not be the best choice for you.
Remember, your credit should fit your needs, and it should work for you, improving your overall financial picture. Your credit should not hold you back, keeping you from doing or having the things that you want or need to make your life the best that it can be. So, if you haven’t examined your credit cards lately, there’s no better time than the present!
As you’re going through your receipts for filing your taxes, one of the things that you might want to consider looking at, along with everything else, are your credit card statements for the past year… How much are you paying for interest? How many annual fees do you pay? Has your credit changed? Do you have the available credit that you need to cover any emergencies that might crop up in the new year?
If you’re not sure of the answers to these questions, now is the best time to sit down and study those bills. Make a detailed list of each credit card that you have, showing the balance on the card, the interest rate that you’re being charged, any fees that you pay, any rewards that the card offers, and how much available credit that you have on each one.
Then, take a look at your credit score over the past year. Has it changed? Is your credit score better now than it was six months or even a year ago? If so, you might qualify for a better credit card, with a lower interest rate, more rewards, and a low or even no annual fee. If you don’t have a credit card, and your score has improved, now might be the best time to apply for a credit card. (If you can only get a secured card, you might want to consider using a little bit of your tax refund to get started with a secured card!)
Once you’ve listed all the details of your current credit, then you might want to consider upgrading one or more of your credit cards to a card with features that are more aligned with your needs and your current credit score.
Here are our best picks for credit cards to give you an idea of what’s out there:
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?
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.
You know, when you’re just starting out financially, it’s not always easy to understand all of the financial terms, what they mean, and how they affect your credit score… truthfully, you may not even understand your credit report the first time that you request it, even though literally everyone says you should study it, make sure it’s right, and try to keep it in the good to excellent range. But, what exactly is on your credit report?
What makes up your credit report and your credit score? Basically, your credit report is your financial snapshot and it contains information directly related to your financial status. Here are the major categories of information that you should find on your credit report:
Personal Information: In order to positively identify you, your report will contain your full name, including any variations such as maiden name, middle name, middle initial, misspelling and/or any other name that you may have used in your financial affairs. It will also contain your social security number, date of birth, and all addresses that you may have used over the course of your lifetime. It may include your telephone number and/or your places of employment.
All Open and Closed Accounts: Your credit report will also contain a list of all credit that you’ve had over the past ten years (expect some variation on the length of time), including credit cards, mortgages, auto loans, etc. Each creditor will list their full name, your account number, balance owed (if any), payment history, and whether or not the account is current or past due.
Public Records: Any public records, such as bankruptcies, judgments against you, and/or any liens.
These are the main items that you will see when you review your full credit report. Surprisingly, you won’t usually find identifiers such as marital status (although joint accounts will be included in both credit reports), level of income, bank balances, or level of education in your credit report.
Remember, the information contained in your credit report is used to paint your personal financial picture, therefore, it’s extremely important that you review all of the information carefully and report any discrepancies that you find to the credit bureau that listed it on your report.
So, you’re a grown up now… you’ve graduated from high school, college, or trade school. You’ve got that first real job and you’re ready to start building your future. One of the most important steps you can take to build the future you want is to start building your credit history. Building a solid credit history enables you to do so many of the things that you’re planning for your future. With good credit, you can get that nice apartment, buy that first brand new car, or even buy your first home.
But how do you go about building that all important credit history?
The very first thing that you should do, before you do anything else, is to find out exactly what your credit score is. Even if you’ve never had a credit card, your credit history may include any student loans you have or have had in the past, a personal loan, an auto loan, or something else.
(Especially with the recent data breach at one of the big three credit bureaus, it’s imperative that you check your score! Someone could already be using your information for fraudulent purposes.)
There are several places where you can access your credit reports, among them AnnualCreditReport.com (which gives you a free copy of all three reports), or you can set up a username and password with a company like these shown below and get your free credit score.
The main thing is to find out what your credit score is, see what’s on your credit report, and correct any inconsistencies that you find on the report. Sometimes it’s as simple as filling out an online dispute form, other times you may have to send in documentation to correct something, but whatever you do, don’t stick your head in the sand!
Know what’s on your credit report, know your credit score, and be ever vigilant in all of your financial moves. Remember, it’s your credit score that determines whether or not you’ll get that loan, that job, or even that first credit card.
And speaking of credit cards, don’t just apply for the first credit card that you find online. Do your research! Some credit cards offer seemingly low interest rates, but can be offset by high annual fees or really low credit lines. Others offer rewards, like a rebate based on the amount of purchases that you make with the card, or reward points that you can use towards airfare, hotels, and more.
Choose a credit card that fits your credit score.
For example, if your credit score is higher, you’re very likely to qualify for those lower interest rate cards than if your credit score falls into the fair or even no credit range. And if your credit score is lower because you haven’t really ever had credit before?
Then you should consider other types of cards to start, namely catalog or secured credit cards to “jump start” your credit score, thereby allowing you to build your credit profile sooner rather than later. Visit our Store/Catalog Credit Card page or our page for a Limited or No Credit History to see which offers best fit your personal credit needs.
(Don’t make the mistake of applying for multiple cards at first – every time you apply for credit, lenders pull your credit report, and that can lower your credit score.)
Typically, if you know your credit score up front, and if you stay within the range of offers that are specifically designed for your credit score when choosing a credit card, you’ll get approved on your first or second try. But, in the event that you do have trouble getting your first credit card, you still have options:
See if you can become an authorized user on someone else’s credit card, such as a relative. Just remember that your use of the card will also affect the credit score of the person who put you on their account, perhaps even damaging their credit score if you make mistakes with the card. And, the person who puts you on their card is financially responsible for your use of that card, so if you don’t pay, the creditor will go after the other cardholder.
Get a secured credit card.A secured credit card is exactly as it sounds – your credit line is secured with a deposit that is held in a checking or savings account. If you fail to make your monthly credit card payments, the bank will take the deposit out of the checking or savings account that “secures” your credit card. The credit limit on a secured card is typically the same as the deposit amount, but can increase or even be converted to a conventional credit card account over time.
Finally, once you actually have your first credit card, make sure you use it responsibly if you want to start building that all important credit history! And you will have to use the card, not just carry it around in your wallet – if you don’t actually use the card, you won’t need to make payments, so you won’t build your payment history. Try making one or two smaller charges each month, then
Once you have your first credit card, use it correctly if you want to raise your credit score. The biggest factor in your credit score is your payment history. If you don’t use your card, you don’t need to make payments and can’t build a payment history. Make at least one charge each month, and make your monthly payment on time. (Be careful that you only use about 30% or less than your total credit line, too, because that’s the second most important factor in building credit.)
Remember, your first credit card is the building block to your financial future – don’t blow it!
You know, I read an interesting study the other day about Millennials and credit, and in the study, it stated that Millennials utilize personal loans at a rate of 98% higher than the previous generation, and they open auto loans at a rate that’s 21% higher than the previous generation, but they also open far less credit card accounts, averaging two less credit cards than their parents. At first glance, those credit card statistics sound pretty good, don’t they? But does it really make sense not to have some credit readily available on credit cards?
While a personal loan looks good on paper, what with the lower interest rate and all, there are drawbacks that you might want to consider before you decide not to open any credit card accounts.
First and foremost, available credit on a credit card is instantly available. Unlike a personal loan, which can take a couple of days between the time you apply and the time the money is deposited into your bank account, the amount of available credit that you have on a credit card is available at all times, day or night, regardless of where you happen to be at the time (ever had an emergency when you’re on a road trip – a personal loan doesn’t work at 3:00 am when you’re 300 miles from home).
Secondly, with a credit card, you can actually pay the balance off every month if you so choose and never pay a penny’s worth of interest. That’s not the case with a personal loan. Even though the rate on a personal loan is usually substantially lower than a credit card, you’ll still pay interest on the principal every month. Over time, even that lower interest rate will add up.
And finally, even though many personal loans are reported to the major credit bureaus, not every company does, and what’s reported won’t show available credit, so your credit score may be impacted by not having any readily available credit (that’s about 30% of your credit score).
So, what should you do if you’re trying to limit your reliance on credit cards? The answer is pretty simple – get at least one good credit card, use it sparingly, and pay off the balance every month! That way, you’ll have the benefit of instantly available credit when you need it, but you can opt to pay no interest at all just by paying the balance in full when it’s due.
One of the biggest hurdles that you’ll ever face once you’ve had a credit setback is not what you think it might be… It’s not that no one will give you credit because you have bad credit. It’s not that you have to find other ways to pay for things because you can’t get credit. It’s not even that your credit is keeping you from getting the job, the car, or the home that you want. Those things might be a problem, but they are not the biggest problem.
The biggest problem that you’ll face when your credit score hits rock bottom is convincing yourself that it is worth the time and the effort that it takes to recover from bad credit. That’s right, the biggest hurdle you’ll face is the one within. You see, when your credit score really tanks, you start to think that you will never be able to get it back up to where you’ll need it to be if you ever want to be able to buy another car, get a different apartment, buy a house, or even change jobs because your credit is so low.
And, standing at the bottom looking up, it really does seem like an impossible task. So, you start to wonder, “Why bother? I’ll never get my credit score back on track. Never be able to get another credit card. Never be able to buy a new car at a decent interest rate. Never get that house. So why even bother trying?” Sound familiar? I’d almost be that everyone who has ever had their credit score bottom out has felt that way at one time or another. And they are right to an extent – it would be far easier to simply give up and accept that your credit is bad and that it is going to take some time and effort to rebuild your score. But has the fact that something is going to take a little time and effort ever really stopped anyone who has ever really wanted something? No, it hasn’t. And that’s why you cannot give up on your credit score.
Ask yourself these questions:
How bad do you want that new car?
How bad do you want that house?
How bad do you want that dream job?
And now, ask yourself this, how hard are you willing to work for it?
Just like anything else that you really want, rebuilding your credit takes work. Sometimes it will be hard work, other times not so hard. But you will find that, if you start right now, TODAY, and you work as diligently at improving your credit score as you do at every other thing in your life that really means something to you, you will get there.
You will rebuild your credit score. But you cannot do that unless you actually begin. Now. Today.
Have you checked your credit score since the updates that took place this month?
Remember, we reported back in April that beginning July 1st, big changes in the reporting standards would take place, and this could potentially affect your credit score!
Here is a summary of the changes:
First off, beginning July 1st, all civil judgement and public tax lien data that does not conform to the new reporting standards will be excluded by the three big credit bureaus. In a nutshell, unless the data includes an individual’s name, address, and either a social security number or date of birth, it will be excluded from credit reports. Further, this information must be physically verified every 90 days by making visits to courthouses. Simply because of logistics and economics, the majority of civil judgments will likely be excluded after this date. (If you have this type of information on your credit report, you may see a credit score increase of about 20 points.) Unfortunately, there is also a downside to this change. Mortgage lenders may be forced to due more “due diligence,” and if so, prospective homeowners could face additional costs, red tape, and so forth when they are trying to get approved for financing.
Secondly, medical debts cannot be reported until 180 days after the date of delinquency. This will protect you in the event that insurance payments are delayed due to verification issues, questions, etc. And, once the bill is being paid or has been paid in full by insurance, any previously reported medical debt must be removed from credit reports.
And finally, authorized user data must include the full date of birth for any newly added user to all existing and new credit card accounts.
So, if you haven’t checked your score, now is the time to do so!
Did you know if you’re using over 30% of your total available credit that it’s probably hurting your credit score? That’s right. Credit utilization, the simple measure of how much available credit that you have at any given time, should stay at or below 30% of your total available credit. But, how is credit utilization calculated?
Simply put, your credit utilization is figured by adding up your total credit limits and dividing that by the total of all the balances on your credit cards. So, if you have a $1,000.00 credit limit spread across one, two, or even three cards, and the total balance that you’re carrying is $500.00, then your credit utilization is 50% and the credit bureaus take that into account when your credit score is updated every month. Even worse, some actually look at individual balances, so if you have even one credit card that is over that 30% utilization, it may be costing you points on your credit score.
What can you do to improve your credit utilization score?
Of course, ideally it’s best to pay off the balance on all your credit cards every month, but that’s not always financially feasible, so you may want to consider other ways to lower your credit utilization and/or increase your available credit. The first way is fairly straightforward – just pay down the balances on your credit cards until you’re below the 30% utilization score.
Or you can increase your total available credit by getting another credit card and then using it sparingly. Oftentimes, people accomplish this by applying for a balance transfer card with a special interest free introductory period that will allow them to transfer one or more balances to the card, and then pay it off before the introductory period expires. This move can save hundreds of dollars in interest over the course of a year or more – just be sure to pay it off before the introductory period expires!
Another option, for those of us whose credit isn’t really high enough to qualify for the balance transfer cards is to sign up for a regular credit card, or even a catalog shopping card like a Fingerhut Credit Account issued by WebBank as this too will increase your available credit and Fingerhut typically works with those of us with less than perfect credit.
(Fortunately, your credit utilization score is only calculated on credit cards and revolving charge accounts – your mortgage and auto loan isn’t taken into consideration.)
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.)