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Credit Cards and Your Credit Score

by Kerri Spencer on July 14, 2010

When it comes to your credit score, you can’t be too careful. Your credit score will determine a lot of things in your life. Not only will it determine how big of a house you can buy, in some places it might even determine how much you pay for your car insurance premiums or whether or not you get a job.

Credit cards are one important factor in your credit cards. Some folks will tell you that, if you want to have a good credit score, you need to use your credit cards. This isn’t exactly true. In fact, it’s really not true at all.

To have a good credit score, you need to pay your bills on time. That’s the number one way to improve your credit score. Having a zero balance on your credit cards in and of itself doesn’t help nearly as much as paying your bills on time. Those late payments can show up on your credit report and will remain a blemish for years.

There’s another way that credit cards can affect your credit score, and that’s in the area of something known as your “utilization ratio.” This is the amount of money that you have as available credit compared to the balance on your credit card. If you have a credit limit of $10,000, for example, and you carry a balance of $3,000, you have a ratio of 30%. This is a good number, although lower is always better. If you can help it, don’t go above 30%.

In this regard, it can be good to have a zero balance on your credit cards. The main thing is that you do what you need to do to keep the cards open and active. That might mean making a few small purchases throughout the year, and paying off the balance at the end of each month.

Your credit cards matter to your credit score in another way. If all of your credit is revolving credit, such as with credit cards, you’re not going to have as good a score as if you have more diversified credit. Having a car loan or home loan along with those credit cards will be a more ideal mix, and will help your credit score.

Categories: Advice, Credit Score

Poor Credit Scores Make Better Consumers

by Kerri Spencer on July 12, 2010

While it’s true that the recent economic crisis and recession have had a pretty detrimental effect on our society and on many individuals, it’s important to recognize that there is some good that can come out of it in the long run. For example, with credit scores becoming even more important than they were before and with more folks finding their credit scores dropping, it’s also spurred more people to be concerned about their credit scores and become better consumers.

For example, people are not as willing to take on loans that they can’t afford as they were just a few years ago. People are more likely to pay off their credit card debt at the end of each month, too. Some studies suggest that people are saving more money overall.

In some ways, these changes come a bit late. Some people, who have had wonderful credit scores for decades, find that losing a job in the middle of a recession can mean suddenly destroying that credit score. Those same folks, then, wind up taking years to get their credit back up.

So, how are they doing it? There are a few basic principles you need to follow to become a better consumer and to get that credit score where you want it to be:

Pay your bills on time. This is the most important factor in your credit score. If you’ve got late payments, your score is going to drop and your credit history is going to suffer.
Reduce your outstanding debt. The next most important factor in your credit score is the ratio of your debt to the amount of credit you have. This is known as your “utilization rate.” The object is to use less of the available credit that you have. Don’t max your credit cards, or even come close to it.
Type of credit matters. Your credit score is affected by whether you have old credit or new credit. In fact, applying for new credit will usually drop your score a little bit, so don’t apply for new credit unless you really need it.

Categories: Advice, Credit Score

Late Payment Fee Limitations Rock the Credit Score World

by Mark Lima on July 9, 2010

The new CARD act that recently went into effect makes a number of changes to the credit landscape. Some of these changes are meant to be good for consumers (and their credit scores), although there are those that wonder whether the changes will have unintended negative consequences. Time will tell the tale, of course.

Late Fee Changes

As you know, there are plenty of penalties for paying late. When you make late payments your credit score drops. In fact, more than a third of your FICO credit score is made up simply of your payment history. That means even one late payment to one company can lower your overall credit score, once that payment is reported to the credit bureaus.

There are other problems with paying late, too. Many creditors will charge you a late fee, usually of $30 or more, for making a payment even a few days late.

The big change, however, will take place in the area of late fees and interest rates. As it turns out, credit card companies could previously raise your interest rates when you made a late payment. This is all spelled out in the credit card agreement you signed when you applied for the card.

Now, however, banks that want to raise that rate will be required to notify you. Not only are they required to notify you, but they are required to do it before they actually raise the rates.

Minimum Payments and the Payoff

One thing that doesn’t impact your credit score as much as your budget from this legislation is the way that credit cards tell you how much you should pay each month. They’re now required to show you how long it will take to pay off the balance on your credit card using the minimum monthly payment.

This will help put it all in perspective, at least for some folks. Finding out that it will take 7 years and $3,000 in interest to pay off $3,500 in credit card debt may make some folks decide to pay more on their monthly payment. This will also help reduce their credit to debt ratio, another important factor in their credit score.

Categories: Credit Score

Getting the Bank to Open Their Purse Strings

by Mark Lima on July 9, 2010

No one likes being denied a loan because of their credit score. In fact, it’s downright embarrassing in some cases. The good news is that, if a creditor denies you, they will send you a letter than tells you the reasons you’ve been denied. If they have denied you because of your credit score, you are then allowed to get a copy of your credit report for free. (Of course, you’re always able to get a free credit report once per year via the Annual Credit Report website, as well.)

Here are some tips and tricks you can follow in order to try to get the bank to loosen up a bit, improve your credit score, and get access to the credit you want and need:

Check your credit report for errors. If there are any errors, you have a right to see them corrected. Follow the procedures set out by the credit reporting agencies to correct errors, and you’ll see your credit score start to rise. The credit reporting bureau is required by law to investigate your claim within 30 days. If they do fix an error, you can request that the correction be sent to any company that’s asked for your report recently.
Pay your bills on time. The single most important contributor to your credit score is how you pay your bills. If you pay late or not at all, your score will drop.
Pay down your debt. One of the most important factors in your credit score is the ratio of debt to available credit. If your credit cards are all maxed out, it will negatively affect your credit score. You need to utilize less than about 30 percent of your overall credit.
Consider a secured credit card. A secured card can create a positive mark on a credit report that’s otherwise not so good, and have an upward pull on your credit score.
Pay attention to your credit card statements. Watch for unauthorized charges. If you become the victim of identity theft, you don’t want it to have to negatively impact your credit score.

Categories: Advice

The World’s Worst Credit Cards

by Kerri Spencer on July 8, 2010

With a plethora of credit cards to choose from in today’s market, there is no reason to pick on that is not customer focused. Does your credit card charge an annual fee? Does your card have excessive interest rates or change the rates if you make the slightest mistake? Credit card interest rates are climbing despite America’s increase in credit debt, and it is imperative that consumers know as much as possible about the credit cards they choose to carry in their wallets in order to ensure that they are the perfect card for what they need. This infographic will shows you some of the worst credit cards and some of the common mistakes that people make when charging purchases with their credit cards.

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