Credit Card Quick

How the Credit Card Industry Stays Profitable

Introduction

All of the hoopla surrounding the credit card industry and the CARD Act legislation has left many consumers wondering why credit card companies were panicking over the new legislation. In short, it is because, although the legislation was designed to protect consumers, many credit card companies lost money because of it.

Credit card companies and the issuing banks get paid every time credit card customers make purchases. Here is a breakdown of how the process works:

• Credit cards are typically offered by banks, who lend money to consumers via loans and credit cards. The interest earned is their payment. But it doesn’t stop there.
• The first part of this equation occurs when you walk into a store and make a purchase using your credit card. The card is swiped through a credit card reader, which sends the purchase information to the bank that issued your credit card. The bank will then give the retailer the OK to pay the purchase.
• The retailer’s bank makes a small amount of money from this transaction. The money made by the bank is split between the credit card company and the bank that issued the credit card. Fees charged by banks vary between credit card companies and retailers.
• The money made by credit card companies doesn’t end at the transaction, though. The fees charged by credit card companies to consumers for late payments, going over the credit card’s limit and annual fees are also sources of income. In addition, most banks must pay money to the credit card company for the luxury of being a part of the Visa or MasterCard networks.
• The issuing bank and the credit card company share a percentage of the money they receive from every purchase made using a credit card. The credit card company and the issuing bank usually negotiate the percentage received by both parties.
• Card issuers and banks, before the CARD Act, also had a number of opportunities to make additional money from credit card customers. They would often sell customer names and addresses for direct mail marketing purposes, and they would also sell advertising space to other companies on the statements sent to customers each month.

The Four Most Important Factors to Consider when Comparing Credit Card Offers

Choosing Credit Card

Credit card offers are piling up in your mailbox, and you know you want to research the possibility of getting a new credit card, but you’re not sure how to best compare credit cards.

The fact is that the interest rate of a credit card is just one factor to consider when researching credit cards. Here is what you may want to consider when choosing a new credit card:

1. Interest Rate – OK, of course you will check the interest rate. But what may be just as important as the interest rate is the length and type of interest rate. First, if the card offers a low, promotional rate, make sure to pay close attention to the length of the promotional rate and, perhaps more importantly, the default interest rate once the promotional rate has ended. In addition, make sure the interest rate on the card is fixed – not variable – to save yourself from any surprises down the road.
2. Billing Cycle – A generous billing cycle should be an important consideration when choosing a new credit card. This is because you want to be assured that you will have sufficient time to make payments each month without incurring finance charges on your previous month’s purchases. Although the CARD Act has set limitations regarding billing cycles, it is still quite common to see small variations regarding billing cycles and grace periods, so don’t overlook this feature.
3. Rewards – If you want a credit card with rewards, you must do your homework and read the fine print! Rewards credit cards are NOT created equal, and there are a huge number of differences between cards. It is therefore important to read and understand all of the features associated with a rewards card before accepting the terms and conditions of the card.
4. Annual fee – If you want a no-frills, competitive-rate credit card, you will likely not need to pay an annual fee for using the card. However, you may notice that many of today’s rewards cards come with annual fees. Don’t automatically toss any credit card offers that charge an annual fee, though, as the rewards aspect of the card may be well worth the small, annual fee. In other words, consider all features of a card before discounting a card because of an annual fee.

The Facts about Prepaid Debit Cards and how to Protect yourself

ATM Credit Card Debt

You may be tempted to purchase a prepaid debt card as a credit card replacement, as a gift, or as a spending tool for your teenager. It may seem quite advantageous to use a prepaid debit card and, in some cases, it is; however, in order to make the best decision whether to use a prepaid debit card, you must know all the facts:

• Prepaid debit cards are not free to use. In particular, pay close attention to the small fees charged by the prepaid debit card company, as they can quickly eat away at your balance. Some of the fees charged by prepaid debt card issuers include: ATM cash withdrawal charges, PIN purchase charges, balance inquiry charges, and activation fees.
• Chargebacks are possible with prepaid debit cards. Some retailers do not accept prepaid debit cards for purchases (iTunes is one of them); although most retailers will simply decline the purchase, there have been cases where the purchase went through, but the customer found a chargeback that they were responsible for covering.
• If you lose your prepaid debit card, there are very little protections in place for you. In other words, prepaid debit cards are essentially viewed as cash by prepaid debit card issuers, so you have no protection if your prepaid debit card is lost or stolen.
• Because you won’t receive a monthly statement from the prepaid debit card issuer, it is very hard to track your spending. This makes it particularly hard for individuals who need to keep their spending to a minimum. Some prepaid debit cards provide features that allow individuals to view their activity online, but the prepaid debit card issuers usually always charge a fee to do this.
• You must keep track of your spending using a prepaid debit card; otherwise you may be quite embarrassed when a purchase is declined. Because retailers are not able to determine the balance on the card, you must be aware of what you have on the card so you can alert the retailer to only charge a certain amount to the card if your purchase exceeds the card’s balance. Then, you will need to cover the remaining retail purchase balance using another form of payment.

Common Questions for New Credit Card Holders

Introduction

If you are a new credit card customer, you may worry about the basics of holding a credit card account. Although it is up to you to read and understand the terms and conditions associated with your new credit card before you sign the back and begin using it, you may have additional questions regarding the use of credit cards.

Here are some of the most common questions asked by new credit card holders:

Q: How often should I charge on my credit card to increase my credit score?

A: As a new credit card customer, you no doubt want to use your credit card to build a credit history and to work toward a good credit score. To increase your credit score, it is important to build a steady credit history and to do this you will need to charge often on the card. Simply by purchasing a few things on your credit card every month and paying the bill in full when you receive the statement you can quickly build a positive credit history that will have a positive impact on your ability to obtain credit in the future.

Q: What type of credit card should I be looking for?

A: If you are applying for your first credit card, you may want to seek a secured card. A secured card, which is often chosen by first-time cardholders, will allow you to begin building a credit history. If you have established a credit history through a car loan, student loan or personal loan, you may be able to apply for an unsecured credit card. The best rule of thumb for new credit card customers is to find a no-frills, competitive-rate credit card. Save the rewards cards for the future when you have built a solid credit history.

Q: How many credit cards should I have?

There is no one-size-fits-all answer to this question, as the proper number of credit cards for one individual may be vastly different for another individual. In short, you should never have more credit cards than you can comfortably handle. If you find yourself struggling to remember to pay credit card bills each month then you probably have too many. Two major credit cards are usually enough for the average consumer.

The Quickest Way to Financial Security

Introduction

There is only one route to take when it comes to financial security, and that is responsible spending and saving. However, there are a number of factors to consider when seeking financial security.

• Always pay yourself first – Before you even touch your paycheck, pay yourself first. This means taking a percentage of your paycheck (aim for 10 percent) and putting it into a high-yield savings or money market account.  If you want to build a financial cushion in case of unemployment, disability or personal emergency, you will need to save a portion of your income, each and every paycheck, without fail. Many economists and financial experts recommend aiming to save at least six months of income in an easily accessible savings or money market account.
• Never carry a credit card balance – The number-one rule when it comes to credit cards and financial stability is to always pay off your balance. Credit cards are practical and convenient, and are often a useful way to build a great credit history. However, they can also be financial sink holes, plunging us into debt and creating a financial problem that magnifies if we can’t afford to pay more than the minimum balance. The easiest way to avoid financial trouble and to secure a healthy, financial future is to never spend more than you can afford to pay off each month.
• Be cautious about what you purchase on credit – There are a few things that may be purchased on credit, such as a car or a home; otherwise, wait until you have saved up to make other large purchases. Using credit to buy furniture, clothing and to take vacations is the quickest way to get in over your head in debt. A good rule of thumb is to only purchase within your means, and that may mean saving up for things you want most – not charging them for instant gratification.
• Always, always take advantage of an employer-based 401K plan – If your employer matches up to a certain percentage of your 401K contributions, then you must take advantage of it; otherwise you are essentially turning your back on free money.

Get Over It: Your Guide to Crawling out From Underneath your Debt

Credit Repair

Are you absolutely sick and tired of breaking out into a cold sweat every time you open the mailbox? Do you get heart palpitations when the phone rings? Do you have a panic attack when you make a purchase, afraid your credit card will be declined?

If you answered yes to any of the above questions, you may very well be financially in over your head. The great news, however, is that there are ways to steer your finances in the right direction and gain control over your debt. Yes; in fact, there are solutions to your debt and financial problems!

Here are the following steps to take to finally get over your financial problems so you can look forward to a financially positive future:

• You can’t change what you don’t acknowledge – Unless you realize you are in over your head in debt, you can’t begin to change your financial future for the better. Often times, acknowledging your financial woes can mean having that long overdue talk with your spouse or family; other times, it can be finally laying everything on the line and actually opening your credit card statement. Take whatever steps you need to take to get to the place of acknowledgment; otherwise, you can’t expect to move forward and begin righting your financial wrongs.
• Take a deep breath and take a good, hard look at your finances – This is often the hardest part for those individuals in debt; but it’s an important step. Gather every bit of debt and spread it out in front of you. Then, get a calculator and add it all up. You can’t begin to understand where you stand financially until you have a clear understanding of your current debt load.
• Make the necessary phone calls – One of the best ways to begin your financial road to recovery is to call the debtors to which you owe money and talk to them. If you have neglected bills and loans, now is the time to set up payment plans. If you are in over your head, ask for a payoff amount, and negotiate lower payments, if necessary. The creditors may say no, but it’s always worth a shot.

Is it Ever a Good Idea to Share your Good Credit?

Credit Card Debt

Congratulations! You have made a commitment to being a responsible borrower and spender and, as a result, you enjoy a strong credit score and easy access to credit. You may, however, have someone in your life that isn’t in your position regarding credit and finances.

You may have wondered (or may have been asked) if it is a good idea to help your loved one improve his or her credit by offering your good credit and name to a loan or line of credit. But is this a good idea?

Here are a few factors to consider that will help you determine if it is a good idea to share your good credit:

• If your loved one’s credit was damaged due to an ex-spouse – Often times, a divorce can take a tool on an individual’s credit, leaving them financially vulnerable. If you have a loved one who is trying to rebuild his or her credit after a messy divorce, you may want to aid him or her by co-signing for an apartment, car loan or credit card. If the credit problems started before the marriage began dissolving, however, you may want to rethink this decision, as your loved one may very well be a credit risk.
• If your loved one lost his or her job – There have been countless casualties as a result of the economy, and the number of lost jobs has been too numerous to calculate. As a result, millions of Americans have fallen behind on their mortgages, car loans, credit cards and rent payments. If you have a loved one who lost his or her job and lost his or her good credit because of it, you may want to help him or her rebuild his or her life; and this could mean cosigning for a car loan, lease or a credit card. If your loved one is now working, but having a difficult time because of past credit problems, it may be a good idea to help out.
• If your loved one continues to make the same credit mistakes – Although you can provide support and guidance for a loved one who has made (and continues to make) poor credit decisions, it simply isn’t worth destroying the credit you have worked so hard to build only to have it destroyed by another’s poor decisions.

Picking up the Pieces: How to Rebuild your Credit after a Divorce

Credit Repair

Along with the dissolution of your marriage could come the dissolution of your finances and good credit.

Unfortunately, not all marriages end peacefully and, a result, not all credit scores are kept intact. If you have made it through to the other side of a divorce, but are financially wrecked as a result, you will need to begin making moves to repair your credit so you can move on. Here’s what you need to do:

• Any joint credit cards should be immediately canceled – Although any outstanding credit card debt will still be half of your responsibility, you can cut off any future debt at its knees by removing your name from all joint accounts.
• If you are a woman who relied on your husband’s credit over the years, it is now your time to begin building your own credit history – The best first step is to take out a credit card in your name. If you don’t have enough of a credit history to do this, take out a secured credit card. Secured credit cards are ideal for individuals with no credit or poor credit, and they are a great way to begin building a positive credit history.
• Open a bank account in your own name – A great place to open a personal bank account is through a credit union, as it will allow you to not only begin establishing a credit history, it may also serve as your lender if you need a car loan or credit card. In fact, a credit union is often the best place to go if you need to apply for a credit card.
• If you have a loved one who is willing to help you, ask them to “piggy back” you onto their credit – In other words, you may consider asking a loved one to co-sign for a credit card or loan or allow you to become an authorized user on their credit card. Although this situation is not for everyone, it can be a great way to rebuild your credit and begin your new life.

What you Need to Know about Small Business Credit Cards

Choosing Credit Card

If you are a small business owner you’ve no doubt witnessed the flood of business credit card offers as of late. Many banks, in an attempt to lure back their small business owners, are now offering small business credit cards with attractive promotions and rewards programs.

Many small business owners, however, are unsure whether to apply for a small business credit card, and for good reason; these credit cards are not protected under the CARD Act. So, is it a financially smart idea to apply for a small business credit card if you are a small business owner?

Here are a few factors to take into consideration:

• Small business owners who use small business credit cards are not protected by the CARD Act. In short, all those “transparency” regulations afforded to consumers are not afforded to small business owners, so those fantastic offers and promotions may not all they’re cracked up to be.  A good example of this is creditors can issue rate increases at any time and for any reason when it comes to business credit cards. For example, if you fail to make a payment on an unrelated loan, your creditor can raise the interest rate on your business credit card.
• Small business credit cards are not superior when it comes to taxes. In other words, if you charge a business expense to a personal credit card you can still claim it as a business expense on your taxes. A business deduction is a business deduction, regardless of how you pay for it.
• Business credit cards do not protect business owners when their employees overspend. Remember that you are responsible for the expenses charged by your employees if you provide them with their own business credit card. In other words, you can’t ask the credit card to reverse the charges if your employee overspends or charges unapproved purchases. It is ultimately your responsibility to cover any purchases charged by your employees.
• Business credit cards are always personally guaranteed by the business owner. In other words, if your business fails or if you fall behind on your credit card payments on your business credit card, your personal credit history will suffer. The notion that business credit cards do not affect business owners on a personal level is a common misconception.

The Transparent Credit Card Industry: But is it?

News

The CARD Act (Credit Card Accountability Responsibility and Disclosure Act) was enacted by Congress to ease the strain of credit card costs for consumers. However, nearly a year later, many wonder whether the CARD Act was as beneficial as it was touted to be.

The Transparent Credit Card Industry

One of the largest goals of the CARD Act, according to Congress, was to increase credit card transparency for consumers. In other words, this new legislation requires credit card companies to inform consumers, at least 45 days in advance, of credit card interest rate hikes and provide them with opt-out features.

However, along with the positive often comes the negative, and the CARD Act has its share. For example, many economists believe that the increase in credit card interest rates is directly related to the CARD Act. In other words, creditors are searching for ways to recoup losses they incurred as a result of the new legislation, and they are doing so in the form of higher interest rates for nearly every consumer across the board.

Consumers Affected by Credit Availability

In addition, the Center for Responsible Lending study shows that the CARD Act “confused consumers further and did not reflect rates or availability.” Kenneth Clayton of American Bankers Association believes that the cost of credit and the availability of credit were “negatively impacted by the act; particularly working-class Americans.”

Many credit card companies, in response to the CARD Act, have also cut credit limits and have become choosier regarding to whom they will offer credit. In other words, the higher credit limits and easy availability to credit you’ve enjoyed for years may not be so easy to find anymore.

It is important to remember that, although there are negative aspects to the CARD Act, there are a number of features that protect consumers from shady credit card practices. Most credit card industry experts believe that consumers with good credit scores will benefit most from the CARD Act, while those with less-than-perfect credit may struggle to obtain credit cards with competitive rates.