This week we welcome Beverly Harzog, a frequent source of mine when it comes to credit card issues and author of the new book, Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made. She was nice enough to welcome me to her blog last week and I am happy to return the favor. Here she is with five credit card mistakes to avoid:
Credit cards can be a really useful money management tool. If you take time to understand how to use credit wisely, you can even make a profit from your credit cards.
But if you don’t know the rules of the game, you can end up in trouble in no time at all. Here are five credit card blunders that you want to avoid at all costs.
Mistake #1: You open several credit cards at one time. This mistake is often common among those who are new to credit cards. How do I know this? Because I made this exact mistake when I got out of college.
You open the envelope and pull out your first shiny card and see your name on it. It’s a rush! More offers start rolling in and you don’t see why you shouldn’t apply for all of them.
Well, there are plenty of reasons to stop yourself. Each time you apply for a card, the credit card issuer does what’s called a “hard inquiry.” This can knock two to five points off of your FICO score.
Another good reason to say no to multiple cards? When you’re new to credit, you need to gain experience when it comes to managing a credit line. So take your time and build a good credit history slowly.
Mistake #2: You don’t have a budget. One of the biggest contributors to credit card debt is the lack of a budget. Without a spending limit, you could easily charge more with your credit cards that you can cover with your monthly cash flow.
Remember, a good budget isn’t a constraint that ruins your fun. A budget actually puts you in the driver’s seat because you’ll be able to see a clear view of your expenses and cash flow. And most importantly, you’ll have control over how much you spend.
Mistake #3: You don’t track your spending. This is a detail that often falls between the cracks. You might think this will be a pain, but these days, there are so many options and many of them are even fun to use. You can choose from oodles of smart phone apps, free money management software on the Internet, or create your own spreadsheet if you’re tech savvy.
Be sure that you have a limit for the amount you plan to put on each credit card and then stick to the plan. Check your credit card accounts online every week just to make sure you’re on top of everything.
Mistake #4: You don’t pay your bills on time. Make sure you pay not just your credit card bill on time, but all of your bills on time. If you don’t, your credit score will suffer.
A lot of folks don’t know that a bad credit score can increase the rates they pay for health insurance, car insurance, car loans, and more. An excellent credit score actually helps you save money in many areas of you life.
There are a variety of ways to set up reminders, such as text or email alerts. So do what it takes to pay all of your bills on time and protect your score.
Mistake #5: You carry a balance. Sometimes this starts innocently and you think you’ll carry a balance just this once. But then, before you know it, it’s six months later and your balance is getting bigger due to compound interest.
Look, life can get awful messy at times and emergencies happen. But unless you’re in dire straits, make a vow that you won’t carry a balance.
So pay your bill in full during the grace period. For those who don’t know, when you use your card to make a purchase, the grace period is the amount of time you have to pay the bill before interest charges kick in.
About Beverly: Beverly Harzog is the author of Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made. She is a nationally recognized credit card expert, author, and consumer advocate. She’s appeared on Fox News, CNN Newsource, ABC News Now, and top media markets across the country. She is a frequent guest on syndicated radio shows, and her advice appears regularly in print and on major websites, including the Wall Street Journal, The New York Times, USA Today, SmartMoney, Money Magazine, U.S. News & World Report, New York Daily News, Washington Post, MSNMoney.com, CNNMoney.com and more. Beverly runs a popular credit card blog on her website and has coauthored two books, The Complete Idiot’s Guide to Person-to-Person Lending and Simple Numbers, Straight Talk, Big Profits! She lives in Johns Creek, GA.
Hi Jean. We bought our home in 1982 for $67,000 and refinanced in 2001 for $85,000. This company sold our mortgage without our knowledge in 2013 for $72,000 @ 8.5% interest. Unfortunately things happened that were beyond our control. For the past ten years I took care of my parents. They both passed away last year. Our whole life we’ve taken one step forward, three backwards. It seems when we get caught up something else happens that takes us back. Our credit is poor. We have never asked anyone for help; that’s why we are in this mess. We don’t know where to turn. Can you please point us in the right direction. Thank you.
Hi Toni. I have to admit, I can’t tell from your letter exactly where you are right now – but I can sense that it’s somewhere very difficult. And having lost one of my parents, I cannot imagine losing both – let alone in the same year. I’m so sorry for all you’re going through. In situations like these, fixing everything quickly is just not an option. The world of money just doesn’t yield results that dramatic that fast (if it did, I’d have a television show like The Biggest Loser). Rather, it’s the smaller, habitual changes that add up to something meaningful over time. Focus on controlling the things that you can control. The top three things I’d do? 1. Look at your spending and see where you can cut back. 2. Take that money and pay down high interest rate debt if you have it, or save it if you don’t. And 3. Pay your bills on time. Even if you’re just playing a little more than the minimum (a number you should try to nudge up) paying on time will help move your credit in the right direction.
This week’s column is the second part to my two-part series on credit scores. If you missed last week’s on the murky waters of credit scores (i.e. FICO vs. Vantage), you can catch up here. As for this week’s piece, I tackle the misconceptions surrounding millennials and credit, and how both parents and twentysomethings can get started on building (and maintaining) solid scores.
You can see the full column on Fortune.
This week’s guest post comes from Bill Hardekopf, CEO of LowCards.com and one of our go-to resources when it comes to credit cards. If you’re in the market for a new card, his site will help you find it.
Credit cards are the object of a lot of criticism due to their high interest rates and fees. But if used properly–paying off your balance in full on time each month–then a credit card is the best way to make a purchase. You can actually make money, thanks to the cash back rewards offered on some cards. But there are also a significant number of perks and protections that you receive for free just for using your credit card.
These benefits are usually found in the welcome packet or listed in the terms and conditions of the card. They vary by issuer and type of card. But some of these perks may astound you.
Here are some of the free benefits that may be available if you make a purchase with your credit card:
Price Protection. Pay attention to the price of the item after you purchase it. If the price drops during a specified time, some issuers may reimburse the difference. MasterCard’s Price Protection offers this for a period of 60 days; Citi Price Rewind offers this for 30 days if the price is at least $25 lower that what you paid. You may have to register the purchase online as well as keep your store and credit card receipts as proof of purchase.
Extended Warranties. Some cards double the manufacturer’s warranty for up to a year. There are limits to the coverage. Save your manufacturer’s warranties and receipts for any purchases that may be covered.
Purchase Protection. The purchased item must have been working when you received or bought it, then stopped working or was damaged. This feature sometimes protects you against theft or accidental damage for up to 90 days from the time of purchase. Some purchases may be excluded and coverage may be limited by occurrence.
Car Rental Loss/Damage Insurance. Using your credit card for a car rental may cover damage incurred when renting the car, so it may not be necessary to purchase extra insurance coverage from the car rental company. Before renting, check the description of this coverage in your Cardmember Agreement. To be covered, you must be the primary renter and decline the collision damage waiver (CDW) or similar option when you are reserving and picking up your rental car.
Travel Accident Insurance. Travel accident insurance provides benefits if you lose limbs or are killed in an accident on a common carrier such as an airplane, ship or train. Coverage ends when you arrive at the place designated on your ticket.
Trip Cancellation Insurance. This protects you against forfeited, nonrefundable and unused payments if your trip is interrupted or cancelled and you have purchased your common carrier tickets with an eligible card.
Lost Luggage Insurance. If your baggage is delayed for at least 12 hours, some cards will give you up to $300 to buy essential items such as toothpaste, a change of clothes, etc.
Travel Emergency Assistance. Most cards offer some type of travel assistance. For instance, American Express cards offer an emergency hotline that helps find a doctor and assist with lost prescriptions. Visa and MasterCard provide medical assistance while traveling and helps you find dentists, doctors or pharmacies. Visa also helps you make all the necessary arrangements for emergency transportation home or to the nearest medical facility.
Roadside Assistance. Some cards offer tire changing, jump-starting, lockout service and fuel delivery. There may be certain conditions on these services and they usually cost.
Security from Unauthorized Purchases. All card companies provide emergency assistance for lost or stolen cards. Under federal law, your maximum liability for unauthorized use of your credit card is $50. If you report the loss before the card is used, the issuer can’t hold you responsible for unauthorized charges. All cards have dispute resolution. If you see a charge on your bill and it is not familiar to you, call the credit card company and dispute that charge.
About Bill: Bill Hardekopf is the CEO of LowCards.com and has been involved in finance for over 12 years, with frequent contributions to Forbes, The Street and The Christian Science Monitor.
As Natalie said this morning on Today, if you’re using credit cards when you shop, some cards are certainly better than others. I did the groundwork for you, and came up with the best cards for 2014. Below you’ll find my segment with Natalie and Al — scroll a little further to see my top picks.
*Not seeing the video? Some browsers block videos on secure websites like ours. In your address bar, remove the “s” after http at the start of the web address, then reload the page. The video should appear. If you still have issues, contact us.
Best Balance Transfer cards:
If you have excellent credit (above 720 on the FICO scale):
Slate from Chase
0% on new purchases for 15 months
0% on balances transferred for 15 months
No transfer fee
No annual fee
Regular APR of 12.99% to 22.99% depending on your credit
If you have good credit (between 660 and 719 on the FICO scale):
Capital One Platinum Prestige
0% on balances transferred and new purchases through May 2015
3% transfer fee
No annual fee
Regular APR of 10.9% to 18.9% depending on your credit
Best for New Purchases:
If you have excellent credit
Citi Diamond Preferred
0% on new purchases for 18 months
No annual fee
Regular APR of 11.99% – 21.99%
If you have good or fair credit (620 to 720)
Capital One Quicksilver Cash Rewards Card
0% on new purchases until February 2015
No annual fee
$100 bonus for spending $500 during the first 3 months
1.5% cash back on everything
Regular APR of 12.9%-20.9%
Best Cash Back: Overall, the Capital One Quicksilver Cash Rewards Card gets consistently high marks – and it’s also great because you don’t need to have pristine credit to get it. Also:
Chase Freedom (for good and excellent credit 660 and above)
0% on balance transfers and new purchases for 15 mos.
$100 bonus for spending $500 in the first three months
5% back on three categories each three month period (currently gas, movies and Starbucks stores – up to $1500 max)
1% on everything else
Barclaycard Arrival World MasterCard (for excellent credit)
40,000 mile bonus if you spend $1000 in the first three months
2 miles for every purchase
Use miles (100 = $1/40,000 = $400) as a statement credit against travel, so no blackout dates
0% APR for 12 months
No annual fee first year; $89 thereafter
Capital One VentureOne Rewards Card (for good credit)
20,000 mile bonus if you spend $2000 in the first three months
1.25 miles for every purchase
Use miles (100 = $1/40,000 = $400) as a statement credit against travel, so no blackout dates
0% APR through February 2015
No annual fee
Barclaycard Rewards MasterCard for Average Credit
0% intro APR for six months on balance transfers and purchases.
You receive 2,500 points after your first use of the card. 2 points for every dollar spent on gas, groceries and utilities;
point for every $1 on every other purchase.
If you’re not a student:
Capital One Platinum Credit Card caters to people with limited credit history
No annual fee the first year; $19 thereafter
APR 24.99% — high, but the goal is buy it, pay it off, build credit
A tip: Put an automatic payment, like your health club on the card, pay it off automatically and don’t use the card for anything else – building credit will be a breeze.
If you are a student:
BankAmericard for Students
0% APR for 15 months on transfers and purchases
No annual fee
APR 10.99% – 20.99%
If you have bad credit:
Credit One Bank Credit Card With Gas Rewards
Annual Fee: $35 to $75
APR: 17.9% – 23.9%
1% back on gas purchases
Make your first six payments on time, they’ll increase your credit line. Also offers email/text reminders that your payment is due.
Do you have appointments for individual consultations for financial planning? I live at the Jersey Shore and will travel anywhere to get the financial help I need. I am 59, a teacher and divorced with a low credit score and significant debt from a high mortgage and poor choice of loans. Facing major decisions, and I need help!!
I don’t, Sue. But you’re an excellent candidate for Money School. Specifically, you should take The Debt Diet, which is designed to help you do two of the very things you mentioned you’re struggling with: pay off debt, and increase your credit score. By the end of the class, you’ll also be prepared to start building an emergency fund, which can help keep you from falling into debt again the next time money gets tight.
A new schedule of classes can be found here — this semester’s live schedule starts on February 11. I teach these live classes via webinar, and they come with a live Q&A period at the end, as well as a week of chat-based Office Hours, so you can ask me all of your questions and come back for more info if you realize something from the lessons wasn’t clear. It looks like this:
This year, I’m also offering recorded versions of the same classes — including The Debt Diet — through an online education platform called Udemy. This is a great solution if our live course schedule doesn’t mesh with your own schedule.
And as debt is usually tied to other areas of your financial life that aren’t working, you may want to take some of the others (particularlyBudgeting Bootcamp, A Crash Course in Saving More and Spending Less, and Yes, You Can Retire) as well.
I hope that is helpful — and I hope to see you in class! If you decide to attend, I look forward to hearing what you think.
When credit card expert Jason Steele reached out to me about a post on credit card sign-up bonuses, I knew he’d be able to answer the questions I get all the time — namely, how does adding a new card to your wallet impact your credit score? Read below for a clear-cut, easy-to-understand explanation of how this process works.
Big credit card sign-up bonuses of miles, points, or cash back seem too good to be true, but are they? For example, Chase is currently offering 50,000 British Airways miles as a sign up bonus. A quick search at CardHub.com returns similar offers for customers with excellent credit. With such valuable points and miles hanging in the balance, credit card users need to know if their credit score will suffer if they accept one of these offers.
How do sign-up bonuses work? Even during the depths of the great recession, when the banks were being bailed by the government, they were still making healthy profits from their credit card businesses. Credit card users are so valuable, that card issuers are willing to spend hundreds of dollars to acquire a new customer. The banks offer that money to the cash-poor airline industry in exchange for frequent flier miles, which they purchase by the billions for a fraction of what some travelers pay to buy miles.
Those miles are then offered to new credit card applicants, just for the opportunity to earn their business. Frequently, cardholders will have to meet a minimum spending requirement in order to qualify for the sign up bonus, which generates merchant fees for the banks as cardholders get in the habit of using the card – and possibly get into debt as well.
What happens to your credit score when you apply for a new card? The first thing that happens is that the bank pulls a copy of your credit report, a process often called a “hard pull.” One or two hard pulls by themselves will have a negligible effect on your credit score, but a large number of recent inquiries will cause a small, significant, but temporary drop in your score.
Once approved for a new card, your credit report will reflect an increased credit history and larger total line of credit extended. For a given amount of debt, a larger amount of credit extended helps your credit score by decreasing your debt to credit ratio. So for most people, receiving one or two new credit cards will raise their credit score, not lower it.
Some words of caution. Those who would use a new credit card to spend more or incur debt should not apply for one. Anyone who carries a balance on their cards should focus on paying it off, not chasing rewards. And beware of annual fees, which are often tacked on to cards with high rewards potential.
In addition, I find that most people make the mistake of over-thinking their credit scores. By worrying too much about minor factors such as recent inquiries and debt to credit ratios, they can lose sight of the big issues that determine the bulk of their credit score. Pay all of your bills on time and carry very little debt, and it is difficult not to have a great credit score.
Once applicants discover that credit card sign up bonuses, indulged in moderation, will not hurt their credit scores, then they can enjoy some of these tempting offers.
About Jason: Jason Steele is a full-time freelance blogger who is an expert on credit cards and reward travel. He writes about credit cards and travel for The Card Journalist and several other leading personal finance sites.
Several months ago I did a credit score search from the three credit bureaus. Mine was pretty good. Soon after this I was — and still am — inundated with 0% balance transfer offers and debt consolidation companies. I’m maxed out on both my cards and my income is poor. How would these companies know my balances, name, and address?
That said, this is all within the law — the Fair Credit Reporting Act governs this, and it allows credit bureaus to share your information provided the recipient intends to “use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of the consumer.” The credit bureaus, for their part, say they review requests for information carefully. And these loan offers aren’t all bad — they can be used to negotiate a lower interest rate with your current credit card company, and a balance transfer can help you pay down your debt at a lower rate, provided you have the money to do so within the introductory window.
But you can also opt out and make these go away. If you’re being contacted via email, press the unsubscribe link at the bottom. If it’s mail, you might have luck opting out of the credit card offers at www.optoutprescreen.com — you can choose to opt out for five years or permanently. The FTC has more specific directions and contact information here.
– Mary Jane
Unfortunately, someone new to the U.S. is no different than anyone else who hasn’t established credit: You need to start working to build a history. No credit can, in some cases, be nearly as detrimental as bad credit, because it can impact your ability to qualify for a mortgage, car loan or credit card. Lenders want to see a demonstrated history of paying your bills on time and managing credit wisely.
That said, it’s often easier to build a good credit history from a base of zero. You’re not digging out, you’re just trying to get some positive data on your file. You don’t have to worry about, say, a bankruptcy that won’t fall off your report for seven years.
Relying on your husband isn’t a good idea for the reasons others have mentioned to you: If something were to happen to him, or you were to get divorced, you’d still be without a credit history of your own. It’s important to have your own separate financial life, even in a marriage. So I suggest applying for a card in your own name. Choose one that is for people with limited or short credit histories (here are a few options from LowCards and CardHub, two of my favorite sites to search for credit card offers). Then use it for a few purchases a month and pay it off in full. Keep in mind that you may have to get what’s called a secured credit card, which is like a credit card with training wheels. It looks and works much like a regular card, but requires a “security deposit” as collateral. If you use and pay off your secured card regularly over the course of a year or two, it will transition into a full-fledged credit card. Be sure to choose a secured card that reports to the credit bureaus.
Finally, one way your husband can help is by adding you as an authorized user on his cards, which will further help you build credit and continue to take on more of the credit responsibilities in your family. As time goes on, your file will grow thicker and you’ll start to establish a positive credit score, as long as you manage your credit wisely.
Today we have a special post, from a blog reader who wanted to share her story of identity theft — and what she learned from the experience. We were excited to publish this because truly, it could happen to anyone and we should all be prepared. Here’s Clarissa Laskey…
Approximately one year ago, my husband and I were the victims of identity theft. It was a miserable experience to say the least, and one that I would not wish upon my worst enemy. To look on the bright side of the experience, I would have to say that at least I learned some things about how to protect myself and my identity.
As this was a new experience for me, at first I felt overwhelmed and violated. I didn’t know how to go about picking myself up and gaining back my identity.
Thank goodness for the instant information that the digital age is able to provide, as I was able to immediately find some helpful resources right online.
One of the most important things that I learned throughout this process was that although we may never be able to fully prevent identity theft, there are definitely some ways to decrease the chance of it happening:
Check your online bank accounts daily for activity. This is made much easier in today’s world with smartphones, as most banking institutions have available apps.
Shred anything that contains your personal information. Just because you have thrown something in the trash doesn’t mean that’s where it will stay.
Make sure to keep your technology secured. Ensure that the computer you are using has up-to-date anti-virus, anti-spyware, firewall, and any other available security software. I like to shop online and I used to take for granted that every website I entered was secure and could be trusted. Not anymore. Do not shop or make online transactions unless you are confident that you are on a secure website. Log off of a computer before shutting it down and don’t save your username and passwords on public or even private computers.
Although it has taken me a little while, I have learned to be very cautious with my debit card and especially my pin number. Some gas station pumps and ATM’s may have “skimming devices” on them that record credit or debit card information. Wometimes it is just best to conduct certain transactions with plain old cash! (Editors note: We ran a post on protecting yourself from these skimmers recently — it’s worth sharing here again, and worth another read.)
Please be a proactive party when it comes to protecting your identity. I think that a lot of people, like myself, have this notion that this will never happen to them, therefore they don’t take the necessary precautions. But believe me, it can!
About Clarissa: Clarissa Laskey is a sporadic blogger and a married mother of an nine-year-old boy, Reece, and a two-year-old girl, Tatum. She loves social media, photography and living life to the its fullest.