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Credit


Cash back credit cards can help consumers practice responsible spending while earning a little extra for their efforts when used properly. The days of earning 5% cash back for credit card purchases may be nothing but a memory, but the smart use of credit cards can still be profitable for diligent spenders. You may be able to find some credit cards offering a high level of cash back in certain spending categories, but these are often subject to maximums.

Most of today’s better cash back credit cards offer 1% to 2% cash back on purchases. However, if you look hard enough, you’ll find a number of credit cards with higher cash rebates than just 1%. This article lists a selection of cash back credit cards you can find today, and I update the article when there is new information to share.

Keep in mind that in order to make credit card with rewards programs worthwhile, you must avoid interest charges and late fees by paying your bill on time and in full every single month.

Editor’s choice

Chase Freedom – $200 Bonus. In advance of the holiday season, for a limited time, Chase is offering a $200 bonus for new cardmembers. The bonus will deposited into your account after spending only $500 on purchases within the first three months of owning the card. You can earn an additional $25 cash back bonus by adding an authorized user to your credit card account and by making a purchase within this same 3-month period.

Besides these bonuses, Chase Freedom offers 5% cash back on up to $1,500 in purchases at Amazon.com and select department stores. The headlining stores include JCPenney’s, Kohl’s, Macy’s, Nordstrom, and Sears, but many other stores are included. This could be beneficial for holiday shopping, but keep in mind only the first $1,500 spent in combined purchases qualifies for the 5% cash back rate. All other purchases — purchases in other categories or purchases in these stores beyond $1,500 from October through December — earn 1% cash back.

So while the most you can earn from the 5% bonus cash back rate is $75, your cash back at the 1% rate is unlimited. Chase Freedom carries no annual fee.

Other cards

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According to a new survey, 63% of Millennials own no credit cards. For this poll, the Millennial generation is defined as those in the United States aged 18 to 29.

The survey, put together by BankRate, attempts to get to the root cause for the lack of penetration of credit cards among this younger demographic, despite the attempts to sell the idea of credit cards to this generation. These attempts mostly come from those older than Millennials. BankRate’s survey points out that each successively older age group is more likely to own multiple credit cards.

Instead of credit cards, Millennials prefer to use debit cards. Despite all the information that’s available that shows how debit cards are worse that credit cards for active use, credit cards aren’t gaining traction. Banks have also spent the last few years making debit cards more attractive by adding rewards and new consumer protections that approach the offerings of credit cards, yet they tend to fall a little short. And they still don’t provide the benefit of building a credit history, something older Millennials have already discovered as they’ve attempted to finance a car or house purchase with a loan or mortgage.

Millennials are tied economically to the recession. In the development of an adult, the age range currently associated with the Millennial generation is when world and political awareness sets in. For Millennials, this came at a time where the events of the world were defined by the economy. This period of maturity included the Great Recession, the credit crunch, significant penalties for the banking industry, new regulations, and banks behaving badly. It’s no surprise those who came to understand the world during this time are wary of banks and the products they push.

That doesn’t explain why credit cards are shunned while debit cards are praised. After all, debit cards are bank products, as well. There must be an element of distrust of debt, not just the banking industry. And that might come from the recession, too, as Millennials saw their older relatives and friends struggle with debt.

On top of this, there are quite a few loud voices in the media who prefer debit cards over credit cards, and even though the reasoning they preach is often faulty, the message contains an aspect of contrarianism that Millennials, as a group, seem to like.

The survey is missing something obvious. The use of credit cards among different age groups isn’t a comparison that makes a lot of sense. We shouldn’t be comparing the 18 to 29 year-olds with today’s older generations. These can be interesting data, but it can’t be used to prove any hypothesis that might be suggested by the survey other than “younger people use and own credit cards less than older people.” The better comparison would be between the use of credit cards among Millennials today and the use of credit cards among other generations when they were the age of today’s Millennials.

That would result in some clearer conclusions. We do know that Millennials today are often entering the workforce with higher student debt loads than any other previous generation. That could be a reason Millennials are wary of anything that has the potential to increase debt, as credit cards might. Debit cards are marketed much more heavily today. They didn’t even exist when some older generations were as young as today’s Millennials. Some of these facts should be considered when trying to determine why Millennials don’t carry credit cards.

In general, as one gets older, one progresses in one’s career and builds more wealth. With more wealth, people will grow more comfortable using financial tools like credit cards. I would be surprised if the situation with Millennials today is much different than the situation with Generation X, twenty years ago. In the 1990s, Generation X was coming of the age where awareness of politics and the world kicks in. There was a recession in the late 1980s and early 1990s.

This is from an article from the Los Angeles Times in 1995:

By graduation, [Michael Puccini from Chapman University] had a wallet full of plastic and was $3,000 in the hole. Plus he owed $13,000 in student loans. Overwhelmed, he moved back home after a tearful phone conversation with his father.

“I had a lot of fun with credit,” says Puccini, 30, who has found work in Los Angeles as a public relations agent. “But I’m really paying for it. It’s kept me from doing a lot of things.”

More than any other generation before them, today’s young adults are emerging from school and beginning their careers weighed down by a heavy burden of debt. And fresh data suggest this burden is growing. A Southern Californian’s average credit card balance increased 20% from 1993 to 1995, according to the market research firm Claritas Inc. But for those in their 20s, the balance jumped 70%, to $2,159 as of Sept. 30.

These numbers may look small compared to what surveys throw around today, but debt at this level was a significant burden at the time. Generation X hasn’t truly recovered, and are not poised to be able to live in retirement the way investing firms advertise and the way many among the generation prior to the Baby Boomers, the Silent Generation, often appears to be able to afford. Generation X clearly took advantage of credit cards as they were marketed to them, and it may have been to their detriment.

Yes, the use of credit cards did allow Generation X to spur one of the greatest runs in the real estate industry by buying town houses, condominiums, and single family homes before they were able to afford it, but Millennials may see the struggle of Generation X today and be familiar with stories of the struggles of Generation X in the early 1990s. If they are, it would make sense that Millennials would try to avoid these problems by avoiding credit cards.

Millennials are also the most educated, in terms of college matriculation and advanced degrees, so there might be some truth to the idea that Millennials, as a group, believe they are smarter and more aware of the world than earlier generations — or at least, they might believe they are smarter today than other generations were when they were in the 18 to 29 age group. And thus, Millennials could feel comfortable keeping their approach to finances different than those who have come before.

I never like to generalize attitudes across large swaths of Americans, but there are definitely measurable trends, even if one can always find anecdotes that contradict those trends.

Should Millennials get with the program and start using credit cards instead of debit cards? I want to say yes. Credit cards are simply better products for consumers. But it’s not that simple. The same BankRate survey shows that when Millennials do use credit cards, they don’t pay the bills in full ever month. Only 40% do, compared to a larger percentage of older age groups. Again, this should be obvious; Millennials haven’t yet built the financial independence or stability through their careers that older people have built. So there’s a lot more Millennials need to do to take control of their finances besides just switching from a debit card to a credit card.

On the other hand, Millennials are in a position to change the way other Millennials relate to their finances. This has already started. Millennials — or in some cases Generation X representative who seem to be in tune with the needs and desires of Millennials — are changing the financial industry. Generation X put the banks online, but Millennials are inventing new ways to bank. Crowdfunding, person-to-person lending, mobile payments, financial advisory without human advisors, and other new technologies will shape how Millennials deal with their finances. If Millennials want to stick with debit cards rather than credit cards, in time, debit cards or some other technology will grow to contain all the features necessary to most benefit the consumers.

It might take some time, but I trust the Millennials to figure it out. If something doesn’t work to the changing needs of a generation as it gets older, that generation will change the industry. It has already begun to happen.

Here’s a story about that recent study about Millennials.

By the way, I found Michael Puccini, the Generation X representative featured in that 1995 Los Angeles Times article. He’s now a freelance writer and publicist, after a career in media publicity.

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Fair Isaac Corp. is changing the FICO score calculation, and many consumers will have higher credit scores as a result. The FICO score is still the most widely used measure of a consumer’s creditworthiness. The current calculation is called “FICO 08″ and the new calculation to be rolled out soon is called “FICO Score 9.”

Banks rely on credit scores like the FICO score to determine whether to lend money to consumers and how much to charge borrowers for that privilege. Overall, the higher credit score you have, the lower loan interest rate you may qualify for. FICO isn’t the only game in town. Lately, it’s been seeing some competition from products like VantageScore. VantageScore recently updated their own scoring algorithm to better reflect risk, and because this score is backed by the three credit reporting bureaus, Experian, Equifax, and TransUnion, it has been gaining traction among banks and lenders.

The update to FICO is Fair Isaac’s response to the new VantageScore algorithm. FICO’s new scoring approach, FICO Score 9, prevents certain behaviors from negatively affecting scores.

Accounts that have been transferred to collections agencies and have been repaid are dropped, so these accounts are no longer factored in. Previously, an account that had been in collections but has been repaid remained a negative factor in calculating a FICO score.

Medical debt won’t negatively affect your credit score as much. FICO now believes that medical debt has little to do with creditworthiness and risk. Most people find themselves in medical debt not because they are bad at handling loans, but because they were ill-prepared for a major medical expense. Sometimes, even the best emergency funds can’t handle immediate medical expenses.

Yet, presence of medical debt can certainly be a problem when a person is considering taking on more debt, which is why a bank would look at a credit score.

These changes, plus an alleged new technique for diving the creditworthiness from consumers without a credit history, are purported to be good for consumers in general. And for those who fall into the above categories, scores will undoubtedly increase. Increases scores, in theory, have great advantages for consumers. Debt becomes less expensive. If you qualify for a better mortgage rate by 50 basis points (or 0.5 percentage points), you could save tens of thousands of dollars over the life of the mortgage. This is significant savings and could be a fantastic benefit. It could help more people reach financial independence or debt-free living sooner — or at all.

This is a very optimistic outlook. Maybe Fair Isaac has consumers in mind — and considering part of the impetus for these changes were recommendations from the Consumer Financial Protection Bureau, there is definitely a pull in favor of a large portion of Americans, those who borrow money sometime in their lives. But Fair Isaac doesn’t deal directly with consumers for the most part; banks do. And banks have a way of turning anything good for consumers against the consumers.

New regulations to protect consumers? Banks charge additional fees. Lower rates available on mortgages? Fewer consumers qualify for credit. Extremely low rates for banks borrowing from the Federal Reserve? Extremely low interest on savings accounts. New, higher credit scores for a portion of American borrowers? The potential results seem clear: Higher loan interest rates, a higher standard for lending, fewer loans, or a combination.

Does a bank look at raw credit scores or percentiles? From a financial perspective — and these are companies in the financial industry so they know all about evaluations from a financial perspective — it doesn’t make much sense to evaluate loan applicants on raw numbers. Percentiles hold the keys to decision-making.

Let’s saw a university based its applicant acceptance solely on SAT scores. The SAT scores its test on a scale up to 800. When I was in high school, there were two SAT tests, math and verbal, for a total possible score of 1600. A score of 650 out of 800 in math would have been very good, and would have qualified the test taker for a good percentage of universities. That score might have been in the 90th percentile, so scoring a 650 in math means you’ve performed better than 90 percent of the population.

The SAT company changes the test, though, and in one year, perhaps they made the test easier. The same person who received a 650 might now receive a 680. That sounds like an improvement, but because the test has changed, now that 680 is the lowest score necessary to be in the 90th percentile. Your score improved but so did everybody else’s. Colleges aren’t just going to admit more students because more test-takers scored 650 or above, they’re going to move the cut-off to remain with the 90th percentile.

And that’s how I expect things will work with credit scores as well. There’s some leeway because the scoring change does not result in an across-the-board credit score increase. Only a portion of consumers will benefit from increased scores. But even though increased scores are limited to people who fall into those categories, the percentiles will change. Some people will probably see a benefit in the form of lower loan rates or a higher potential for qualification, but it won’t affect the overall amount banks are lending. The pool of money ready for loans won’t get bigger, at least not due to this change. If banks loan more money next year than this year, that would have happened regardless of Fair Isaac’s meddling.

With the new score calculation, there doesn’t appear to be a way for any consumer to see a lower credit score. Of course, some consumers will see lower credit scores over time, but that would be a result of their particular behavior with credit rather than the scoring algorithm change.

Some people win, some people will lose. And the people who lose will be those who weren’t affected by the score change, in other words, those who don’t have medical debt or haven’t had collections.

Another factor to keep in mind is that interest rates are still historically low. Experts have been predicting the rates would increase ever since the Federal Reserve Board began lowering them. Eventually those experts will be correct. Interest rates could go up at the same time more people have higher credit scores.

You can’t see your own FICO Score 9 yet. You can find out your FICO scores under the previous version of the algorithm by visiting MyFico.com and ordering “FICO Standard” products for each of the three credit bureaus. Because each of the three bureaus could contain slightly different data about a consumer, there could be a different FICO score for each bureau, even under the same FICO 08 calculation.

With the introduction of FICO Score 9 to lenders, consumers don’t yet have the ability to see exactly what lenders who use FICO Score 9 see. That puts consumers at a disadvantage yet again, just as when FICO Scores were not available to the public, and you were never able to know your own credit score until you applied for a loan. I expect Fair Isaac will begin allowing consumers to buy their scores using the FICO Score 9 algorithm eventually, but not before the lenders get a glimpse of the overall data and can make new decisions.

I decided to order my FICO 08 scores from all the bureaus. Previously, I had only monitored my score for free using CreditKarma, and the score reported there, my “TransUnion New Account Score,” has remained 790 for a long time. CreditKarma also reports a VantageScore of 874 for me, down from 886 a few months ago. MyFico charges $19.95 for each score, but I found a discount code (S1403STL20FST) to reduce that price.

Within seconds, I received my FICO 08 scores from each bureau: 807 from Experian, 806 from Equifax, and 806 from TransUnion. I expect little change between FICO 08 and FICO Score 9 for me since I don’t fit any of the above categories. But, if I had medical debt, my score could potentially increase by 25 points.

What do you think about these changes to the FICO scoring algorithm? Will it have a positive effect for consumers? What are your credit scores? (You can share them anonymously if you like.)

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While living in New Jersey and having family in the Los Angeles and Orange County area, I’ve always found that United Airlines has had the best fares. And because 75 percent of my total airline travel has been to these locations, I decided a few years ago to make my main credit card the United MileagePlus credit card (formerly Continental OnePass). While in general, cash back rewards credit cards are the best deal for most people who use rewards credit cards, because I flew United frequently enough and was happy to spend my rewards on flight upgrades, the MileagePlus card is the card that made the most sense for me.

Some recent changes are convincing me to switch to a different credit card, perhaps one that earns generic travel rewards that can apply to any airline or a straight cash back card. First, my travel destinations have expanded. With family now in San Diego, a girlfriend in Phoenix, and an eye to visit more cities in the future, I’m using a variety of airlines once again.

Perhaps more importantly, United has just made some significant changes to its frequent flier program. Rather than rewarding travelers with frequent flier points based on miles traveled, United is rewarding customers based on the amount of dollars they spend.

Here’s how this would potentially affect me.

Next week, I am flying to San Diego, California, and the week after, I’ll be returning. The trip is business-related; I’m making several presentations at the Digital CoLab event, speaking about entrepreneurial leadership one day and leading a session on crafting effective mission statements in another. I’ll also get a chance to see my family and girlfriend while I am on that side of the country. I booked my flight several weeks ago, spending $507.90, or $568 including all taxes and fees. The tickets available were “class S,” or a deeply-discounted economy fare.

I also spent $150 and 40,000 miles to upgrade both flights to first class.

Under the old system, which is still in effect, I will earn 4,850 award miles. The new system will reward me, a non-elite member of the frequent fliers program, five points per dollar, or 2,540 miles. This new system will be put into place in 2015 and will put people who frequently fly United, but perhaps only several times a year, at a significant disadvantage.

The most frequent travelers, in United’s Premier 1K elite level, will earn 11 points for every dollar. Business travelers who often purchase full-fare or first-class flights will receive a significantly better benefit than those of us who search for the lowest price economy fares.

United’s change follows a similar announcement from Delta.

This illustrates the danger of rewards credit cards. Points aren’t real currency; the company that issues the points can, at any time, decide to change the rules about how points are earned or decide to change the value of each point. Today, a one-way flight with any particular airline might be 50,000 points; next week, that same flight might cost 75,000 points. Airlines certainly use a calculation to determine what makes the best conversion rate for points taking many variables into account, but to the traveler, changes in the reward program can be arbitrary and frustrating.

It also means that anyone who considers himself to be a master of his own personal finances must continually reevaluate the rules and terms of the rewards program. It’s legal bait-and-switch; consumers are inclined to sign up when a program is a good deal, and as the company erodes the value of what they are offering, they are counting on consumer inertia. Inertia is a powerful force. It’s partly what has kept in me bad employment situations much longer than I should stay, inertia has kept me living at the same address, and it’s the same force that has kept some of my money in the same national bank for twenty years.

Companies rely on inertia to maintain profitable customers. But this change, for me, comes at the same time that United will have less value to me as an airline.

Here’s why this is great from United’s perspective. It’s the same reason that airlines are more inclined to add more incidental fees. United and other airlines can keep fares low. Anyone can easily search for the lowest fares across multiple airlines, pitting airline against airline for the same routes. This used to be the job of travel agents, but now anyone with an internet connection can see the same information that travel agents used to see. Even with airlines that keep consolidating, this has driven competition in price — at least, in advertised base fare price.

With the frequent flier program changes from Delta and United, the airlines can keep advertised fares low while reducing the total expense of each fare booked. It’s rare for there to be any real win-win scenarios between companies and their customers. There is no way for United to paint this program update as a positive experience for most customers because most customers simply search for low prices and end up with discounted economy fares.

The biggest winners, other than the airline, are people who frequently fly first class, and most of those fares are paid by corporations. Even those who buy full-fare economy tickets with the new program terms next year will likely have an advantage over the current program. There’s only one reason someone would buy a full-fare economy ticket when a discount is available — for the ability to receive a refund if travel plans change — but this is a small percentage of customers.

Will you be affected by Delta’s and United’s changes to their respective frequent flier programs? Will you be on the winning side or losing side? Will you reconsider how you earn miles, such as through a mileage reward credit card?

Here are the full changes to United’s MileagePlus program.

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5 Reasons to Avoid Cash Back Rebate Cards

by Luke Landes
American Express Prepaid Rebate Card

At the end of last year, I took advantage of a sale on some photography equipment. I perceived the deal to be good, and after contemplating the purchase for some time, I decided to go ahead. The sale price was manipulate through the offering of a manufacturer’s $300 mail-in rebate after a retailer’s discount of ... Continue reading this article…

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IberiaBank Visa Select Credit Card Review

by Joe Taylor Jr.
IberiaBank Visa Select

To most Americans, Louisiana means great music, good food and some crazy Super Bowl moments. However, keen observers of the credit card industry also know Louisiana as the home of Iberiabank, a solid regional lender that’s been chugging away in cities like New Orleans and Lafayette for more than 125 years. An early adopter of ... Continue reading this article…

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Online Shopping: Credit Card or Debit Card?

by Luke Landes
Credit Cards vs Debit Cards

The conclusion begins this article. If you’re shopping online, it’s better to use your credit card, not your debit card, in almost all cases. For someone just beginning to focus on improving one’s finances, this seems to be the wrong conclusion. After all, in theory, with a debit card you can spend only what’s in ... Continue reading this article…

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PenFed Promise Visa Review

by Joe Taylor Jr.
PenFed Promise Visa Card

By offering a suite of services originally designed to help military families make ends meet, Pentagon Federal Credit Union has grown into one of the country’s largest nonprofit financial institutions. Unlike credit unions that require geographic or employer-related eligibility, PenFed extends membership to any citizen with a family connection to our national defenses. You can ... Continue reading this article…

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The Credit Access and Inclusion Act: Should Credit Scores Include Utility Payments?

by Luke Landes
For Rent

A bill is currently being considered by the House Financial Services committee in the U.S. House of Representatives that would make it easier for credit reporting agencies to include both positive and negative bill-paying behavior in credit scores. The Fair Isaac Corporation, which changed its company branding in 2009 to be just FICO though the ... Continue reading this article…

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The Occupy Debit Card

by Luke Landes
Occupy Banks

Can an organization offer mainstream financial products while being ideologically opposed to the mainstream financial industry? That’s the question I began considering when I first heard that the Occupy Wall Street movement was in the process of developing a prepaid debit card product. The Occupy Debit Card is still just a concept, but if the ... Continue reading this article…

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An Unauthorized Charge From TransUnion: Was My Identity Stolen?

by Luke Landes
Burglar alarm

Earlier this year, the university where I studied as an undergraduate, the University of Delaware, announced that the school had been the victim of a security breach. The announcement indicated that personal information of anyone who had been on the university’s payroll might be compromised, and those who were compromised would receive a letter from ... Continue reading this article…

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Citi ThankYou Preferred Card – Low Intro APRs Review

by Joe Taylor Jr.

The Citi ThankYou® Preferred Card – Low Intro APRs brings a flexible rewards program to a wider audience, with some unexpected perks and privileges for a no annual fee card. However, if you’re already packing a travel rewards card or a cash back card, you might find this account a little underwhelming. Earning 1 ThankYou Rewards point ... Continue reading this article…

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Discover it with 18-Month Balance Transfer Offer

by Joe Taylor Jr.

The Discover it® card with an 18 month introductory balance transfer offer arrived on the market with heavy fanfare, including lots of television ads and billboards touting personal service and a new rebate structure that frees customers from most cash back traps. This card’s critics have pointed out that other lenders extend far more generous signup offers, ... Continue reading this article…

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Credit Card Basics: Everything You Should Know

by Luke Landes
Inappropriate use of a credit card

The credit card is one of the most divisive products among all the financial tools available. Ask around and you’re sure to find people who pay all their expenses using credit cards as well as others who swear the products are the embodiment of pure evil. Opinions among financial experts and thought leaders are just ... Continue reading this article…

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Discover it for Students

by Joe Taylor Jr.

Discover’s made strong inroads into student borrowing over the past few years. Discover it® for Students represents the bank’s latest foray onto college campuses, with pricing and features that resemble full-featured credit cards more than the typically watered-down student accounts on the market. Loading up your wallet for the long haul For years, student credit cards earned bad ... Continue reading this article…

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Keep Your Old Credit Cards Open

by Luke Landes
Credit Cards

There may come a time when you have no need to keep your credit score as high as possible. Perhaps you have no need for debt now and in the future. It’s not common, but there are a few methods of arriving at that point. You’ve fashioned a life for yourself off the grid. You ... Continue reading this article…

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Discover it for Students with $20 Cashback Bonus

by Joe Taylor Jr.

Once upon a time, applying for a student credit card got you a cheesy T-shirt, or a hat, or a beer koozie. Often, that same card saddled you with a higher-than-average APR and a bare bones set of features compared to regular credit cards. Instead of spiking your finance charges, the folks behind the Discover it® for Students ... Continue reading this article…

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How Credit Card Issuers Pay Rewards Without Going Broke

by Lance
Credit cards

This is a guest article by Lance, the founder of the blog Money Life and More. Earning rewards from credit card companies like cash back and sign-up bonuses, astute credit card users may be wondering how issuers afford to pay these bonuses for people who don’t pay interest or late fees. Lance takes a look ... Continue reading this article…

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Discover it card Review

by Joe Taylor Jr.

The Discover it® card makes a habit of saying no. No annual fee, no foreign transaction fee, no overlimit fee and no APR hike for a late payment. Discover’s latest incarnation of cash back cards aims to simplify the relationship between cardholder and card issuer into one of easy cooperation. Discover it Card maintains 5 percent ... Continue reading this article…

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Credit Card Checkout Fees Are Here

by Luke Landes
Credit Card Surchage

I’m currently in California, visiting my mother, who as I mentioned in a previous article is in the hospital. While articles this week will likely be slow on Consumerism Commentary, one thing I won’t have to deal with while visiting family is the relaxed regulation on merchants who accept credit cards. Starting this week, retailers ... Continue reading this article…

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