While we’re on the topic of credit cards, this story was submitted to me by one of my biggest fans.
If you ride in elevators every day, like I do for my day job in a big corporate headquarters, then you’re familiar with the emergency telephone. The device is used in emergencies to call for help and presumably, rescuers might also use the phone to let those stuck that help is on the way.
Nathan Dungan, a “Family Finance Expert,” happened to be in a condominium elevator a few days ago when the phone rang. After it wouldn’t stop ringing, he picked up the handset out of curiosity. On the other end of the phone was a credit card telemarketer, soliciting a credit card.
Nathan wonders if the industry has become so desparate that there is a need to cold-call elevators to search for new customers, ready and willing to buy things they cannot afford and pay huge sums of money in credit card fees and interest.
You can opt out of solicitations like these, but there are no guarantees that opting out has any effect.
If you carry a balance on your credit card from month to month (which I strongly feel should not be done if possible), be extra careful about negative items hitting your credit card.
In the past, credit card companies would raise their interest rates to a card user who misses a payment or two. Missing payments may have been the only reason these companies penalized their customer. Now, according to MSN Money, users will be penalized not only for missing payments to that credit card, but for missing payments to other credit cards.
That’s not the end of it. Credit issuers routinely look at their customers’ credit reports. Any new negative item sends up a red flag, and the issuer might decide to use that as an excuse to raise their interest rate, effectively deciding that the offending person is a higher risk to the company.
This means that if you, for example, miss a payment on your Bank of America car loan, MBNA may penalize you by raising their interest rate from 11.9% to 25.9%. Here’s another example: If you seek approval for a mortgage and it shows up on your credit report, any number of credit card companies may decide that since you are about to purchase a house, you may have less money to put towards credit card debt, increasing risk.
The best plan is to pay the entire balance of your credit cards off each month.
From the article, here are the reasons credit card issuers may raise your rate, with the percentage of banks actively using that particular information:
* Credit score gets worse: 90.48%
* Paying mortgage, car loan or other creditor late: 85.71%
* Going over credit limit: 57.14%
* Bouncing a payment check: 52.38%
* Too much debt: 42.86%
* Too much available credit: 33.33%
* Getting a new credit card: 33.33%
* Inquiring about a car loan or mortgage: 23.81%
In the last few weeks, I opened a Discover Miles Card account, which was offering one of the free 0% APR balance transfer deals. I decided to take advantage, to earn some interest on the credit.
Everything went smoothly until today. My Wachovia Visa (operated by MBNA) received the $7,500 and posted it to my account, leaving me with the credit. I called MBNA today in order to have the credit sent to me in the form of a check or a transfer into my Wachovia bank account, but it’s a no go. The only place they can send the check is back to where it came from — Discover Card. Apparently they consider this money laundering, and the person I spoke to is under the impression that this is the first time anyone has ever done this type of balance transfer.
I suggest if you want to to earn interest on your 0% APR balance transfer offers, stay away from using MBNA.
CNN is reporting that according to the American Bankers Association, delinquencies on credit cards (and other loans) have reached an all-time high. Taking a step back, it feels good to realize that I’m not included in these statistics. It has now been a while since I’ve been financially irresponsible. Sure, I make mistakes sometimes, such as timing a transfer poorly and being slapped with an overdraft charge. But it’s good to know I have my finances in control.
I should be thinking about taking it to the next step. I have an informal budget, but it’s more of the ex post facto sort. Also, I’ve never really set financial goals because I’ve been unsure of my capabilities. On the other hand, it’s time.
I’m setting a deadline of October 31. By Halloween, I’ll have some long term goals worked out and a specific budget designed to rein in some of my excess spending. Shorter term goals will show up during November and December while planning 2006.
CNN suggests the following checks to make sure you’re not too deep into carrying credit card balances:
* You can only afford to make minimum payments on your credit card;
* You’re always short of cash;
* You’re late on important payments, such as rent or the mortgage;
* You take longer and longer to pay off your balances;
* You borrow from one lender to pay another.
With all the talk about CitiBank’s limitations in its online payment services, I neglected to mention an actual improvement that I noticed through the ordeal. (Luckilly, they sent an reminder of the new feature via email.)
In the past, when users went to pay their credit card bill online, CitiBank would process the payment immediately. There was no way to schedule a payment in advance. That is, at the beginning of the month, I couldn’t set up a transfer for the end of the month and forget about it.
Well, you still can’t do that, exactly. You can schedule a payment up to two weeks in advance. They don’t mention the two week limit in the recent email to customers. This is what they do mention:
Schedule your bill payment in advance. Not ready to pay right away? Now you can schedule your payment for a date that works for you.
Pay from multiple accounts. Up to 5 checking or savings accounts of your choice.
Enjoy enhanced navigation. We’ve revamped navigation to make using Click-to-Pay even easier.
You may have been offered a credit score when you took advantage of the free credit report offer. CNN is offering tips for boosting that score. But first a note. Often, credit scores offered by the credit reporting agency are not true FICO scores — the ones mortgage companies use when contemplating your credit risk, for example. I’ve heard some people boasting a credit score of 870 when the highest possible FICO score is 850. The best way to get your true FICO scores is through MyFICO.com.
Now that you have your correct FICO scores — one from each credit reporting bureau, obtained through the Fair Isaac Corporation — let’s work on raising the scores.
* Pay your bills on time. If you’re more than 30 days delinquent on any bill, it will negatively affect your score. Pay them on time.
* Keep credit card balances low. The ratio of debt to available credit affects your score; the higher the ratio, the higher your score. Keep this in mind if you consolidate multiple credit cards to fewer. This can result in the same level of debt but a lower level of available credit.
* Don’t open unnecessary accounts. I know from personal experience that being at a sales counter in a store and being offered a 10% discount “just for applying” for a store credit card can be enticing. 10% is a good discount! On the other hand, opening credit card accounts lowers your FICO score.
* Manage your credit cards responsibly. Using cards properly by paying off the balances quickly and taking care of installment loans builds up credit history. Banks will see someone with a favorable credit history as less risk as an individual with no history.
* Closing an account doesn’t help. If you made mistakes in the past, they won’t go away from the credit report simply by closing the account. Some items can stay on the report (and be factored into your score) long after you’ve reformed your ways.
About a week ago, I linked my CitiBank Platinum Dividend Rewards credit card to my ING Direct account with the intent of keeping more of my cash in an interest-bearing account. I knew from the last time I made a change to my CitiBank card, I had to wait some time before paying my bill — obviously a “scheme” to try to get people to pay (more) interest charges and perhaps miss their payment deadline.
I planned for this and made the addition of the ING Direct link with enough time to spare. Today is the first day I’d be able to pay my balance of a little under $1,700 (mostly expenses from the vacation), due September 27, using my savings account rather than my checking account.
Alas, there is another limitation. The payment limit for a new linked account is $1,000. Also, after I make that first payment of no more than $1,000, I can’t make another payment for 15 days. Obvisouly, waiting is not an option because my payment is due within a week and I refuse to pay interest charges. These unnecessary restrictions cut into the usability of the online payment systems, at least for an initial period. Next month should be smoother, but it is a pain. Now I will have to transfer more money to my checking account to pay CitiBank via snail-mail.
After I learned to stop using my credit card for buying things and paying for expenses, I learned how to use my credit card for buying things and paying for expenses.
By this, I mean I realized that I can use the credit card as a tool, especially if it offers a rebate like my current card, for controlling my cash flow. But the only way this works is if I pay attention to my grace period. The grace period is the period of time between the statement date and the date that interest begins to be added to that charge. If you carry a balance from one month to the next, then it’s likely you have no grace period and interest begins accruing the day you make a credit card purchase.
If you poay your credit card in full each month, you may have a grace period between 20 and 30 days. When I started using my current card (Citibank Dividend Platinum Select) earlier this year, my grace period was 25 days from the next statement date. For example, if I purchased gas on April 17, it would appear on my statement released May 5. The due date for that statement would be May 30, and no interest would be charged until that date. This way, the cash payment for the gas expense is delayed over a month.
Citibank quietly changed my grace period on my July statement. The date of the statement was July 7 but the due date was July 27, reducing my grace period to 20 days. This deserves my attention because often my money needs to be withdrawn from ING Direct or Emigrant Direct (where it is earning interest) sometime before I transfer money from checking to the credit card.
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