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.
The rest of the country was given this benefit at varying times earlier this year, but it finally has come to the east coast. I was going to wait until September 1, the official “release date,” but as MyMoneyBlog noted, the floodgates have opened a few days early.
I’m talking of course about free credit reports. Everyone in the United States is now entitled to one free credit report each year, from each of the three consumer credit reporting companies, Equifax, Experian and Transunion.
I plan on getting one every four months in order to get a more accurate picture of how my credit report changes throughout the year.
By the way, if you want your credit score, you are going to have to pay. (You might want to try the free MyFICO Credit Score Estimator but I can’t vouch for its accuracy. The website tells me my credit score is between 720 and 770. Who knows?)
The credit report itself, without your score, is free, and it is very important to check yours once in a while to ensure all information is correct. A report with incorrect negative items can cost you thousands of dollars if you were, for example, to apply for a mortgage and get a less favorable rate than you should due to a lower credit rating.
I chose Experian as the provider my first credit report; they were the first listed of the three companies. The process took about two minutes during which I needed to answer a few personal questions in order to verify my identity. My 16-page report was immediately generated. Luckilly, there is no incorrect information on the report, but I do have two “potentially negative items” back from my days of financial irresponsibility (or absent-mindedness).
And in case you are wondering, viewing your own credit report does not affect your credit score.
It’s widely believed that the more credit cards you have, the better your credit rating. MSN Money, with the help of some experts, debunks that common misconception and recommenhds having two to six credit cards, and using them wisely:
Keep your debt ratio low. Don’t carry a balance higher than 30% of the credit limit. I don’t carry any balance at the moment, but if I choose to play the 0% balance transfer game, my debt ratio will likely increase, affecting my credit.
Make payments on time. This is a no-brainer. Automatic withdrawals are the best thing to use, but if you can’t do that, send in your check with enough time to spare.
Don’t close too many credit cards at once. This, like spending too much of your limit, will cause your debt ratio to increase.
Stay away from store credit cards. Retail stores often lure people with discounts to apply for cards at the point of sale. These cards usually have very high interest rates. If you can afford to pay your purchase off at the end of the month, it may be worth it to sign up. If you can’t afford to pay at the end of the month, you’ll be charged the interest until you can, but you probably shouldn’t be making the purchase anyway. Also, according to a nonprofit consumer-education organization, each application for a store credit card drops your credit score 20 points.
CNN is reporting that biometric transactions are making some headway. This will allow you to pay with credit for purchases using your fingerprint (or someone else’s severed hand — why not?) instead of plastic.
In order to take advantage of the service, you will need to register your fingerprint with Pay By Touch or BioPay, both free services. Albertsons is testing the technology in its retail stores.
Biometric technology has some drawbacks: Identity theft is difficult to manage and fingerprints can become damaged.
According to the New York Times, Bank of America is buying MBNA.
This is another reason why consumers should avoid carrying a balance on credit cards if they are being charged interest. As more credit issuers merge, there will be less competition. With less competition, annual fees and interest rates will rise.
Update: CNN answers some questions about the future in the wake of this merger.
The 0% interest credit card balance transfer game is a popular one to play. I had first encountered the trend on the Motley Fool message boards a few years ago.
The credit card companies are making these quick-money ideas a little more difficult to navigate, with rules that differ among the many different offers.
According to an article on MSN Money, there are twelve questions for which you must find answers before leaping into accepting a balance in return for some interest.
Here are the twelve questions, with some thoughts:
1. How long does the rate last? If it a lifetime 0%, or will the rate be only available for 6 months? This will greatly affect how much money you can make.
2. What are the minimum requirements to keep the rate low? Some companies require you to make purchases every month. This can get dangerous as I describe later. It goes without saying that one late payment will nullify the 0% rate and in some case the company will charge you back interest.
3. What is the interest rate for new purchases? If you do a 0% balance transfer, do not use the card for anything else. In some cases the terms of service require that you make a small purchase every month. If that’s the case, don’t go with the offer. When you pay the minimum every month, you will be paying off your 0% balance first, leaving a balance on which interest will be charged. Keep in mind, you shouldn’t pay the minimum unless the balance transfer offer is a lifetime rate of 0%. Each month, you should pay the total amount of money transferred divided by the number of months in the promotion, or a little more just to be safe.
4. Is there a balance transfer fee? If there is, it will reduce or eliminate any benefit you will get by keeping the balance in an interest-bearing savings account. You could possibly end up owing money to the credit card.
5. How is the average balance on the account calculated? This is irrelevant unless you are getting charged interest.
6. What will the rate be when it finally changes. If you use the balance received from the credit card only to pay off the credit card and if you pay the entire credit card off before the 0% promotional rate has expired, this is irrelevant.
7. What’s the difference between a cash advance and a balance transfer? Make sure when you do the transfer that it will not be interpreted as a cash advance unless the terms of the advance are the same as the balance transfer.
8. What’s the best way to transfer a balance? This is where the credit card companies can get tricky. Sometimes there will be no fee for a transfer initiated via phone while there is a fee for a transfer that makes use of convenience checks. Double-check the terms.
9. How are convenience checks treated? Their use may be considered a balance transfer or a cash advance.
10. What about new purchases? Unlike Nike, just don’t do it.
11. Do you qualify for the lowest rate? Sometimes the 0% advertisements are teasers. Once you apply, they might not award you the 0% rate, yet they’ll perform the transfer anyway. Watch out.
12. How is your information protected? This is a good question for any credit card, whether they’re offering a 0% balance transfer or not. In the wake of credit card security breaches, it’s good to be aware of how your credit is protected from fraudulent charges.
My final advice is to know what you’re getting into. If you’re awarded a high credit limit, this is a quick way to make a lot of money for little work.
But it could end up costing you in the end. When you open a new credit card with a balance and transfer almost the entire balance out, you change your used to available credit ratio unfavorably. This is something that credit reporting agencies analyze when determining your credit score.
If your credit score is sufficiently lowered by your used to available credit ratio, you may not qualify for a good mortgage rate if you decide to buy a house. That will cost you much more in the long run. In some instances, the individual would have been better off by not messing around with his or her credit.
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