Archive for November, 2009

When managing your finances to get out of debt, using credit or applying for new credit is not a wise decision. Face it — if you are struggling to pay your bills on time or even pay them at all, acquiring a new bill will place you further into debt. Not to mention the fact that it will further damage your credit score in the process. However, once your finances are in order, you can begin increasing your credit score by using your debt and credit cards wisely.

#1: Transfer Credit Card Debt

If you have outstanding credit card debt and are in the processing of fixing your personal finance so you can adequately pay your bills, transferring this debt is an option you should look into. Ideally you would want to transfer your credit card debt into an installment loan. Do not confuse installment loans with lines of credit, such as home equity lines of credit and secured lines of credit. These two types of credit are revolving debt, the same form of debt as credit cards, and may pose the same repayment issues your credit card caused you. (Also see Balance Transfer Pitfalls.)

Typically installment loans have a lower interest rate than your credit card. These loans tend to be secured debt, which means something you own is used as collateral with the financial institution in case you fail to repay your obligation. You can also obtain an unsecured installment loan; however, the interest will be much higher than the secured loan. With both secured and unsecured installment loans, you know what you need to pay each month based upon the repayment schedule you are given.

#2: Obtain a Credit Card

Using an existing credit card or obtaining a new credit card will put you on a faster track to increasing your score. In fact, obtaining one of the big four credit cards will make a huge difference. If you do not know what the big four are, they are the four major credit cards virtually every retailer accepts: American Express, Discover, MasterCard and Visa.

In addition to having a credit card by one of the big four, it is best to have one that is unsecured. However, if your credit is bad, you may only qualify for a secured credit card. With a secured card your limit is determined by the amount you deposit into the account. Most secured credit cards require a minimum deposit of $200.00. If you only qualify for a secured credit card, make sure it reports monthly to Experian, Equifax and TransUnion. Another matter to check into for secured credit cards is to make sure they will convert to an unsecured card within 18 months of regular timely payments.

These are the first steps to helping you repair your credit and increase your credit score. Just remember to get your finances under control first, and make use of installment loans to aid you. Then make the transition to getting a credit card or to begin using the card(s) you already have to increase your credit score.

Click to read part 2 of 5 Tips to Increase Your Credit Score

ShawnTe Pierce

According to MSN MoneyCentral, FICO has finally revealed information on how they calculate penalties…sort of. For years, people have wondered exactly how FICO figures out scores. Now they can get a better idea, but of course FICO is not going to reveal their whole process.

The information from MoneyCentral states that a person with good credit may get penalized more than a person with a bad credit score for the same offense. For instance, MoneyCentral shows a graph with FICO reports stating that a person with a score of 680 who maxes out a credit card gets penalized in the range of 10 to 30 points. In this same graph, a person with a score of 780 would get penalized 25 to 45 points.

For a bankruptcy, the person with the higher score of 780 could get up to 240 points deducted from his or her credit score, quickly transforming the great credit score to one that is not so good, at 540. In turn, the person with a 680 score could get a deduction of up to 150 points, leaving him with a credit score of 530.

Possible translation of this is that people with the higher scores get deducted more because they should know better. However, number logic and other factors may say different. Those with higher scores likely also have more credit cards, possibly more vehicles, a larger home and so on.

The other thing to remember is that even people with the same credit score may have completely different credit situations. One may have a large number of credit accounts, while another may not. There are many different credit situations because not everyone will have the same circumstances. That’s why there’s such a range and also probably the reason that FICO does not fully reveal everything about how they factor credit scores. However, looking at the above scenarios can certainly be helpful in determining what possible penalties may be faced in certain credit situations.

Lyn Lomasi

For Bella Swan, the main character in Stephenie Meyer’s “Twilight” series and the recently released “New Moon” movie, money and the problems it can cause are a reality. In fact, before she meets handsome and wealthy vampire Edward Cullen, Bella and her divorced parents Charlie and Renee don’t have the luxury of spending frivolously. Concerns about daily expenses, college tuition and retirement are very real for the Swans. Could these Twilight stars have made ends meet raising a daughter on the salaries of a teacher and a sheriff?

What were Bella’s finances like when she lived with her mother?

Charlie and his wife, Renee, divorced when Bella was a baby. He remained in the small town of Forks, Washington, while his ex-wife and daughter moved to Arizona. According to Phoenix Home Zone, the cost of living in Phoenix is higher than the national average, and Bella’s mother would have made approximately $41,000 a year as a teacher, based on data from Simply Hired.

While we know little about Bella and Renee’s financial situation, readers do learn that Bella’s mother, a teacher, and Bella were on a tight budget. We also know that Renee was a free-spirit who was always trying something new–from yoga classes to different churches. This knowledge, based on the cost of living and her salary, leads readers to believe that Bella and her mother may have had some debt, credit card or otherwise.

What was Charlie’s financial situation when Bella moved in?

When Bella moved to live with her father, Charlie, in Forks, Washington, her financial situation may have improved some. According to Simply Hired, the average small town sheriff job in Forks, Washington pays approximately $34,000. When he sent child support to his wife and daughter in Phoenix, he was probably on a tight budget. When Bella moved in, however, his finances likely improved some. Considering the substantially lower cost of living in Forks (almost 20 percent less than the national average according to Simply Hired), Bella and her father may have been able to live a debt-free, though simple, life

In addition, readers and viewers never see Charlie or Bella as big spenders. Content to save their pennies and eat out at a local diner once a week, the Swans probably had little to no credit card debt.

What about college for Bella and retirement for Charlie?

Readers know that the college situation was a prickly one for Bella and her father. Bella had some money put away for college, but expressed concerns about taking too much from her parents and hindering their retirement. Luckily, Bella was content with a less expensive university in Alaska, and later considered Dartmouth, paid for by her wealthier husband.

Though Twilight reads as a bit of fiction and fantasy, there’s nothing fictional about the financial situation that author Stephenie Meyer paints. The Swans were, for the most part, able to keep their credit card debt down with their conservative spending habits, and as a result, are one of the few fictional families in books and movies that provide a good example for real life folks.

Kelly Herdrich

During “Confessions of a Shopaholic,” Rebecca Bloomwood (Isla Fisher) says she fell in love with shopping as a little girl, a time when she saw grown women using “magic cards” to buy things. For a long time, most people shared Rebecca’s love for the plastic money known as credit cards, but the unstable economy has made folks more cautious about what they carry in their wallets.

Before filling out an application, it is important to look at the four basic types of credit cards:

• Charge cards
• Credit cards
• Check cards
• Debit cards

Be sure to weight the pros (credits) and cons (debits) of each.

Charge Cards

A Forgotten Wallet Leads to the First Official Charge Card

Frank McNamara gets the credit for creating Diner’s Club, the first official charge card. After he forgot his wallet and was unable to pay the check at a popular New York City restaurant in 1949, McNamara came up with the charge card concept, where diners would sign for meals during the month and then settle up just one tab at the end of the month.

Although McNamara’s first card was made of cardboard, the charge card became a hit, inspiring the American Express Corporation to come up with their own charge card designed with business travelers in mind. Credit cards are still king with consumers, but the charge card continues to thrive.

• Credits: Typically, charge card issuers set no upper limit for purchases, which means no worries at the checkout line. Because the balance must be paid in full at the end of the month, you aren’t carrying a debt load from month to month. Annual fees tend to be high, especially for premium American Express cards, but these cards come with personal concierge services.
• Debits: With no ceiling on the credit limit, it is all too easy to overspend each month. Companies like AMEX also offer the option to carry a balance on many of their cards, which means paying monthly interest.

Credit Cards

From Babylon to Bank of America

Historians have said that credit was extended as far back as 3,000 years ago with the “bill of exchange” in places like Babylon and Egypt. In the 20^th century, Mr. McNamara once again gets the credit for creating one card that could be used to purchase goods and services at various businesses. Instead of maintaining credit accounts at several places, consumers needed just one or two credit cards like McNamara’s Diner’s Club.

These days, Citigroup, Bank of America and other issuers have several different credit products, some tailored to students, business travelers and those who covet frequent flyer miles. You can get a card tailored to your exact business and personal needs.

• Credits: Merchants around the world accept MasterCard and Visa, making them an invaluable credit product. Other cards, such as Citigroup’s Chairman, carry excellent concierge services and allow the cardholder access to special events.
• Debits: Until the new credit card reforms started taking effect on August 20, credit card companies had a pretty free hand with their products. If you missed making the minimum monthly payment just once, for instance, your interest rate might skyrocket. Late fees also could, in some cases, be more than your regular monthly payment. Even with the new reforms, lenders are warning that interest rates might increase to compensate for lost revenues.

Carrying a balance from month to month also increases the cost of an item purchased on credit. Banks sometimes mail out cash advance checks with a low interest rate, but if you miss a payment, that super-low interest rate goes up.

Check Cards

Cards to Access Your Bank Account

The 1990s became the decade of the debit card, which is linked to your checking and/or savings accounts. Instead of writing a check, you simply swipe the debit card, which carries the MasterCard or Visa logo, and the money is automatically drafted from your account. Debit cards also work like traditional ATM cards, allowing cash withdrawals.

• Credits: A debit card offers consumers a way to control their spending because you typically can’t charge more than your account balance. This piece of plastic carries much of the weight of a credit card without the crushing interest rates.
• Debits: Debit cards are just as vulnerable to fraud as credit cards. If thieves steal your account number, they could wipe out your entire checking account in short order. When using a debit card to secure a hotel room, the front desk will “block out” a certain amount of money in your account to cover room charges. Even if you don’t charge anything to the room, it takes several days for this hold to go away.

Debit Cards

A Reloadable Credit Card

More than ever before, consumers are having trouble getting credit cards because of their credit history. People need plastic to rent cars and make airline reservations, which makes the reloadable or prepaid card an option for those with a history of late payments or defaults. Walmart even offers incentives to consumers who cashed their paychecks at a local store and put the money on a prepaid card.

• Credits: A reloadable card is good for people who have a habit of misusing credit because you can’t spend more than the amount available on the card. To get a prepaid credit card, you simply have to open an account and deposit money into it.
• Debits: The fees required to open an account, monthly maintenance charges and the cost of reloading the card can add up quickly. Merchants such as Walmart do offer free reloads, though, if you set up a payroll direct deposit.

Do the Debits Exceed the Credits?

When weighing the pros and cons of each type of card, the biggest factor to consider is your own spending habits. If you are a careful shopper and a good saver, a credit card could be your best option. If your credit score is below 600, however, preloaded and debit cards can give you all the power of plastic.

Steven Bryan

Gift cards may be small, but they mean big business to the retail and banking industries. According to MasterCard subsidiary TowerGroup, gift cards generate nearly $90 billion in sales each year. With every gift card comes fine print, which could mean additional fees or use limitations. Before buying a gift card, consumers should research the fees and limitations online or directly on a card’s packaging.

Types of Gift Cards

Bank-issued gift cards are branded with the logo of a major credit card company and can be used at any business that accepts the credit cards. Although flexible in use, bank-issued cards tend to charge a number of fees.

Retailer-issued gift cards are issued by stores, restaurants or other businesses and are usually redeemable in that business only. Their policies tend to be more consumer-friendly and they charge fewer, if any, fees.

Activation and Delivery Fees

Many bank-issued cards charge a fee just to be activated, while retailer-issued gift cards are usually activated for free. Walgreens drug stores sell dozens of retail and bank-issued gift cards. The retail-branded cards sold at Walgreens have no activation fees, but bank-issued gift cards with the Visa and American Express logos do require an activation fee.

If a gift card is purchased by catalog, phone or Internet, a shipping charge may apply. Shipping charges can be avoided by purchasing a card directly at a business location. Some gift card issuers will ship gift cards for free, so consumers should watch for such promotions.

Some cards utilize a dormancy fee, usually a monthly service fee, if it is unused for a period of time. A new federal law prevents a dormancy fee if a gift card has been used in the prior 12 months, and consumer pressure has led many gift card issuers to eliminate dormancy fees altogether.

Flexibility of Use

Each gift card has certain limitations. Some gift cards may require purchases to be made either in person or online, or may limit what types of purchases the gift card covers. Some gift cards have no time limit to redeem the card, while others add an expiration date, sometimes as little as one year from date of activation, or the unused balance is forfeited. Gift card issuers know that unused balances mean profits for them. Consumer Reports says nearly 10 percent of all gift card balances are never used, an additional source of revenue for companies that issue them.

Some retailer gift cards are redeemable at other retailers owned by the same parent corporation. Old Navy gift cards can be used at the Gap and Banana Republic stores, while a gift card to Chili’s can also be used at Romano’s Macaroni Grill, On the Border and Maggiano’s Little Italy.

Only a small number of retailer gift cards allow a user to redeem the card for cash. Old Navy cards, for example, allow cash to be redeemed if the card balance is below $5.

Lost or Stolen Cards

If a card is lost or stolen, most issuers will require an original receipt or the card number to replace it, so the receipt should be given with the gift card to the recipient. Some issuers charge a significant fee to replace a card.

Tips to Avoid Gift Card Scams

Scambusters.org warns consumers of schemes involving gift cards. Thieves can steal card numbers and customer service phone numbers off gift cards displayed in stores and later call in to find out if they have been purchased and activated. Once a card has been activated, the thief uses the card number to order items online, draining the gift card before the real owner has a chance to use it.

To avoid problems buying gift cards in person, Scambusters suggests only purchasing cards that do not show their numbers through the packaging or are displayed behind counters to avoid tampering.

Consumers should avoid buying gift cards from third parties like eBay, newspaper ads or CraigsList. These scams often involve stolen gift cards, used gift cards or even counterfeit gift cards that sell for less than the face value and leave a buyer with worthless cards.

With a little research and a few precautions, consumers can not only avoid the pitfalls of high gift card fees, they can also find just the right card that will be used and appreciated by the recipient. Researching the policies and fees of a particular gift card could avoid future problems and help a consumer find just the right gift card.

Victor Medina

Special thanks to
The Centsible Life for hosting the Carnival of Personal Finance #229. In this special Halloween candy edition, they were kind enough to include our article “Social Lending: What Are Peer-to-Peer Loans” (under the guise of a Zero Bar, one of my favorites for its caramel and peanut, white-fudge-covered nougat awesomeness.)

The Carnival of Personal Finance is a traveling weekly showcase of the best blog articles on the topic around personal finance, such as budgeting, saving money, earning money, managing debt, and living below your means.