Posts Tagged ‘credit card kiting’

When your credit score has run rampant like an untrained puppy, it needs to be nurtured over time. Your low credit score can be improved when you set a positive personal finance and credit history improvement plan in motion. There are three important factors you need to remember before you tackle your credit score.

The 3 Things:

1. Existing Bills Need Attention

Similar to that puppy mentioned earlier, your existing bills need attention. When a puppy does something he shouldn’t, it’s up to his owner to correct the behavior. Think of the outstanding bills or large credit balances you’re carrying in the same way: they are negative objects standing in your way of moving forward. Unpaid bills are obstacles to improving your credit history, which determines your credit score. Record them using a debts worksheet to help you determine which bills to pay first.

Action: You can take the proper action and pay off existing bills, even if you are struggling to make ends meet. Take a serious and hard look at your budget, including all outgoing and incoming money. If you don’t know where your money goes each month, keep all of your receipts or have a long look at your debit and Visa bill at the end of the month. Keep track of ATM withdrawals as well.

Cutting back on fees is one place where you can start saving yourself some money when you’re struggling with bills and need to tackle your credit score. If you’re being charged late fees, bank fees or ATM fees, make some phone calls and ask to have the fees waived.

Make small minimum payments, work out payment plans with creditors, and reduce the number of times you use fee-based ATMs or fee-based payment services to pay your utility bills. Find a bank that has free checking and does not charge you to bank the way you want, whether it’s with paper checks or paying bills online.

Find a way to earn extra income, or cut back on existing expenses — these are the only ways to “find” more money in your existing budget.

2. You Need to Use Credit

Before you scratch your head, thinking that fictional puppy shared some fleas with you, consider that in order to build your credit score you need to use credit. Avoiding credit cards will not help you improve your credit history or your credit score. This is not an invitation to rack up large balances on your AmEx or Discover cards.

Use and Pay - The most beneficial way for you to use credit cards to improve your credit score is to use credit cards to make small occasional purchases, keeping the balance to an amount you can pay off completely each month. This is not the same as carrying a balance. Carrying a balance costs you more money because you are paying finance charges. Using the card and paying it off on time will improve your credit score over time.

One or Two Cards Only - Another responsible way to use credit is to use only one or two credit cards and keep your purchases below your credit limit. Unless you have an urgent bill or need to travel suddenly, there is no reason to max out a credit card. Maxing out your MasterCard will make it more difficult to pay off the balance at the end of the month, and to stay within your set budget.

3. Have Patience

Just as you wouldn’t expect our fictional puppy to learn everything he needs to know overnight, your credit score also needs some time to grow and develop. As long as you stick to your budget and use credit wisely and within your monthly means, you will be able to improve your credit score over time.

Pam Gaulin

Credit card kiting is one of the only ways some people see to keep their heads above water.

Similar to check kiting, credit card kiting involves using cash advances from one credit card to pay the monthly minimums on other cards. The debt doesn’t go away; it’s just transferred in a roundabout fashion. It can wreak havoc on your finances, but some don’t see any other way around their bills.

Credit card kiting is a bad idea for a number of reasons, not the least of which being that interest rates are usually much higher on cash advances than on regular purchases. You might be tempted by the pristine courtesy checks you receive in the mail from the credit card companies, but don’t fall for this trap.

Additionally, credit card kiting can lead to investigations by your bank or credit union. Although not necessarily illegal (depending on how you do it), there is legal precident that has labeled it ”nondischargeable”. Also, credit card kiting looks like suspicious activity and could lead a financial institution to believe you are laundering money. This is especially true if you engage in credit card kiting by initiating balance transfers with two credit cards from the same issuer.

“…debtor’s intent to deceive can be inferred from fact that cash advances were used to make minimum payments on other credit cards…”

See 5-19.3.5.1 Remedy: Nondischargeability

Most people don’t have the best of excuses to explain their kiting practices, and this can lead to increasingly worse offenses that could damage your credit and financial stability for the foreseeable future. Most financial experts caution against balance transfers and using courtesy checks in general, but credit card kiting is another animal entirely.

So what should you do in this situation? Rather than credit card kiting, try to live without credit card balance transfers. Design a budget that encourages you to live within your means. Get rid of your debts and any unnecessary expenses.

As soon as you consider credit card kiting to solve your financial woes, you should realize that you’re likely in a financial rut. You need to take steps to permanently improve your situation. At best, credit card kiting is only a temporary fix; at worst, it will further worsens your situation. It is important to leverage your strengths in your favor rather than resorting to less-than-honest behavior like credit card kiting.

Steve Thompson