Posts Tagged ‘credit card myths’

With lenders tightening their standards, and with new credit card rules, many are finding that it is not as easy as it once was to get a credit card. Indeed, proof of income is needed, and for the best credit cards you will need a credit score that is at least fair to good. If you do not meet these qualifications, you may need a co-signer to get a credit card.

What is a Co-signer?

A co-signer is someone who accepts responsibility for the loan or credit card if you cannot pay. If you do not have good enough credit or a high enough income to qualify for a credit card or some other type of loan, a co-signer will vouch for you, taking on the responsibility for the loan. This person should have good credit and sufficient income.

When someone co-signs for a loan, it means that he or she is basically taking on the debt. You should still make your payments on time, but if you don’t, the creditor can come to the co-signer to fulfill the debt. Additionally, the co-signed debt shows up as part of the co-signer’s debt burden, so their debt-to-income ratio rises. A co-signer is taking on risks when he or she backs you up, agreeing to pay on the loan if you default. If there is a chance that you will default, or if there are doubts about whether you are responsible enough to pay on time, you may have a hard time convincing someone to co-sign for you, since most of the risks are taken on by the co-signer.

Choosing a Co-signer

If you are responsible but you do not have established credit or a full-time job, you might be able to convince someone to co-sign for you. This person is usually a relative, often a parent. You might also find a very good family friend to co-sign on a credit card for you. When looking for a co-signer, you should find someone who has good credit, a low debt-to-income ratio, and who is not planning major purchases for at least six months. This is someone who is likely to handle the debt well, and who can afford to co-sign for your credit card.

Once you have your credit card, you should show your appreciation to your co-signer by using it responsibly, paying on time, and in full.

Jean Marquit

The U.S. Census Bureau claims there are roughly 1.5 billion credit cards in use across the nation, which translates to an average of eight credit cards per American adult. At the same time, a company that advises the credit card industry, R.K. Hammer, reports that Americans annually pay more than $20 billion in credit card fees. Perhaps it is no wonder that 41 percent of U.S. adults told the National Foundation for Credit Counseling that they grade their knowledge of personal finance at “C,” “D” or “F.”

Knowledge is power. Here, then, are 10 credit card industry facts that may help you better deal with the world of credit cards.

1. Beware of the “universal default clause”

Just one late payment on any credit card can prompt the entire credit card industry to raise your interest rates on all of your cards.

2. Identity theft

A plague upon the credit card industry and personal finance in general, identity theft is described by federal authorities as America’s fastest-growing source of crime. Monthly reviews of credit card statements and credit reports are the best ways to combat identity theft.

3. Credit card offers can lead to identity theft

A typical household receives several credit card offers per year. The trouble is that if the household doesn’t shred these offers, identity theft criminals can obtain vital personal information and open credit card accounts in your name.

4. Maintain that credit score

The magic number for your credit score is above 600. Go below that and you likely will face severe credit limits and high interest rates.

5. Make some noise

The fact that you may receive multiple pitches from the credit card industry, even if your credit score is below 600, reflects the fierce competition between companies. Call the credit card companies and ask to speak to supervisors for the lowest interest rates, and even negotiate for consolidation of credit card debt. The same determination on the phone can help if you believe an unwarranted late fee or penalty has been assessed.

6. Watch those gas stations

Folks seem to run into all sorts of problems when they use credit cards at gasoline pumps. First, if you don’t have a minimum of $50 remaining on your limit, your purchase attempt may be rejected. Gasoline stations may also be slow to record your transaction. Sometimes it’s best to simply pay with cash.

7. Keep an eye on payment time frames

If a few days are shaved from a payment time frame, such as 25 days instead of 30 days, credit card holders may falsely assume that they’re paying on time, only to run into a costly late fee and all of the accompanying troubles.

8. Minimum monthly payments will cost you dearly

Minimum monthly payments often consist of little more than interest on the lump sum. The laptop you purchased for $300 could end up costing $1,000 or more if you’re paying the minimum monthly payment. In this sense, credit card purchases can cost even more than rent-to-own arrangements.

9. Shop locally

If you restrict your purchases to within your home state or within 100 miles of your billing address, you will have an easier time disputing charges for unsatisfactory goods or services. Federal law gives credit card companies more rights for purchases made out of state or beyond the 100-mile radius.

10. Sometimes, “big government” actually can work for you

When looking for advice, keep in mind that the Federal Trade Commission monitors trade within the 50 states. There’s even a U.S. Financial Literacy and Education Commission, and local nonprofit credit counseling agencies are abundant.

Michael Thompson

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 years, American Express ran a series of “membership has its privileges” commercials, which were intended to show potential cardholders the benefits of having one of its cards in your wallet. As much as the company likes to advertise and use celebrity endorsements, American Express keeps most details about its mysterious “black card” hidden from the general public.

Urban Legends Make the Black Credit Card Real

On one episode of the television sitcom “Frasier,” Niles Crane and his radio psychologist brother kept trying to reach the most exclusive levels of a new local day spa, which had became the stuff of legend among Seattle’s movers and shakers. Frasier and Niles would not be satisfied until they were eligible for every perk the spa had to offer.

American Express credit cards have always had the same allure as that Seattle spa, so much so that rumors about an ultra-elite American Express credit card began circulating during the 1980s. Waving that piece of black plastic around allegedly could give the über-rich unlimited access to secret floors at major department stores and tickets to sold-out concerts.

The mystique surrounding the American Express black credit card became so great, in fact, that the myth finally became reality. In 1999, the company unveiled its new Centurion card, according to the marketing blog Branding Strategy Insider. Named in honor of the company’s corporate logo, American Express made the black credit card so exclusive that only a select few are invited to apply for one.

Benefits of the Black Credit Card

A call to the American Express media relations department about the Centurion card was not returned, but a few hours of Web surfing uncovered some fairly consistent details:

• The black credit card is made of anodized titanium, according to AdSavvy.org, which makes it heavier than the average credit card.
• Unlike other American Express products, you have to be invited by the company to apply for the black credit card. To even be considered for membership, you must have a near-perfect credit history and spend at least $250,000 per year on an existing American Express Platinum or Gold card.
• American Express charges a one-time membership fee of $5,000 for the black credit card, followed by an annual fee of $2,500, according to BlackCardSource.com. You also have to have the financial credentials to show that you can afford to spend a quarter of a million dollars each year.

Besides the prestige of carrying a titanium card in your wallet, American Express offers several benefits and perks for those who carry the black credit card, according to BlackCardSource.com, including:

• A personal concierge and travel agent. The company offers similar benefits to American Express Platinum cardholders, but these personal assistants are reportedly the best of the best customer service agents in the company.
• Automatic first-class upgrades and companion seats on several airlines.
• Personal shoppers at the finest stores in the world.
• After-hours access to shops.
• Membership points that can be redeemed at upscale merchants.
• Thank-you gifts from American Express such as digital cameras and expensive gift cards.

Keeping Company with the Centurion

Despite its exclusive nature, the American Express black credit card has become a part of popular culture. Britney Spears casually mentioned giving it to her then-husband Kevin Federline in 2006. Singer Kanye West even refers to it as “African American Express” in his song “Last Call.”

The American Express black credit card is only one of several credit cards for those with impressive financial resources. Competitors also offer exclusive black cards, but few can achieve the aura that surrounds the Centurion card.

Steven Bryan