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					       Used properly, credit is an excellent tool. Used
       carelessly, it'll bury you. Follow the Fool's rules
of credit management to deal yourself a better hand
with every dime you borrow.
Crossing the credit line

Not surprisingly, lenders' promiscuity is catching up with them. Subprime
lenders -- who built their businesses by pursuing the un-creditworthy -- are
getting squeezed by their customers. Job loss and other consumer
hardships are affecting these bankers' bottom lines. Subprime lenders are
writing off losses in the 15% to 17% range, versus the average industry
loss rate of 6.5%. Delinquency rates now average about 10% while those
for the rest of the lending industry average just 5%. In the past year, some
big-name banks have been dealt pink slips of their own.

It's not just the bottom-feeders feeling the pinch. Response rates to direct-
mail solicitations are shrinking. Charge-offs are on the rise. Bank credit
card issuers lose about $1 billion each year in fraud, reports CardWeb.com.
They lose another $3 billion annually in fraudulent bankruptcy filings. And
we're not even talking about the number of Americans who legitimately
filed for bankruptcy.

Your credit crunch

So what does any of this have to do with you? Great question. The more
you know about your creditors, their competition, and your borrowing
peers, the better off you'll be. After all, if you're going to use credit cards --
and who isn't -- you might as well make sure the cards you've been dealt
are good ones.

You'll find everything you need to assess your credit situation, improve it,
or simply find fodder to gloat about at parties ("Hey, baby, guess what my
FICO score is.") in our comprehensive Credit Center. We'll show you how
to manage your credit Foolishly, teach you how lenders officially keep
score, and walk you through every step it takes to get out of the credit
crunch, if you're currently struggling.

It all boils down to knowing what's in your wallet -- how much, at what
interest rate, to whom it is owed, and how it affects the rest of your
financial life.



Debt Management
Adios to Your Debt




Digging yourself out of debt is not an easy task. It will
take hard work and determination, but it can be done.
Bankrate's tools and tips can help make it a little easier.




 Goodbye debt!
 By Bankrate.com
The burden has been taking its toll. You don't sleep well, your back hurts and you can't imagine
ever having the freedom to retire. You must get rid of your debt. It is not impossible, but it will
take hard work and determination. Do you have it in you? Yes, you do.

Good debt and bad debt
Do you know the kind of debt you've incurred? Find out if it is good or bad.

Good debt and bad debt
By Larry Getlen • Bankrate.com




Debt is a concept as intricately intertwined with America these days as baseball, mom and apple
pie.

The amount of personal debt in this country is ever increasing, and a large part of the reason is
that credit has never been easier to get. Whereas credit card issuers previously looked for
customers who could repay, today card issuers relish the chance to reel in those who'll
continuously charge beyond their means at 18 or 20 percent

Get out of debt: Create a spending plan
Your brain is a computer, but it needs more memory. At least in the beginning, use a written
guide to track your cash.



Create a spending plan


If you always skid into your next paycheck, you'll be left weeks, months, or years short of your
financial goals. Get organized, and develop a spending plan.

A spending plan helps you get to know your money flow -- money earned and money spent.
Keep it simple!

Create two charts: one for your income, the second for your expenses. Divide expenses into two
categories: fixed expenses, such as mortgage, rent, or car payment; and flexible expenses, such
as utility bills, groceries and gas.
For one month, record your income and all your expenses, cash and credit -- yes, even those
pocket-change coffee and doughnut runs! At month's end, tally up what you spent your money
on and compare it to your income.

Surprised? Now it's time to organize your bill paying and economize your flexible spending.
Where can you cut back? Your flexible spending needs to fund your emergency savings and
your "debt pay-off plan."

Here's more information on setting up a budget.

Pack away your debts with the payment push
Your good, bad and indifferent debts are all mixed up and you can't tell which is which. Just
rank them by interest rate with highest at the top and start chipping away.


 Pack away your debts with the payment push
 By Bankrate.com

 Want to know what the big moneymaker is for credit card companies?

 Fees (read: your money). Last year, 31 percent of the industry's profits came in the form of
 late-payment fees, over-limit fees and the like.

  If you are like the average American family, your total credit card debt is around $8,100. If
 you were to stop charging altogether and pay only the minimum amount due on this amount, it
                            would take about 30 years to get rid of it.

 No one wants to hand over cash to the credit card companies, but by paying only the
 minimums or falling behind a couple of months here and there, you are lining their pockets
 with profit and limiting your opportunities for enjoying life.

 Bankrate.com to the rescue. Use the "Payment push plan" to methodically dissolve your debts.
 Here's how it works.

 1. No new debt
 Put away the credit cards; borrowing is no longer an option. Even when you know you deserve
 something, you can't have it until you can afford to pay cash for it.

 2. It's a head game
 A daily affirmation helps to program your mind for success; post this on your bathroom
 mirror: "By living frugally, we will have the cash necessary to pay off our debts in ___ months
 instead of ___. The $______ we save in interest will be put into savings so we will always
 have enough to pay the rent and weather any lean periods in the future."

 Check out this calculator to determine how quickly you can be debt-free and how much you'll
 save in interest fees. Use the facts to write your bathroom-mirror mantra.

 3. Prepare a debt repayment schedule
 Use our debt repayment worksheet. Include columns for the name of the debt, balance due,
 interest rate, current payment and "Payment Push" period.

 Rank the debts by interest rate, with the highest one on top. Add a line under each debt to
 describe how you're going to fund the "Payment Push."

 The "Payment Push" gets applied to one debt at a time: Continue to make the same monthly
 payments on all debts except the one getting the "Payment Push."

 4. Start at the top
 Apply the "Payment Push" strategy to the debt on the top of the list: All extra, available cash is
 used to pay down the debt with the highest interest rate, first. That includes raises,

60-SECOND GUIDE TO ...Getting Out of Debt
Picture yourself bonuses, belt-tightening and that $20 bill that
unexpectedly popped up.

Push hard at the rest of them. When the first debt is paid off, use the
cash that is freed up to pay down the next debt on the list.

Be on the lookout for new ways to cut costs and bring in more money. The sooner a debt gets
paid off, the sooner you can push hard at the next one on the list.

(Looking for some cost-cutting strategies? Check out these great tips for living frugal while still
enjoying life.)debt-free -- no more bouts of anxiety over mounting credit card balances, no more
slavery to your debt, and no chance of threats from the dreaded collection agency. You can do
it! Here's the scoop -- in one minute flat.

0:60 Resolve to spend less than you make
Make it a habit as fundamental as stopping for red lights. Realize once and for all that if you
can't pay for it today then you can't afford it.

0:55 Distinguish between Bad Debt and OK Debt
OK Debt has an interest rate well under 10% -- preferably with some tax advantages to boot. In
the best case, the thing you bought with borrowed funds will appreciate in value. Home
mortgages and student loans are examples of OK Debt. Automobile loans are on the borderline:
They often satisfy the low-rate piece, but automobiles almost never appreciate in value. Bad
Debt is everything else -- from your titanium credit card to the 35% loan from Larry's Kwik
Kash.

0:50 Pick a winner
Pick the one major credit card that features the lowest annual interest rate. Cut up your other
cards, including all department store cards, into lots and lots of little pieces. (If you have plenty
of ventilation, you can try to set the plastic shards on fire.) Resolve to use the one card left intact
for emergencies only.
 0:41 Gather the latest bills from all Bad Debt accounts
 Line these up on the kitchen table. Find the minimum monthly payment for each account and
 then add these up to get an overall monthly minimum. Pledge to pay this overall minimum
 PLUS a hefty additional chunk every month -- enough to make a solid dent in the outstanding
 balance of at least one account. If you can't pull this off, you'll have to make a drastic move to
 increase your income or lower your expenses. It's harsh, we know, but it's also an inescapable
 fact.

 0:34 Pick the highest interest rate account and attack! Lather, rinse, repeat
 Next, order the latest bills according to annual interest rate charged. Apply the "hefty additional
 chunk" (beyond the minimum) to the highest rate account(s). Repeat monthly until the last Bad
 Debt account is paid in full.



 0:26 Ask for a lower rate
 Grab a bill from any account charging you more than 14% interest. Dial the toll-free number on
 the bill and ask to have your rate lowered to 11%. Tell them that you'd really like to stay with
 them out of customer loyalty (embellish according to your acting skills), but that you have
 received offers for much-lower-rate cards. Expect to be made very uncomfortable, but stand
 firm and remember that, to them, you are both a customer and a profit center. You also stand to
 save a bundle. The more calls you make, the more persuasive you'll get.

 0:18 Be prudent
 Be aggressive in paying down Bad Debt, but don't get so ambitious that you risk missing
 minimum payments on your mortgage, automobile, or any other secured credit account.
 (Secured means that if you miss enough payments, the bank can show up and take your stuff.)

 0:12 Spend time on our Consumer Credit / Credit Cards discussion board
 You'll find plenty of emotional support and great ideas. Help others celebrate their debt-free
 "happy dance."

 0:05 Dance, Fool!
 You're done when the Bad Debt is 100% exorcised and you can make remaining OK Debt
 payments with ease, leaving plenty of budget room for savings.


Credit Card Management
Wise Credit Card Use

More Credit Basics
     Credit Report Basics
     When to Get a Credit Report
     Obtaining a Credit Report
     Reading Your Credit Report
     Avoiding Over-Inquiries
     How to Fix Errors
       Repair Your Credit
       Credit Repair Services
       Credit Counseling Services

To find the right credit card for you, it helps to determine how you use credit. Although some are saddled with
thousands of dollars in debt and others pay off their balances fastidiously, most of us are somewhere in
between. Here are three card-user profiles:

Card User A puts all her monthly charges on her card. She pays the entire balance every month before the
due date. Because she pays her bills before the grace period ends, she pays no interest expense. The best
credit card for her is one with no annual fee. A frequent-flier-miles or other rewards card may also make
sense. For an annual fee that usually ranges between $75 and $100, she can likely earn enough miles or
rewards points to make the decision economical.

Card User B has average monthly balances of $5,000. He regularly transfers his balances to new cards that
offer teaser-rate programs. He pays an average interest rate of 15% on his cards, or $750 a year in interest.
His best strategy is to find and keep a low-fee card that offers a regular rate lower than the current average
rate he pays. For example, if he could find a card that would allow him to consolidate his balances at 12% for
a $50 annual fee, he could cut his yearly interest expense by $100.

Card User C has average monthly balances of $1,000 and pays a $25 annual fee. His current card rate is
14%. This costs him, on average, $140 a year in interest. He's evaluating a card offer with a 10% rate and
$50 fee. Is the lower rate worth the higher annual fee? With a $1,000 average balance it is. The new card will
save him $40 in yearly interest expense and cost him $25 more, for a net savings of $15.

However, as Card User C begins to pay off his balance, the decision to stay with his current card becomes
the better decision. With a $500 average balance, for instance, his yearly outlay with his current card is $70 in
interest plus the $25 fee, or $95. The yearly outlay for the alternative card would be $50 in interest plus the
$50 fee, or $100.

Of course, changes in interest rates will change the dollar savings and costs but the basic relationships
remain. As your average monthly balances decline, a difference in interest rates, or spread, between two
cards will matter less.

If you're more like Card User B or C, you may want to setup a repayment plan. You can start by calculating an
average yearly balance for each of your cards. To do this, you take the average of your average monthly
balances over a 12-month period. You may find this step to be helpful, since most of us spend more at certain
times of the year than other times.

                                                Your                  Your
                         Month Example                 Month Example
                                               Balance               Balance
                           Jan.      $1,000                July     $1,200
                           Feb.      $1,300                Aug.     $1,300
                         March       $1,000                Sept.    $1,500
                          April      $1,050                Oct.     $1,400
                          May        $1,250                Nov.     $1,700
                          June       $1,300                Dec.     $1,900
                         Ave.
                        Yearly                                      $1,325
                        Balance
After doing this for each card, calculate a weighted-average interest rate of all your card debt. Consider using
a table similar to this:

                                      Ave.           Percent. of
                           Credit                                  Interest Annual
                                     Yearly            Total
                           Card                                      Rate    Fee
                                     Balance         Card Debt
                             A        $1,325            57%        15.0%       $20
                              B       $1,000            43%        12.0%       $40
                           Total      $2,325           100%        13.7%       $60

After calculating the average-weighted rate, estimate your future card use. To have a successful repayment
plan, remember, you need to pay more than what you charge. Determine how much you can pay each month
by reviewing your personal cash flow. Be sure to include in that estimate of cash outflows the amount of your
future monthly charges. Be sure to pay off the higher-rate card debt first.

Finally, you should review and update your repayment plan every six months or so. This allows you to see if
you're making satisfactory progress. If you're better off, great: keep going. Consider a faster repayment plan.
If you're worse off, you may want to consult a credit counseling service.

The above information is educational and should not be interpreted as financial advice. For advice that is
specific to your circumstances, you should consult a financial or tax adviser.




Credit Card Management
Using your credit report
When you apply for a credit card, the card company submits an inquiry to a credit bureau to obtain a copy of
your credit report. The credit report contains your credit history, which will be used to help it make a credit
decision.

Your credit report reveals your credit score. The card company uses this information, along with other lending
criteria, to make a decision. Contrary to common belief, lenders do not base their credit decision only on your
credit score.

Additional myths about your credit report include:

Your credit report is a single report. The three major credit bureaus are Experian, Trans Union and
Equifax. These are also called national data banks or consumer-reporting agencies. Information on the major
three credit bureaus is shown below.

Your credit reports are accurate. Errors, omissions and discrepancies often exist between your credit
reports from each of the three bureaus. The longer your credit history, the greater the chance of these
occurring. As a result, it pays to review all three credit reports every year or so. If you find incorrect
information, contact the creditor directly to have it fixed.

Credit inquiries don't "ding" a credit report. Each time you apply for credit, the creditor obtains your credit
report. Not doing so would constitute the creditor's failure to perform due diligence. These inquiries show up
on your credit report. Although lenders may forgive a lot of inquiries that tend to occur when you buy a car or
home, excessive inquiries from credit card companies is frowned upon.

Major credit bureaus:

                           Equifax               Experian              Trans Union
                        (800) 685-1111          (888) 397-3742            (800) 888-4213
                      www.equifax.com www.experian.com www.transunion.com

The Fair Credit Reporting Act (FCRA) protects you if you've been denied credit. The law requires a lender
that denies credit to a consumer based on a credit report to:

Notify the consumer of the decision to deny credit.

Explain the item in the credit report that led to the decision.

Identify the credit bureau or bureaus that furnished the credit report.

Authorize the consumer to obtain and dispute a free credit report from that bureau.

You have 60 days to request the credit report. The credit bureau is required to notify you of your claim and
correct any errors within 30 days. The law was amended in 1997 to add further protections from potential
abuses of credit bureau information.

The above information is educational and should not be interpreted as financial advice. For advice that is
specific to your circumstances, you should consult a financial or tax adviser

Updated: 2005-02-25 13:38:13
Credit Card Management
Using reward cards
Some credit-card companies offer rewards cards, which can be used to earn a free airline ticket. These
rewards cards are called frequent-flier-miles cards or flight cards. With these cards, a card company and
airline join forces. You earn miles with the airline's mileage program whenever you use the card for new
purchases.

Most frequent-flier-miles cards accrue miles at the rate of one mile for each dollar in new purchases. Often,
you receive a few thousand miles when you join the program. After spending $20,000 to $25,000, you redeem
your miles for a free ticket on the participating airline. The standard reward is a round-trip economy-class
ticket for travel in the U.S.

Frequent-flier-miles cards charge an annual fee that usually ranges from $50 to $100. Some cards may award
miles for transfer balances. Most of the card programs limit the number of miles you earn in a year.

To help you decide whether a frequent-flier-miles card is a good deal, compare the cost of earning a ticket
with the rewards card versus buying the ticket at the current price. Your cost depends, in part, on how you
use your card.

For example, let's say you visit your relatives on the West Coast once a year. The current price for a round-
trip airline ticket is assumed to be $500. You're evaluating four flight card offers, shown below:

                                              Card A Card B Card C Card D
                                Interest
                                               16.0%      14.0%     12.0%      10.0%
                                  rate
                            Ave. Monthly
                                         $1,000           $1,000   $1,000      $1,000
                              Balance
                             Ave. Yearly
                                         $160.00 $140.00 $120.00 $100.00
                              Interest
                               Annual
                                               $50        $50        $50        $50
                                Fee
                            Total yearly
                                         $210.00 $190.00 $170.00 $150.00
                                cost

Each card requires 25,000 miles to earn a free ticket. Each has a $50 annual fee, and the most you can earn
in a year is 10,000 miles. You charge at least $10,000 a year in purchases.

The yearly limit of 10,000 miles rules out a free ticket until the third year. Nevertheless, if you pay off your
card balances every month, your only expense is the annual fee. In this case, any of these card offers are a
good deal. Your total outlay is only $150, well below the current ticket price.

Next, assume that you have an average monthly balance of $1,000. In this case, Card D is the only profitable
decision, based on current interest rates. Card D costs you about $450 over the next three years to earn an
airline ticket worth $500. The next-cheapest card, Card C, would require spending $510 over the same
period, or slightly more than the airfare.

If your average monthly balances were $2,000, however, none of the cards would reach the break-even point.
Again, this analysis is based on current interest rates. Rates may rise or fall, and the price of West Coast
airfare in three years may also be different. However, this kind of analysis can help you to understand the
pros and cons of using a frequent-flier-miles card.

In addition to frequent-flier-mile rewards, there are also cash and merchandise rebate cards. You should treat
these cards in a similar fashion as frequent-flier-miles cards, carefully reading the terms and conditions of the
card offer.

The above information is educational and should not be interpreted as financial advice. For advice that is
specific to your circumstances, you should consult a financial or tax adviser.

Updated: 2005-02-25 13:38:00
Credit Card Management
Dealing with card offers
Credit card offers frequently use teaser rates to acquire new customers. These are introductory rates that last
a few months before the regular interest rate kicks in. Some of the attributes of teaser programs include:

Length of time the rates are offered. Teaser rates generally last only a few months, perhaps three to six
months. Be sure to ask the card company what the regular interest rate will be when the introductory period
expires.

New purchases. Teaser rates often only apply to new purchases made with the card. If you're attempting to
improve your credit, however, the last thing you may need are further enticements to spend.

Transfer balances. Teaser rates that apply to transferred balances offer some temporary relief from higher
interest rates. For example, if you transfer $5,000 in balances to a new card that charges 2.9% for six months
from a card that charges 15%, you can save $300 in interest. Be sure to ask what the regular rate will be
when the intro rate expires. It may be higher than the rate on your current card.

Rate escalations. After an introductory period expires, the rate on your card is bound to escalate. The
question is whether it will be a higher rate than the rate on your current card. If so, you'll begin to lose that
$300 you saved during the introductory period. Worse, the low intro rate on new purchases may have led you
to actually increase the amount you owe.

Intangible costs of card surfing. Some card users actively take advantage of introductory offers,
transferring their balances to a new card when the offer expires. This technique of "surfing" your balances
may work for a while, but it's likely to catch up with you. The time and effort spent doing this may begin to take
a toll. You may wind up mistiming the offer, paying a rate that is much higher than your current rate. You may
also simply run out of introductory offers. A card company that you've left once before is unlikely to extend
another introductory offer to you. Finally, surfing your balances doesn't address what may be the core
problem: failure to repay your card debt.

The above information is educational and should not be interpreted as financial advice. For advice that is
specific to your circumstances, you should consult a financial or tax adviser.



Updated: 2005-02-25 13:37:57
Credit Card Management
Credit laws protecting you
The following consumer-protection laws help with credit-related matters:

Fair Credit Reporting Act. The Fair Credit Reporting Act (FCRA) requires a card company or other creditor
that denies you credit based on information in your credit report to:

Notify you of its decision to deny you credit.

Explain the item in the credit report that led to its decision.

Identify the credit bureau that provided the credit report.

Authorize you to obtain a free credit report from that bureau and to dispute the item.



You have 60 days to request the credit report. If you dispute an item, the credit bureau has 30 days to notify
you and correct any errors. The law was amended in 1997 to add further protections from potential abuses of
credit bureau information.

A common mistake on credit reports is inaccurate information, such as showing the incorrect number of late
payments. Another common mistake is reporting as your debts those belonging to another person with the
same name.

If a credit report dispute is not resolved to your satisfaction, visit the Web site of the U.S. Federal Trade
Commission (FTC) for additional information.

Equal Credit Opportunity Act. This law prohibits a card company or other creditor from denying you credit
based on your sex, race, age, religion, marital status, national origin or receipt of public assistance. You are
entitled to receive an explanation if denied credit.

Fair Credit Billing Act. This law protects you from unauthorized charges made to your credit cards or other
types of revolving credit. You have 60 days to notify the creditor, which must acknowledge receipt of your
notification within 30 days. The creditor must resolve your dispute within two billing cycles, which are usually
months.

Fair Credit Debt Collection Practices Act. This law prohibits a collection agency from harassing,
intimidating or using abusive tactics to collect amounts you may owe. Collection agencies may not contact
you at work if they know your employer disapproves. Moreover, collection agencies are limited to contacting
you between the hours of 8 a.m. and 9 p.m.

The above information is educational and should not be interpreted as financial advice. For advice that is
specific to your circumstances, you should consult a financial or tax adviser.
Updated: 2005-02-25 13:38:02
Credit Card Management
Credit card fees
It may be cheaper to pay an annual fee if the interest rate on your card is low enough. Annual fees generally
range from $20 to $75. To decide, you need to calculate which is cheaper: a fee-based card with a low
interest rate, or a no-fee card with a higher interest rate.

Let's look at two cards. The first card has a $25 annual fee and a simple interest rate of 13%. The second
card has no annual fee and an interest rate of 15%. If you pay your balances in full every month, you pay no
interest. If you are thrifty enough to have no monthly balances, the no-fee card is clearly the better deal.

However, if your average monthly balance is $5,000, the no-fee card would cost you an extra $100 ($750 -
$650) a year in interest:

                                 Ave. Monthly
                                                            13.0%          15.0%
                                   Balance
                                     $1,000                  $130           $150
                                     $1,000                  $130           $150
                                     $5,000                  $650           $750
                                    $10,000                 $1,300         $1,500


In this case, paying a $25 annual fee is the better deal. You save $75 ($100 in interest minus the annual fee)
a year. If your average monthly balance is $10,000, the fee-based card would save you $175 a year.

There are other fees to watch for. Credit card companies routinely charge fees on cash advances. These fees
are usually imposed at the card's ceiling rate. There is seldom, if ever, a grace period on cash advances. This
means you begin paying interest on those amounts immediately.

Card companies also charge hefty fees on any charges that temporarily exceed the amount you are allowed
to borrow. Like cash-advance fees, these are fees that you pay for the privilege of having access to credit that
is more than your borrowing limit. These kinds of charges should be avoided, if at all possible.


Updated: 2005-02-25 13:37:53
Credit Card Management
Consolidating your cards
If you make payments on several credit cards, you may want to consolidate your payments into one card.

Consolidating your credit cards has some great side effects. For one, it adds discipline to your spending.
Keeping a running tally on one card is much easier than trying to do the same with five or six cards. You also
write fewer checks to credit-card companies each month.

The real potential benefit of consolidating your credit card, however, is improvement in personal cash flow.
For one, you avoid paying multiple annual fees. You may also be able to roll up several high-interest-rate
cards into a card that has a lower interest rate.

To see whether consolidating your credit cards is a good deal, calculate the weighted-average interest rate for
all of your card debt. This is easier to do than it sounds. Then, add the annual fees that you pay for each card.
Finally, compare these costs to your consolidation offer. For example, assume you own the following four
credit cards:

                                              Card A Card B Card C Card D
                                Interest
                                               17.5%      16.5%      16.0%    15.0%
                                  rate
                            Ave. Monthly
                                         $1,500           $1,000     $1,500   $1,000
                              Balance"
                             Ave. Yearly
                                         $262.50 $165.00 $240.00 $150.00
                              Interest
                                Annual
                                                $25        $25        $25      $25
                                 Fee

To calculate, divide the total yearly interest expense of the four cards by the total of average monthly
balances. These are the sums of the third and second rows, respectively. Thus, your weighted-average
interest rate is ($817.50 / $5,000), or 16.35%. In addition, you presently pay $100 in annual fees.

You could lower your bills if you find a card that:

Accepts your $5,000 of debt as transfer balances and charges you a rate that is less than 16.35%, and

Charges a rate of 16.35% or lower on new purchases, and

Has an annual fee of $100 or less (unless the interest rate on the consolidation card is low enough to justify
the higher fee).

The above information is educational and should not be interpreted as financial advice. For advice that is
specific to your circumstances, you should consult a financial or tax adviser.



Updated: 2005-02-25 13:37:50
Credit Card Management
Checklist of card features
To help compare and evaluate your existing credit cards, as well as card offers, you may wish to set up a
checklist. A checklist includes the basic and essential features of a credit card discussed in this educator.

You may wish to expand the checklist to evaluate introductory offers and rewards cards. Although the
checklist may contain other features, it should include, at a minimum, the following information:

                                                Example                       Your
                                                             Example B
                                Feature            A                          Card
                            Regular interest
                                                 14.50%          17.50%
                                 rate:
                                  Index
                                                  Prime            Prime
                                   rate:
                              Interest rate
                                                  4.00%           9.00%
                                spread:
                           Cash-advance
                                               21.00%         21.00%
                             charges:
                           Over-the-limit
                                               21.00%         21.00%
                             charges:
                               Annual
                                                 $35            $30
                                fee:
                            Grace period
                                                  25             25
                              (days):
                               Teaser
                                                 Yes            No
                                rate:
                              On new
                                                3.90%            --
                             purchases:
                             On transfer
                                                3.90%            --
                              balances:
                            Introductory
                                              6 months           --
                               period:
                           Regular rate on
                              transfer         16.50%         17.50%
                             balances:
                              Rewards                       Frequent-
                                                 No
                               card:                           flier
                               Reward
                                                  --           Miles
                               earned:
                            How reward                      1 mile/$1
                                                  --
                             is earned:                     purchases
                             Reward on
                                                            500 miles
                              transfer            --
                                                           each $1,000
                             balances:
                                                           1,000 miles
                            Bonus offer:          --
                                                           first 3 years
                             How many
                               needed             --       25,000 miles
                             for reward:
                                                            Round-trip
                               Reward
                                                  --          ticket
                             description:
                                                            (domestic)

The above information is educational and should not be interpreted as financial advice. For advice that is
specific to your circumstances, you should consult a financial or tax adviser.


Updated: 2005-02-25 13:38:05
Credit Card Management
Calculating card interest
The average daily balance method is usually used to calculate the interest you owe on your credit card. To
calculate, add your daily balances for each day in the billing period and divide by the number of days in the
period.

For example, if your daily balances for a 30-day period totaled $30,000, your average daily balance would be
$1,000. If your credit card rate was 12%, the periodic interest rate would be 1%. One percent of $1,000
equals $10. This would be the amount of interest you would owe for the month.

The Federal Reserve discusses two alternative methods. These are the previous balance and adjusted
balance methods. The previous balance method calculates the interest you owe for your balance at the end of
the previous billing period. For example, if your billing period ended on March 20, your next bill would be for
the period ended on Feb. 20. The adjusted balance method subtracts any payments since the end of the
previous period to calculate your interest.

Card companies give you a grace period on new charges before you owe interest. This is usually between 20
and 25 days. However, a grace period may only apply if you pay your balance in full. Check with your card
company to find out how long your grace period is, and whether it applies only if your balance is paid in full.

The above information is educational and should not be interpreted as financial advice. For advice that is
specific to your circumstances, you should consult a financial or tax adviser.


Updated: 2005-02-25 13:37:49
Credit Card Management
Basics of card rates
Some basic rules of interest rates on credit-card debt include:

Interest rates are variable. Credit card rates are set by adding a spread, or margin, to a base rate. Your
base rate is often a widely used index rate, which is almost always a rate that changes periodically.

The spread that is added to calculate your rate depends on your credit history. If you pay your bills
consistently and on time, the spread may be as few as 2 or 3 percentage points. If your credit history reveals
that you make late payments, or have too much debt, the spread may be 5 or 6 percentage points or more.

Rates are higher than those for secured loans. Credit card rates are higher than those on home equity
loans, in part, because they do not have collateral. Lenders face more risk in providing unsecured credit than
they do with secured credit. If you are establishing or repairing credit, consider applying for a secured card.

The stated rate is not your actual interest rate. The advertised rate on a credit card is often the card's
simple interest rate. The effective interest rate, however, is your true cost of borrowing. It should include
annual fees you pay to use the card. The compounded interest rate is a better barometer of your effective
interest rate. For example, if your card has a rate of 12%, your monthly rate would be 1%. Because credit
card interest is compounded monthly, the effective annual interest rate on a 12% simple-rate card is 12.68%.

Interest rates have a ceiling. Credit cards generally have a maximum interest rate, or ceiling. If you are
delinquent in making payments, your card company may seek to automatically impose the ceiling rate, which
can be devastating if you have thousands of dollars in card balances that are affected. Be sure to read the
agreement with your card company to see what your ceiling rate is (often, it is 21%), and what terms may
result in you having to pay the ceiling rate.

Some states have usury laws that limit the ceiling rate that lenders can charge borrowers in that state. For
example, Arkansas limits the ceiling rate on loans to 5 percentage points over the discount rate. As a result,
Arkansas banks typically offer the lowest-rate credit cards in the nation.
Interest on credit card debt is not tax-deductible. Unlike a home equity loan, you cannot deduct the
interest you pay on a credit card from your taxable income. Thus, if you are in the 25% income tax bracket
and have a 10% rate, your after-tax rate is also 10%. Your after-tax rate on a home equity loan, however, is
7.5%.

The above information is educational and should not be interpreted as financial advice. For advice that is
specific to your circumstances, you should consult a financial or tax adviser.

Updated: 2005-02-25 13:38:09
Credit Card Management
Applying for cards online
The Internet lets you easily compare credit cards and apply online. It's also easy to be swayed by teaser rates
of as low as 2.9% to 3.9%. These interest rates are introductory rates that last a few months before the
regular interest rate kicks in. Some teaser-rate offers are valid only for new purchases while others may also
include transfer balances.

To help you sift through credit card offers and make a well- informed decision, consider evaluating the
following features of an offer:

Interest rate. Ask what the card's APR is, and if the annual fee is included in the calculation. With credit
cards, the annual fee is often excluded. In that case, the APR will tell you what the regular rate is after a
teaser rate ends. Ask how interest is calculated, and what events would automatically escalate the rate to the
ceiling rate. You should also determine the interest rate on cash advances or charges that exceed your
borrowing limit. Generally, these rates are at the ceiling rate. It is customary for no grace period to be
provided for either of these kinds of charges.

Fees. If you have a solid credit history, you can often negotiate the annual fee. If the card company refuses
and you're adamant about paying no fee, you can always shop for a no-fee credit card on the Web. If you
have substantial average monthly balances, however, a small annual fee may be a fair price to pay for a
lower rate. Keep an eye out for other fees, such as those for cash advances or over-the-limit charges. You're
already likely paying the ceiling rate for these charges. Charging an additional fee is a way that unscrupulous
card companies may add to your cost of those kinds of charges.

Ease of credit approval. Be aware of card offers promising "pre-approved" credit. You may be a prospective
customer, but you still have to apply for credit. Each time you apply, the card company obtains a copy of your
credit report. These all count as inquiries that, if concentrated over a short period of time, can negatively
affect your credit score.

Security and privacy. Limit your online application to card companies that use industry-standard practices
for security and privacy. Look for 128-bit encrypting, which scrambles your application data and requires a de-
scrambler to read it. The card company's Web server should use Secured Sockets Layer (SSL) technology.
Look for an online application on a secure screen of the Web site. This is usually identified with a padlock or
similar icon, or has a URL that begins with the word "https." The company should also clearly state its privacy
policy for handling your financial data.

Unauthorized credit card use. Check to see if the card company limits your liability for unauthorized
charges. Often, the most you're liable for is $50. An unauthorized-use guarantee is added protection to the
card company's security and privacy measures, above.

These are some of the main features to look for in credit card offers. Unfortunately, these features are often
ignored in credit card ad campaigns. The more you do to evaluate a credit card offer before applying, the
sharper your credit management skills.

The above information is educational and should not be interpreted as financial advice. For advice that is
specific to your circumstances, you should consult a financial or tax adviser.

				
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