Credit Archives - Page 3 of 4

Avoiding Debt? You Still Need Good Credit

You probably know that if you plan to borrow money, you'll only get the best terms if you have good credit. If you want to save money on interest, and enjoy the best possible terms, you need to show the lender that you are responsible, and that there is a good chance that you will repay your debts. But what if you have been avoiding debt?

There many people who save up to make purchases. They save up for car purchases to avoid auto loans. There are those who prefer to invest their money instead of getting a mortgage. Or, if you already have mortgage, you might not see the sense in the need to borrow for anything else. Cash often works just fine when making most purchases. Why do you need to worry about your credit when you won't be borrowing?

Whether or not you agree with the trend, the truth is that lenders aren't the only people interested in looking at your credit situation. You need good credit if you expect to save money in other ways, or have access to opportunities that may not necessarily be directly connected with getting a loan.

Insurance, Renting, Cell Phones, and Jobs

Your financial habits are of immense interest to a number of people that you might not realize. Some banks check your credit before allowing you to open certain types of accounts. Even if a full credit check isn't done, a ChexSystems check might be used to look at some of your consumer behavior. You can be denied a bank account based on what's in certain consumer reports.

Additionally, one of the biggest impacts come when insurers occasionally check your credit score. I am actually receiving a discount on my bundled home-aut0-life policy because of my credit score. A poor credit score means that you can miss out on monthly savings in the form of lower insurance premiums. Over a lifetime, a savings of $10, $20, or $30 a month can make a real difference.

Others want to check your credit to determine what kind of deposit you will have to pay. Landlords sometimes adjust the security deposit you are required to pay based on your credit history. A poor credit history can result in a higher deposit, since there are indications that you could skip town without paying your rent. Cell phone, Internet, and TV providers sometimes run credit inquiries as well. The inquiry might only be a “soft” check, but it still emphasizes that these service providers want to know if you are reliable. In some cases, the company might require that you pay for your first month of service up front, rather than waiting until you have actually used it.

Finally, some employers run background checks that include pulling your credit report. Credit bureaus offer special credit reports geared toward employers for this purpose. Employers aren't supposed to have access to your credit score, but seeing some of your credit history can still help them get a feel for your habits — as well as whether or not you might represent a risk in sensitive situations.

In the end, more and more decision makers are relying on your credit. It's an easy indicator, and it's easy to access. So, even if you aren't borrowing anymore, and even if your debt levels are low, it makes sense to ensure that your credit history looks good.

Traveling This Summer? Don’t Forget Your Credit Card!

By Miranda Marquit 1 Comment

When it comes to the debit card vs. credit card vs. cash debate, there often isn't a clear winner. We all have our preferences. However, for maximum security when you travel, it's often a good idea to bring your credit card along. (Yes, debit cards claim to have the same protections, but some issuers have different time limits that need to be met in order to reduce your liability.)

If you plan properly, your credit card can help you protect your money when it comes to lost or stolen wallets. Additionally, you can rack up the rewards points with your credit card. Before you go, though, here are some things to keep in mind:

travel credit cards

Make Sure You Have the Cash Available to Pay Off the Balance

The first thing you need to do is realize that using a credit card for your vacation is not an excuse for reckless spending. While it's true that some transactions are better suited for credit cards, it doesn't mean that you should just pile on the charges. Save up for your vacation, and keep the cash in a high-yield account. When you get back, you can pay off the balance. You avoid interest — and debt — while still enjoying the advantages of earning reward points and other solid advantages. But it only works if you pay off the balance as quickly as possible. Otherwise, the interest you pay more than offsets your rewards, and your summer vacation becomes even more expensive.

Let Your Issuer Know Your Plans

When I went on spring break with my son, we took the credit card, and left the debit card at home. Our adventure also included some time in Las Vegas. From the standpoint of the credit card issuer, it appeared that someone had taken our credit card, and then used it for a Vegas vacation. The issuer called our home phone number (the number on the account), and talked to my husband about the charges. It was actually rather comforting to know that the issuer was staying on top of the situation. But it also illustrated the point that you should let your issuer know what is going on. If you plan to cross state lines and make several purchases, and especially if you plan to take your credit card abroad, you should tell your credit issuer what is going on. I was lucky that my issuer chose to call before denying purchases. If your issuer denies charges and asks questions later, though, it can make for a disappointing vacation.

Keep the Account Information in a Separate Place

As you travel, you want to make sure that you keep the account information in a separate place. Write down the account number, and the customer service number of the credit card issuer, and then lock it up. Keep it in the room safe at your hotel. Or, you can leave it with someone you trust. My husband doesn't like travel, so he often stays home (and does fun things with his friends) when my son and I head out. As a result, all I need to do is make a phone call to him, and he can get the information from a safe place at home. You want that information separate from your credit card, and accessible, so that you can use it quickly in the event that your card is lost or stolen.

Do you have other tips for using your credit card while you travel?

Here’s Why You Should Shred Those Credit Card Convenience Checks

By Contributor 3 Comments

They're called convenience checks for a reason. You open up your mailbox and there sits an envelope from your credit card company telling you that you have to open it right away. There's an exciting offer is inside!

When you open the envelope you find a bunch of blank checks with a well written letter telling you that this special offer allows you to write a check for purchases instead of using your credit card.

But that’s where the convenience ends. It’s easy but using those checks is not in your best financial interest for a number of reasons. Let’s take a look at why those credit card convenience checks need to take a one way trip to your shredder.

why to avoid convenience checks

High Interest Rate

There’s a reason that you both love and hate your credit card and that’s because of the interest rate. Your credit card may act as the bridge between paychecks but at sometimes more than 20% interest, you’re flushing more money down the drain than you realize.

If you thought the interest rate on your credit card was bad, take a look at what you’ll pay for those convenience checks. Convenience checks have the same interest rate as a cash advance on your card and it’s often quite a bit higher than your normal rate.

No Grace Period

What grace period? With your credit card, you have a grace period where you aren’t charged interest providing you pay the balance in full when the statement arrives. After that, interest starts to add up. With convenience checks, the interest kicks in as soon as you use the check. No grace period here which means there is no sound financial reason to use these checks.

Fees For Using Them

If the lack of grace period and high interest rate wasn’t enough, you’re probably going to be charged a three to four percent fee for using them. The credit card company will call it a convenience fee but it’s actually the normal fee that a merchant would pay if you used your card.

Identity Theft

If you thought it was easy for thieves to get a hold of your credit card, those convenience checks that come in the mail are even easier. Before you even know they came in the mail, thieves can take them and use them leaving you with a mess that will take a lot of time to clean up.

Refused For Any Reason

Another little known fact is that the credit card company can often refuse to honor the convenience check for any reason. Take for example this story of a gentleman who used the check to put a $1000 down payment on a Toyota Prius. The credit card company refused the check shortly thereafter simply because they felt he was overutilizing his credit.

Conclusion

Although the arguments might be flimsy, using a credit card, in some cases, makes financial sense. If you are the type of person who can pay the full balance at the end of every month, you can build up some healthy rewards points. With credit card convenience checks, however, there is no responsible reason to use them unless a true financial emergency exists.

When you get these checks in the mail, take them directly to the shredder or tear them up in to small pieces before throwing them away. Remember that convenience checks are everything but convenient.

Have you ever used convenience checks?

How To Avoid Debit Card Fees

By Contributor 7 Comments

Last year congress passed a bill that empowered the Fed to cap the fees large banks charge retailers for debit card transactions. As a result, big banks have lost a significant source of revenue and have responded by increasing the fees they charge their customers.

By now you have probably heard all the commotion caused by Bank of America’s announcement that they will begin charging a $5 monthly fee to all their debit card customers. The fee will go into effect in the new year and it’s reported that other big banks will soon follow. While changing banks is one way to avoid the newly imposed fee, there is nothing preventing your new bank from adding a debit card fee, too.

So here are a few ways you can guarantee you won’t be hit with a debit card fee:

avoid debit card fees

Cash

One way to beat the fee is to adopt a cash only policy. This method of money management has been around since the beginning of time and some think it’s the best way to manage your money. The financial guru’s we know and love like Suze Orman and Dave Ramsey both have stated time and time again that using cash is better than using any sort of plastic. There are no interest charges and sometimes just seeing your money leave your wallet is enough to keep your spending in check.

Credit Cards

While some think credit cards are just plain evil, there are may perks to paying for your purchases with a credit card. For one, you can avoid the Bank of America fee and you can also save yourself some money if you use a cash back credit card. Getting the most out of your card requires being responsible with your spending habits and always paying your balance off each month. You can also build your credit with a credit card and many cards offer warranty programs to protect your purchases.

Prepaid Cards

Prepaid cards tend to get a bad wrap. They have a reputation of catering to people with bad credit and those who can’t obtain a traditional bank account. It appears the times are changing and now people of all credit ranges are using prepaid cards as a way to manage their spending. Prepaid cards require the user to load money to the card before making a purchase. As a result, the account can’t be over-drafted because you can only spend the amount on the card. Some of the best prepaid cards come with no or limited fees. And because prepaid cards were excluded from the Fed’s action on debit cards, it’s unlikely that banks will starting increasing the fees on these cards.

Credit Union

Some people swear by Credit Union’s because frequently they offer lower rates and have a tendency to give more personable service than the big banks. Credit Unions are also able to avoid some of the red tape with their long time customers which makes borrowing a much simpler process. They provide many of the same services banks provide, but often with no fees or significantly lower fees.

This is a guest post from Michal who is a senior editor at Dough Roller and Credit Card Offers IQ.

Loan Application Rejected? Get a Free Copy of Your Credit Score

By Miranda Marquit Leave a Comment

For years, you have been able to access your credit report for free after being turned down for credit. Indeed, if you are turned down for a loan, the lender is required to let you know which credit reporting agency was used in making the decision to decline your application. Then, you have the right to request a copy of your credit report, in writing, from that credit agency (as long as you do it within 60 days of the rejection). Up until now, though, you only had the right to see your credit report. As of July 21, 2011, though, you will now have the right to see the credit score that resulted in your rejection.

Getting Access to Your Free Credit Score

There are companies like Credit Sesame that can help you see a more general credit score. However, the score you see on a site like Credit Sesame, Quizzle and Credit Karma may not be the exact score used by a lender to make a decision about whether or not to lend you money. Thanks to this particular provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act, you now have the right to see which credit score was used, and you will be notified of this by mail in most cases.

Earlier this year, lenders were required to let you know if you didn't get the best terms, including the best interest rate, or a requirement to have a co-signer for approval. Credit scores didn't need to be included, though. Now, credit scores will be added to the equation. All of the information that the lender used when making the decision will be included on the notification, along with date of the inquiry, as well as which credit reporting agency was used to gather the information. Only those who didn't get the best terms, or were declined, will receive the notice (usually by mail). If you are approved, at the best terms, then you won't receive anything — unless the lender decides to provide the information or credit score to you.

Some lenders actually use their own credit scoring models, and this will be disclosed in any letter informing you of rejection, or of the reception of less than favorable terms. Lenders have to let you know that they aren't using a scoring model based on FICO, and then provide you with the scoring range that is used. You can also call the financial institution to get more information about the credit scoring model so that you better understand why you were rejected.

Bottom Line

For years, consumers and consumer advocates have been complaining about credit reporting practices that keep borrowers in the dark about what information is being used to make decisions about their financial futures. The ability to see your credit score for free when you are declined is a step toward better understanding your total credit history. It also provides you with some of the information you need to make more informed decisions, as well as target financial habits that could use improvement.

From Billionaire To Broke: One Wealthy Heiress And Her Slide Into Bankruptcy

By Mr. Money 13 Comments

I‘ve had a continuing series on this site called “Retiring Wealthy On An Average Salary” where I chronicle the stories of regular folks who have planned ahead and been able to retire wealthy while never making more than an average salary during their working years. The stories can be pretty inspiring and hopefully will nudge people towards making good financial planning decisions.

While it's fun to read the stories that had a good ending like those, unfortunately there are far too many examples of people who have squandered their fortunes as well. Today I wanted to look at one such story, that of Billionaire Heiress Patricia Kluge.

Patricia Kluge: Billionaire to Bankrupt

Patricia Kluge Bankrupt Billionaire

Patricia Kluge was once married to one of the wealthiest men in America, TV mogul John Kluge. In 1989 Kluge topped the Forbes 400 list with a fortune of $5.2 billion. They enjoyed the good life with homes and vacation houses all over the world. In 1990 when the couple divorced Kluge received a huge settlement that was by some reports over 1 million dollars a year, and included a $100 million estate in Virginia called Albemarle. The 24,000-square-foot home, which was once valued at over $100 million, features 8 bedrooms, 13 bathrooms, a helipad, stables and two kitchens. From Yahoo:

AP Photo/Steve Helber

Patricia Kluge was once known as “the wealthiest divorcee in history.” Those days are over. Kluge, who had formerly been married to the late billionaire John Kluge, recently filed for bankruptcy protection, citing debts somewhere between $10 million and $50 million and assets between $1 million and $10 million.

So what went wrong, and how did this wealthy socialite lose it all?

By some reports, despite the fact that they had millions of dollars in assets, Kluge and her new husband leveraged themselves to the hilt, and were up to their ears in debt because of a vineyard and winery business they had started.

The seeds of Kluge’s financial downfall were sown in 1999 when, along with third husband William Moses, she established the Kluge Estate Winery and Vineyard on 960 acres near Albemarle. The couple’s plan: Create vintages that would establish Kluge Estate, and subsequently Virginia, as an East Coast mecca for fine wine.

…Kluge decided to expand aggressively. Over the past five years she took out $65 million in loans, according to public records. The money went into expanding wine production and building a super-luxury subdivision called Vineyard Estates, which was to include 24 multimillion-dollar homes with pools, outdoor kitchens, tennis courts, horse trails–and even space for private vineyards.That’s when the housing crisis hit. Vineyard Estates failed to draw buyers. Property values plunged.

In 2009 Kluge put Albemarle up for sale. Sotheby’s International Realty initially listed it for $100 million. The figure was cut to $48 million in early 2010 and then to $24 million, where it sat until February’s bank foreclosure.

Since they faced foreclosure in February of this year, another high profile billionaire stepped in to save them – Donald Trump. Trump purchased a portion of ownership in their winery business to the tune of 6.2 million dollars. While they're not out of the woods quite yet, I guess it pays to run in those circles and to have wealthy friends who can bail you out of situations like this.

What Can We Learn From This Situation?

So what can we learn from this story of billions to broke?

Live on less than you have coming in: One thing we've seen time and again is that those who live on less than they make or have end up coming out ahead in the end. Those who live on more than they make – whether they are a billionaire or living in poverty, will end up with a mountain of debt and a bankruptcy hanging over their head.
Debt carries substantial risk: It seems to have become conventional wisdom that debt is a good thing when you're running a business – just a cost of operating a business nowadays. I don't think people really focus enough on the risk that is entailed in taking out a ton of loans and debt. Why not try to run a business on cash – like Dave Ramsey and his empire?
Plan ahead for unforseen negative events: Sometimes there are things that happen that weren't foreseen, like the housing and economic crisis that hit Kluge and her husband so hard. Plan ahead for doomsday scenarios – and make sure you're diversified! Don't put all your eggs in one basket like they did.
Be careful of expanding your business too fast: From the stories I've read it sounds like Kluge and her husband tried to expand their winemaking facilities and build a super-luxury subdivision on their land at a faster pace than they probbably should have. When the downturn hit, they lost it all.

What other lessons can we learn from this story? What do you think – would you ever be able to lose it all if you had that much money to begin with? Are we all susceptible to bad decision making if the situation is right?

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