10 Important Tips
You Should Know About Credit Cards to Save
Money, Time, & Grief
By Brian Vaszily
The average American spends the first six
months of every year paying off their holiday
debt from the year before. Overspending, opening
new credit accounts and generally just spreading
your finances too thin is especially tempting
as you succumb to the "spirit" of
the holidays.
That spirit has Americans planning to spend
an average of $1,096 on holiday presents this
year, up $207 from 2004. But before you dust
off your trusty credit card for its busiest
time of the year, read up on these 10 tips
that will keep you and your credit scores
merry and bright.
1. Stay away from high credit
balances and too many accounts.
Charging high amounts to your credit
cards and carrying them over month to
month can lower your credit score, even
if you are making payments. That's because
the high balances could indicate that
you may have bit off more than you can
chew, financially speaking.
Opening too many new credit or charge
accounts can also negatively affect your
score -- it may indicate that you're spending
more than you can honestly afford.
2. If a creditor inquires about
your credit score, it counts against you.
Every time you open a new account, a
creditor will check your credit report.
This is what's known as a "hard"
inquiry, and it's figured into the formula
for calculating your final credit score.
Too many hard inquiries can, indeed, count
against you. "Soft" inquiries,
however, (such as when you inquire about
your own credit report) do not get factored
in.
3. Pick a card that fits your
needs.
There are all kinds of credit cards out
there -- those that offer airline, merchandise
or travel rewards, those that offer extra
warranties or accident insurance for electronics
or travel and those that offer low, fixed
interest rates. Depending on your needs
and lifestyle, you should choose a card
that can benefit you the most.
4. Have your name taken off of
credit marketing lists. If you
find it tempting (or just annoying) that
credit card companies are mailing you
marketing materials to get you to sign
up for their cards, you can have your
name removed from their lists (similar
to the National Do Not Call Registry).
You can do so:
Online using the "opt-out"
form at www.optoutprescreen.com.
By calling 1-888-5-OPTOUT to request a
hard-copy opt-out form.
5. Be aware that closing an account
doesn't mean your score will increase.
Depending on the situation, closing a
credit account could actually hurt your
score because it could increase the balance-to-limit
ratio. However, it may also raise your
score if you have too many cards open
(see #1), or have no effect whatsoever.
The card you choose to close can also
make a difference. For instance, a card
you've had for a long time that is in
good standing may positively impact your
credit score, so that would not be the
one to choose to close.
6. Pay more than the minimum
balance each month.
The typical credit card purchase is,
on average, 112 percent higher than if
using cash. That's because creditors make
money from your interest payments, which
can add up to thousands of dollars in
no time. If you only make the minimum
payment each month, you will end up paying
much more than you intended to, and more
than the purchase was worth. Even doubling
the minimum payment means that you'll
pay the card off twice as fast, and save
yourself hundreds, if not thousands, of
dollars in interest.
7. Know the credit lingo.
Charge cards, credit cards and secured
cards are not one in the same. A charge
card, such as American Express or Diner's
Club, requires that you pay the balance
off at the end of each month. If you are
late with the payment, you may be charged
very high penalty interest charges.
A credit card, on the other hand, allows
you to carry over a balance from month
to month. However, it also allows you
to accumulate interest charges. A secured
card is a credit card that is backed by
a bank deposit by the consumer. People
who may not be able to get an unsecured
card can often qualify for a secured card
and use it to establish credit.
8. Creditors decide whether you're
a good credit risk.
The criteria used in determining whether
or not you qualify for a credit card is
not set in stone and varies by creditor.
In this way, you may qualify for one card
but that doesn't mean you will automatically
qualify for all similar cards. If you
are ever denied credit, however, the creditor
must give you a copy of your credit report,
along with an explanation as to why you
were denied.
9. Know your rights if your card
is stolen.
Under the Fair Credit Billing Act (FCBA),
consumers can dispute certain charges
on their cards and have limited liability
if fraud occurs. The important things
to remember are:
You are not liable for any charges on
your card that appear after you've reported
it stolen.
Any charges incurred after the card is
stolen -- but before you've reported it
stolen -- should be waived after a $50
fee. This holds true as long as you report
the card stolen within a reasonable amount
of time (usually 24-48 hours).
10. Try to use some self-control.
Though you may be tempted to splurge on
holiday gifts or other items knowing you
don't have to pay right away, remember
that the bill will eventually come. If
you know you won't be able to pay for
a purchase, don't buy it. Likewise, in
the event you must charge a large amount
of money for emergency purposes, set up
a plan to get it paid off as quickly as
possible so it doesn't spiral out of control.
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