Credit Card FAQ
Important Tips on Credit and Obtaining Credit Cards
Zero Percent Interest Credit Cards
Can I get a 0% Balance Transfer FOR LIFE?
Reasons to Transfer Your Balance
What to look for in a Credit Card
Points to Consider When Selecting a New Card
Other Things to Consider
Once You Have That New Card
It’s Your Money
Be Responsible
Read the Fine Print
3 Types of Credit
Qualifying for a Card
Credit Card User Tips
Am I really Pre-Approved?
FICO Score
How important is my FICO score?
Should I Close My Unused Credit Card Accounts?
Raising My FICO Score
Zero Percent Interest Credit Cards
Zero percent interest credit cards are offered in various varieties. Some cards offer an introductory 0% APR for a fixed period of time on both balance transfers and purchases. This type of card is ideal for someone wishing to reduce their monthly interest payment every month, and finance a large purchase in the immediate future with 0% interest.
Other credit cards offer 0% APR for a fixed period of time on balance transfers only. This type of card is ideal for someone wishing to reduce their monthly interest payment while paying down their debt. Beware, as this type of card will accrue interest on any purchases made with the account. Typically, banks will apply payments to balances associated with balance transfers before purchases, so that $200 purchase you made on your card with the $3000 balance transfer, will continue to accrue interest until the card balance is paid in full.
All zero percent interest credit cards are designed to allow consumers to transfer a higher interest credit card balance onto a credit card with a lower interest rate, thus saving them money in interest charges. For example, if you transfer a balance to a credit card with a low introductory APR of 0%, the APR for this balance will typically stay at this 0% interest level for a specified period of time, thus potentially saving you hundreds of dollars in interest charges. The terms of balance transfer credit cards can vary between offers, so be sure to thoroughly read the terms and conditions for each specific card.
Life-of-Balance credit cards typically offer a low, fixed interest rate on all balances transferred within a specified time frame after the account is opened. The low, fixed interest rate is valid for the transferred balance until the balance is paid in it entirety.
Many people take advantage introductory APRs to make larger purchases, so that they can take several months to pay them off. Low APR credit cards can help save you a lot of money on interest charges. However, be sure to read all the terms and conditions of the reduced introductory rate, so that you will not be penalized by fees or accumulated interest. You could even lose your low interest rate if you fail to make payments on time.
Can I get a 0% Balance Transfer FOR LIFE?
Banks obviously don’t have an incentive to offer you a 0% interest rate for life, as they would not be making any money on such a deal, however you can always apply for another account at offercreditcards.net with an introductory 0% rate once your existing intro 0% rate expires.
Reasons to Transfer Your Balance
- Start paying off a larger portion of your balance each month, not just the interest, with your new low rate.
- Consolidate your bills into one account. Most credit cards offering balance transfers will provide you with 3 or 4 checks to pay off your current accounts. Make sure you transfer the balance of the most costly card first. This may not necessarily be the card you hold with the highest interest rate.
- Did you know that you can transfer a balance of a friend or spouse onto your new card to help them reduce their debt? Once you receive your new card and transfer checks, make one out to your friend or spouse’s account thereby giving them your new low rate.
- You may need to call your credit card company and change your due date for each month. For example, if you get paid by direct deposit each month on the fifth, but your credit card payment is due on the 1st, call and have your due date changed. Not only can you get hit with a late fee, but many banks will cancel your 0% APR you just received after your first late payment.
What To Look For in a Credit Card
Annual Percentage Rate (APR):
The APR is a measure of the cost of credit and is expressed as a yearly interest rate. Also, be sure to check out the “periodic rate,” which is the rate the issuer applies to your outstanding balance in determining your finance charge for each billing period. The 0% or very low APR cards are the ones you want.
Grace Period:
A grace period is the time between the date of a purchase and the date when interest starts being charged on that purchase. If your card has a standard grace period, you have an opportunity to avoid finance charges by paying your current balance in full. Avoid any credit card with no grace period.
Transaction Fees & Other Charges:
Some issuers charge a fee if you use their card to obtain a cash advance, if you fail to make a payment on time or if you exceed your credit limit. Some may charge a flat fee every month whether you use the card or not. In order to avoid surprises and excess costs, understand what all the additional fees are before applying for any credit card. There are also balance transfer fees to consider.
Offers with no balance transfer fees obviously are the best, however, if you carry a high balance, in the long run, you are still going to pay less money in interest if you pay a transfer fee and take advantage of a 0% rate over the next 6 to 12 months. Typical balance transfer fees are 3% of the balance being transferred, with a maximum fee of $50 or $75. Beware of the credit cards with 3% balance transfer fees with no maximum.
Points to Consider When Selecting a New Card
- What will the new rate be after the introductory rate ends?
- Will my credit card balance be paid off when the introductory rate ends?
- Are there any transfer fees when doing the balance transfer?
- Am I still paying less money even if there is a transfer fee?
- Always read the card terms, conditions, rates, and fees so you understand beforehand how your new card works.
- Mark your calendar for when your low introductory rate ends and make an evaluation of what to do next as this date approaches.
- You may need to do several balance transfers depending on your credit rating. Suppose you are approved for Discover Card, but they give you a credit limit of $1,500, when you wanted to transfer $4,000.
Other Things to Consider
What is the best credit card for you? Consider the interest rate, the annual fees, and the programs offered. Here are some other things to consider when selecting your credit card:
1. Type of credit needed for approval
2. Length of low or 0% APR rate
3. Rewards or points systems
4. Savings at the gas pump
5. Cash back promotions
6. Online account access and bill payment services
7. Unauthorized spending protection
8. Membership benefits such as travel insurance and baggage protection
Questions to ask yourself when applying:
Are special offers relevant to me? – Many credit cards offer special rebates, support for a specific organization or other member benefits for using their credit cards. Decide if this is important to you when choosing your card.
Why do I need a credit card? – Maybe you need one credit card with a special interest rate to transfer balances from multiple accounts or perhaps you need a card specifically for business purposes.
How much credit will I need? – If the credit card is for business purposes, maybe you need a card with very high or no spending limits. On the other hand, if this is your first card and you are trying to build credit or just want the card for emergencies, then a more modest spending limit may be the better route to go.
How do I want to pay back my charges? – Decide if you want to pay off the entire balance each month or just a portion over each month. Some cards offer advantages for both paying structures.
Once You Have That New Card
- Don’t just pay the minimum balance. Now that you have your new low rate, you can make significant progress on paying your balance down to zero.
- You can send a payment to your credit card company at any time, you don’t have to wait for the monthly statement. Don’t be late on your payments, or you could lose that low APR which you just received.
- Check the balance on your old credit card. You may have a credit from the balance transfer process. Call them and request the check be sent to you. Then apply it towards your credit card balance.
- Remember not to get yourself too deep in credit card debt again
It’s Your Money
Don’t let your creditors set your spending budget. You have been judged creditworthy by some entity (Citibank, Chase, Discover, Bank of America, Capital One, Washington Mutual, etc.) that is willing to let you borrow money for a short period of time. Though your combined credit limit may add up to several thousand dollars, this is not credit that you should feel free to spend carelessly.
Who Made That Ratio?
Ignore banker’s mentality. Your debt-to-income ratio is the measure of how much debt you carry to how much money (after taxes) you have coming in. In the world of lending, it is “acceptable” to carry 25% of your income in debt. Consider this example:
Total credit card debt: $6,437
Total after-tax annual income: $30,000
Debt-to-income ratio: 6,437/30,000 = 21.4%
A 21.4% debt-to-income ratio is a significant amount of debt. The ideal ratio, of course, is zero, but at the very least you want to keep your debt, including car loans, to 15% or less of your after-tax income.
Be Responsible
While a credit card makes it easy to buy something now and pay for it later, you can lose track of how much you’ve spent by the time the bill arrives if you’re not careful. If you don’t pay your bill in full, you’ll probably have to pay finance charges on the unpaid balance.
More importantly, if you continue to use your credit card while carrying an outstanding balance, your debt can grow quickly, and before you know it, your minimum payment is only covering your interest. If this is the case, then it would be wise to consider a 0% APR balance transfer at this point.
Every time you use your credit card, ask yourself “Is it absolutely necessary for me to use a credit card to make this purchase? Can I pay cash to purchase this item, or even use my debit card?” Many banks now offer reward programs simply for using the debit card associated with your checking account.
If you start having trouble repaying the debt, you could tarnish your credit report. This situation can have a sizable impact on your life. A negative report can make it more difficult to finance a car or home, to get insurance and even obtain employment.
Read the Fine Print
Check your billing statement. You name it (overdrafts, “convenience” checks, talking to a human customer service rep), and lenders have found a way to charge you for it. Read the fine print, particularly on those blank checks they keep sending.
Find Out How You Rate:
Your credit report and score is used by lenders to measure your creditworthiness. What are they saying about you behind your back? Be alerted to identity theft. Your borrowing transcript is at your fingertips. The 3 main reporting agencies are: Equifax, Experian, and TransUnion. What is your Credit Score? Find out now, instantly online!
Trust:
And last, but not least, make sure you are working with a credit card company you can trust. Make sure that you read the fine print on all balance transfer convenience checks that you receive in the mail. Even though the checks may be linked to an account that currently has an introductory 0% APR, the checks themselves may have a much higher APR, or significant balance transfer fees.
3 Types of Credit
Credit grantors generally issue three types of accounts. The basic terms of these account agreements are:
Revolving Agreement – A consumer pays in full each month or chooses to make a partial payment based on the outstanding balance. Department stores, gas and oil companies and banks typically issue credit cards based on a revolving credit plan.
Charge Agreement – A consumer promises to pay the full balance each month, so the borrower does not have to pay interest charges. Charge cards, not credit cards, and charge accounts with local businesses often require repayment on this basis.
Installment Agreement – A consumer signs a contract to repay a fixed amount of credit in equal payments over a specified period of time. Automobiles, furniture and major appliances often are financed this way. Personal loans usually are paid back in installments, too.
Qualifying For A Card
If you are 18 years old or older and have a regular source of income, you are well on your way to qualifying for a credit card. However, even though you may receive many invitations and special offers from credit card companies in the mail, you still need to demonstrate that you are responsible and will pay your bills. The proof lies in your credit record. If you’ve financed a car loan or other purchase, you probably have a record at a credit reporting bureau. This credit history shows how responsible you’ve been in paying your bills and helps the credit card issuer decide how much credit to extend.
Before you submit a credit application, you can get a copy of your credit report to make sure it’s accurate. The three major national credit bureaus are:
- EQUIFAX – (800) 685-1111; www.equifax.com
- EXPERIAN – (888) EXPERIAN (397-3742); www.experian.com
- TRANS UNION – (800) 916-8800; www.transunion.com
Credit Card User Tips
There are many advantages to having a credit card such as being able to purchase items online and make hotel and car reservations. The way you handle your purchases should be taken seriously. Here are a few tips and suggestions about using credit cards:
- Never lend your credit cards to anyone.
- Every time you use your credit card, ask yourself “Is it absolutely necessary for me to use a credit card to make this purchase? Can I pay cash to purchase this item, or even use my debit card?”; Many banks now offer reward programs simply for using the debit card associated with your checking account.
- Credit cards are a loan; you do have to pay back what you owe, so do not charge more than you can afford to pay back.
- Keep track of how much you spend on your credit card. Remember that charges can add up fast. Be especially careful at Christmas time.
- Save your credit card receipts. Compare them with your monthly bill. Report any problems or discrepancies immediately to the company that issued the card.
- Pay your credit card bill on time, and in full when possible. If you don’t, you’ll have to pay finance charges on the unpaid balance. It will take a long time to pay off your debt if you just pay the minimum payment every month, especially if you keep using the card to make purchases.
- Owing more than you can repay can damage your credit rating. That can make it hard to finance a car, rent an apartment, get insurance or even obtain employment.
- Act as if you are paying with cash. Don’t spend more than what you would spend if you had cash in hand.
Am I really Pre-Approved?
You just received a credit card offer in the mail that says you are pre-approved. Are you really pre-approved? The answer is no. When you complete the application and send it in, the credit approval process truly begins. Your credit history then comes into play. A full report on you is pulled from one or all 3 of the major credit reporting agencies: TransUnion, Experian, and Equifax. There are a few credit card companies who will actually give you a yes or a no online instantly.
So what should I do if I have no credit rating or history? One thing you can do is write a letter back to the customer service department pleading your case, explaining why you are responsible in paying your bills, your background, education, work history, etc. This has worked for some people with little or no credit history. Doing this also saves you from paying a high application fee on credit card applications that charge you a high price to build or establish your credit.
FICO Score
Your FICO score is most likely why you receive one interest rate and your best friend receives another interest rate. Credit card companies use 3 numbers, known as your FICO score to determine whether or not to give you credit. And the rule is the higher your FICO score the lower the interest rate you will pay. The lower your FICO score the more interest you’ll pay. FICO scores range from a low of 300 to a high of 850.
If you are below 500 you are considered a huge financial risk and are placed into a sub-standard interest rate category.
Your score reflects a combination of things, such as whether you pay off your credit card balances each month, whether you pay other bills on time, how many cards you have, and what percentage of your credit card limit you use each month, etc.
How important is my FICO score?
Your FICO score really makes a big difference when applying for a mortgage. The reason is that mortgages are carried out over long periods of time (30 years for example) and that is where even a 1% or 2% difference in lending rates can add up to tens of thousands of dollars. We are easily talking about a cost difference of $30,000 to $70,000 and more over the life of that loan. It’s not just about your mortgage. Your FICO score plays a role in any car loan, or the interest rate on your credit card, or whether you deserve a boost in your credit card limit. It’s also used by insurance companies in setting premiums and landlords deciding if they want to rent to you. Even some employers check your credit record during the hiring process.
Should I Close My Unused Credit Card Accounts?
Consider this example: You have 6 credit cards total. Five of those cards have been active for 5 to 8 years. Your sixth card is a new card that you just received with 0% on balance transfers and purchases for 12 months.
You are excited upon receiving your new card, and feel that you should close the other five credit card accounts in your name. FICO-wise, this is not a good decision. When FICO computes your score, it now sees only a two-month credit history, rather than your 5 to 8 year history, and consequently, your FICO score will suffer.
You are better off leaving the other five cards open with a zero balance and placing them somewhere that you are not likely to access or use them.
Keeping those five other cards open also lowers your available credit ratio, which is very important from a creditor’s viewpoint. Suppose you do close the other 5 credit card accounts and only use your new card. If you reach the maximum credit limit on the new card, then your debt ratio is now 100%. Why? Your other accounts are now closed!
Furthermore, leaving unused accounts open is a good idea simply because credit card companies will often apply special offers and low or 0% interest rates to dormant accounts. Credit card companies want dormant accounts to be used, as it is cheaper for them to entice holders of dormant accounts to begin using them again, than it is for them to obtain new account holders.
Raising my FICO Score
The rewards of raising your FICO score directly impact your wallet: You will qualify for more loans and will be offered better interest rates. Here are some things you can do to raise your FICO score, which in turn, helps you lower your interest rates on loans (and more) and saves you money:
Correct blatant mistakes. Review your reports from all three credit bureaus for accuracy once a year as well as several months before applying for a loan. Report any inaccuracies to the credit bureaus so that they may be corrected or removed. Changing a mistake on your report takes time.
Pay your bills on time.
This makes up a whopping 35% of how your FICO score is calculated.
Reduce your credit card balances. A heavily weighted factor in your FICO score is how much money you owe on your credit cards relative to your total credit limit.
Raise your credit limit. A large portion of your credit score is determined by calculating how big your monthly bill is compared to the maximum amount of credit you can use. To make this debt-to-credit-limit ratio look even better, call up your credit card issuer and ask for the limit on your card to be increased. If you have been paying your bills on time, they will gladly do this for you.