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Things You Should Know about Credit Cards
It’s one of the top common items most consumers carry in their wallets. Next to
a driver licenses and photos, you’ll find millions carry credit cards. This
method of payment is now more popular than paying by cash or check. As
convenient as they are to use, they can also become confusing when it comes to
making payments. Interest rates, minimum payments, and credit utilization are
just a few terms often associated with the use of credit cards. But how many
credit cards come with operating manuals? Here are some things you should
consider when using your credit cards including how credit cards can affect
your credit rating.
1. Closing credit card accounts may not necessarily raise your credit
score.
Closing credit card accounts can work both negatively or positively for your
score. It may hurt your credit score by increasing your balance-to-limit ratio.
however, it may improve your credit score by reducing the total number of open
accounts (lenders may see too many open accounts as the potential for consumers
to accumulate high debt). And keep in mind that accounts that are older show
your established history with credit, which can positively influence your
credit score if they are in good standing, so weigh your options before making
any decisions.
2. Creditor inquiries can lower your credit score; however, personal
inquiries will not.
Personal, or "soft" inquiries, such as checking your own credit report and
score, are not included by lenders when calculating your credit score. So when
you check your own report, you will not be lowering your score. Although "hard
inquires," such as those made by lenders checking your credit when you apply
for a credit card or loan, are included in your credit score calculation and
should be kept to a minimum. Lenders often view too many inquiries as negative.
3. Find the right card that matches your spending habits.
If you tend to carry a balance each month, you will want a card with a fixed
low interest rate. If you frequently buy valuable electronic or computer
equipment, cards that offer extra warranty protection may be of interest to
you. If you travel a lot, you will like offers with traveler’s insurance and
frequent flyer miles. Different cards offer different options, so make sure you
choose the one that suits you best.
4. Remove your name from credit-related marketing lists.
You have a right to request removal, or to "opt out," from marketing lists for
credit card companies, in accordance with privacy amendments to the Federal
Fair Credit Reporting Act, enforced by the Federal Trade Commission (FTC). You
can contact the credit bureaus and have them remove your name and address from
major credit bureau lists for unsolicited credit offers for two years or
indefinitely. If you wish for your name to be removed, complete and return an
"opt-out" form, provided on request from the credit bureau or call
1-888-5-OPTOUT.
5. Know the difference between charge cards and credit cards.
Charge cards require you to pay the balance in full each billing period, while
credit cards allow you to borrow money and repay it with interest. Charge cards
do not charge an interest rate and may help you spend less knowing you have to
pay the bill in full.
6. Credit and charge card transactions are protected by the Fair Credit
Billing Act.
The Fair Credit Billing Act (FCBA) provides cardholders the right to dispute
charges under certain circumstances and also limits cardholder liability in the
event of fraudulent transactions. Specifically, consumers are not liable for
any charges incurred after they’ve reported their card stolen. You may be
liable for a portion of charges that occur before they report the card missing,
typically about $50, as long as the cardholder reports the theft within a
reasonable period of time (24-48 hours).
7. Different lenders use different criteria when offering credit cards to
consumers.
You may find some lenders are willing to offer you a line of credit, while
others may not. In addition to reviewing the information on your credit report,
lenders will also apply their own selection requirements when deciding whether
or not to extend an individual a line of credit, as well as what interest rate
and other terms to extend to the applicant. It is up to the lender to determine
whether you are a good credit risk. If you are denied credit, keep in mind that
the lender must supply a copy of your credit report and explain why you were
declined.
8. Pay more than the minimum payments towards your balance each month.
Creditors make money from interest payments from their cardholders. When
creditors give you a minimum payment option, be aware of how long it will take
to payoff that debt if you only pay the minimum and how much extra interest
you’ll be paying over time. For example, if you owe $2,000 on a credit card,
and assuming there are no additional charges, it will take 52 payments of $50 a
month to pay it off. However, if you paid $100 a month, it will take
approximately 23 payments – less than half the payments if you were to pay only
half as much.
9. Secured cards vs. unsecured cards.
A secured card is a credit card backed by money that you deposit into a bank
account that is linked to the issuing credit card company. That account serves
as security for the card and are often offered to consumers who have poor
credit or limited credit history. Unsecured cards do not require a security
deposit. If you find yourself having trouble obtaining an unsecured credit
card, it’s often recommended that you apply for a secured credit card to help
build up a positive credit history before applying for unsecured cards again.
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