Credit Cards are Easy to Access

Credit cards are one of the most easily accessed lines of credit out there. Nearly everyone can qualify for a card in some form or fashion, and can apply simple rules to its use in order to get valuable points tacked on to their FICO scores each reporting period. Most card issuers will report your credit performance either monthly or quarterly (four times each year) to the major credit bureaus in the U.S. (Experian, Equifax and Trans Union) which are known as the Big Three. With excellent credit, there is no limit to the type of credit cards you can obtain, although it is best practice to stick with a couple of cards that are easy to manage. Those with mediocre credit can get traditional cards, too, but they may be assessed a higher annual percentage rate (APR) for the privilege. Folks with bad credit can usually not get a traditional card but they can easily obtain a prepaid credit card that works just as well for the purpose of building up a weak FICO score.

How it Works

Each month or quarter, the card issuer will indicate your payment history. This includes whether or not you paid on time by delivering the payment on or before the due date and as agreed (by paying the minimum amount due or any figure that is greater than the minimum payment amount). With each payment on your account that you make, you are adding valuable positive history and points to your FICO score. Other elements of your repayment behavior can raise your score (or lower it), so follow these general tips for maximizing your cards ability to elevate your credit score.

• Run a balance. Potential creditors want to not only see that you have credit in your credit file, but that you know how to use it. While you can usually save money by not running a balance each month, maintaining a balance of about 10% of the total amount of available credit is a time-proven method of adding points and proving that you can handle your finances.
• Never charge more than half of your available credit in one month. This shows potential creditors that even though the credit is available, you have enough self-control to avoid going overboard with your spending. This also affects your available credit to debt ratio, which is an important factor in determining your credit worthiness.

Easy to Obtain

A credit card for those who have not had a chance to establish credit (like students, for instance) can be either unsecured or secured (prepaid). The unsecured option when it comes to this type of card usually features an inflated rate of interest (annual percentage rate) and may have fees associated with it just to open the account. The limit on unsecured card for those with no credit history will be very sparse – usually less than $1,000. The secured card for folks with this type of situation is also known as a prepaid credit card. In order to qualify for this, you will need to place a deposit with the card issuer in the amount that you wish your credit line to be established. For example, if you want your credit line to be $1,000, you will need to deposit that amount into your account.

Using the Prepaid Credit Card to Build Your Credit History

From the moment that you get your prepaid credit card, you have an opportunity to begin building your financial future. The steps that you take right now can determine much about your ability to borrow money, rent an apartment or qualify for your dream job, or even take out a mortgage, eventually. Use your card wisely and you will add valuable points to your nonexistent credit score that will help you meet your financial goals. Some tips:

• Pay your balance due each month, or at least the minimum monthly payment. (Keep in mind that paying only the minimum amount due each month will cause you to pay more for your purchases because of the tacked-on interest charges).
• Avoid urges to overspend. Stay within the limit that has been set for your account, and avoid going over at all costs.
• Consider using your pre-paid card for regular expenses that you have that you would typically use cash for – like gasoline or food – and then pay off the balance each month in full. This makes it easy to stay within your boundaries when it comes to not overspending while giving you a convenient way to make purchases and track your expenses.

Low or Competitive Interest Rate

One of the most important (if not the single most important) features of the any credit card is its Annual Percentage Rate or APR. The APR will be used to calculate your interest charges on purchases that you make. Obviously, a lower interest rate is ideal because you will pay less for the money that is extended to you to make purchases. Look for a competitive APR on the card that you choose – but be careful to read over the terms and conditions of the card before accepting it. More often than not, a very low APR will revert to a higher rate after what is known as the introductory period; make sure that the APR you will be paying in the future is a number that you can deal with. Most cards, even those that initially charge you zero interest, will eventually end up charging an APR of less than 12% – but again, reading your terms and conditions is important because you don’t want to end up with getting charged 19.99% interest! (As a side note, also find out what happens if you send in a late payment; most companies will penalize you by tacking on a higher APR to your account). In short, when choosing the best card, think long term – not short term benefits.

Ability to Take Cash Advances

In emergencies, you might want to have a line of credit available via your credit card that will allow you the freedom to take a quick cash advance. Cash advances in general are a bad idea because they typically begin to accrue interest from the moment you withdraw the money from your account, and they also sometimes cost more in terms of interest than your set APR. In addition, you will be charged a fee for the cash advance that is usually a percentage of the total amount that was advanced. Still yet, many cardholders appreciate this option. If you are a consumer that has no cash reserve or other way to obtain emergency cash, then choose an option that will allow you to take a cash advance.

Payment Protection

Life is full of twists and turns – but if you select a credit card that has payment protection or disability insurance – then you don’t need to worry about how you’ll make your payments if you become ill or disabled. Look for this valuable protection when making a selection.

Rewards and Incentives

And last of all, if you are going to use a credit card, why not get rewarded for your efforts? Rewards, perks and rebate programs that are offered by these companies can vary from cash back to airline miles to discounts on purchases made with select vendors. Look for rewards that are meaningful to you when selecting the best card for your lifestyle.

Unsecured Bad Credit Cards
An unsecured card for bad credit is the most obvious choice for most folks who are looking to rebuild financially. Unsecured means it is issued based on creditworthiness. For this reason, there are very few companies that are willing to issue these types of accounts for those consumers who have truly bad credit. Those that do will usually charge a fee, typically called a “program” fee that is actually just a way to charge for absorbing the risk of doing business with you. These fees can be upwards of a hundred dollars – but these offers shouldn’t be overlooked as they can be wonderful opportunities to obtain a card that can help rebuild your credit.

Secured Bad Credit Cards
On the flip side is secured credit cards. Secured can also be interpreted as prepaid because you must pay a deposit that is equal to the amount of credit that you want extended to you. For example, if you want to have a $500 credit line, you will deposit $500. Your card will work like usual and you will make regular monthly payments just like you would with an unsecured account.

Managing Your Finances to Combat Bad Credit
Once you have opened your secured or unsecured accounts, the work of rebuilding your credit begins. You should plan on:

• Making your monthly payments on time, each and every month. Even one late payment can cause your credit score to decline even more. Always mail your payment at least ten days before the due date to allow time for it to travel through the mail and to be processed.
• Not exceeding the credit limit that has been established. Going over-the-limit is not only a quick way to make your credit score even worse, it is also very expensive. Most companies charge exorbitant fees if you exceed the amount of credit that is available. In addition, charging more than fifty percent of your available funds during one month can have a negative impact on your credit to debt ratio that is used to determine your score.
• Running a balance. Don’t pay your card off in full each month. Running a balance of one-third of your available limit shows that you are capable of managing your credit and your finances.

Practicing Self-Control

The availability of credit is often too much of a temptation for some folks – and they tend to overspend – and then are heartsick when their statement arrives in the mail at the end of the billing cycle. A good rule of thumb is to charge only those items that you can afford to pay for either in full once your statement arrives or within a period of two or three statements. Charging only those purchases that you can afford helps to build up your borrowing reputation and shows that you know how to manage credit by borrowing and paying back. As an added bonus, you won’t be racking up excessive debt that you may be paying on for years to come.

Don’t Max Out Your Credit Cards

Use only a small portion of your available credit in order to add valuable points to your credit score. Maxing out your available credit does not demonstrate responsible borrowing behavior. In the eyes of your potential lenders, maxing out your credit card often finds you challenged to repay. Stay below fifty percent of your available credit, but aim for being below thirty percent.

Avoid Multiple Cards

The more credit cards that you own, the more likely you are to overspend or indulge your love of shopping. Limit yourself to just a few cards at one time.

Consider Paying the Bulk of Your Balance Each Month

If you are following the rule of buying only what you can afford, you might consider paying off the bulk of your balance in full each month, leaving no more than one-third of your available credit limit as a balance due. Paying off the bulk of your balance each month shows that you are reliable and can be trusted to repay what you have borrowed. Always pay on time, each and every time that a payment is due. Carrying a balance will not harm your credit as long as you are making at least your minimum monthly payment on your credit card each month, and paying as much as you can on the balance above the minimum.

How Balance Transfers Work

When you do a balance transfer of your credit card debt, it involves taking the current balance that you owe one credit card company, and transferring it over to a new card. The most obvious advantage of taking a balance transfer is to save money by transferring a balance that is accruing higher interest to a card that is offering a lower interest rate, or APR. For instance, if your existing credit card has an interest rate of 12.99%, and you receive an offer to do a credit card balance transfer to a card that has an APR of just 3.99% or even a zero percent interest card, then you would definitely save on the interest that is tacked onto your account balance each month. You can transfer balances from more than one account onto a new credit card, and many of them will also let you transfer balances from department store cards as well. So, in a nutshell, that’s how you can save a significant amount of cash.

Other Advantages of Transferring Your Balances

Besides the potential savings that you can realize from doing a credit card balance transfer, you can also benefit from having all of your credit card debt transferred over to one card. This allows you to get a better picture of your overall debt and streamlines the monthly payment process because you would only be paying one lender each month.

Finding the Right Balance Transfer Offer

Wading through the sea of available credit card balance transfer offers can be a daunting experience because there are so many banks out there looking to lure consumers in. Many credit card balance transfer offers may look good at first glance, but the fine print may tell an altogether different story. Make sure that you read all the details about what you are being offered before you accept the card. You should look for a card that offers you the following benefits when you do a balance transfer:

• Low (optimally zero percent) APR. Make sure that the introductory rate that you are offered is valid for an extended period of time – at least a year. After that, know what the APR will revert to and make sure it is a rate that is more competitive than your existing card.
• No annual fee. You don’t want to negate the savings of doing a balance transfer by paying an annual fee. Many cards have no annual fee, while some may charge $250 or more right off the bat when you take out a card.
• Minimal or no fees for transferring the balance over to the new account.

Be sure to review more than one balance transfer offer before committing to a particular card. Stiff competition between credit card issuers means that even though one deal seems “sweet”, you may click around on the Web and find an even sweeter deal with another company.

Terms of the Offer

As appealing as a 0% APR balance transfer offer may seem on the surface, wise consumers will do a bit of investigating before signing on the dotted line and accepting the offer. Some offers may feature a zero percent APR for a very limited (usually around six months or so) period of time, while some may give you this great (free) rate for longer. For consumers looking to pay debt off fast, such as within the amount of time that the balance will be billed at zero percent, these offers are ideal. If you plan to take your time paying off the balance, then make certain that the APR that you will be charged after the initial “welcome” period is not higher than what you are already paying. You must also look at how much it will cost to transfer your balance from your existing credit cards to a new card when determining if a 0% APR balance transfer offer is for you. Most credit card companies will charge some type of fee for transferring the balance to your new card. Take this additional cost into consideration when making your decision. Also look at these possible pitfalls for the offer you are reviewing:

• Many people transfer a balance on a 0% APR credit card and then continue to make new purchases on either the old card or on the new card. This can lead to a never ending cycle of debt. If you transfer the balance over, don’t make any new card purchases until you have paid off the balance in full.

• Check to see if the introductory APR on the 0% balance transfer offer reverts over to a higher rate. Many card companies will revert the account over to what is known as the “cash advance rate” after so long if the balance that was transferred is not paid off within a particular timeframe. This is the same elevated rate that you are charged when you do a cash advance – and can be quite expensive.

• Find out before taking advantage of the offer if you are required to pay an annual fee. A high annual fee can make transferring your balance over less of a good idea if your savings go down the drain with it.

Zero Percent Interest is Not Forever

Keep in mind that credit card companies and banks only make money when you have to pay interest, so don’t ever be under the assumption that a zero percent credit card is going to last forever. But still yet, you want to take advantage of the zero percent APR for as long as possible, so review the terms and conditions of the credit card offer to see that you get a substantial amount of time at zero percent before you start paying interest. Also pay attention to the APR that you will be charged when the introductory period has ended, and if you will be charged interest on any balances that you choose to transfer to the new card. Note: there is one exception to the rule that zero percent interest is not forever. Many card companies will offer you a 0% APR indefinitely on purchases that are paid for within a certain period of time at the end of each billing cycle.

Annual Fees Are For Country Clubs

With so much competition out there, it is hard to believe that some credit card companies are still charging annual fees. But they are – and you don’t want to go with a credit card, even a 0% interest credit card, that is issued by a company that will charge you an annual fee. Annual fees can be several hundred dollars – which can definitely make the savings that you will see from not paying interest look like chump change. Simply put, there’s no need to go with a card that charges you just to carry it.

Perks

Getting rewarded for spending money is important when you are an avid credit card user, and going with a 0% percent credit card that rewards your patronage is a good idea. If you travel, look for a card that features a zero percent interest rate and also gives you airline miles that can be eventually redeemed for a free flight. If you use your credit card to pay monthly bills and then pay the balance off each month, look for a 0% percent credit card that offers cash back. There are always perks that are being offered by credit card companies to keep their cardholders happy and loyal.

What is a Balance Transfer?
A “balance transfer” is where one credit card company makes a payment on your behalf for a portion or the entire amount of another credit card. Typically this is done to take built-up debt from a higher-interest card and put it on a lower, or zero interest card. This can be done either directly when the application is made (via electronic transfer) or it can be done through cash checks sent with your welcome package that you can use to pay your other credit card bills with. In order to provide the service, many credit card companies charge a balance transfer fee. Typical terms are a percentage of the loan with a minimum and maximum amount. Sometimes, though, the credit card company will waive the fee if the balance transfer is done within a specific time frame.

Limitations
Balance transfers are often limited to a maximum number of transfers. Also, many times the balances have to be posted within a time frame of opening the account. A typical time frame is 90 or 180 days. Finally, many banks will not transfer balances between their own accounts. For instance, American Express will not allow you to balance transfer one American Express balance onto a new American Express account, even if the accounts are held by two different people.

Questions
During the last decade, a lot of people got tripped up on credit card debt because they didn’t ask the relevant questions before hand. Cardholders should ask plenty of questions. For instance, what happens if the credit card balance ends up lower than the amount requested for a balance transfer? Some cards will decline the balance all together while others will lower the balance transfer request. Also ask about what qualifies as a late payment and what happens to the balance. Knowing these rules can help you save on your balance and pay off the debt a little bit quicker.

APRs can come in different amounts that are usually based on your annual income, as well as your credit rating. If you make a lot of money every year then you will probably receive a very low APR, but if you are making a nominal amount of money annually then your APR will most likely be higher due to possible risks. These risks are associated with the fact that most banks, credit card companies and private financial firms feel that if you do not make a lot of money annually, they will have a hard time receiving their monthly payments. This is why they give you a high APR; so they do not have the risk of a large loss at the end of their company’s fiscal year.

This is why many people who fall into the range of middle class and below have found themselves facing a problem with their debt to income ratio, which could possibly ruin their credit rating if they do not handle the situation with care. For this reason, you should discuss your annual income with an expert in the credit field such as a financial adviser or even a bank officer. You need to make sure that you can actually afford the APR being offered to you and still be able to manage your monthly budget accordingly. You will also want to make sure that you don’t overspend and make large purchases that you cannot afford to pay back within a timely manner.

When the economy is not in the best condition a lot of banks, credit card companies and financial firms lower their required APRs; but do not be fooled, they will still make their money one way or another. So shop with an open mind and make sure to compare. Check with different companies and see which one can offer you the lowest APR and which companies offer better prices. If you are being forced into a high APR, then don’t deal with them, just leave. If you know about some companies which have the time to educate you on the APR and what it will mean for your financial future, though, you could always try them.

When it seems like you are being handed free money through credit cards and private loans it can be a challenge to maintain your composure, so just be careful and educate yourself. You can find out about APRs and what they represent online, through a local library and of course through your financial institutions. But make sure that you understand what is being explained to you; then you will find that APRs are just a component of the financial world and can be harmless if utilized properly.