Black Friday’s Retail Store Credit Card Scam

November 20th, 2011

With Black Friday just five days away, I’d like to take this opportunity to remind you to steer clear of retail store credit cards.

Of course, more than a few of the stores you visit on Friday will try to lure you in with big promises …

“You’ll save 10 percent on today’s purchase by applying for a retail store credit card,” they will tell you.

Just about every major clothing and electronics store has promotion aimed at getting people to sign up for a store-specific credit card.

But retail store credit cards will hurt your wallet and your credit score. Avoid them at all cost!

Here’s just one downside to consider: Many stores promote their store-specific credit cards by offering a 10 or 15 percent discount on same-day purchases if you open an account.

Let’s do the math and see how this adds up …

Imagine that you are buying a pair of $60 jeans from the Gap when the cashier tells you that you will get 10 percent off your entire purchase—$6—if you open a Gap credit card.

You figure it is a wise move, so you sign up on the spot. After all, you’ll save $6, or so you think.

But consider all the different ways you might end up spending MORE money:

- If you do not pay this and subsequent bills immediately, you will have to pay interest

- Especially during the holidays, you will be more likely to make purchases you cannot afford.

I should take advantage of this offer, you might think, piling a few more items in your shopping cart and justifying the excess purchases because you are buying gifts.

But you are probably not staying within your budget, so that $6 you “saved” will cause you to make a rash decision to blow your holiday shopping budget.

- You have added a credit inquiry to your credit report. Credit inquiries count for 10 percent of your credit score, so your score drops a few points.

This might not be a big deal, unless you plan to open another credit card, apply for a home loan, or get a car loan in the next few months.

If you do, you might pay higher interest rates, which means that $6 “savings” just cost you a bundle.

- Ever heard of retail therapy? Having credit cards in your wallet strengthens your ability to make emotional buying decisions by creating opportunities for you to charge things you do not need.

My point is that you most certainly do not save a single dollar by opening retail store credit cards.

Still not convinced? Think of it this way: Why would retail stores promote these cards with discounts unless they know they can eventually make money off the retail store credit cards?

There are other reasons retail store credit cards are a bad idea. Click here to read about the impact retail store credit cards have on your credit score.

Tags: credit cards, personal finance

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The Truth About Closing Credit Card Accounts

March 1st, 2011

When you’re in over your head or you’ve had a bad experience with something, your natural reaction is pretty much always going to be to steer clear of the cause for some time. With credit, this typically means cutting up credit cards and closing credit accounts. Unfortunately, when it comes to your credit score, this is one of the worst knee-jerk reactions you can have. On the surface, getting rid of your accounts makes a lot of sense. You’re having debt issues, so get rid of the source of the problem and your credit problems will start to disappear. The little known fact is that this can actually make your credit issues even worse.

Let’s look at this a little closer. Fifteen percent of your credit score is derived from the age of your credit cards, with older credit accounts giving you a better score. This part of your credit score is based on the average age of your accounts. As a result, every time you terminate older accounts, you drive down the average age of your accounts considerably and risk decreasing your credit score.

Another factor to consider is your recent credit history. The credit bureaus base their evaluation of your credit worthiness on your account activity. If you close your accounts, there’s no activity for them to evaluate. This can result in a lowered score because they have no current data to determine whether you are a responsible borrower.

In addition to your account activity and age of your credit cards, your credit score is also affected by your overall utilization rate. Your utilization rate is your percentage of debt compared to your credit limit. Credit bureaus reward consumers who keep their utilization rate below 30 percent. If you close an account, there’s a good chance your rate will go up and can directly affect your credit score.

If you are having issues with paying a card, some options you might want to consider include transferring some of the debt evenly across other cards so you keep your utilization rates below 30% on all cards. If you’re not able to do that, start reducing your debt and making your way to the 30% utilization rate by making regular monthly payments. A steady history of payments will demonstrate to credit-scoring bureaus your ability to manage your accounts and will eventually improve your credit score. You’ll want to pay special attention to the oldest accounts with the highest limits and lowest interest rates.

For more information about your credit score, download our free ebook, 10 Biggest Credit Mistakes.

Tags: credit cards, credit scoring myths

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Build Credit: Debunking the Lower Credit Limits Myth

February 23rd, 2011

Credit Cards Similar to the belief that no credit equals good credit, having lower limits can actually be extremely harmful to your credit score. To understand how this works you need to understand utilization rates, or what we call the 30% rule. Credit bureaus look to see that you are maintaining less than 30% of your credit limit at all times. If you go over the 30% marker, you are considered to be living above your means and this will be reflected in your credit score.

The problem with lower limit credit cards is that it is far too easy to go over the 30% rule. If you only have a $250 credit limit, you can never have a balance of over $75 without creating a negative reaction to your credit score. In addition, many credit card companies report your credit limit lower erroneously. Meaning you may be right under $75 each month, but your credit limit is being reported at $200 instead, putting you over the 30% limit.

In some cases, when you’re rebuilding your credit you may have to work with these lower balances. This will take careful planning to avoid any issues with errors. However, if you have higher balances, you do not want to ask for your rates to be lowered. You can never have “too much available credit.”

The best way to make sure you don’t go over the 30% rule is to use auto payments. You’ll want to schedule a monthly payment for a bill such as a gym membership or other monthly payment you need to make to be taken directly from your credit card. Then, from your bank account, schedule another auto payment to pay the credit card for the same amount.

This may sound like taking a few extra steps, but it keeps your accounts active and you can control exactly what spending is happening on your cards so you don’t go over the 30% limit.

To learn all all the facts on your credit score, get the book that will walk you through the 7 steps to a 720 credit score.

Tags: credit cards, credit score, credit scoring myths

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Bad Credit: Improving Your Credit Score Through Secured Credit Cards

February 18th, 2011

Secured Credit Card For many people who’ve experienced financial issue getting credit in order to build your credit back up can become a huge issue. If you’re in this situation, don’t worry, there are still a few good options for you. One of these options that we recommend for fixing your bad credit is opening up secured credit card accounts.

What exactly is a secured credit card? A secured credit card is just like a regular credit card, but with one major difference. Your credit limit is secured with a cash deposit that the company will use if you default on your payments. It is important to understand that having a secured credit card does not mean you don’t have to pay your bill every month. These are not pre-paid debit cards where you spend the money that is in the account. They act exactly like regular credit cards where you are charged interest on your balance and late fees if you don’t make your payments every month!

Now, this might seem like a bad deal to the consumer, however, in order to help you build a good credit score your debtor needs to make sure they are covered in case history repeats itself. Here’s a look at exactly how they work:

You choose a credit limit and make a deposit to secure that credit limit.
The credit card company will issue you a credit card with that pre-set credit limit.
You make purchases and payments just like you would with a regular card.
After you have built a good credit history, you can request that card be converted to an unsecured card and to have your deposit refunded.

Also, if you decide that you do not wish to have that credit card anymore and close the account, the card company will refund your deposit, after any balance owing has been paid of course.

Why should you get a secured card?

There are two main reasons: First, if you don’t qualify for an unsecured card, they are fantastic ways to build your credit score… as long as you get the right card. The second reason you should get a secured credit card is that there are a lot of businesses that will not let you use their services if you do not have a credit card. Most car rental companies, for example, will not rent a car to you if you do not have a major credit card. For them, the fact that you have a credit card means that you are less of a risk when it comes to letting you loose in their car.

A few words about using your card…

There’s more to credit than just having a credit card. In fact, in order to build your credit, you will need to have between three and five credit cards. You’ll also need to make sure your balance never goes over 30% of your credit limit, even if you pay off the entire balance every month. Using just 30% of your credit limit shows the banks that you are responsible with your credit and are able to live within your means.

If secured credit cards are your best option financially, here are three that we recommend to help you build your credit fast:

PUBLIC SAVINGS BANK SECURED VISA CARD

Builds credit history – reports to all 3 major credit bureaus
0% APR on all purchases for the first 6 months
No annual fees or monthly maintenance fees
No credit check
No checking account required
Your credit is not a factor!
Choose your initial credit limit from $300-$2000
Lifetime credit lines up to $5,000
Free fraud protection against unauthorized use
Use the card everywhere you see the Visa logo

Apply Now!

ORCHARD BANK SECURED VISA CARD

Reports to 3 major credit bureaus monthly providing you the opportunity to rebuild your credit score!
Acceptance at millions of locations worldwide, including website purchases and reservations
Your account information is updated and at your fingertips 24/7 so you can manage it your way
Email and text messages to remind you of your upcoming payment due date with online enrollment
On-call customer service representatives to assist you with questions or concerns

Apply Now!

ORCHARD BANK SECURED MASTERCARD

An excellent credit card for rebuilding credit scores; reports to 3 major credit bureaus monthly!
Acceptance at millions of locations worldwide, including website purchases and reservations
Your account information is updated and at your fingertips 24/7 so you can manage it your way
Email and text messages to remind you of your upcoming payment due date with online enrollment
On-call customer service representatives to assist you with questions or concerns

Apply Now!

Tags: bad credit, build credit, credit cards, secured credit cards

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Build Credit: The 30% Rule – Making Sense of Utilization Rates

February 16th, 2011

What do you think is better? Having only one credit card that is near it’s credit limit that you pay in full each month or three to five credit cards with low balances that you pay off each month? If you picked the first option, you might be surprised to find out how harmful having a high credit balance actually is to your credit score.

Why would you want MORE credit cards with lower limits?

The proportion of debt that you carry on credit card to your credit limit is called a “utilization rate.” Credit bureaus look at this ratio as a factor in determining your credit score. The lower your utilization rate, the better your score. An ideal utilization rate is anything below 30%. We call this the 30% rule. That means that you only want to have credit balances that make up less than 30% of your actual credit limit. For example if your credit limit is $1000, your credit balance should never exceed $300.

What about if you pay your bills on time each month?

Credit bureaus are looking to see if you live within your means and use this 30% rule as measurement. Paying your bills on time shows you’re responsible for your debt, however it doesn’t reflect your lifestyle choices as well as the 30% rule does. That means you should NEVER let your balance exceed the 30% marker.

What about if you don’t have a preset limit?

In some cases, such as with American Express, you may not have a spending limit. In these situations the credit bureau will take the highest balance you ever had on your credit card use that amount as your default balance. If you’re highest balance was $8,000 that would mean your balance should never exceed $2400.

What should you do if you currently exceed the 30% rule?

The first option is to pay off any debt until your balance is under 30% of your credit limit. If this is not an option for you, you can transfer your debts between cards to keep them under 30%. In addition, you can try asking your credit card company for an increased balance. Just make sure to check they are reporting the new credit balance on your credit report or you may find yourself over the 30% limit.
Lastly, if you have less than 5 credit cards, you can try opening a new credit card to help move the balances around.

Final Words
Maintaining the proper credit balance is one of the most important factors in improving your credit score. To get more information on what other factors are considered, download our free eBook: 10 Biggest Credit Mistakes to Avoid.

Tags: build credit, credit cards, credit score

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