Little Box on Credit Card Offers

We all have received credit card offers promising: You're Pre-Approved for a 5.99% or Pre-Approved for up to $10,000.pri

Well this big bold print is supposed to make us act just like Publisher's Clearing House announcing we could be a winner. We all know that isn't true, but we still send in hoping to win that million dollar prize. They do include a page on rules and possibility of winning, the "fine print"

Now credit card companies do the same and they have rules page with "fine print." Where do you find the rules page? Right on back of the application.

It is a small box broken down into segments. It describes the terms and conditions otherwise known as rules.

They all look the same. It discloses: Fees, Interest Rate, How long rate is good for, Default rate or Maximum Interest Rate, How interest is calculated.

This is a must read before applying for any credit card. "What the bold giveth, the fine print taketh away" Always remember that saying because it will save you money and trouble later.

The government regulates what must disclosed on each credit card application. Always turn over the application to see its' rules and terms.

Hope this helps.

Teddy.Danfield@debtstrength.com

Examining Credit Card Offers

It is important to examine any credit offer. I had one client bring in an offer which was pre-approved for a credit card. Now this person did not have good credit and they were attempting to re-establish their credit.

The offer was for a $1,000 credit limit with a competitive rate of 14.99%, not bad for someone with bad credit. The problem were the fees to start. My client was ready to apply for the credit card, but wanted me to review. I went over the disclosure part of the agreement.

This credit card had nearly $250 just in fees to get started. Now the customer did not have to come up with fees. The fees would be included in the new balance. Meaning once the application was processed she would owe $250 right away. For her to receive the credit card she indirectly would have to pay $250 just to have the ability to use the card.

This was not a good offer to help re-establish her credit.

I will go over a couple other tips to look out for when applying for credit cards. These tips can benefit someone with perfect credit if you just look at the interest rate.

Mortgage Refinancing

When someone goes to refinance any loan they need to look at costs associated with the loan. There is no such thing as a loan with no costs.

Most refinances puts the costs of the loan in the loan itself. For example let's say your home is worth $100,000. You want to borrow $85,000 to pay off your present mortgage and some credit cards. So the total amount being sent to creditors would be $85,000. However, the cost of the loan which is usually between 1% to 5% of borrowed amount.

When you go to the loan closing you will see the amount you have to pay back is higher than $85,000. As stated above your new loan balance will be $85,850 to $92,250. Possibly higher depending on the bank or mortgage company.

What are all the costs with a loan? Certain items can't be avoided like Title Insurance, Appraisal Fee and Recording Fees.

In my next couple posts I will go over each costs and what should be an average cost in different areas disclosed on your Good Faith Estimate.

Check back tomorrow for further details.

Other Credit Card Sites & Blogs

I'm sure this is not the only blog or site you come to for credit card advice. I visit other sites to see what others are saying or doing.

One thing that amazes me with some sites is they promote themselves as a site to help you get out debt then have ads to apply for credit cards. What is up with that?

You go to their site for information on how to eliminate debt and they are offering you a way to get more debt. I think this is terrible and one of the main reasons why you will never see any credit card offers on my web site.

As I stated in previous posts I am working on a book which will help you eliminate debt. It is taking a little longer because there is a lot to be said about getting out of debt. The book should be done by first week of March. It will be available at debtstrength.com.

In any economy getting out of debt is very important key to your success. I have never read a book or article that states to become financially successful you need to stay in debt.

In fact, most state the opposite is your key to success. Another topic I am interested in writing is a book about putting yourself in a position to retire by eliminating debt within 5 years of retirement.

This will be an excellent book for all of you Baby Boomers who don't believe they can retire due to amount of debt and low retirement accounts.

I do believe it is possible, but it take discipline on your part to eliminate as much debt before retirement. Carrying a large house, car and credit card payments is a great way to NOT retire. Need for a plan is essential. This book should be done in March.

Look forward to getting both books completed and out to you very soon.

Credit Report Errors

I want to thank all my RSS subscribers. I now have 184 people subscribed to my blog. In only one month I think that's great!! Let your friends know about this & forward to them.

Today's topic is one of my favorite topics regarding credit report errors. Whenever I did a debt seminar, credit report errors was the most asked or actually the one where I had a lot of examples.

I had one person state that he always has difficulty being approved for loans because he is a Jr. His dad has a lot on medical bills and they usually would end of on his. This is common when father & son have the same name. The best advice I could give in that case is to put some type of consumer statement if this seems to be a problem. It may not remove any incorrect information from your report, but at least you have something in your report regarding this error.

Another common error would be having accounts still show open even though you haven't used in years. This happens a lot with department store cards. Usually someone opened an account for some special promotion to save money. The customer then pays off balance, but the account stays open of years. Best thing for someone to do is to review their credit reports annually and if old accounts are actually closed.

I have had people review their credit reports and myself to see the number of old accounts no longer in use still open. Accounts you should look at closing would be department store accounts. They do not really help that much for anyone with established credit. They probably could be lowering your score.

The best action someone can do is to at least review all three credit reports annually. See if there are any errors and attempt to fix the errors. Do this by contacting credit card company and request to close the account or ask how the error happened.

Hope this helps

Tips to Improve Your Credit Score

Nowadays having a good score effects more than just loan approval.

When you go to rent an apartment your landlord will obtain a credit report on you and if you have a low credit score he will charge you more per month.

A future employer will also review your credit report. This may be a deciding factor if your hired because you could be competing against someone with the same qualifications with the only difference is your low credit score.

Let's take a look at how to improve your credit score.

First you have to know what your credit score is which can be obtained from any of the credit bureaus.

Second obtain your credit report and look for errors.

Third if you have been behind on bills make plans to get current. Contact your lender to see if they have any plans which will help you get current.

Fourth don't apply for any new credit cards if not needed. Remember inquiries can lower your credit score. Note: You can review your own credit report without any penalty

Fifth thing do is pay down your credit cards since higher balances can hurt your credit score

Sixth thing to do is look to consolidate all your credit card debt into an installment loan. Rate may be higher than some credit cards. Why should you do this? Well, credit card debt is viewed more negatively than the exact same balance with an installment loans.

I will go in more detail in my upcoming book on improving your credit score.

Hope this helps people out there.

Teddy Danfield

Top 10 Credit Score Mistakes

Here is a list of Top 10 Credit Score Mistakes people make.

1. Missing Payments
2. Closing All Unused Credit Cards
3. Credit Card "Surfing"
4. Not Knowing Rates & Fees
5. Not Valuing Credit Rating
6. Too Many Inquiries (Applying for A lot of Loans In 30 to 60 Days)
7. Not Contacting Lenders in Tough Economic Times
8. Increasing Balances to Credit Limit
9. Having Too Little Available Credit
10. Missing Payments On Utility Bills

Please send any other Top reasons I should have included.

Wrong Names in Credit Reports: Who's to Blame?

It is reported that over 70% of credit reports have errors. One common error is incorrect first or last name.

Your first name can be incorrect for several reasons. The most common is probably your fault. What is it? What are you doing?

Well, it is quite simple. Not going by your given name. Guys start going by less formal name. Instead of applying by given name of Theodore, start applying with Ted, Teddy or Theo. Ladies with name of Jennifer, start using Jenny, Jenni, or Jen or even Jenn with two ns'

All of theses can be considered aliases. Even worse someone with bad credit who goes by Teddy and same last name could end up on your report. This can take some time to correct if it occurs.

A more common mistake for men is being a Jr. or Sr. or even II or III. This can be bad for younger son or grandson due to fact older could have bad credit or just a lot of credit. This can make it difficult to get approved since you would have to go through your report and determine which loan is yours' and your dad's or granddad's.

LESSON: Always apply with formal name especially if your a Jr. or Sr. Make sure name is correct on application then on any loan forms. Men be kind to your child and don't make him a Jr. or Sr. or II or III. It may be nice and sentimental to name a child after someone. The problem occurs years later and can be quite a hassle for son and even dad.

Not Saving Only Spending

I just read an article in the Wall Street Journal regarding US savings rates. It showed how we used to save almost 8% annually.

Over the 1990s that amount declined down to 1%. Now through the 2000s it is -1%.

As we continue to spend more of our our money we earn and save less it is going to be very difficult on Baby Boomers looking to retire. If you are spending more than 100% of your take home pay now you will never be able to retire.

We, us need to get a handle on our spending and attempt to pay down our debts (mortgages, cars and credit cards).

When I worked in the finance field we assumed people would need about 70% to 80% of take home pay. I feel this amount will be too low for many people. Social Security only pays someone about $1,500 a month right now. Don't expect that amount to increase that much over time. On average it has increased about 1% to 3% a year.

My recommendation to everyone is pay down your debt and then start saving money in your work 401k plan or IRA or Roth IRA if you qualify.

In the future taxes will most likely to increase, but if you have eliminated most of your debt it probably won't effect your standard of living in retirement.

LESSON: Develop a plan to eliminate as much debt as possible over the next two to three years. Following a simple plan could eliminate a lot of your credit card debt

Credit Scores: What to do to Improve

With the current financial situation in the U.S. having a good credit score is worth more than gold. The reason is that it can allow someone access to much needed money when circumstances turn bad.

Obviously, most people say when I need credit I can't get it, but when I don't need it is when I can get it. Kind like the "Old Catch 22."

The best advice I can give someone right now is to check your credit reports and buy your credit score at myfico.com. At this time you want to make sure everything is correct on your report.

You definitely don't want to apply to refinance your home & find out some old medical bill you thought was covered by your insurance is now in collections. This one little blemish on your report could mean being approved or declined.

Before any purchase review your credit reports. I have had clients declined due to misinformation on their credit reports. The main item had to be medical collections damaging their credit scores.

In my book How to Beat Banks & Credit Cards at the Money Game, I go over in more detail.

Credit Card Companies Lower Limits

Just read an article where it stated that more and more credit card companies are either lowering credit limits or closing cards.

I mentioned in this is an earlier post regarding credit scores.

By closing credit cards it is hurting them in two ways. One, it the ability to have available credit when needed. The second, is that it can lower your credit score.

The reason it can lower your credit score is that part of the your score is tied to amount owed on credit cards. For instance if you had a credit limit of $10,000 with a balance of $3,000 this probably would help a score. Now if your limit was lowered to $4,000 it can hurt your score since you don't have as much available credit.

In my book I discuss this in more detail.

All major credit cards were starting to implement even without you the consumer aware they are closing or lowering your limits. They are supposed to notify you by mail within 30 days, but sometimes that doesn't happen. In addition, if you receive a letter you may not pay any attention to the letter.

Just attempting to make you aware of this change.

LESSON: Credit card companies are more in control of your card than you. At any point they can lower your limits even if you always paid on time.

Using Debt Stacking to Pay Down Bills

One of the best ways for someone to pay down bills is to use debt stacking. This will then lead to paying off your bills entirely.

I reviewed this in an earlier post, but I think it is good to continue further with this important tip.

Debt stacking will not give relief from someone barely able to make payments. In that situation someone should look at a bill consolidation loan.

Debt stacking is for someone making their payments plus paying extra each month on their bills. I have usually met with people who say they pay an extra $200 on their bills.

Most times the $200 would be spread out on several bills. Some people pay the extra $200 on the bill with largest balance since they really want to get rid of that $8,000 credit card.

However, if they reviewed all their bills and concentrated on the lower balance cards first it would actually free up money quicker.

Most people believe paying the minimum payment on a credit card with a $700 balance and a payment of $30 is the way to go. They decide to take all their extra money and pay it on the largest balance since it will have the highest interest charge.

However, in three for four months the $700 balance would be paid off and then they could pay $230 on the next balance.

What you want to do is continue to pay out the same amount each month, but only pay the minimum payment on the rest of your bills.

Most important tip is not use the credit cards if you are debt stacking. By continuing to use your bills will never get paid off.

LESSON: Concentrate on lower balance credit cards first before paying off larger balances.

Reviewing Your Credit Report

Yesterday we reviewed several reasons to review your credit report. I also noted where to obtain your free credit reports.

Another reason to review your reports is regarding closed accounts and how they were closed.

Let's say for example your were occasionally 30 days behind on a credit card bill. This has happened to many of us in today's economy. The important fact you have to remember is how your final payment is posted.

If you made your final payment to close out the account, but you were still 30 days behind on the bill it will still show 30 days late.

How is this possible? Well you did make your final payment, but the previous payment was late. So if you owe $200 on a credit card and you are 30 days behind on your minimum payment of say $50. Your best option is to pay something close to paying off credit card, say $175.

Then when you make your final payment of $25 plus interest you will at least close the account current.

This is huge when factoring your credit score since now the account is current versus be R2, which means 30 days behind.

LESSON: If your behind on credit card get current before making final payment on card or loan. This little fact can increase or decrease your credit score.

Importance of Reviewing Your Credit Report Annually

Everyone should review their credit reports annually. This means husband and wife, not just one spouse. The main reason both will not have same accounts on your credit reports.

I don't know how many times spouses are shocked about how different their reports are from each other. When taking a loan application I always would know when one spouse would ask, "do you have to pull both of our reports?"

This question was always a tip off that one of them had some credit card account that the other did not know about.

This is why both should review their credit report every year since sometimes mistakes are made.

Remember, humans are the people inputting information into your credit report. If that hit a number 3 instead of 5 you can become someone else.

If you do find an error contact the credit bureau with the wrong information. Another point to remember is that each credit bureau does its' own research independently. So one may show a credit card balance and the other two a zero balance.

Final tip is the only free place to get your credit report is annualcreditreport.com. The FTC approves of this site.

More information on credit reports in upcoming book.

LESSON: Review credit reports annually

Applying for Credit Cards

Let's take a look at applying for new credit cards. Since my past couple posts have received such a high hit rate. I think this must be of some interest.

A little saying I like regarding credit card applications.

"What the bold print giveth, the fine print taketh away."

Not sure who said it, but he had to be a genius.

We have have received these great credit card offers. 5.99% FOR BALANCE TRANSFERS AND NEW PURCHASES. This sounds like a pretty good offer.

What you must do is flip over the offer sheet and read the "FINE" print. There is a box on the back broken up into several different areas. The federal government requires this for every credit card application.

This sets the terms and conditions. Such as how long is this 5.99% in effect? What will the rate adjust to after introduction rate? What are the annual fees? How is interest rate calculated? (Average Daily Balance or Two Cycle Billing) Word to the wise always get Average Daily Balance NEVER Two Cycle Billing.

In my upcoming book I will have an example of credit card application.

What is the Grace Period for new purchases?

These are the type of questions that are answered on the back of the application.

LESSON: If you receive an application and the rate or terms seem too good to be true, beware of credit card. ALWAYS LOOK FOR FINE PRINT.

Hope this helps.

FICO & Department Stores

Another way to hurt your credit score is through department store credit cards. You know the ones that are offered at the cash register.

You have teenager Susie at the register ask, "Would you like to save 10% today on your purchase?" You look at your purchases of $150 and decide sure why not have $15. However, Susie just hurt your score by doing two things.

One, she did an hard hit or credit inquiry on your credit report. Two, you just opened a new credit line.

Now how much did this damage your score? The only honest answer is not sure. However, it did not help your credit score if you already have credit.

As you will learn there are times it does help to apply for store department store cards. Such as you are young with no credit. It can be an easy way to build up a credit report. More on that in another posting.

Getting back to Susie and your new credit card you should say "no thank you" 9 out of 10 times.

Meaning usually it does not help only can hurt. This fact has been stated by many other leading experts in regards to credit reports and credit scores.

LESSON: Don't apply for department store cards. Won't help you, but probably will hurt you in the long run.

FICO SCORES CONTINUED

Yesterday I was talking about what went into your credit score. We had payment history, length of credit history, amounts owed, new credit and types of credit in use.

Today, I want to discuss length of payment history. Obviously the longer your payment history the better your potential score. This assumes you have a good payment history. If you have been late in the past get current and stay current.

One mistake I have seen people make is closing all their credit cards after a bill consolidation loan and maybe leave one open line.

Conventional wisdom would be that since I no longer have all theses credit cards my score should go way up or least up.

Well that may be entirely true. Let's say you have major credit card not a store credit card for 8 or 9 years. You never missed a payment everything on time. However, this is one of the credit cards you decided to close after consolidating your bills.

Now the next newest credit card is only one year old. In effect you wiped away 8 years of good credit payment reporting. Now if you happen to miss a payment it hurts your score.

Let me use a school example:
You take a 100 question test and you miss one question your score is 99%, very good.
Next you take 10 question test and you miss one question your score is 90%, still good.
Next you take a 5 question test and you miss one question your score is now 80%, good.
Next test is 2 questions and you miss one question your score is now 50%, not good.

This is what can happen by closing all your credit cards when you consolidate all your bills into a home equity loan or even one credit card.

LESSON: Try to keep one old credit card even if terms not good. Still use it for something small and pay a little interest. This can help with keeping a longer payment history.

Please send any questions you may have regarding debt and I'll try to answer to my best ability.

FICO Scores

Yesterday I wrote regarding Experian may no longer allow people to buy their credit score.

Most people are clueless what a FICO score is or how it's calculated. If you walked down any street in America and asked "hey what's your FICO".

Most likely you'll get blank stares or if your in the wrong neighborhood probably punched since they'll think your cussing at them in some strange language.

But it is a very important question you need to at least have some knowledge of how it's calculated.

Now each company (TransUnion, Experian, and Equifax) has their own secret recipe kind of like Col. Sanders secret herbs and species.

However, we as consumers do know what is included. Let's take a look.

1. Payment History - How have you been paying. Have you made payment late before or always on time. Accounts for 35% of score
2. Amounts Owed - What do you owe on all your credit cards and other loans? If you are maxed out it effects your score. Accounts for 30% of score
3. Length of Credit History - How long is your credit history? Only new credit or do you have older open credit. Accounts for 15% of score
4. New Credit - How many new accounts have you recently opened? Accounts for 10% of score.
5. Types of Credit in Use - Two types of credit: Revolving (credit cards) or Fixed (Home, Car). The more revolving credit you have it can lower your score. Accounts for 10% of score.

As you can see there are a number of different variables and the reason why each credit bureau can have their own recipe.

In my upcoming book I will give tips on how to improve and what can lower your score. Sign my RSS feed to stay updated

LESSON: Learn your FICO score as soon as possible

Experian and Credit Scores

Just read that Experian is going to stop allowing people to buy their credit score (FICO) in February.

This is a huge announcement since before 2003 no one could even get their credit score. You only found out if you were approved or declined. Most banks and lenders never told you what your score was they would say you are A or B based on score.

Since three credit bureaus report your score and depending on your lender they can choose which one to use. Some you a combination and some only use one or two. If this is approved you, the customer, will limit your knowledge by 33%.

How would you like to receive 33% less pay?

Hopefully, Experian will change their minds, but don't hold your breath.

Another reason this is huge is that TransUnion or Equifax may decide to follow Experian's lead.

This was a tool I used when I worked with clients to attempt to get them approved. I would advise them to pull their report and score prior to buying anything significant such as a home or car.

If their score was just below B or A quality they could choose to wait until score would improve or apply anyway. Knowledge is power. If Experian or any of the other credit bureaus won't allow you to see your actual score it may cause you to pay more or not be approved.

LESSON: Make sure you can see your actual credit score

Credit cards continue to earn money

Just read that Visa earned $574 Million in last quarter of 2008. This compared to $424 Million in last quarter of 2007.

See even in tough times credit card companies are still earning money. Obviously people are still using their cards. They are also not paying much of their balance off each month.

I remember seeing a stat that only 38% of people paid their cards off each month. I'm sure that stat has decreased meaning more and more are carrying balances each month.

We need good solid advice on how to payoff these credit cards and keep more money in your pockets.

This is my goal in my upcoming book. Please subscribe to my blog so you can be informed when book is complete.

LESSON: Even in tough times credit card companies still earn a profit from YOU and ME.

Ways banks keep you in debt

Banks and credit cards always have special offers. Like transfer your balance and receive 1% for life of balance. OR All new purchases only 6.99%.

One of the things I've seen is most credit cards would like you to transfer most of your balances to one card. This gives several advantages.
1. If you miss payment they can increase your rate
2. More difficult to transfer a large $14,000 balance to another card
3. Can change terms after initial offer

What they also do is continue to increase your available credit. However, with the current credit environment some are starting to lower your available credit. This can hurt in several ways. One you now would have less purchasing power. More importantly it can hurt your credit score.

I will go in further detail in my upcoming book regarding banks and credit cards.

LESSON: Always read offers and make sure you fully understand how long initial rate lasts. Then make sure you find out what new terms will be if they are available.

Money Today

I'm sure everyone is reading in papers across US and even the world about foreclosed homes. This is a very dramatic situation for most families. Many are still working, but just can't keep up with bills this situation could have been prevented.

Some probably lost jobs and can't make the payment this situation is more difficult since losing a job usually isn't your fault.

Not being able to afford higher payment could have been prevented very easily. When I worked as a loan officer I lost quite a few loans to my competitors since they had a "lower rate" than my loan.

However, I knew most of these loans had an adjustable rate, but the customer did not care. They wanted the lowest possible payment and could care less how that happened. Well jump ahead three, four years later and now the rate is going higher than my rate. Now I can't do anything to help since they may be behind on a payment or have little or no equity.

A lot of these adjustable loans were interest only loans. Which means you are only paying interest and nothing on principal of the loan. So you borrowed $400,000 three years ago and you still owe at least $400,000, possibly more if you missed any payments.

This is not a good situation if you want to refinance your home since most banks will no longer do 100% financing. In fact the company I worked for now requires at least 90% equity and sometimes 80% before they will approve the loan.

This could have been prevented since the customer could have locked in a fixed rate which was usually only .5% to 1% higher than the adjustable rate. They also would have at least paid something on the principal.

With the current mortgage crisis it is easy to play arm chair quarterback and say "see banks screwed the customer" OR "see the customer was stupid and should have known what they were buying."

Personally I'm split probably about 60% of blame goes to bank or mortgage broker since they should have educated customer about ups and downs of loan. I came across quite a few "loan sharks" who would say anything to close loan and flat out lie.

However, customers were blinded by rate and payment. That's all they thought about.

Once again not all banks or mortgage brokers took advantage of people, but there were enough. Remember the Law of Large Numbers.

You do enough of any activity and eventually you'll get a certain outcome whether it is good or bad. Your children hang around bad kids and eventually they will become bad kids.

LESSON: Use the three day review of loan which government gives to look at loan documents. In future posting I'll go over which one's to look at. Only about 4 pages, the 50 you receive at loan closing.

Multiple Rates On Credit Cards Continued

I want to continue discussing multiple rates. This is an area I see mistakes made. One time I had a client have a 0% credit card, but she had to make at one purchase for $75 a month to continue rate.

Now she did have a balance originally of around $12,000 and paid down balance to around $7000. The only bad thing she had a balance of $900 from purchases which had a rate of 12.99%. She didn't think that was all that bad since she was paying any interest on the $7000 balance.

It did seem that she was getting ahead, but the thought I had was how many people are not that disciplined to follow this cards rules. She may have been 1 out 1000 who actually was getting ahead with these terms.

Having to make a purchase to keep rate and terms is bad thing. Since you have two things working against you.

1. Having to charge at least $75 a month

2. Missing a payment then getting a higher default rate. I have not discussed default rates yet, but we'll get to that later.

This just seems to be a card waiting for trouble for the consumer. A real good money maker for card since they at least earn interest on new purchases.

LESSON: Always read the fine print on credit cards. Know the rules or lose