Category Archives: credit card marketing

What is a Credit Card?

Posted on May 9, 2012 by admin

Look inside anyone’s wallet today and you’ll probably find one or two credit cards. In fact, many working adults have at least one credit card in their name. Credit cards are rectangular plastic cards that serve a valuable purpose in today’s society. They come in handy when you’re short on cash; and if you want to build your credit history, getting your first credit card is a good start. But while many people use and benefit from credit, few people know what is a credit card. What is a Credit Card? Credit cards are an alternative to cash and are issued by financial institutions and banks. After submitting an application and being approved for credit, the bank or institution issues a credit line, which is basically an amount that you’re able to access. Credit cards are best compared to loans, but without the actual cash. Each credit card has a magnetic strip on the back that keeps track of your purchases. You can swipe your card at locations that accept credit cards to pay for purchases. Each swipe reduces your available credit and adds to your debt. For example, if your bank issues a $2,000 credit line and you charge $1,500 on the credit card, your available credit drops to $500. You then owe your credit card company $1,500 which you can pay off over time with small minimum payments — typically 2% to 3% of the balance. Credit Cards and Interest Rates Acquiring a line of credit with a bank or financial institution isn’t without costs. Several types of fees are associated with credit cards, and these fees vary depending on the credit card company and the type of credit card. Common fees include annual fees, maintenance fees and interest. Some credit cards feature 0% interest for a specified period. But on average, credit cards have interest rates as high as 20% or 30%. The amount paid in interest depends on your balance. The longer you carry a balance, the more money you pay in interest. But there are ways to avoid high interest charges. For example, you can pay off your credit card balance in full each month to avoid interest charges, or pay off the balance within two to three months to keep interest charges to a minimum. To alleviate high debt, you should view credit cards as a short-term loan and only use your account if you’re able to repay the debt fast. Types of Credit Cards There are two types of credit cards: secured credit cards and unsecured credit cards. Secured credit cards are issued by many banks and they’re perfect for establishing credit or rebuilding credit. These types of credit cards do not require a good credit history. However, you need a steady source of income and a savings account with the bank to qualify. You must also complete an application and pay a security deposit to acquire a secured credit card. Your credit line on the secured card matches your deposit. For example, if you make a $1,000 deposit on your account, you can expect a $1,000 credit line. Unsecured credit cards are similar to secured credit cards. However, these accounts do not require a deposit or collateral. For this reason, you need an excellent credit history to qualify for such credit cards. The bank or financial institution approves you for a credit line based on your credit score and monthly income. However, credit lines aren’t written in stone and banks can increase or decrease your credit line depending on your spending and payment habits. While the variety of credit cards can seem endless, what is a credit card is universal to each and every one whether it’s plain vanilla or has all the bells and whistles. But while many people use and benefit from credit, few people know what is a credit card. Continue reading →

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The Appeal of No Frills Credit Cards

Posted on April 29, 2012 by admin

Remember before the great recession when your mailbox was stuffed daily with offers for premium credit cards with all sorts of perks? Remember how if you were late paying you got charged a late fee and were subject to a universal credit card interest rate hike? Remember how those offers became less common until this year? Last quarter did you notice anything different about mail solicitations for credit cards? Well, starting in the last quarter of 2011 and continuing into this year, banks are pushing basic, no frills credit cards; sometimes called “plain vanilla” cards and they are proving very popular. During the recession, the basic credit cards that typically offer no rewards and have no annual fee were only a small market. Banks competed fiercely for folks with sterling credit ratings and offered them all kinds of incentives and rewards to join. According to a report issued by Mintel Comperemedia , the company tracks information to analyze the credit card industry, these no frill credit card offers surged to 30 percent of all mail credit card offers in the fourth quarter of 2012 compared to 13 percent for the same quarter in 2010. Andrew Davidson, a senior vice president at Mintel Compermedia said that the cards appealed mostly to folks who carry a balance, especially those who are member of Generation Y who are also known as the Millennial Generation. CUInsite , a credit union industry newsletter, the financial issues faced by the Millennial Generation are of concern.   Issue Percent of Generation Y Gen Y workers do not have enough in savings to cover two months’ worth of living expenses 70 Do not pay bills on time 40 Carry a balance of more than $10,000 on three or more credit cards 20   However, according to Davidson, these basic cards do have some advantages that were non-existent before. For instance, the Citi Bank Simplicity card does not charge late fees, Chase’s Sapphire Card allows users to pick some types of purchases to be paid in full each month while other, big-ticket items are paid off monthly – Chase markets this as “The Blueprint Plan.” Capitol One is taking a different tack, and is marketing to those who are trying to rebuild their credit. After five consecutive monthly on time payments they will raise your credit limit. The Millennial Generation is a generation that has been hit very hard by the Great Recession. Born of parents (Baby Boomers) who were accustomed to entitlement, this later generation is the first to lag behind their parents. They have the highest unemployment rate, even among those with a college degree and many have had to return home at least once to save money. The economy is slowly gaining traction and the Millennial Generation is starting to make an economic comeback too. This is why there is such great interest in these simple, no-frill credit cards. No annual fee, gentle or no penalties for paying late – these cards are worth exploring. Especially as the interest rates are as much as four percent lower than on a rewards card. Continue reading →

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Risk of Letting My 9th Grader Have a Credit Card

Posted on April 19, 2012 by admin

As a parent you might toy with the idea of allowing your 9th grader or high schooler to have a credit card. Teenagers under the age of 18 cannot apply for a credit card. Thus, you would have to cosign the credit card application or add your child as an authorized user on your account. There are definitely benefits to allowing your 9th grader to have a credit card. It takes credit to build credit, and if your child has a card in his name, this can jump start his credit history . He’ll have a credit score and an established credit history by the age of 18. With a credit history, he can apply for a car loan, a student loan and even rent an apartment on his own. While there are benefits to giving young teenager access to a credit card, there are also major risks. Loss or Theft of the Credit Card It’s important to set rules before giving your 9th grader a credit card. For example, you might prohibit your child from taking the card to school or showing the card to his friends. Regardless of whether your child is responsible, he can lose the credit card at school or leave the card at a friend’s house. One of his classmates or “so-called” friends can find or steal the card and run up the bill. Instant Gratification Putting a credit card in your 9th grader’s hands can give birth to some bad habits. Even if you give your child a monthly spending budget, the credit card lets him buy whatever he wants or whatever you allow. He may not work for these purchases, therefore, he may fail to grasp the value of a dollar. Granted, each child is different. However, easy access to credit and material possessions at a young age can give some teenagers a sense of entitlement. Huge Credit Card Bills Since teenagers under the age of 18 cannot apply for credit, they’re ultimately not responsible for charges incurred on their credit card. Your child may hold a card in his name. But at the end of the day, you are responsible for the account and any charges on the account. It doesn’t matter whether your child disobeyed and went over his spending limit. The credit card company wants its money and the company will hold you responsible for the balance until it’s paid off. Deciding the Best Time to Give a Teenager a Credit Card Some teenagers are more responsible than others, and the decision to give your 9th grader a credit card is a personal one. But before cosigning a credit application or adding your high schooler as an authorized user on one of your accounts, consider whether your child can handle credit. Questions to consider include: Can the child manage a savings account? How well does he manage his allowance? Is he a frivolous spender? Your answers to these questions can help you decide whether he’s ready for his own credit card. Continue reading →

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How Does Closing a Credit Card Account Affect Your Credit Score?

Posted on April 9, 2012 by admin

After discovering that your credit score is lower than you had hoped it was, your next move would probably be to see what you can do to raise your credit score to a more acceptable level. Because you heard somewhere that having too much credit is not a good thing, you decide to close a credit card. Unfortunately, closing a credit card account may do more damage than good. On the surface, this may sounds like a good idea, but the truth is that it can easily backfire on you and actually give you an even lower credit score . The reason for this is that your credit score is not just based on how much credit or debt you have. There are many factors that go into the calculation. Three important factors include how long you have had credit – the length of your credit history, whether or not you regularly make payments on time, and the percentage of credit that you actually are using. One thing that surprises a lot of people is that it usually is a good idea to keep your old credit cards open, and never close them. MyFICO , which is the official website of the three companies (EquiFax, Experian, and TransUnion) that established the FICO credit score, officially says that “we never recommend closing old or unused credit cards because this rarely helps your FICO score.” [i] Instead, they offer advice that is more apt to help you, but bringing your credit score to a more desirable level cannot be done overnight. One way that closing an old credit card account can hurt you is if it raises your credit card utilization percentage . This is usually understood as a debt-to-credit ratio. By closing a credit card that, for example, has a credit limit of $2,000 (with no balance owed), you will actually increase the amount of debt you have by $2,000, when compared to your credit amount. This action will increase the percentage of the amount of credit you are actually using – which will probably lower your credit score, instead of raising it. One thing that a potential lender will want to know about is how much debt you have currently. By closing a credit card and increasing your debt-to-credit ratio, this action may indicate to the potential lender that you are having difficulty handling your current debts – which may cause them to not give you any new credit. Even when you have credit cards that you have not used for a long time, it still is not recommended that you close those credit card accounts. The reason for this is that your credit report will show that you have been using credit for that length of time – which can actually help your credit score. Closing old credit cards will indicate to potential lenders that you do not have a long credit history, which may make them rethink giving you more. Raising your credit score cannot be accomplished overnight. Instead, MyFICO says, it is a process that takes time. They advise that the best way to raise your credit score is to do three things: pay your bills on time, pay off your debt (instead of just shuffling it between cards), and keep your balances low. Continue reading →

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How Many Credit Cards are Too Many? What it Means To Your Credit Score

Posted on April 3, 2012 by admin

Most folks know that there are credit agencies also known as credit bureaus that compile information that makes up your credit report. The three major bureaus are: Equifax Transunion Experian While these companies monitor your credit – how many accounts you have, whether you are current on them, if you ever had a judgment or bankruptcy and other information, they also compute your credit score, also known as your FICO score, based on the information they have about you. In fact, while the basics of what FICO uses to compute your credit score is only common wisdom – a guess, exactly how the information is used is a trade secret. The question about the number of credit cards and the effect on your credit score is unanswerable with certainty, only with assumptions. For more information on how your credit or FICO score is computed click here . Experts believe that as much as thirty-five percent of your credit score is comprised of your debt to available credit ratio. If you have credit cards with a total credit line of $15 thousand and you maxed out, it will have a negative effect on your credit score. However, if you have available credit of $30 thousand but only have $15,000 of credit card debt then this has a positive effect on your credit score. However, if you have $15 thousand in credit card debt and that is your limit so you quickly open three new accounts, each with a $5 thousand limit to improve your ratio, you suffer due to the newness of the accounts that you opened so close together – however, after a few months, your score will rise again. This chart is from FICO , as you can see, number of credit cards does seem to be a factor in calculating credit scores. It appears that the age of the account is also a factor. The older a credit card account is the better FICO likes it. Nevertheless, many people like to change credit cards where they carry a balance to cards that offer 0% introductory rates. These folks often change accounts, opening new accounts and closing old ones when they begin to charge interest and fees. Anecdotal evidence suggests that if they follow a timeline that is reasonable, opening and closing accounts a few accounts every six months or so there is no effect on their credit score. It appears that whether you carry five, 10 or 20 cards makes little difference to your FICO score. What does matter is how long you have had the credit, your payment record and your debt ratio. Debt to credit ratios of 50 percent or less seem to improve your score, higher ratios tend to lower your score. Anyone who claims they know the exact effect anything has on your FICO score is being untruthful. Financial experts at best, make educated guesses. Continue reading →

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Do You Know Today’s Credit Card Rules?

Posted on February 29, 2012 by admin

In 2009 Obama signed into law a new set of credit card rules that protect consumers from unfair and predatory practices undertaken by some credit card companies. While these changes took effect in 2010, many credit card holders don’t know or don’t understand the new rules.  Below is a list of some of the changes and a description of how they impact you. Interest Rate Increases: Credit card companies can only raise your interest rates on existing balances under certain circumstances, such as when a promotional period comes to an end or when you are late making payments. They can, however, raise rates on future balances as long as they give you 45 days’ notice. You have the right to opt out of changes like a rate increase or a new annual fee. If you opt out, you must close your account, but you have five years to pay off the balance. Payment Deadlines:   Credit card companies are required to provide a reasonable amount of time for you to pay your bill, giving you at least 21 days from when it was mailed. The deadline cannot be before 5 PM on the due date and companies cannot charge late fees if due dates fall on weekends or holidays. Credit for College Students: The new law forbids credit card companies from giving cards to young adults unless they show proof of income or if their card is co-signed by a parent. It also restricts certain marketing activities near college campuses. Paying Higher Interest Balances: Some customers carry different balances with different interest rates on one card. The standard industry practice was to apply any payment over the minimum amount to the lower interest balance, thus extending the time customers were paying the higher interest rate.  The new law demands that the credit card apply those payments to the higher rate balance. Double Cycle Billing: The regulations forbid the practice of charging interest on the previous month’s balance, a practice called double-cycle billing.  Without that restriction, credit card companies could charge you interest even if you paid off your balance in full. Universal Default:  Interest rates cannot be increased on existing balances for that reason and they can only be increased on future balances if the customer is notified 45 days in advance. Fee Restrictions:  Customers must specifically approve any transactions that go over their limit and agree to the resulting fees.  Late payment fees cannot exceed $25 unless the customer is late twice in a six-month period.  Fees for subprime credit cards cannot go over 25% of the card’s credit limit for the first year. Continue reading →

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Should You Get Your Kid a Credit Card?

Posted on February 7, 2012 by admin

Most parents want to leave their kids with a legacy of smart money decisions, and with a good start on their finances.  Teaching kids about money and preparing them to make the right choices is at the top on the list of parenting projects.  One common issue that comes up when deciding how to manage children’s financial lives is the decision of when to get your kid a credit card. Getting Kids a Credit Card Children are not legally permitted to sign contracts until the age of 18, so they are not technically permitted to have a card of their own until this time.  Despite this, many kid have cards at a young age and some cards are even specifically targeted towards teens.  These cards are typically provided by parents, who co-sign or assume responsibility for the debts of their children. There is some controversy in personal financial circles about whether getting credit cards for kids before they turn 18 is a good idea, leading a lot of parents to wonder what the right choice is.  The problem, of course, is that there are both pros and cons to giving your kids access to plastic during their youth. The Argument for Early Credit The biggest and best argument for getting children a credit card early is to help kids build their credit history.  Part of your FICO score (approximately 15 percent) is based on how long you have had credit and how long your credit history is.  A child who got a credit card when she was young is likely to have a higher credit score when starting out on her own than someone who gets her very first credit card for the fist time at age 18. Another argument for getting kids a credit card is, of course, helping kids to learn how to use the card responsibly.  Many teens are first exposed to credit in college when they might be enticed to get a card by gifts such as free t-shirts offered at booths on campus.  These teens with no experience using credit might quickly get in over their heads and find themselves with several cards and a lot of debt.  Credit card companies will often specifically target kids since they know kids who find themselves in this situation will simply turn to parents who will bail them out. If you give your kids credit at a younger age, on the other hand, you have more time to monitor how they use the cards and to discuss responsible buying habits.  A condition of the card might, for example, be that the kids pay it off every single month. The Argument Against Early Credit One argument is that it teaches children early on to rely on plastic instead of cash, making it more likely that they will get into debt trouble with credit later.  Another risk is that studies have shown that people tend to spend more with credit, since they don’t associate the spending with cash in the same way they do when they actually have to part with physical money.  A credit card could prime kids to a life of spending more than they otherwise would as they just whip out their credit cards. What Should You Do? Parents who want to make the right choice should weigh the arguments carefully and should consider their particular child’s level of responsibility. Those who want to give kids the other lessons that go along with responsible credit card use should typically wait until their children are able to foot the bill themselves without any help for mom and dad; otherwise, the lesson will simply be that credit allows you to avoid spending your money. Continue reading →

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