Credit Secrets & Tips

1. Use them carefully 

Credit cards offer great benefits, especially the ability to buy now and pay later. But you’ve got to keep the debt levels manageable. If you don’t, the costs in terms of fees and interest, or the damage to your credit record, could be significant.

2. Choose them carefully

Don’t choose a credit card just to get freebies (T-shirts or sports items) or because there’s no annual fee. Look for a card that’s best for your borrowing habits.

Example: If you expect to carry a balance on your card from month to month, which means you’ll be charged interest, it’s more important to look for a card with a low interest rate or a generous “grace period” (more time before your payments are due).

3. Pay as much as you can to avoid or minimize interest charges.

If possible, pay your bill in full each month. Remember, paying only the minimum due each month means you’ll be paying a lot of  interest for many years, and those costs could far exceed the amount of your original purchase.

4. Always pay your bill on time

You’ll avoid a late fee of about $29 or more. But more importantly, continued late payments on your credit card may be reported to the major credit bureaus as a sign that you have problems handling your finances.

And if your credit rating gets downgraded, your card company could raise the interest rate on your credit card, reduce your credit limit (the maximum amount you can borrow) or even cancel your card.

Late payment on your credit card also can be a mark against you the next time you apply for an apartment or a job.

5. Protect your credit card numbers from thieves

Never provide your credit card numbers – both the account numbers and expiration date on the front and the security code on the back – in response to an unsolicited phone call, e-mail or other communication you didn’t originate.

When using your credit card online make sure you’re dealing with a legitimate Web site and that your information will be encrypted (scrambled for security purposes) during transmission.  Click here for more tips about how to protect yourself when you shop online.

Major credit card companies also are offering more protection by providing “zero-liability” programs that protect consumers from the unauthorized use of their card.

In general, only give your credit card or card numbers to reputable merchants or other organizations purchase.

Consider carefully before taking out a home equity loan.  Although This type of loan might let you take tax deductions you could not take with other types of loans, they can
reduce the equity that you built up in your house.  And if you are unable to make payment promptly, you could lose your house!
 
Home equity loans can either be a revolving line of credit or a one-time, closed-end loan.   Revolving credit let you choose when and how often to borrow against the equity in your home.  In closed-end loan, you receive a lump sum for a particular purpose, such as remodeling or education tuition.
 
Apply for a home equity loan through a bank first.  Bank loans are likely to cost less than the loans offered by finance companies.
 
When comparing loan offers, read all materials and ask following 7 specific
questions before you sign up:
 
 1. What is the minimum monthly payment?
 
 2. What is the annual percentage rage (APR)?
 
 3. If the interest rate is adjustable, how much can it increase at one time?
 
 4 What is the maximum interest rate?
 
 5. What are the annual and transaction fees?
 
 6. If the loan is for revolving credit, how large a credit line is available?
 
 7. What are the initiation fees for a closed end loan?

If you’re turned down for a credit card, the very first thing you need to do is to ask why. It may be that you haven’t been at your current address or job long enough. Or that your income doesn’t meet the issuer’s criteria or any other reason that you may not know.

Different credit card companies have different standards. But if you are turned down by several companies, it may indicate that you are not ready for a credit card and need to do something about it.

If you’ve been denied credit because of information supplied by a credit bureau, federal law requires the creditor to give you the name, address and telephone number of the bureau that supplied the information.

If you contact that credit bureau within 60 days of receiving the denial, you are entitled to a free copy of your report. If your file contains accurate negative information, only time and good credit habits will restore your credit-worthiness.

If you find an error in your report, you are entitled to have it investigated by the credit bureau and corrected at no charge.  You should dispute any inaccuracy in your report with the credit bureau and also with the company that furnished the information
to the credit bureau.

The lenders often look for 4 basic things when you apply for the credit:

1.  Good payment record

If you pay your bills on time, you’ll score major points with lenders.

If you have a lot of late payments, this can hurt your chances of getting a card, and, if the lender decides to issue you a card, it’s probably going to have a higher interest rate.

2.  Signs of stability, responsibility

Lenders perceive things such longevity in your home and job (at least two years) as signs of stability. Having a respected profession doesn’t hurt either.
 
3.  Control of debt load

Lenders generally want to see that you are a good credit risk and that you aren’t living beyond your means.

Experts say non-mortgage credit payments each month should not exceed more than 20 or 25 percent of your take-home pay.

4. Reduce credit inquiries

Whenever you apply for a credit card, the lender will pull your credit report from one or more of the major bureaus as part of the approval process.

Each time a report is pulled, it’s marked as an inquiry and stays on your credit bureau report for two years.

Lenders perceive several inquiries on your report as indications that you’re scrambling for loans and may consider you a poor credit risk.

Bt following above 4 points, your chance to get approved for the credit is much improved.

“Cash Advance” loan, often called “payday loan” comes with extremely high price.
Here is how it works: let’s say you wrote a $330 personal check to borrow $300 up to 14 days. The lender would agree to hold check until next payday. 

In this example, the cost of initial loan is $30 and interest rate for 14 days is 10% (=30/300), So APR is 260.7% (=10% * 365/14)!

Now multiply 260.7% by the $300 loan, 2.607 * 330 = $860.31.  That is total interest charges you pay for in one year. If you add this charge to the original loan amount $330:
$330 + 860.31 = 1190.31.  That is way TOO MUCH!

If you find yourself need extra cash from the lender, consider these possibilities as alternatives to the payday loan:

1.  When you need credit, shop carefully.

2.  Compare the APR and finance charge (which includes loan fee, interest and
other types of credit cost) of credit offer to get the lowest cost.

3.  Ask your creditor for more time to pay your bills. 

4.  Make a realistic budget, and figure your monthly and daily expenditures.

5.  Find out if you have, or can get, overdraft protection on your checking account. 

6.  Contact with your local credit counseling service, if you need help working out
a debt repayment plan with creditor. 

If you cannot avoid taking out a payday loan, borrow only as much as you can afford
to pay back. Payday loan roll-overs can lead to a vicious cycle unending debt. 
It could turn your temporary setback into major financial crisis.