Last August, The Motley Fool, one of the most entertaining personal finance and investing websites out there, published an article called the 8 Commandments of Credit that I feel every consumer should read. Some of the commandments are common sense, some of them may not apply, but an educated consumer has a duty to read and understand what these rules mean and ensure that they follow them. They address some of the tactic that credit card companies use to try to extract as much money as they can from unsuspecting consumers like you and I. In this series I will elaborate on some of these commandments and give my personal take.

Commandment I. A credit card is just that — a credit card

You shouldn’t approach a credit card and its associated line of credit as an obligation to spend that money; or even proof that you should or even can spend that money without consideration to how you’ll pay off the card. You should be looking at that credit card as a proxy of your own cash, you should treat it no differently as you would your own debit card (where you can only spend what you have in your account), because you don’t want to be carrying a balance.

If you need a short term loan of any kind, it’s usually better to investigate other options (unless you are able to get a 0% on purchases or even 0% on balance transfers) before succumbing to the usual rates of 18%.

Source: The Motley Fool

Bumpage is the practice of doing soft credit inquiries so often that the hard inquiries start falling off your credit report. When the hard inquiries start falling off the report, your score will increase because the number of inquiries that matter, the hard ones, will have decreased.

How this can be accomplished is by subscribing to daily credit history reports that will ping the credit unions for your report every single day. Eventually the soft inquiries push off the hard ones. This apparently only works with TransUnion and Equifax reports.

According to some experts, each hard inquiry will decrease your credit score by around 7 points for approximately six month. After six months they cost you less, after a year they apparently cost you nothing. A hard inquiry will naturally go away after two years.

This isn’t a myth created by the credit card industry to get you to keep your unused credit cards, canceling a credit card could potentially lower your credit score. Your credit score is calculated based on five factors and when you cancel a credit card, you will lower your score in several of these categories.

• Payment history
• Amount owed
• Length of credit history
• New credit
• Types of credit used

The major piece of the “Amount owed” category is something called credit utilization, that’s a calculation of how much of your available credit you’re currently using. When you cancel a credit card, your credit utilization will increase since your amount of available credit will decrease by the credit limit of that card.

As for “Length of credit history,” that’s simply an average of the ages of your credit cards. If you cancel your oldest card, your average will be lower and thus your risk will increase (you’ve had a shorter history of credit). This, of course, means that if your credit card is fairly new, canceling won’t negatively impact your score as much.

Now, there are non-credit score related benefits to canceling a credit card that could outweigh the immediate disadvantages of canceling that credit card. If you are no longer using that card and never will ever use it again, keeping it around serves no purpose and you run the risk of losing it or having someone steal it. If keeping it around at a $0 will only tempt you into spending with it because you’re not using it, that’s another reason to cancel the card. You have to weigh the benefits with the drawbacks and then make your decision, but from a credit score perspective, it is better to keep a card around.

Read more at Bankrate.

Yahoo Finance reported in a weekend edition article that credit card companies were turning towards creating flashier cards in order to entice consumers to use them. American Express is making some fancy card that “folds in half and pops out of a silver case attached to a key ring.” J.P. Morgan Chase will be offering a Battlestar Galactica themed card that features a “fiery red, outer-space-themed card.” You’ve also probably seen something MBNA did back in the day where they made cards that tapped into your allegiance to your college or your favorite sports team.

Don’t let the cool factor of your card sway your decision on what you should use, let the money do the talking. Get a solid boring looking cash back card that will pay you, not a stupid fancy looking card. No one will see you when you use your credit card, no one cares what your credit card looks like, and it still offers the same level of credit as any other card… get something with cash back.

This is another trick by credit cards to get you to use a card that may be sub-par, don’t let them trick you.

The hardest credit card to get will always be your first card since you will have no credit history for a creditor to review and base a decision on. They’ll strictly look at your current income and give you a limit that’s small enough so that you won’t bankrupt yourself too quickly, but a lot of creditors aren’t willing to do that when there are so many other fish in the sea. So, where should you turn for your first credit card?

If you’re a student, I recommend the Citi mtvU Platinum Select Visa Card because it was designed specifically for college students. Since it is designed for college students, students with little or no credit history are more likely to be approved for that credit card so it makes a great starter card for someone without any credit. Not only do you get your first credit card but it will give you 5% in points at places like the movies, bookstores, and restaurants - places most other cards don’t offer cash back incentives. You also get points for getting good grades and paying bills on time, hopefully things you’ll do anyway. If you’re a student, don’t skip this card.

If you’re not a student, try applying for the Citi Platinum Select Card, it’s nothing special but worth a try. If you are rejected, consider getting a credit card from a gas station or a department store. They’re usually more relaxed in their credit history reviews because they typically come with low credit limits and so they’re easier to get. Once you get one, start buying small amounts and paying them off to demonstrate responsibility.

Once you get that first card though, watch out! Before you know it you’ll have a mailbox stuffed full of credit card applications and preapprovals!

It’s the holiday season and it’s very easy for consumers to swipe a card than pull out cold hard cash when it comes time to check out at the register. Before you swipe though, think about whether or not you’ll be able to pay for this purchase by the time the balance is due. If you won’t be able to, don’t swipe it. Credit card interest rates, on average, are in the double digits. Use this calculator (Java required) from Dinkytown.net to figure out how much more in interest you’ll be paying if you charge those purchases and take your time in paying it off.

Now, if you know you can pay off the amount in six months (if not six, hopefully twelve), you can apply for a credit card currently offering a 0% balance transfer with no fee. By taking advantage of one of these credit card offers, you won’t have to pay any interest for twelve months - which hopefully will give you ample time to build up the funds to pay off your holiday spending spree.

Check your credit card agreement, if you see the words “universal default,” look out. Universal default clauses are those clauses built into your agreement where that credit card company can increase your interest rate if you are late on any payment to any other lender. Generally, “late” means you’re more than 30 days late (most credit card companies won’t report anything if you’re less than 30 days late because it’s not worth it) but miss one and now all of your credit cards will gang up on you and increase those rates. A recent Bankrate survey showed that “39 percent of credit card issuers said they apply the rule to customers, even if they had no late payments on their own card.”

Unfortunately, the universal default clause is ironclad and usually indisputable so you’ll just have to be careful not to miss your payments or they can get you. The best strategy to combat this (besides not carrying a balance if you can avoid it) is to review your credit card agreements and only put balances on those cards that don’t have a universal default clause.

Source: Bankrate