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 VIII. Teach your children well.

What a great way to end this series… this is something you should do in every aspect of your life, teach your children responsible credit use so that they won’t make the mistakes you and I probably did in our youth - over spending and living beyond our means. With the direction our society is going in terms of credit (less cash, more credit) it’ll be crucial for our children to know how to use credit cards responsibly.

Source: The Motley Fool

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 IV. Play the system.

They want you as a customer more than you need them as a creditor so use that to your advantage, ask for a lower interest rate or a fee taken off - they’ll most likely oblige because that fee (or that interest) is nothing in the long run. You make them money when you swipe (they charge the vendor a large chunk of fees) and you make them money when you carry a balance, so they want you to keep making them money - make them pay for that right to be the top card in your wallet or purse.

Source: The Motley Fool

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 III. Don’t pay by their rules.

Don’t ever just make the minimum payment, in fact, try to pay off the entire balance or as much as you can every single time you get a bill. The minimum payment, a paltry 2-5%, means you’ll pay an arm and a leg for that cup of coffee last week and you’ll be paying it in bits and pieces for the better part of forever. Would you go into a bank and try to get a loan at 18% for a cup of coffee? No. Would you ask your friend to borrow five bucks (yeah, coffee’s expensive these days) that you’d return tomorrow for a cup of coffee? Sure. And you wouldn’t pay your friend back a quarter at a time, would you?

Source: The Motley Fool

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 II. Ignore bankers’ rules on what is an “acceptable” level of debt.
Did you know that it’s “acceptable” for someone to carry 25% of their income in debt? That means if you make $30,000 a year after taxes, bankers believe it’s reasonable for you to be carrying $6,000 in debt! Six thousand dollars! They don’t give any consideration to what kind of debt that is, whether it’s a 6% mortgage or a 20% credit card balance. Do you consider that debt the same? A low interest tax-deductible mortgage or a high interest credit card balance, which is worse? Or better?

My take on this is that you should keep your level of debt as low as possible and certainly as little of the 20% credit card variety as you can. The more debt you incur, the more your life belongs to the credit cards and not yourself. If you buy a car and have a car payment, you’re working towards paying off something you use every day and something that is probably a requirement for you to function (cars, unfortunately, are like that). You work in part because you want to but also because you have to, you have that payment you need to make.

Now imagine you charged to a credit card a whole bunch of things that you no longer own or that you temporarily used or consumed, now you’re working for the past, working for the credit card companies, and not working for yourself. You’re not working because you need to pay off a mortgage or a car note, you’re working because you’re enslaved by the credit cards. Don’t let yourself fall into that trap and you’ll be much better off for it.

Source: The Motley Fool

If you have a Capital One credit card, then you’d probably be surprised to learn that your credit score was being penalized for it. That’s because Capital One didn’t report your total credit limit to the three credit bureaus, they only reported your credit balances. What this meant was that your percent utilization (30% of your score) was higher than what it really was and your total credit limit was lower than what it really was, resulting in a lower credit score. Before you say, heck, that doesn’t really matter does it? You should know that this one change can boost your score anywhere from forty to eight points, a significant point difference.

Increasing your credit score from 659 to 700 can cut your mortgage rate from 7.68% all the way down to 6.59% on a thirty year $300,000 mortgage. That difference will save you $221 a month and over $2600 in the first year.

So if you have a Capital One card, rejoice! If you don’t, you probably don’t care then.

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!