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Credit Cards - Did you know?
Credit Cards - The Good Part • Credit cards aren’t bad—credit-card debt is usually bad. • Can carry instead of cash. • Helps track spending. • Can help establish credit. • Covers emergencies. • Can sometimes get monetary benefits—miles on an airline or a yearly cash-back bonus. Credit Cards - The Hard Part • Up to you to use them wisely. • Easy to live beyond your means. • Dangerous when used to supplement your income. • High interest rates and fees. • Can end up ruining your credit rating which will cost you more. How Many Credit Cards Should You Have? • Most Americans carry between 5 & 10 credit cards, some up to 50 – which could wreak havoc on your credit score. • Most experts say there’s no single magic number. • It depends on how much you spend and how much you can pay off. • The more cards you have the bigger the risk for racking up debt and damaging your credit. • Don’t believe the myth that the more credit cards you have, the better. Which Credit Cards Should I Carry? • Some consumer advocates and debt advisors recommend you own two to six credit cards. • Use Visa, MasterCard, American Express or Discover, because virtually all merchants will take any one of them. • Have a card that has a low interest rate to use for ‘real’ emergencies. • It’s a good idea for your other credit card to provide reward points, air miles or something that gives you something back. This card doesn’t have to have a low rate if you pay it off every month. Some Important Do’s and Don’ts • Keep your debt ratio low, creditors don’t like to see a card almost maxed out; you look like someone who is using too much credit and has trouble managing debt. • Keep your debt ratio under 50%. If your credit card has a $5,000 limit, don’t carry a balance of more than $2,500. • Make payments on time. One or two late fees can bring down your credit score and increase the rates on your other credit cards. • Do not run up your credit, keeping your balances less than 30% of your credit limit on each card. • Do not close too many cards at once. It will cause your debt-to-credit ratio to fall. • Don’t close your oldest accounts even if you find a better card. • Keeping up with payments will build a better credit rating than opening a lot of credit card accounts. More Credit Card Tips
Source: Money – November 2006 * The annual percentage rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate. Example: 30-year fixed 8% 1 point 8.107% APR The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan. The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees. If life were easy, all you would have to do is compare APRs from the lenders/brokers you are working with, then pick the easiest one and you would have the right loan. Right? Wrong! Unfortunately, different lenders calculate APRs differently! So a loan with a lower APR is not necessarily a better rate. The best way to compare loans in the author's opinion is to ask lenders to provide you with a good-faith estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. Then delete all fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees. The reason why APRs are confusing is because the rules to compute APR are not clearly defined. What fees are included in the APR? The following fees ARE generally included in the APR:
The following fees are normally NOT included in the APR:
Know Your Credit History and Score
When making an inquiry include the following information with your request:
Know Your Credit History and Score • Your credit score is a formulated figure that largely determines your eligibility for credit and the quality (rate and terms) of credit you are offered. • Credit score factors include: Payment history, amounts and types of outstanding debt, length of credit history, recent credit sought/gained and types of credit in use. Know Your Credit History and Score • FICO scores range from 300 to 850. • The higher the score, the lower the predicted credit risk for lenders. • The better your FICO score the more money you save For example, on a $216,300 30-year, fixed-rate mortgage: FICO® Score Interest Rate Monthly Payment* 760-850 5.93% $ 1,285 700-759 6.15% $ 1,316 700-759 6.33% $ 1,341 660-679 6.54% $ 1,371 640-659 6.97% $ 1,433 620-639 7.92% $ 1,513 Difference between top and bottom score represents $82,080 in interest payments. *As of March 22, 2006 www.MyFICO.com - Know Your Credit History and Score Steve Rhode, president of Myvesta, a nonprofit consumer-education organization says, each time you open a store credit card, 20 points are taken off of your credit score. Source: Bankrate.com Understand What Your Credit Score Means As you improve your FICO® scores, you pay less when you buy on credit - whether purchasing a home loan, cell phone, a car loan, or signing up for credit cards. |
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