Category — Credit

Credit Cards are one of the easiest instruments of civilized society. The companies come as ‘pussy cats’ and leave as ‘lions’. However there are a few long-established rules that have stood the test of time, These rules help you navigate that industry without sweat. The good thing about the credit card rules is that they are echoed all over the internet. Most personal finance websites and frugality blogs have it in one form or the other. I will outline some of them here and I am certain there may be new ones that my readers know that I have not included. Please feel free to add them here too.

1. Pay off your balance ALWAYS. Any dollar not paid will accrue interests in the next billing cycle and that is money wasted.

2. Send in your payment in good time electronically. Mailing a check may sound good, but if there is any delay or your mail gets lost, then you get hit with the late fees and it may even ding you credit score. Electronic payments have become3 so reliable these days that it is now the norm. Caveat: That you pay electronically does not always ensure that your money will get there in time. One of the popular hardware chains in the US has a store credit card that takes 3-5 days to process online payments. They actually state it clearly on their website so if you send your payment late, you get the late charges.

3. Always look at you credit card bills. This is common mistake seen with couples where only one person handles the finances. Spurious charges get paid because the other party “assumed” it was a proper charge. Check and verify that you actually spent what you are paying.

4. Getting rewards cards makes sense if there are no hoops like expiration and minimum expenditure before you can claim a reward. However, I must say that with the recent Credit Card Accountability, Responsibility and Disclosure Act in the United States, rewards have been shrinking fast. Check out this post by Liz Pulliam on MSN Money.

5.Watch your interest rate just in case you have to carry a balance. I started off on one  American Express Credit card three years ago at 8.99% APR. Soon enough (possibly when they saw that I was indeed payingoff  my balances), it went up to 10.98%. Well who cares, I pay off my balances every month and that is the way it is going to be.

6. Use automatic bi-monthly payment. If you set up you account to send in payments on the 1st and 15th of every month, you will indeed NEVER miss a payment. One may ask “So how much should I pay?”. Well, that depends on what your average charges on the card is. Pay half each time. If the money is short, you can make it up in the second payment and if it exceeds the charges, you have to choice to reduce the second payment or pay down the next month’s balance.

7. Get account tracking free software like Mint.com or Quicken and USE IT!

The Wrong Way To Use Your Credit Card
The Credit Card companies have acquired a bad name in modern society today. Unfortunately I have to be frank with you and say that it is not the card companies alone that are to blame, but also the users. If you use your credit card the wrong way, you will most likely get stuck with huge bills that are not only persistent, but are actually self-inflating. In other words, the bill simply grows.

There are numerous credit card utilization advice on the radio, cable networks and the internet. All you have to do is pull any search engine and search for “Credit Card Utilization Advice” . There are at least 10 very good results just on the first page of returned results on Google. However amidst all the tons of information, 49 million results on the big G, there lies one simple principle. This principle is what makes the Government allow the credit card companies to do business in America.

“Do not incur expenses that you can not pay for”.

If you do, then you will have to pay interest after 56 days and that is how the companies make their money. The one way not to use credit cards is not to carry a balance that you have to pay interest on.  The interests can be hefty, usually starting at low teens and easily creeping up into the 20s and 30s. Granted with the new Credit Card Laws things will change, but the smartest people work for credit card companies so users beware.

Purchase Protection Giveaways

In 2008, I started using American Express Credit Card. This was one of the lower cadre rewards cards, Blue Cash. It has no fees and it came with a 0% for 12 months promotion as well as an 8.9% APR.  The APR has since changed to 10.98%. It was really useful at different times during that promotional period when I carried balances that ranged from $1000 to $3000. However to ensure that I did not have to pay any finance charges, I made sure the card balance was a resounding ZERO for a full six weeks before the anniversary date in November 2009. That way I escaped any fast ones being pulled off by the company and saved myself a few hundred bucks in charges.

This card comes with some perks and one of them is the Purchase Protection Perk. It is explained in good detail by Jim Wang over at Bagaineering.com.  According to the post:

Use your AMEX card when you pay and you get 90 days of protection against accidental damage or theft. You file a claim and the protection replaces the item or reimburses you up to the amount of the purchase price. There’s a limit of $1,000 per occurrence and up to $50,000 per cardmember account per year.

This is cool because it gives you that peace of mind that yes indeed if anything (well almost anything) happened to your purchase, you are covered. I have never had to use this perk, but it is sure a free insurance going on there, maybe “purchase insurance’. Some of the commenters on the post like Pop of Popeconomics.com say it is also available from all cards with VISA. So do not go rushing to get a new AMEX just yet. Do your groundwork and use your VISA!

Credit card companies make a killing from fees. Often times we have been hit by these fees because of a late payment, or eve a missed payment or over-the-limit fee. There are  a couple of simple things that I have put in place that ensure that I never have to pay those fees again.

Never go over your limit

That is as simple as it gets. Do not even go close to your limit. To make the best use of credit, utilize at the most 30% of your available credit. that way, going above the limit is certainly out of the question. Watch those balances real close. The more room you have, the better this will reflect your credit-worthiness on your credit report.

Automate your payment

Almost every bank in the US has online payment system. The same goes for most credit card companies. make your payments automatic. that way even if you suddenly have no internet access, your monthly payments will be going in. I usually pay off all my credit card balances every cycle, so I do not carry a balance. I thus set it to pay everything, every month. Some cards will not allow you to do that, so you can set them to at least pay the minimum every month. That ensures no missed payment because the company gets something every payment cycle.

No late fee

With the first two well set up, the next thing you must do is to setup twice a month payment spaced by 14-15 days. You can set it up to remit payment every 1st and 15th of the month. This ensures that the credit card company does recieve something from you withing each billing cycle and it is more than the minimum payment because you are sending two automated minimum payments per month. This last technique works best for me when I take zero percent cards. That way with an automated systematic bi-monthly payment, I can ensure that by the time the promotional period is ending, I have paid off the balance!