The other day I was talking to a friend in the loan/credit department of the credit union that so graciously pays my salary and the topic of conversation turned to a member who had applied for our best fixed-rate credit card. He had a strong enough credit score and made plenty of money but he was denied. Why? Lack of overall credit history. And here I thought all you needed was a good score to get a credit card. So I added that to my running list of credit score myths, which includes the following five…
1. There is only one credit score out there
Wrongamundo.There are three major credit bureaus, Experian, Equifax, and TransUnion, each with multiple scoring models, including FICO and others. Also, all three bureaus may not receive exactly the same data in you credit report-the number of accounts you have open, the current balance of those accounts, whether or not you’ve defaulted on any of the terms and conditions of those accounts, and so on. So in all actuality there are lots of different scores out there, although all of them will be highly correlated.
2. Checking your score will make it lower
Negative, ghost-rider. You can check your credit score all you want; it won’t do a darn thing to it. And you know those pre-approval notices you get for credit cards and auto loans every now and again? Those won’t affect your score either, despite the fact that the lender is obviously pinging your score to se if you qualify. If that type of action did affect scores we’d have a whole lot of angry callers at the credit union.
3. Your income can change your score
Bzzzz, sorry, but thanks for playing. You could go from making 10 bucks an hour to a bazillion dollars a year (a number so high it doesn’t even exist) and it won’t affect your score. Of course, having a bunch of money will likely make it easier to qualify for certain loans and pay them on time, hence allowing you to build credit you might not have otherwise received, but on a very basic level your income does nothing to your credit score.
4. Shopping for a loan will hurt your score
If this were a math problem, you’d get partial credit. It’s not a good idea to shop around for several different types of loans at a time because that says to the credit bureaus, “Mr. Smith (that’s you) is frantically looking for money wherever he can get it, something must be wrong!” But let’s say you are looking for a home loan and you apply at four different banks within a 14-day period. That would only be considered a single inquiry on your credit report and your score will not be affected. Beware of applying for too many credit cards at one time, however, as those do not fit into the 14-day rule and will all be counted as separate inquiries.
5. Closing some accounts will improve your score
For the love of no and all that is wrongy (I’m totally reaching on that one), please don’t go closing out accounts because you think it will help your score. It might end up doing just the opposite for two main reasons:
One, your total credit limit vs. your total debt. For example, if you have three credit cards with $5,000 limits each and you carry a total balance of $4,000 on two of them, you’re using approximately 27% of your total credit. Close the card with no balance and you’re down to a limit of $10,000 with the same $4,000 outstanding, meaning you’re now using 40% of your available credit. That may lower your score.
The other possible problem would occur if that card you closed was the oldest form of credit you had, because then your credit history would appear shorter and that too could negatively affect your score.
So hopefully this list has cleared up a few of the misconceptions you may have had about credit scores. I too used to think several of them true just because someone, somewhere, had been given the wrong information and was passing it along. Glad I’m now able to pass on the right information to you instead.
With gas prices averaging near $4.00 per gallon and a chance of them hitting $5.00 per gallon this summer, gas-based reward credit cards deserve a second look. Rebates range from 6% to 3% based on the card, saving you $.12 to $.24 per gallon. Most cards even have 1% back on all other purchases, making them a great general card as well. Each card has its own set of requirements and disclaimers so please read disclaimers carefully.
Discover Open Road(SM) Card - 5% Cashback bonus on gas and auto maintenance purchases up to $1200 in gas per year. 1% cash back everything as well. The intro APR of 0% and regular APR of 10.99% also makes the rates attractive. The card claims you can get 5% to 20% cashback at top online retailers as well. I didn’t see the list in the Terms and Disclosures.
Chase Perfectcard(TM) Mastercard - This card has 6% back on any gas purchase the first 90 days and then goes to 3% afterward. It also carries 1% cashback on all other purchases. The into rates are similar to the Discover Card above. I didn’t see any limits like the Discover card when I scanned the Terms and Disclosures.
Chase BP Visacard - This card is great if you live near BP. They are doubling the rebate amount on gas to 10% for the first 60 days. Nice if you plan on taking a long summer driving trip. This combined with the other rebates looks tempting. Their rates are not as good as the ones above, but if you pay your bills off every month and live near BP gas stations, this seems like a nice card.
I’ve listed some of the ones I could find. If you know of a better gas credit card, please leave a comment and update the post.
As a homeowner, I get a lot of junk mail. In particular, I get lots of offers for 0% financing for major appliances and big ticket items. The Home Depot and Best Buy are probably the largest contributors.
On the surface 90-180 days of 0% APR sounds great. If you read our prior article, you could put the major purchase in a short term money market account and make 2-4% interest for the 90-180 days and get a small bonus for your purchase.
The problem is that most consumers don’t use this approach. They fail to read the fine print. Take a look at the excerpt from The Home Depot Credit Card disclosure below:
“No Interest. No finance charges will be imposed on this balance if you pay the amount of the balance in full within the promotional period. If you do not pay the balance in full prior to the expiration of the promotional period or if the promotional offer is otherwise terminated, finance charges on this balance will be imposed from the date of purchase until the balance is paid in full.”
This means that if you don’t pay the balance in full by the time the promo period ends, you will accrue interest from day one. This is often the rub of these type of offers. The truth is that a majority of the consumers will not pay off the balance in full within the 90-180 days. This leave the consumer paying 20-24.8% interest from day one.
From the retailer’s perspective, this is great. The consumers buys major appliances with a nice margin. Then the retailer get the consumer to pay for extremely high interest for months to come.
As a savvy consumer, you should always be aware of the fine print. As a rule of thumb, retail credit cards will have a higher APR than that of standard credit cards. I would recommend only using retail cards in two scenarios.
- You understand the fine print and are taking advantage of the same as cash benefits. Sometimes these credit cards will get you another 10-20% off the initial purchase.
- Retailer cards will have smaller limits and less stringent underwriting guidelines. This means if you have no credit history this may be a good place to start building one. With that said, plenty of major banks will give you a small credit line too if you are just starting to build a credit history.
Most times you will do better getting a 0% rate from a major issuer since their products don’t accrue from day one. There are some pitfalls with those offers too. I’ll discuss that next time.
Lately I’ve heard a lot of people touting the idea of using 0% APR credit cards as a way to feed alternate high-yield savings plans. The concept itself is simple; you basically borrow money at no interest and put it into an account (or several accounts) that will earn you a decent interest rate- something, say, in the neighborhood of 3% - 6%.
The easiest way to do this is to your use your good or excellent credit to secure 0% APR credit cards that allow balance transfers or convenience checks. Lenders use this kind of offer all the time to increase balances on cards that they expect you to keep after the 0% grace period is up. Some of them will even offer bonuses for your first transfer to entice you that much more.
On the surface this seems like one of those loophole situations where you wonder “why didn’t I think of that?” because as long as you pay off the cards before the interest rate goes up you’ve effectively used one bank’s money to earn yourself interest at another bank. And the more 0% credit you can use, the more you can earn.
Many people claim to have made several thousand dollars a year with this method but, of course, no loophole is ever airtight. There are some inherent dangers:
- Having multiple credit card inquiries will temporarily lower your credit score. This may be a problem if you are attempting to secure a loan, especially a home or auto loan.
- Having high balances and using a high percentage of your overall revolving credit line will also lower your credit score.
- If you miss just one payment on one of the credit cards you could be immediately repriced into a high APR. Upwards of 30%. This could severely jeopardize your overall return on investment if you cannot find another place to put that debt. See this article for an idea of what I’m talking about: “A Credit Card you Want to Toss“
To me, it’s just not worth the time, hassle, or detriment to my credit score for the extra dollars I’d be lucky to make. I’d have to apply for several cards, keep track of when the introductory 0% APR is over for each one of them, remember to make payments on all of them every month, and so on.
But hey, every person is different, and if you want to try it out more power to you. There are certainly plenty of offers out there for people with good credit. Both 0% APR credit cards and high-yield savings offers are available on Credit Karma. If you try it out, let me know how it goes.
