Credit Cards | Credit Card Glossary | Free Credit Information
 

Home Equity Credit Line (HELOC) Freeze: How Can It Affect Home Owners

Published
by
admin
on July 2, 2008
in Credit Card News
. 0 Comments

What is a HELOC?

HELOC stands for Home Equity Line of Credit. A HELOC works similarly to a secured credit card, but instead of depositing money to the lender, your home equity will serve as the security for the loan. If your HELOC application is approved, you’ll be given a credit limit at closing based on the value of your home. You can borrow money within your credit limit as you need it and you’ll pay only what you’ve borrowed so far.

What is a HELOC Freeze?

Now what about a Home Equity Line of Credit freeze? With the misfortune that has happened in the real estate industry recently, lenders are forced to modulate and even freeze some of these HELOCs. In fact, lenders are now even more cautious about issuing HELOCs to home owners than before. Moreover, major banks in North America have already frozen most of their HELOCs.

A frozen HELOC would mean that you cannot borrow further the remainder of the amount that was previously determined as your credit limit minus what you’ve already borrowed. It means that this fund is no longer accessible for you to borrow. This is done by lenders to protect them from the plummeting house value as experienced in today’s slump in the housing market.

Now the real question is how does a frozen HELOC affects home owners? A frozen HELOC means that the holder needs to decide whether he still needs the funds from his HELOC available to him or her. If the borrower knows that she needs the money available to her, she may need to borrow all the available funds now and just pay the interest she’ll incur. In the meantime that she doesn’t use the money, she can put it into some account or short-term investment that earns interest. That may be able to partially offset the interest charge by the lender for the HELOC.

Some banks don’t freeze their HELOCs entirely but instead lower the initial credit limit that they had given to the home owner. In any case, whether the HELOC is frozen or lowered, the home owners should think of ways to make the money available to them when they need it. They might also need to change their spending pattern or postpone some major plans that need substantial amount of money if their HELOCs are frozen or lowered.

The Pros and Cons of the Four Types of Credit Cards

Published
by
staff.writer
on April 16, 2008
in Credit Tips
. 0 Comments

Before you apply for your first credit card or your next one, you should know the pros and cons of each type of credit card. There’s a reason why credit cards are categorized into different types, because they give different features and each one have different advantages and disadvantages.

The four basic types of credit cards you should know about are the zero- or low-interest, rewards, secured, and the student credit cards. Below are the basic pros and cons of each of the types.

Zero Interest, Low Interest and Balance Transfer Cards

The zero or low-interest cards, give you the ability to pay very little or no interest for a period of time. These cards do have time limits on them and other conditions to protect the credit card company. Sometimes the low rate applies to balances transferred from another credit card. These are called Balance Transfer Cards.

Pros of a Zero Balance Card
The advantage of the zero-interest type of credit card is, of course, credit card companies are lending you their money for zero interest. You don’t have to worry about finance charges ballooning your balance since the card doesn’t charge an interest. If they do charge an interest, they charge only very minimal rate.

Cons of a Zero Balance Card
The disadvantage is that the zero or a low-interest rate only lasts for a limited period of time, usually less than a year. After that the company will charge you their regular rate. They only offer zero or low-interest rate card for an introductory period.

You should choose a Balance Transfer card only if you seriously intend to pay down your credit card balances. Click here to see the Top Rated Balance Transfer Cards.

Rewards Credit Cards

The next type of credit card is the rewards credit card. The name says it all about this type of credit card because it gives rewards to the owners if they frequently use the card to pay for their expenses or even for every purchase made using the card. This type is best for people who use credit cards in almost all their expenses and have no problem meeting their monthly credit card bill.

Pros of a Rewards Credit Card
The bottom line advantage of this credit card is that you get money back for every purchase you make in this card. Some cards give points depending on the amount of purchases you make. You can redeem the accumulated points later in exchange for cash, goods, or even credit card balance. Other rewards credit cards gives discount for every purchase. Frequent flyers can also get free mileage from their reward credit cards.

Cons of a Rewards Credit Card
The disadvantage of this type of credit card is that it often has unreasonably high annual fees. It often has huge interest rate also. Credit card companies that offer rewards credit cards give low interest rate at first but dramatically increase it after the introductory period. Make sure you ask your company whether the rate is variable or not. The rewards offered in this type of card, too, are limited. They are limited in terms of the period of redemption and the method of redemption. Be sure you read the fine print before you apply for the card.

Choose this type of credit card if you consistently use your card for purchases (such as business expenses) and pay your balances down consistently. Click Here to see the Top Rated Rewards Credit Cards.

Secured Credit Card

Another type of credit card fit for people who want to establish credit for the first time or those who want to reestablish lost credit worthiness is the secured credit card type. You can get this card by depositing some amount to the issuer of the card, which is usually a bank. Base on this amount, you’ll be given your credit limit.

Pros of a Secured Credit Card
The main advantage of this card is that it’s available to those who have no credit rating to begin with or those who have lost it due to nonpayment. This type of credit card is tracked by business bureaus that establish your credit rating. In other words, if you want to repair a damage credit rating, then this card is for you.

Cons of a Secured Credit Card
The disadvantage of this type of credit card is that is has a high interest rate compared to the other types. In addition to the interest, this card also has high annual fees. Be aware also that you could incur balance higher than your initial deposit because your initial deposit only serves to offset whatever balance you have left in case your account is closed.

You should choose a secured card if you are ready to rebuild your credit history. Click here to see the Top rated Secured Credit Cards.

Student Credit Cards

The last type of credit card is designed for college and even high school students if they can get their parents to co-sign the application. Credit card companies realized that students were an untapped customers, and began offering credit cards to students with little or no experience managing credit.

Pros of Student Credit Cards
For a responsible student, a student credit card could give them numerous benefits. You can use your student credit card to establish your credit score since this is usually the first credit card you will own.

Pros of Student Credit Cards
The major advantage of student credit card is that you are given a means to obtain financial help in times when they need it most. A student credit card comes in handy in emergency situations, or when activity comes up that needs money in short notice. Because your parents co-sign and therefore supervise your spending, student cards can give you an opportunity to learn how to handle credit and financial responsible with a solid safety net backing you up.

Cons of Student Credit Cards
But since the person handling the card is relatively new to this source of money, some find this opportunity overwhelming and may not handle the situation well. This is the major cause of disadvantage for this type of card. College can be a stressful enough time as it is, and the financial consequences of mismanaging credit can often make things worse.

You should choose a student credit card if and only if you are ready for the financial benefits, and responsibilities, that come with it. Click here to see the Top rated student credit cards.

At the end of the day, you should remember that credit cards are not the same and the terms and conditions of the issuers are not the same, too. The original purpose of a credit card is to aid in the convenience of using money. Knowing the differences between each type of credit card, and their corresponding pros and cons can make all the difference.

Firstcard.com Interviews a Secret Service Agent About Preventing Identity Theft

Published
by
admin
on April 3, 2008
in Security
. 0 Comments

Your wallet is gone, your social security number’s been pulled from an online application, your phone number was picked up by a bystander while you were in line at the airport. There are thousands of ways that “Susie Smith” becomes “Susie Smith” all over again; criminals opening credit accounts, stealing from bank accounts, circumventing payments and more, and it can be stopped, you can be prepared.

Firstcard.com interviewed a United States Secret Service agent to get the answers to the most popular questions regarding this important issue. (For security purposes, the Secret Service Agent’s identity has not been disclosed)

FIRSTCARD.COM: Is identity theft as rampant as we hear?

A: With 15 million victims, a new case every two to three seconds, reported in 2006, identity theft is the fastest growing crime in the United States.

FIRSTCARD.COM: What is identity theft?
A: Identity theft ranges from one time usage of a credit card that isn’t the perpetrators, to opening accounts for credit cards, utilities, and health services. Eighty-five percent of the victims find out about their problem after receiving a bill with questionable charges.

FIRSTCARD.COM: What does it take to clear one’s name?
A: Once you are “in the system” it’s a long road to get out. Victims report months and years of repair work to their name and credit history which includes filing police reports, identity theft affadavits, and working with each the three major credit bureaus, as well as all credit and banking institutions of association.

FIRSTCARD.COM: How do the perpetrators get the information they need?
A: The instances of identity theft have increased hundreds-fold in the last few years, with more and more business and purchasing beyond done online, and even with personal information that is given over the phone. Phishing scams, which unfortunately too many people still fall for, are a leading source of information. Emails and phone calls from “officials,” suggesting that you’ve won a prize, tax refunds that await you, that you’re interest rates will be lowered, that a bank account in your name has been found, and so many other “stories,” are just not true. If it’s “official,” you’ll get a letter in the mail and even then, suspicious is the first thing you ought to be. So many times, more often than not, this is how information is passed on.

FIRSTCARD.COM: How to prevent identity theft?
A: Use a shredder! Don’t just rip your bills or credit card offers in half – shred them. As there are many cases of mail theft, we also highly recommended that people bring in their mail as soon as possible each day.

FIRSTCARD.COM: What is the government doing about this problem?
A: Law enforcement agencies, at every level; local, state and federal, are investigating the issues however, unfortunately, more criminals get away than are caught. Of course this is of high priority and it’s something we are working toward every day.

Establishing Good Credit? Possible!

Published
by
staff.writer
on March 5, 2008
in Credit Tips
. 0 Comments

Are you loosing sleep over bad credit, unpaid credit bills or damaged credit? Establishing good credit is not as hard as most people think. Most of the time the solution is to follow five very basic rules or tips to follow:

Start small by applying for gas credit cards or department store credit cards which are easier to qualify for
Pay on time, Every time,
Stay within sensible credit limits,
Pay at least the minimum payment, and
Make sure that you are covered in all your purchases

Sound pretty easy, right? Some people may actually shrug their shoulders and say that this will not fix their financial situation. Understanding your credit history, credit line and the effects of your FICO scores will change your outlook on establishing good credit. With the right information, you can do it.

Understanding FICO

FICO is an acronym for Fair Isaac Corporation. This is a publicly traded company that has studied and created the most well known and widely used credit scoring model in the United States. Your FICO score can be your best friend, or your worst enemy, when it comes to establishing good credit. Your FICO score does matter. According to a statistical survey conducted in the United States, a score of 680 or higher dictates that the individual has established good credit.

The FICO score is used by banks and companies to asses an individual’s credit worthiness. For a broad overview of how the credit is scored, here is the approximate percentage for scoring. 35% is allotted for punctuality of payments with regard to past bills, 30%, for the amount of debt the person is in, 15% for the credit history of the person, 10% is for the type of credit used and 10% for the most recent amount of credit accumulated by the individual. Having a great FICO score will give you a better stand on your finances.

Two types of credit.

Your Credit Score is used for a number of things, including determining how likely you are to repay a loan or line of credit. The two main types of credit are revolving credit and installment credit. With revolving credit, you can pay the amount you owe down, or allow it to increase, such as a credit card. There may be a maximum balance, but there is no fixed starting balance. With installment credit, there is a single fixed initial amount, and the idea is to pay this amount down over time, eventually arriving at a zero balance. An example of installment credit is a car loan or house loan. Both types of credit affect your FICO score. For instance, if you have numerous credit cards and you’re late in payments in only one card, your FICO will go down regardless. This is bad because the rest of your credit card companies have the right to raise your interest just because your FICO decreases because you’re late in payment on one card. The typical number of cards you can have is three, beyond this number can be categorized as numerous. Your installment credit too affects your FICO score. If you’re having trouble meeting your car loan or your house loan payments, your FICO score will be reduced.

There are a few simple steps in establishing good credit.

*First, try not to hit your credit limit. When individuals use 60% or more of the available credit, this signals lenders that the individual might overextend. Using a minimal amount on your credit limit will give you a higher FICO score.

*Second, limit your credit report inquiries. Since each inquiry will appear on your credit record, lenders will be able to look into the number of times you have applied for credit. Having too many inquiries on your record is not a good thing.

*Third, try not to miss payments. If possible automate as many payments as you can. Delayed payments on credit bills will push down your credit standing. And remember, even though meeting your minimum payment is good, it’s even better if you can pay more than the minimum. Having the lowest possible monthly balance is a signal that you can indeed meet your obligations.

*Fourth, maintain long-standing accounts but close any accounts that are not being used. Companies are less likely to lend money to a financial ‘rookie,’ so the longer your credit history, the better your FICO score will be. If you happen to have a credit card that has been with you for so long and your credit standing on that card is good, keep it maintained. Having other unused credit cards will merely tempt you to go on an unneeded shopping spree. Closing these accounts will also prevent identity theft.

*Lastly, remember that all credit cards are different and should be handled differently. Picking a credit card that will fit your income and lifestyle will save you the trouble of long standing debt in the future.

Already Deep in Debt?

For those that are already in deep debt, you can still establish good credit. The most efficient tip would be for you to pay off standing bills. You don’t have to win the lottery to pay it all off. You can start small and then build your way into making a relevant dent on your debt. A little bit more discipline may be needed on your spending prowess, but the final outcome is worth it.

Individuals who do not have credit cards or have no credit history are not in good light with credit companies either. Having no credit history will affect you too. This is with regard to decisions about premiums or insurances even future jobs and apartments.

Moreover, having a credit card does not mean that you will fall into debt forever. When you have learned how to spend on a budget while keeping your income in mind, a credit card will be your best friend. The best starting point would be to start a credit history/line with a secured credit card. These secured credit card companies require a down payment before starting the account. This merely insures the company of your capabilities to pay your bills. The down payment entered will measure the credit limit of the card.

The bottom line is that establishing and maintaining good credit will benefit you from all angles. It is not an impossible dream to establish good credit. Simply understanding where you are financially and placing a budget on your expenditures and sticking to it will surely increase your credit standing.

Balance Transfer

Published
by
Deb Silverthorn
on February 26, 2008
in Credit Card News
. 0 Comments

When peace of mind hangs in the balance, moving your credit balances, through a balance transfer might be the answer – simple, safe, and swift!  Chances are your mailbox is overrun daily with offers of 0% or low interest rates, decreasing your overall debt load.

With average annual interest rate charges of 16%, finance charges can make it difficult to reduce or clear credit debt.  Most balance cards provide a grace period for their zero or low interest rates that allow you, the client, to pay down your balance.  Once that period ends however, realize that the interest rates rise and the “honeymoon” is over.  Making sure to take advantage of the benefit of whatever your clearance time is, often between six months and a year, is crucial. Otherwise, you’ve only procrastinated, pushing off the inevitable, likely resulting in greater charges than you started with.

Also important to note are bank charges, transfer fees, annual or joining fees, and other “fine print” that might be attached to the transfer.  Transfer fees may be a percentage of the actual transfer, other times there is a sliding scale, making it important to realize the charges up front.  The purpose of the transfer is to help reduce your charges, using monies that might otherwise go to interest fees to pay down the principal of a loan, be sure you aren’t just trading interest charges for other fees.

“Transferring your balance to a card you already have, which might be offering a low or zero interest rate, rather than applying for a new card is a good option,” said Michael Solano, Chief Financial Officer for Pioneer Credit Counseling in Rapid City, South Dakota.  “Credit card companies will be making inquiries to your credit and you need to realize the impact signing on for a new card might be.”

Using balance transfers to clear credit is a positive move, making sure you don’t respend on the now freed up credit card, sending yourself in a circle, is an even better move.  Put the card away, freeze it in an ice cube, cut it up and “fuggedaboutit” is the way to go.  Closing the account may affect your credit score in a negative manner so just don’t use it!  Remember that transferring the balance doesn’t make you not accountable, it allows you a “moment” of freedom during which you must take advantage and pay down your debt.

“It’s important to see the overall picture and there are many advantages of setting up balance transfers,” said Mr. Solano whose agency has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.  ”Knowing the exact rates you’ll be paying to begin with, and how those will change over time, is important.”

Having a plan of how much and how long it will take you to pay down your debt, before you make your transfer, will likely make you more successful.  Paying down the balance to bring yourself out of “a hole,” and into the light, rather than just freeing up space on a card to make further purchases, is THE reason to move forward.

Note that new purchases to a card, that provided the low or zero balance transfer, are often charged at a higher rate, and payments made go first to the lower rate charges, those transferred.  This is important because while you may be paying down one end of the debt, your new charges and higher interest rates may override your payments, getting you nowhere in the hope of reducing your debt.  Keeping the card “clean” of new purchases, and just paying down the debt, is a reasonable and practical way to manage the account.

Managing and reducing is the key, not making transferring balances a habit as lenders, both within the credit card industry and those outside, want to see payments, not just movement, when considering loaning monies.  In addition, managing payments, in a timely manner, is critical because on many cards, missing a payment, even for just a day, may result in voiding of the low rate of interest and APR’s, bringing you back to square one.

Making your way down the road to reducing debt can be a hop, skip, and a jump.  It’s up to you to exercise your way into financial good shape!

Your First Card

Published
by
Deb Silverthorn
on February 16, 2008
in Credit Card News
. 0 Comments

You always remember your first! Your first bike, baseball game, date, and view of a sunset. Your first credit card is a gateway and, with millions and millions of credit cards issued each year, the fact is that your first card, is likely the easiest you’ll ever attain.

“College kids have cards handed to them on a platter,” said Bettye J. Banks, of Consumer Credit Counseling Services in Dallas, Texas. CCCS is an affiliate of National Foundation for Credit Counseling in Silver Springs, Maryland. “It’s a free ride at that point.”

Books, tuition, payback of loans and “the college experience” can all be charged and, at the same time, be the source of credit building history for a lifetime. The ease, or lack thereof, of getting the loan for the house and car you buy down the road begins here.

“We live in a credit driven world,” said Ms. Banks. “To rent a car, a hotel room, or buy a plane ticket, you need plastic. You just need to understand that plastic can be explosive if you don’t use it wisely and well.” FICO scores, which change with almost every transaction, purchase or payment, are used by most lenders to determine risk and are assessed by the three credit bureaus Equifax, Experian, TransUnion. Each of the credit bureaus will provide, free of charge upon request, one credit report per year. The FICO score affects how much a lender is likely to loan and at what rate of interest.

Low interest rates, the cost of annual fees, and due date grace periods are all keys to look for when determining “your” card. “Rewards cards are a low priority for students because they aren’t spending enough to matter. Finding the cards with no annual fee, the lowest interest possible, and terms to meet their circumstances, is what students should be looking for. Credit unions often offer cards with terms that are typically better and they’ll often listen to the extenuating circumstances of a customer,” said Joe Ridout, spokesperson for Consumer Action, a San Francisco based non-profit organization offering education and advocacy since 1971.

“Students need to realize that credit follows you everywhere and that when you graduate from school, a good credit score is important,” said Mr. Ridout. “From the apartment owner who will check your credit to see you can pay your rent, to many employers and insurance companies, the list is long of those who will be looking at your history, as short as it may be.”

Credit cards that provide reward incentives, airline miles, hotel points, and others, are an opportunity for users to “earn free” gifts but it’s important to be sure that balances are paid off so that the “free” doesn’t end up costing you in the interest fees that are accrued. “Rewards cards are a low priority for students,” said Mr. Ridout. “But there are cards available to university and college students that will give rewards, or points, for good grades and for paying bills on time which can be used to pay down student loans. ‘Shopping’ for the right card, and listening to the terms of each situation, is very important.”

“I’m 18 and an adult.” Those calls are heard for, it seems, a lifetime and now, here you are. Realize that with that independence comes responsibility and credit built from the age of 18 belongs to you, and not your parents. Monies owed, and the credit scores created, belong to you and it’s your future. “It’s mastering the fundamentals and building a strong credit history that is important. It’s easy to make mistakes, and those mistakes, once reported, can stay on your history for up to seven years,” said Mr. Ridout. “Use your credit as a spending card, and spend the way you would pay for goods with cash, then pay it off at the end of each month.”

You’re a student. Educate yourself on the right cards for you.