Opening A Secured Credit Card

A secured credit card is a legitimate credit card issued by a legitimate bank. You make a deposit at the bank and they will issue you a credit card with a credit limit equal to your deposit. Since you’ve essentially fully secured any purchases you’ll make with a cash deposit, banks are more willing to issue these cards to either new credit users or those who are trying to rebuild their credit. Additionally, you can open a secured card for as little as a $250 deposit, so it’s a nice option for people who have limited cash flow. Secured cards aren’t a good long-term option,however; the fees associated with these cards and the interest rates aren’t very good. But, you have to remember that you’re opening the card for a purpose and that purpose is to get something good on your credit reports. After a few years of paying the bills on time you may be able to convince the card issuer to convert the account to an unsecured credit card and refund your deposit. And because this is a credit building strategy, you’ll want to make sure you choose a card issuer who reports their secured card accounts to the credit reporting agencies. Otherwise, you’re just wasting your time.

Being Added as an Authorized User

An authorized user is someone who has been authorized to use a credit card issued to another person. Most of the time, parents will add their children to one of their existing credit cards, which allows them to have a card in their name but doesn’t convey any sort of liability for payment of the balance. The good news is that the account history is reported to the authorized user’s credit reports and can almost instantly establish them a solid credit history. This is my favorite option, as it really has no downside. I call the authorized user strategy “having a credit card with training wheels.” As long as the account is managed properly, then it’s a positive addition to your credit reports. And, this is a great option for consumers who have limited (or zero) cash flow or are already working hard to get out of debt. If the account is mismanaged by your parent (or spouse, as this is also common among spouses) then all you have to do is ask that your name be removed from the account and it will also be removed from your credit reports. In fact Experian, one of the major credit reporting agencies, will automatically remove the account history from the authorized user’s credit report if it becomes derogatory, “because an authorized user has no responsibility for repayment of the debt”, according to Rod Griffin, Experian’s Director of Public Education. “We will also remove the account at the request of the authorized user.” The good news for authorized users is that the FICO scoring system gives you full benefits for a properly managed authorized user account on your credit report, as long as you have a legitimate relationship with the primary cardholder. A few years ago, credit repair companies were trying to take advantage of the authorized user strategy to boost the credit scores of consumers who had bad credit. FICO figured out a way to filter out the consumers trying to game the system, so they won’t get the same benefit as a  legitimate parent/child or husband/wife relationship.

Co-signing For a Loan

Co-signing for a loan is when you sign the promissory note (the promise to pay back the loan) and accept equal liability for payments on someone else’s loan. The newly opened loan will likely end up on your credit reports and will help you to establish or re-build your credit. Co-signed loans are normally auto loans, personal loans, or mortgages. That’s where the good news ends. I don’t like this option for three reasons:

1) It’s unnecessary. You don’t establish credit any faster by obligating yourself to a huge loan than you do by opening a $250 secured credit card. Choose the path of least resistance!

2) You can’t change your mind. There is no such thing as “co-signing for credit only” although some consumers have tried to challenge this in court, unsuccessfully. When you co-sign you’re just as liable for payments as anyone else on the loan. If the payments start being missed, it’s your problem. You have to be prepared to make all the payments if you choose this option.

3) Missed payments will go on your credit reports. If the payments on the loan are missed then anyone who has signed for the loan (yes,  including you) will have a record of those missed payments reported on their credit reports.  And, if the loan goes into default any aggressive collection actions, including litigation, it will be targeted at you. I’m not a fan of co-signing for a loan EVER, unless you need two incomes to qualify for a mortgage.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.

Further, there were some comments that suggested you had to pay someone else to have your name removed from the credit bureau’s mailing lists.  So, this week’s piece will not only clean up the process of having your name removed from the credit bureaus’ mailing lists, for free, but will also point you in some other directions where you can do other credit-related activities for free.

Where to Opt Out of Pre-Approved Credit Card Offers

There is only one legitimate website where you can opt out of being on the credit bureaus’ pre-approved mailing lists.  Here it is; Optoutprescreen.com.

That website is a joint venture of the four (yes, there are four) credit reporting agencies and allowing you to “opt out” is required under the Fair Credit Reporting Act.

Opting out is 100 percent free and any company that attempts to sell you a service that includes opting you out as a feature is doing nothing more than going to this site and opting you out by proxy.  So, save your hard earned cash and do it yourself.  Incidentally, you can also opt back in at the same site and yes, that’s free as well.

Where to Claim Free Credit Reports

I’ve written about free reports countless times so I’m not going to spend a lot of time on it.  As with the opt out site, there is only one legitimate website where you can claim your Federally guaranteed free credit reports. Here it is; Annualcreditreport.com.

That website is also a joint venture of the three major credit reporting agencies and allowing you access to your credit reports for free once every twelve months is also required under the Fair Credit Reporting Act.

And as with opting out, you don’t have to pay anyone to do this for you.  And yes, there are companies that will gladly get you your credit reports for a fee.  Again, save your money and let YOUR fingers do the work.

Setting Fraud Alerts on Your Credit Reports

FREE FREE FREE!  You guys are going to love the Fair Credit Reporting Act before I’m done with you.  The Act also requires that the credit bureaus allow you to place fraud alerts on your credit reports for either 90 days or seven years.  You can choose to pay a company to do this on your behalf, although I’m not sure why you would because it’s free.

You don’t have to place fraud alerts on all three of your credit reports housed by the major credit bureaus.  You only have to do it at one credit bureau and they have to share that information with the other two.  I’ll make it really easy for you… simply click on the name of the credit reporting agency below and you’ll be linked to the appropriate page on their website where you can place a fraud alert on your credit report. If you’d rather call them, I’ve included their numbers.

Equifax – 1.800.525.6285

Experian –  .888.397.3742

TransUnion – 1.800.680.7289

Incidentally, when you place a fraud alert on your credit reports you’re also automatically opted out (see above) for five years.

Next week I’m going to show you where you can get your credit scores, for free.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.

(iStockphoto)

If you have a good credit score, you’ve probably received a credit card offer in the last few months advertising, in huge print, 5% cash back — like the Chase Freedom or Discover More.

It’s a compelling offer. (I mean, just look at those flip flops.) If 1% cash back is good, 5% must be five times as good.

As far as I can tell, the card companies must be pushing these offers for one of two reasons:

1. They’ve decided that they love their customers and want to give them extra money, no strings attached.

Sorry, I can’t type the second reason, because I’m laughing too hard. Mary Ann Campbell of IndexCreditCards.com, sums it up: “It’s a strategy that is in favor of the card companies.”

What’s the catch?

The idea of tying a generous rewards program to a credit card isn’t revolutionary. Issuers have been offering more than the standard 1% for years, and many responsible credit card users have been paying off their balances in full each month and literally getting free lunch in the form of hundreds of dollars in cash back each year. But lately, it seems, getting that free lunch more often than not requires you to suit up, gladiator-style, and step into an arena. Your opponent: a bank that spends its days trying to figure out how to extract as much of your money as possible.

Let’s look at one popular example: the Chase Freedom card, which offers 5% cash back in certain categories. Right now, from January through March, those categories are grocery stores and drugstores. You get 1% cash back in other categories, like a typical reward card.

So that’s 4% bonus cash back (5% minus the 1% you would already get). Sounds great—except there’s a cap. You only get the cash back on up to $1,500 in purchases, for a maximum of $20 per month in bonus rewards. Furthermore, if you shop for groceries at a warehouse club or superstore, those purchases are ineligible (though they still earn 1%).

Oh, it gets richer (not literally). In order to qualify for the 5% cash back, you have to visit the Chase web site and sign up before you spend. Chase wins whether you sign up or not: if you forget to sign up (and you have to do this every quarter), they don’t have to pay. If you do sign up, your brain lights up with reward fever. Time to start spending!

“We are very transparent about the details of this program,” a Chase spokeswoman said in an email, pointing out that Chase’s reward cap is displayed prominently on the web site.

A spokeswoman for Discover, meanwhile, pointed out that the company “has awarded more than $8 billion in cashback bonus since the program began” — in 1986.

How to turn 5% into zero

Rewards cards, as you probably know, tend to have higher APRs than regular (non-reward) credit cards. Right now, the cash-back cards charge an average 16.47% APR, according to Bankrate.com, while all variable-rate credit cards charge an average 14.34%. (Low-rate cards average 10.70%.)

Chase Freedom’s APR ranges from 13% to 23%, depending on your credit. On a $2,500 balance, even at the best-case 13% APR, interest on the balance will completely wipe out the maximum bonus cash-back you could earn ($60) within three months.

“It only works for people if you pay it off monthly, but human nature sets in and not everybody does that,” says Campbell, who carries the Chase Freedom card (and pays it off monthly).

We now have data suggesting that for some people, simply having access to a reward card encourages overspending. At the Federal Reserve Bank of Chicago, economists Sumit Agarwal, Sujit Chakravorti, and Anna Lunn looked at a dataset from a large, anonymous national bank that sent 1% cash back reward cards to a random subset of their existing, non-reward credit card customers. The customers, unsurprisingly, reacted to this by spending more on the reward card.

Most of this new spending came from using other cards less. After all, if you get a new reward card, why would you continue using your old, non-reward card? (One reason is that non-reward cards charge a lower average APR, but customers generally ignore the APR.)

But some of the spending and debt—especially among customers who didn’t use their card at all before getting the cash-back offer—couldn’t be explained by replacing other cards. “We find that 11% of those guys start using the card as a result of the cash back,” says Chakravorti. “And we also find that their credit bureau balances go up.”

It’s kind of reassuring that only 11% of a subgroup went into debt because they got a new card, until you realize that a large proportion of everybody else was already in debt. That is, they didn’t lose this round of the game because they’d already gotten slaughtered in a previous round.

The Chase spokeswoman said she hadn’t read the study but that the Chase Freedom card is designed to reward customers for the types of purchases they already make.

You’re the best around

In a classic 1981 survey, 98% of Americans identified themselves as above-average drivers. Scientists call it the Lake Wobegon Effect, after the town where every kid was above average. Most people believe their relationships are above average. Professors, students, doctors, stock traders—all believe in droves that they’re among the best at what they do. (And, of course, my kid is smarter than your honor student.)

Similarly, nobody signs up for a credit card believing they’re going to sink into debt and throw away money on finance charges. But more than half of credit card holders carry a balance for at least part of a given year, according to data from the Federal Reserve. As painful as it is to even consider the notion, if you sign up for a reward card believing your behavior is going to be above average, there’s a good chance you’re fooling yourself.

This is not to say that all credit card debt is bad (there are certainly worse kinds of debt, though not many) or that it’s invariably the result of misbehavior. But part of what goes on in our brains when we try to wrap them around reward programs is that we value the points very highly when we’re trying to earn them, but we treat the same points as play money when we spend them, explains Kit Yarrow, a consumer psychologist at Golden Gate University. “So they overvalue it when it’s coming in and undervalue it when it’s going out,” says Yarrow. “That equation adds up to financial disaster.”

I asked Yarrow what a reward card user can do to protect themselves from their own bad behavior. “You can’t make purchases factoring in the 1% savings you’ll get with getting rewards money back,” she says. “You just can’t.”

Yarrow carries a Schwab cash back card (which is no longer available, but Fidelity offers a similar one) that pays the rewards into her brokerage account. “It’s maybe better if you look at the end of the year and see what you’ve gotten,” she says. “It may make it easier to resist that allure.”

We’ll make you pay

Campbell suggests another strategy. “What I recommend people do if they’re using a reward card is to contact their issuer and have their full payments drafted from their checking account automatically,” she says. It won’t protect you from overspending, but it means no missed payments, no finance charges, and no forfeited reward points.

And I’ll add one more: You don’t have to use a credit card to be a grownup. What’s the most you can lose by not participating in a rewards program? About 1%. What’s the most you can lose if you do participate?

photo: Noeluap

Last week the Wall Street Journal sent a message that many of you needed to hear about ten years ago.  They identified that student loan debt has officially surpassed credit card debt and now totals some $830 billion.  It seems like irresponsibility has jumped the track and now resides in the classroom.  This is reckless spending in the name of education.  I’ve often been accused of not sugarcoating my financial opinions and this will be no different.  Here’s why I’m often the most unpopular guy in the room.  Buckle up.

Tuition is a product, plain and simple.  And just like any other product you have to be responsible with your choices.  Do you buy a Mercedes Benz when you can only afford a Hyundai?  Do you buy a $1,000,000 home when you can only afford a $150,000 townhouse?  Then why in the world would you ever let your 18-year-old kid, who is no longer allowed to get a measly credit card on their own, to walk blindly down the path of financial suicide just to go to an expensive school?    

I’m about to give you the tough love your parents didn’t give you.  And I realize it might be too late for you, but ignoring this doesn’t stop the cycle. 

Here’s the bottom line on this issue: it’s easier NOT to get into this debt than it is to deal with the debt once you’re in it.  As of today, you can’t discharge government guaranteed student loans in bankruptcy.  That means you WILL pay it back if it takes the rest of your life.

Think About Community College for Your Core

You don’t need to take English 101 and Chemistry 101 at Duke.  You can take them at a community college or a state school and then transfer.  Your core curriculum doesn’t need to cost you the same as your final two or three years.  This is like paying the same amount for preseason NFL tickets as you do for regular season games. 

Just like frugal car buyers never buy a new car and always get something that simply solves the “point A to point B” problem, so should you take a frugal approach to a college education.  Cheaper doesn’t equate to substandard so don’t swallow that pill.  There is absolutely nothing wrong with community college for your core and an in-state state school for your major.

And yes, I know some schools won’t let you transfer those core credits, but many will.

Wake, Stanford, Duke, Come on!

Why won’t you be reasonable with your college choices just like you should be reasonable with every other credit decision?  No, you don’t need to go to Wake Forest at $40,000 per year.  No, you don’t need to go to Notre Dame at $40,000 per year.  No, you don’t need to drive that new BMW.  No, you don’t need to run up $20,000 in credit card debt.  Is there really a difference?  There’s nothing wrong with an in-state state school, with community college for your core.  Going to an expensive school isn’t a birthright and parents who sit on their tongues and let their kids head down this “expensive is better” path are 100% to blame.     

College Degree, Reality Check! 

Parents and advisors need to step up and give their kids, who don’t know any better at 18, a dose of reality about college degrees, which are basically nothing more than an “entry pass” to the bigger job market.  You don’t need a fancy five-year degree (and maybe even grad school) that ends up costing you $100,000 in student loans unless there’s real ROI at graduation (law, medicine, nursing …something that pays off and practically guarantees you a job for as long as you want one). 

Choose a degree that gets you in the workforce door and be done with it.  If you’re still depending on your degree to get a job five years after you graduate then you’re not doing well.  Experience is the real selling point eventually. I’m quite certain I’ve never been hired because of my impressive B.S in Criminal Justice from the University of West Georgia.

For The Haters

Save it.  I don’t come from money and I didn’t go to an expensive school.  I worked summers to help pay for my cheap, in-state tuition.  Getting into student loan debt just to go to a more expensive school seemed unreasonable to me and I’m eternally grateful for the brief moment of clarity when my father asked me, “So John, where are you going to school?”

This is why you guys love me…because I’m not afraid to be the least popular guy in the room saying what you need to hear.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit history” definition on Wikipedia.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

photo: BigBeaks

Ask and you shall receive. That used to be the case with lowering your credit-card interest rates not too long ago. Back in 2002, a survey by consumer advocacy group U.S. PIRG found that 56% of credit-card holders who had called their issuers to request a lower APR had gotten it done with a single phone call.

That’s hardly the case these days. Hit hard by the mortgage crisis and resulting credit crunch in the past few years, banks have been much more reluctant to cave into such requests.

That doesn’t mean it can’t be done. It simply means that you’ve got a lot more work to do before you make that call – and be aware of the risks associated with doing so.

The risks

The biggest risk of requesting a lower-APR request these days is that the bank may not only deny it – you could walk off that phone call with a lower credit limit. That’s been happening to quite a few consumers these days, says Gerri Detweiler, a consumer credit expert at Credit.com.

When you call your bank to discuss your credit card terms, you will trigger a deeper look into your account and credit history. Some issuers may even require you to submit additional paperwork like proof of income or tax returns in order to make a decision.  

If they don’t like what they see, nothing’s to stop them from taking adverse action, such as lowering your credit limit. That move will in most cases have a negative effect on your credit score, because a lower credit limit automatically increases your utilization ratio.

Unfair? Yes. But the fact is that the bank is in its full right to lower your credit limit – a move that is not prohibited by the new credit card law. (They are not allowed to hike your APR for no reason during the first 12 months after opening an account, though. After that, any interest-rate increases will only apply to future card charges and not to your existing balance.)

Doing your homework

Before you call your bank, you’ve got to be absolutely sure your credit and financials are in pristine condition. This way, even if the bank declines your request, you could actually fight back.

1. Check your credit.

How’s your credit doing these days? Is your credit score at least 740? Is your credit history in pristine condition: no late payments, no maxed-out accounts, no recent credit applications?

Before you call your credit-card company, pull your credit report to make sure it’s clean and has no erroneous information. You can order one free copy a year from each of the three credit bureaus through http://www.annualcreditreport.com/. Some people go as far as asking the credit issuer which bureau it uses so that they can pull their report from the bureau in question.

If you find errors on your report, dispute them with the credit bureau. (Each report contains information on the steps you need to take and you can dispute errors online or via regular mail.) Keep copies of all emails, calls or other communication for your records.

2. Gather up your paperwork

The card issuer may request that you supply additional paperwork in order to consider your request for a lower interest rate. Most likely, that will be information that isn’t included on a credit report, such as proof of employment and income. Be armed with copies of paystubs or even your latest tax return.

You may not have to use these, but if requested, you can only benefit from being able to provide them at a moment’s notice. If you are in a tough financial situation (you’ve recently lost your job, for example, or have taken a cut in pay), your issuer will likely not agree to reduce your APR. You may qualify for a so-called “hardship program,” but the trade-off is you’d have to close your account while you pay it off.

3. Have a back-up plan

Even if your credit is in pristine condition, the issuer may decline your request. In that case, it pays to be prepared: have at least one other credit card with enough available credit for you to make a balance transfer without maxing it out (remember, using as little of your available credit limits as possible helps your credit score). Faced with the threat of losing your business, the customer service rep may change his or her mind.

Don’t worry if the bank still doesn’t cave. There are other ways to deal with high-interest debt, including consolidating your balances through lower-rate loans. For more on that, read our story Five Ways to Consolidate High-Interest Debt.

Got credit card debt? If so, good news: the card issuer can no longer hike your interest rate without warning or raise rates on an existing balance. They have to send your bill at least 21 days before it’s due (up from 14 days). And each bill has to show how long it will take to pay off the balance if you make the minimum payment–and how much you’ll pay in interest if you do that. Call it the credit card equivalent of the Surgeon General’s warning.

These reforms–and many others–are due to a single new law, the Credit CARD Act, which came into effect last month. Great! Who hasn’t been surprised by one or more of these practices?

“This new law is good, and it does stop a lot of bad things,” says Kathleen Day of the Center for Responsible Lending, a consumer watchdog group which published a handy guide to the new law. “But it doesn’t stop everything, and you know they’re going to find new ways around it.”

Why do the card issuers play these games? It’s not because they’re jerks and like watching you suffer. (That’s a side benefit.) They do it to make money. Take away these revenue streams, and the card companies aren’t going to roll over. Right now they’re rubbing their hands together and coming up with new schemes.

Let’s be like the writers on 24 who sit around coming up with hypothetical terrorist attacks, and figure out what the credit card issuers are going do next.

A crackdown on deadbeats

A deadbeat dad is one who never pays his child support on time. But to a credit card issuer, a deadbeat is just the opposite: a customer who always pays on time and therefore never pays any interest.

Interest is the single biggest chunk of credit card profits. The card issuers have always done their best to turn deadbeats into debtors. Got a pesky customer who always pays on time? Make sure their bill arrives a few days before it’s due, then, when they pay late, slap a 30 percent penalty APR on their entire balance.

The CARD Act makes it harder to pull this maneuver off: they have to send you the bill earlier, and you have to be 60 days late before they can jack your APR. But you can still blow it the old-fashioned way: occasionally pay less than the balance due.

“The house is making a bet that you will not live up to your intentions,” says Chris Farrell, author of The New Frugality and economics editor at American Public Media’s weekly radio show Marketplace Money. “If you will pay it off at the end of the month, and you can pay it off at the end of the month, and you actually have that discipline, it’s a really good deal. The strategy doesn’t work if it turns out you do it every other month.”

If you do show steely discipline and pay in full consistently, the card issuer is now likely to reward you by lowering your credit limit or canceling your account. Happy trails.

Here, have some rewards

That’s not to say that reward cards are going away. In order to explain why credit card issuers love reward cards, I have to use a term that will make many of you close your browser in disgust. It’s not dirty, it’s boring: interchange fees. Although, when you think about it, it does sound kind of dirty.

When you swipe your card for a $100 purchase at Urban Outfitters, the store doesn’t receive the full amount. A few pennies go to Visa (or MasterCard or Amex). A much larger chunk, 1 to 3 percent, goes to the bank that issued the credit card. This is the interchange fee.

The interchange fee isn’t the same on all transactions. It depends on a lot of factors, one of which is whether you’re using a reward card: reward cards carry higher interchange fees.

So, thanks to the CARD Act, you’ll be receiving more junk mail advertising reward cards (especially if you have a high FICO score). They’re a great deal for the banks: higher interchange fees; reward cardholders charge more than the average person, to maximize the reward; and a significant percent of the rewards go unredeemed. Got some useless air miles sitting around? Join the zero-mile-high club.

Oh, they’ll surely be hiking interchange fees, too. And since merchants aren’t allowed to charge customers extra for using a credit card, everyone will pay more–even cash customers.

Fees, fees, fees

“People are going to see many more fees,” says Kathleen Day. Here are a few favorites:

• Annual fees. The classic, and more popular than ever–especially for cardholders with low FICO scores.
• Inactivity fees. Some banks charge you an annual fee for not using your card or not using it enough. Damned if you do, et cetera.
• International exchange fees. As the New York Times reports, card companies charge up to 3 percent every time you make an international purchase–even if the purchase is in US dollars.

Payday…for the banks

Subprime mortgages are over. Credit card profits are down, thanks to debt-wary consumers and new laws. Even overdraft fees, a bank’s bread and butter, will be curtailed later this year. What’s a poor bank to do?

How about payday lending? As BusinessWeek reports:

Banks including Cincinnati-based Fifth Third Bancorp, San Francisco-based Wells Fargo & Co., the fourth-largest U.S. bank, and U.S. Bancorp, based in Minneapolis, are already making such loans, usually from $100 to $500, at annual rates of 120 percent if repaid in 30 days. They’re known as “checking advance products.” That puts them in competition with so-called payday loan stores.

Lovely.

Opt out

In short, the CARD Act is good news, but credit card issuers still want to stick their hands far enough into your pockets to untie your shoes. What to do?

“Reward companies that provide a good service at a good price, and don’t do business with the ones who don’t,” says Farrell. “I hope credit unions and community development banks, which offer credit card products that are pretty simple and straightforward, take market share away” from the big banks. My credit union offers a simple, no-fee credit card at a competitive rate, but I don’t actually carry it. I did, however, sign up for their overdraft line of credit. If I ever were to need emergency cash–up to $1000–I can dip into the line of credit at a fixed 8.9 percent APR using my debit card. There’s no additional overdraft charge. (I’ve never used it.) The watchword with credit cards is the same as it ever was: check your statement for surprises and your back for knives.

Photo: Fotero

During the construction of his new home, Braun Mincher pulled out the plastic for every new expense. “The contractor didn’t accept plastic, but we had a ‘cost plus’ contract. I was free to directly buy all of the materials. So I used the credit card for appliances, lumber, fixtures, carpet, etc.,” says Mincher, an author, filmmaker, and founder of Braun Media in Fort Collins, Colorado. He then paid off his cards monthly with his own funds or with an advance from the construction loan. The motivation? The consumer protections credit cards offer under federal law and convenience. “I got travel rewards and an easy-to-reconcile bill.”

Mincher generally pays his credit card balances in full every month which makes him feel comfortable using plastic to buy just about everything including a new engine for his small plane, diamonds, office furniture, a home theater, cars, and Lasik eye surgery. He even used credit cards in the early days of his business to make payroll when times were tight.

While Mincher may have the luxury of giving his credit card more of a workout than most cardholders, the perks of some credit cards are prompting people to develop creative ways to use their own plastic beyond the mall and gas station. Here are some other unusual or surprising places where you can pay with plastic.

Construction Site

While your contractor may not accept plastic, you can use a credit card to pay for building materials like lumber, cement, and bricks. In many places, you can charge building permits and other construction-related fees.

Maternity Ward

Charge everything from the delivery room to obstetrician bills (and even those celebratory cigars). Later, use the reward points to spring for a well-deserved getaway.

Adoption Agency

Bundle of joy arriving via adoption? Use a credit card to cover the agency/attorney fees involved. “Typical adoption fees paid to an agency would be between $15,000 and $30,000,” says Nicole Witt, executive director of The Adoption Consultancy. While birth mother expense normally go into an escrow account and are paid to the provider as needed, “legal finalizations costs could be charged, as could any medical expenses such as co-pays and lab tests for the birth mother. And you can use a credit card to cover things like travel.”

Sex Therapist’s Office

Like other types of therapists, most sex therapists accept plastic as payment for appointments and related care. Expanding on the adult theme, credit cards are also welcome at many massage parlors, adult toy stores, and gentlemen’s clubs.

Tuition Office

Virtually all colleges accept plastic for tuition payments. Suggestion: Choose a card that earns frequent flyer miles and you can get free tickets for junior to jet home for the weekend. Got a younger child? Credit is accepted at many daycares, pre-schools, and private elementary/secondary schools, too.

Jail

Thanks to services like Government Payment Service, Inc., more than 1,200 government agencies in over 33 states are now accepting payments from credit or debit cards. Residents in many areas can avoid a night in the slammer by using plastic to pay bail 24 hours a day, seven days a week – even when the banks are closed and the clerk has gone home for the night.

Funeral Home

Whether pre-paying expenses for yourself or covering the costs for a loved one’s arrangements, you can pay for virtually the entire funeral process on plastic, from will preparation to cremation to funeral home fees. If you haven’t made prior arrangements and don’t have sufficient life/funeral insurance coverage, your only option may be a credit card or applying for a loan through the funeral home.

IRS

When you owe the government money, they want it paid yesterday. The Internal Revenue Service offers installment payment plans, but they come with interest and penalties until you pay in full. If you have a credit card with an introductory no- or low-interest period, using that card to pay Uncle Sam would be a money-saving alternative (assuming you can pay the card off before incurring any interest). Many local and state tax departments also accept payment in the form of plastic.

Car Loan or Home Mortgage

Ken Clark, a certified financial planner and author of “The Complete Idiot’s Guide to Getting Out of Debt,” has seen many people pull out the plastic for the down payment on a new car or house. “The charges don’t hit your credit score until after the loan is completed,” he says.

Church Collections Plate

Want to support your church, but short on cold, hard cash? Some churches will accept plastic, either directly at the house of worship or through processing services like MyChurchDonations.com or HolyProcessing.com.

But, Buyer Beware

Your choices of places to use plastic might seem limitless, but that doesn’t mean you should just spontaneously yell, “Charge it!” anytime the mood strikes. “Remember, most people use credit cards to pay for something when they’re tight on money,” Clark says. “But then again, if you’re tight on money, you should probably ask yourself if you can truly afford it in the first place. Consider ‘sleeping on it’ until your next paycheck and reevaluating the purchase when you actually have funds in your account.”

10 Odd Places to Pull Out the Plastic is provided by Experian.com

(anirudhkoul)

H.R. 627, more commonly dubbed as the Credit Cardholders’ Bill of Rights, was passed by the House of Representatives by an overwhelming 357-70 vote on April 30th. The bill, yet to be voted on by the Senate, promises reform in the credit card industry by providing protection for credit cardholders.

The Credit Card Crisis

Why is credit card legislation needed? In 2008, credit card issuers levied $19 billion in penalty fees on families with credit cards and this year, card companies will break all records for late fees, over-limit charges, and other penalties, pulling in more than $20.5 billion. According to House Speaker Nancy Pelosi’s blog, “Credit-card debt in the U.S. has reached a record high of nearly $1 trillion — and almost half of American families currently carry a balance, and for those families the average balance was $7,300. One-fifth of those carrying credit-card debt pay an interest rate above 20 percent.”

Something needed to be done to help the average consumer, that much is clear, but what would H.R. 627 mean for us cardholders? Before jumping into the specifics, let’s cover what first has to take place for this bill to provide any protection, as it has a long journey ahead of it.

The Credit Cardholders’ Bill of Rights Journey to Action

1. First, Senate Bill 414 must pass a Senate vote. Passage of 414 is not the guarantee that H.R. 627 was, as it offers added reform, and we can all guess how persuasive the credit card industry lobby must be.
2. Next, Senate Bill 414 must be merged by H.R. 627, so that the two can live in complete harmony.
    
3. Finally, it must be signed by President Obama – this should not be a tough sale.

If the legislation is still alive after all is said and done, the majority of the bill won’t take effect until July, 2010.

Barring major overhauls, how would the average cardholder benefit from the legislation?

A Summary of the Credit Cardholders’ Bill of Rights

To read the entire bill, you can find it on Representative Maloney’s site in its entirety. You may also check out the one page summary. Here are a few highlights from the summary, along with breakdowns on how it could impact you:

Ending unfair or arbitrary interest rate increases

• 45 days notice before rate increase – in other words, you must be allowed sufficient time to prepare for and potentially prevent rate hikes.
• No more ‘any time, any reason’ rate changes.

Letting consumers set hard credit limits to stop excessive over-limit fees

• No over-limit fees on those with limits – no charges for going over your fixed limit – you simply can’t charge any more.
• Cardholders can set limits – if you want to lower your limit to a fixed amount so that you don’t spend too much, you could potentially do so.

Ending penalties for cardholders who pay on time

• No interest charged during a grace period – this is so that you aren’t double-billed. Additionally, you would not get assessed a fee on interest if you pay your bill on time.

Requiring fair allocation of consumer payments

• No more forcing to pay off lower interest rates first, you should now get to at least pay off a fair allocation if you have cards with varying rates.

Protecting cardholders from due date gimmicks

• Statements must be mailed 25 days before due date (up from 14) – giving you more time to get your payment in and avoid penalty.

Preventing companies from using misleading terms and damaging consumers’ credit ratings

• “Fixed” and “Prime” rate must be used according to set definitions.

Shielding vulnerable consumers from high-fee subprime credit cards

• Fees for subprime cards, with fixed fees over a year exceeding 25 percent of the credit limit, must be paid up front before the card is issued. This is because these cards target those who are the most vulnerable.

What will the Credit Cardholder’s Bill of Rights Mean to you?

It’s clear that H.R. 627 is a step in the right direction for consumer protection. But it’s just a slice of a much larger pie.

• How do you stand to gain relief as a result of this legislation?
• Where do you see further room for reform?
• If you actively choose to not use credit cards, do you think that card users should be granted this relief?

Fore more of GE Miller’s writing, visit the personal finance blog 20somethingfinance.com.

As the US struggles with one of its deepest recessions since the 1930s, credit is on everyone’s mind. Mounting layoffs, declining benefits, and depressed assets are leaving people without steady streams of income and forcing them to question how they will pay their bills. Paying by credit card has lost its appeal as consumers worry about getting caught up in a downward spiral of debt. But credit cards aren’t evil in and of themselves. Used responsibly they can become an important spending tool that can also pay you back.

Before you can begin putting credit cards to work for you, you should understand that they can be seductive. The New York Times reports the average household’s current credit card debt is $8,565. That’s a lot of money, and it’s easy to accumulate this much debt without even noticing, something that doesn’t happen when you are paying by cash (your wallet will be noticeably lighter).

• Spending money is easier with a credit card than with cash because you don’t feel like you’re spending money.
• Individuals might be less likely to pay attention to how much they are spending or question their bill when using a credit card.

While it easier to spend money you don’t have with a credit card, there are real benefits to owning one.

• You have electronic records of your spending month to month.
• Credit card issuers are lending you money (for free!) for a month at a time.
• You can earn rewards like miles or cash back for the money you spend and receive other benefits that accompany many cards.

Using a credit card is also an integral part of establishing and strengthening your credit history, a report of your financial health used by lenders, employers, and others to determine if you are a risky bet.

If you use a credit card and have debt or are thinking about applying for a card, here are some tips for getting yourself out of the debt trap, finding the right card to earn rewards for your spending, and then keeping your credit card debt at zero.

Step 1: Pay Down Existing Debt-Start Yesterday

Fifty-five percent of credit card holders carry a balance month to month. Paying off these balances with high interest rates will take consumers years and rack up billions of dollars in finance charges.

If you are someone who carries a balance month to month on your credit card, paying down your existing debt is the first step towards improving your financial health and getting on the right track to using your credit card responsibly. Begin by transferring your outstanding balance to a card that charges no interest on balance transfers for up to 12 months. Most issuers offer a few cards with this powerful feature. After those months pass, transfer the balance again to another card with no interest and keep paying down your debt. Find one area where you can reduce your spending each month, like dining out or going to the movies, and funnel the additional savings into your credit card payments.

Step 2: Get the Right Credit Card – What Should You Look For?

There are hundreds of cards out there, and picking the right for everyday purchases is daunting. The first thing to look for is no annual fee. Many issuers offer great cards that don’t require an annual fee. Often, the annual fee isn’t justified by the card’s benefits, and it creates an extra expense. If you are looking for a card that offers rewards for a specific program like American Airlines miles, you might not have a choice. If this is the right card for you, try to get the first year free. You can also call the credit card company and try negotiating for a lower fee if you have a strong credit score or a history with the company.

Step 3: Get Rewards for What You Spend

You are going to be spending money on your credit card, so you might as well earn rewards for your purchases. First, determine whether you want to receive points, miles or cash back. Next, evaluate your spending patterns and try to find a card that offers bonus rewards for the purchases on which you spend the most. You will find many cards that offer bonuses for groceries, restaurants, travel, and numerous other categories. Mint.com can help you see where you spend your money each month and get a card that fits your spending patterns.

Step 4: Don’t Spend More Than You Can Afford

And now, the catch: Once you have the right credit card, the most important thing to remember is not to spend more than you can afford. In other words, make sure you can pay your credit card bill in full each month. Perhaps this message sounds easier said than done or overly simplistic, but it is by far the most important part of using your credit card wisely. By adhering to this principle, you will be able to take advantage of the benefits of using a credit card while avoiding the debt trap. What is a good tactic to accomplish this? For one, make reasonable monthly budgets for yourself and keep track of where you spend. If you exceed one of your budgets, figure out what pushed you over and how you can cut back. By simply monitoring your spending closely, you will find you are spending more than you previously thought and be able to determine how to adjust your spending.

Getting the right credit card for your daily use and staying out of debt while using it are not exact sciences. Some approaches work well for some and not others. However, by following the broad guidelines outlined here, you will set yourself on a path towards financial health. Don’t spend more than you earn and pay your credit card bill in full every month. Then make your card pay you back in the form of rewards.

After that, be creative. Try one approach to stay within your spending goals for a month or two and see if it’s working. If not, try something different. Hopefully, the right solution will reveal itself, and you will be able to take full advantage of what credit cards can offer.

Check out Mint’s credit card guide, credit card help and credit card calculators for more ways you can avoid credit traps.

No, we’re not trying to keep your expectations in check for the significant other of your dreams. We’re talking about that moment when you find the perfect credit card for you.

But how do you sort through the 1,738 credit card come-ons you got this week alone to find the One? What makes the perfect card depends on which of these categories you fall into:

• I have a balance I am trying to pay off.
• I never carry a balance, always pay my bill on time, and make complete stops at every stop sign.
• I occasionally carry a balance, spread my spending across several credit cards, and sometimes pay cash.
• I have little or no credit history, or one riddled with blemishes, and I can’t seem to qualify for any credit cards.

Paying off a balance:

If you are carrying a balance, a low introductory interest rate is a nice way to get ahead and pay down your debt faster. Keep in mind, though, that you’ll probably give up some other perks, like airline miles or cash rewards.

Look for:

• The right interest rate. Obviously, it behooves you to find the lowest interest rate offered. But since many cards have teaser rates, you have to know both what your initial rate will be, as well as what that rate will go up to after the teaser period ends. If you have a lot of debt, you probably won’t get it all paid off before the rate goes up.
• A card with no annual fee. This is a good feature to have, especially if you plan on canceling the card once you’re home free on the debt front. If you do have to pay an annual fee to get a great interest rate, make sure to factor that into the cost of paying down your debt

Watch out for:

• Rate games. Cards do all sorts of things that can bump your rate. Sometimes, low rates only apply to new purchases, which doesn’t help your existing debt. Conversely, a low rate on balance transfers may not cover new purchases. In addition, rates may adjust unexpectedly, especially if you are late on a payment.
• Steep penalty rates or fees. Penalty rates aren’t only activated when you make a late payment. There are penalty rates for everything from paying off your transferred balance too soon (some even retroactively affect balances you’ve already paid off) to carrying too large of a balance on another credit card entirely.

Never carry a balance:

Well aren’t you a goody-goody? The credit card world is your oyster (or kingdom, if you’re allergic to seafood). Why not get some perks for being a pristine credit card carrier? You can earn airline miles, perfume, teddy bears, and even cold, hard cash by using your credit card.

Look for:

• At least a 20-day grace period. If you don’t carry a balance, you should never pay any interest. But in recent years, the amount of time you have to pay your bill has shrunk considerably. Without a grace period, you’ll be charged interest before you even get your bill.
• A card that offers rewards. If you’re going to use it anyways, why not get something back for your credit card patronage? You can get airline miles, points for rewards programs, or even cold, hard cash.
• Low fees. Many reward cards carry annual fees. Make sure the rewards outweigh what you pay for them.

Watch out for:

• Usage fees. Usage fees are different from annual fees, in that you can be penalized if you do not use your rewards card enough. Though this is rare, watch out for rewards cards that charge fees for inactivity.
• Expiration dates on points. Some mileage programs have a “use it or lose it” clause, where the points you accumulate may not be carried over into the next year.
• Blackout dates. Depending on the airline and the deal the lender has secured, miles you earn by charging may be subject to certain time/day/month/location restrictions. This is especially problematic if you are unable to schedule a flight using your miles before they expire. Very simply: ouch.
• Minimum-spending requirements. A lot of cash-back programs require you to meet a minimum-spending requirement before you get one dime back. Some also have a steeped program where if you spend up to X number of dollars, you get 1% back; if you spend Y number of dollars, you get 2% back, etc. Ideally, you want a cash-back card that starts paying you back right away at a consistent rate, no matter how much you do or don’t spend.

Sometimes carry a balance, or have multiple cards:

Look for:

• A card that can help organize your spending. Some billing statements are better than others. If there’s a standout — one that helps categorize your purchases and analyze your spending patterns — consider canceling your subpar cards and sticking to that one.
• Some payback — even if it’s really small. Again, with a reward card — especially ones that offer cash back — at least you’re getting a little coin back for your plastic usage.

Watch out for:

• Carrying too much credit. It’s not the number of cards you carry; it’s the amount of available credit you have at your disposal that can be your downfall. Having total credit limits that are too high can make you a credit risk to many card issuers. Keep your access to plastic limited (most people only need two or three credit cards, at the most), and your credit limits totaling no more than 25% of your income.

Bad or no credit history, and trouble qualifying:

If you’ve had trouble getting a regular credit card, first, head to your bank. Your best bet in qualifying for a line of credit lies with the institution that harbors your money. Many banks offer debit cards — linked directly to your checking account — that can also act like a credit card.

If your bank does not offer a credit card, or if you are unable to qualify for one, your next option is a secured credit card. To get a “secured” credit card, you have to pay a security deposit to serve as collateral, in case you decide to skip town on your loan. Most secured credit cards carry an annual fee, and they set a minimum deposit (from $99 up to $5,000, in our research) for you to set up an account.

Look for:

• Reasonable terms. At least as reasonable as you can get. Rates may be high — 20% and up — so don’t carry a balance if you can help it.

Watch out for:

• Everything. Really. This market is filled with scam artists. Even legitimate lenders in the subprime business are considered bottom-feeders among their peers.
• Particularly heinous fees. Some lenders charge application fees, monthly participation fees, program fees, and annual fees. We’ve seen lenders charge $200 and more in up-front fees, then turn around and offer you a credit card with just a $250 credit limit — with all the fees already charged to the card. That means customers must pay off the fees before they can even start using the credit line for purchases.

No matter what your spending habits, there’s probably a credit card that best suits your needs..