When you’re applying for plastic, likely the last thing on your mind is what kind of impact your choice of card will have on your credit scores.  The problem is that every month I get multiple emails from consumers asking that very question: “How is this credit card affecting my credit scores?”  Here’s the one I got late last week: “I have a credit card that doesn’t report my credit limit to the credit bureaus. I have heard that this can lower my score. Is this true and if so, what can I do about it?”

This consumer’s question and concern are valid.  The practice of withholding credit limits from your credit reports CAN lead to a lower credit score for the cardholder.  In fact, up until a few years ago, Capital One didn’t report credit limits to the credit bureaus for any of their millions of cardholders - and many other card issuers followed their lead.  And then…the lawsuit.

In September and October of 2007, a consumer named William Harris filed class action lawsuits against all three of the national credit reporting agencies: Equifax, Experian and TransUnion.  The lawsuits, which were eventually dismissed, accused the credit bureaus of not maintaining reasonable procedures that would ensure the maximum possible accuracy of credit reports by allowing Capital One to withhold credit limits from their credit reporting.  Capital One began reporting credit limits soon after the lawsuits were filed and today the practice of withholding credit limits is rare, but not extinct.

The issue is that when you’ve got a card that doesn’t report credit limits,  the absence  impacts your “debt to limit” percentage ( ametric used in calculating your credit score), also called “revolving utilization.”  If you’re not familiar with this percentage, I’d suggest reading this article on the topic that I wrote earlier this year.  Here’s the truth about the issue:

How Missing Credit Limits Impact Your Credit Score

A missing credit limit can result in one of three things happening to your credit scores: the score can go up, go down, or remain the same.  If you have a credit card with a missing credit limit, then the FICO score will use your highest historical balance (called “high balance” on a credit report) in lieu of your actual credit limit when calculating your utilization percentage. If your highest historical balance is at - or close to your credit limit - then it’s a wash, and your score won’t be negatively impacted.

If, however, your highest balance is very low relative to your credit limit, then yes, it’s very possible the missing credit limit is negatively impcting your score.  Finally, if you’ve actually managed to charge OVER your limit, then your highest balance is actually higher than your credit limit and the practice could actually be helping your scores.

So, how do you know if you’ve got a credit card that’s not reporting the credit limit?  The fastest and most accurate way of determining this is by claiming one of your free credit reports from http://www.annualcreditreport.com/, where you’ll see a list of your credit cards as reported by your issuers. If the limits are missing from any of your credit card accounts, then you’ll know who does (or doesn’t) report limits.

How to Handle Missing Credit Limits

If you do find out that one of your credit card issuers isn’t reporting credit limits, then you can certainly ask them to do so.  But, keep in mind that they don’t have to comply with your request, as there is no law requiring them to report credit limits.  You can also certainly move your business to a newly opened credit card - one that does report credit limits - if you like.  This involves applying for, being approved and activating the new card.

Keep in mind, though, that opening a new card isn’t a benign event vis-à-vis your credit scores. You’ve applied, which means there’s going to be a new inquiry on one of your reports. And, the new account is going to probably end up on all three of your credit reports, which could lower your scores because of how it impacts the average age of your credit accounts (a higher average account age positively impacts your score).  The net effect will likely work in your favor, so don’t be scared of moving your business if you’re not happy with your credit card issuer.

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.

A credit card for your kid? Pshaw. But wait – don’t shake your head at me. There are legit reasons to give your kid plastic. Reasons that could make your offspring a savvy spender, increasing the odds they’ll be able to support you in your geezer days.

 Nip abuse in the bud

 Some 60 percent of Americans with credit cards carry a balance to the average tune of $7,300, said Matt Schulz of CreditCards.com. Think their parents taught them about credit cards? Giving your child a credit card is scary, but letting them dive into credit unsupervised is even scarier. I’m talking “Blair Witch Project” scary.

“I’m all for teaching kids about credit as young as possible,” says Beverly Harzog, a writer for Credit.com. “If they’re ready.” Certainly before they shove off for college and some may be ready – gasp – as young as middle school.

So trust your ability to make a credit card an educational tool (if I may get all didactic on you).

When shopping, explain how the card works and when the bill arrives, explain it again. Due date? Check. Payment options check? Check.  Interest rate? Check. Grab a calculator and show them what an interest rate is – in real dollars. Talk about what happens if you don’t pay off the balance in full and make a rule to always do so.

“There have to be boundaries,” said Linsey Knerl of 1099Mom, who introduced her 9-year-old daughter to plastic through low-balance store gift cards. “There has to be conversation. There has to be follow up.”

 Let them piggy back

 After your kid shows signs of financial stability, consider helping them build their credit history. Your options include:

Pre-paid gift cards – These popular cards from Visa or MasterCard almost always have maintenance fees, so use them carefully.

Pre-paid credit card – This type of card won’t build credit, but the upside is that a child as young as 13 can get one.

Secured credit card – Put $500 in a bank account to secure the credit limit, then if the bill doesn’t get paid, the bank uses the deposit to cover it. Make sure the issuer reports the payments to the three major bureaus, Experian, TransUnion, and Equifax.

Debit card – Set your kid up with a debit card before graduating to credit. Tie it to their bank account and set up notifications so you can see where your child is charging. If they can’t handle debit, forget about credit for now. The downside is that a debit card does not establish credit history.

Authorized user – It’s still your account and your responsibility to pay, but as an authorized user your kid can make charges on your card. Be specific about what items you are allowing them to charge and remove them immediately if they screw up. Authorized users build some credit history, but not as much as a co-signer.

Tip: Consider credit from a security standpoint, Knerl suggests. “Would you freak out if you lost your checkbook? Imagine you’ve got a 15-year-old running around with your credit card. And kids never lose anything right?”

Co-signer – At 21, your grown child can get a credit card as long as you sign off on it (or if they can show a stable source of income). On their own, your child might only qualify for a secured credit card with a low limit and high interest rate. But think twice before you put your own credit history on the line, because if junior goes on a shopping spree, you are legally both on the hook to pay it off.

“The earlier you start, the easier it is to get credit later on,” said Jeanine Skowronski, a writer at TheStreet.com. “When I was 18 my mom co-signed for me. Then when I got to the point in life when I was trying to buy a car, it was a lot easier because I had a credit history.”

When the time comes, sort through credit offers being sent to your kid and help them evaluate their options. If your kid heads to college without some experience with plastic, the opportunity is ripe for epic fail.

“So many students go to college and don’t have a handle on why they need to pay the bill in full, how this can snowball into a real albatross around their neck when they graduate,” said Laura Rowley of DailyFinance. With tight boundaries that you set, failure may come, but in small doses. Aside from staying out of debt, more and more employers are checking applicants’ credit history, meaning solid credit lessons early on could improve chances of employment down the road.

 911

 In an emergency, having a credit card could help your kid. As long as you and s/he have the same definition of emergency.

Julia Scott blogs about saving money on everyday expenses like groceries, gasoline, and gifts at BargainBabe.com.

This new fee frenzy for debit card users isn’t the first significant change to consumers’ debit card accounts. Many banks have cut back on their debit card rewards programs or eliminated them entirely. The cost to subsidize such programs was no longer acceptable in their eyes.

Bank fees certainly aren’t new, nor are they unexpected. The real question is: Why so many - and why now?  The answer will vary depending on whom you ask. Some consumer advocates argue that bank fees are charged for the sole purpose of juicing a captive customer, one who is either unwilling or unable to go through the hassle of moving their accounts to another bank  (who might start charging them a new fee soon thereafter, anyhow).

If you listen to representatives from the banking industry, though, they’ll tell a very different story. Their story is one of excessive regulations over their revenue generating practices, such that they have no choice but subsidize their legislative compliance costs by imposing higher fees on customers.

According to Jamie Dimon, the CEO of JP Morgan Chase, “If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.” So, what regulations have emerged in the past few years that are acting as an incentive for banks to charge us more fees? Well, in all fairness to the banks, the list is long:

1.  No more over limit fees for credit card use. The exception is if the cardholder gives the bank permission to charge them the fee, normally $35.

2.  No more overdraft protection fees. The exception is if the customer “opts in” and allows the bank to charge them the fee, normally $35-$39.

3.  Debit card interchange fees (“swipe” fees) capped at $0.21.  This fee used to be on average $0.44 per transaction and was paid by merchants, not consumers. This one still befuddles me, as consumers and consumer advocates were NOT asking for this “protection.” Have you noticed a 21 cent reduction on the things you purchase with a debit card? If not, then your merchants aren’t passing the benefits of the lower margin down to you.

It’s this last one that is pushing big banks to charge you for debit card usage. They don’t make as much from the merchant swipe fee any longer, so they’d rather you use a credit card issued by the same bank. Credit card swipe fees were not capped, so they still do very well on these merchant fees.   

How To Avoid Bank Fees

Other than interest, the most expensive bank fees are punitive, such as fees for paying your credit card bill late or overdrafting your checking account. These fees are easily escaped by simply avoiding these actions.

The problem is that fees are rapidly creeping into the lives of even “well-behaved” customers, making them harder to avoid. However, there are ways to avoid even what appear to be justifiable fees:

Credit Unions – There are over 10,000 credit unions with about 76 million customers, so they’re not a secret (although my students at the University of Georgia looked at me like I was making stuff up when I started talking about credit unions two weeks ago).  And while credit unions do require that you be a part of some of unique population (state employees, federal employees, teachers, other employer groups, etc.), there are simply so many that chances are you’ll qualify for membership with at least one. 

Credit unions pride themselves on providing top-notch service to their customers (“members”).  Most offer similar services to the mega-banks, and do so with more competitive rates and fees.  And yes, your deposits are insured up to $250,000 by the National Credit Union Administration, just as the FDIC insures most bank deposits. 

Customer-Friendly Local, Regional or National Banks – When we get mad at banks, we tend to focus on the largest 10-15 (primarily because most of us are doing business with at least one, if not more, of them).  But, there are also thousands of smaller, local, and regional banks that are much less likely to charge excessive fees than the big boys.  And, there are even some large national banks that pretty much avoid the fee game.  Check out USAA Federal Savings Bank’s fees, for example — if you can find any.

Online Banks – When there aren’t any buildings to pay for, the cost of doing business goes down. It’s that simple. Having said that, doing business with a bank that doesn’t actually exist in the physical world is a leap of faith for many. The good news is that most of them are FDIC insured so your dough is protected (up to $250,000).

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.

Today, learn a powerful technique for negotiating late fees on your credit card. Nobody’s perfect. Accidents happen, and you might miss a credit card payment at some point. When this happens, you can use this script — tested thousands of times — to get the fees instantly waived. Here’s what to say to immediately beat a late payment:

You: Hi, I noticed I missed a payment, and I wanted to confirm that this won’t affect my credit score.

Credit Card rep: Let me check on that. No, the late fee will be applied, but it won’t affect your credit score.

(Note: If you pay within a few days of your missed bill, it usually won’t be reported to the credit agencies. Call them to be sure.)

You: Thank you! I’m really happy to hear that. Now, about that fee… I understand I was late, but I’d like to have it waived.

Credit Card rep: Why?

You: It was a mistake and it won’t happen again, so I’d like to have the fee removed.

(Note: Always end your sentence with strength. Don’t say, “Can you remove this?” Say, “I’d like to have this removed.”) At this point, you have a better-than-50-percent chance of getting the fee credited to your account. But just in case you get an especially tough rep, here’s what to say.

Credit Card rep: I’m very sorry, but we can’t refund that fee. I can try to get you our latest blah blah marketing pitch blah blah. . . .

You: I’m sorry, but I’ve been a customer for four years and I’d hate for this one fee to drive me away from your service. What can you do to remove the late fee?

Credit Card rep: Hmm…let me check on that. Yes, I was able to remove the fee this time. It’s been credited to your account.

You don’t believe me that it’s that simple? It is. Anyone can do it. Support reps at credit card companies are literally trained to react this way when you say these things to them. It’s their job to retain you, and that includes letting the occasional late payment slide.

Keep in mind that this won’t work forever. If you consistently blow off your payments and gain a reputation as a “problem customer,” no script can save you. But if you’re an overall good customer and sometimes fall back, this will usually get you out of paying.

Here’s what some of my students say:

“I just made two calls, got one late fee reversed with Men’s Wearhouse, and $70 worth of Wells Fargo ATM fees that I racked up while out of the country, wiped out. Took about 10 minutes – $85! That’s a rate of $510 per hour. Got late fees? Make a call to your company and just ask – easy way to save yourself some cash. (And thank you Ramit Sethi.)”

–Anthony Avila

Just got my credit card late fee refunded thanks to @ramit’s advice on negotiating bank fees. His book just paid for itself!

–Lingbo Li

@ramit Followed your advice… Called the bank, $19 in lame service charges wiped… Thanks great tip from the book.

–Josh Bellamy

Give it a shot. With a few minutes, you can get most late fees waived.

Ramit Sethi is the author of the New York Times best-selling book I Will Teach You To Be Rich and runs a blog of the same name with 300,000 monthly readers. Click here to get a free chapter from his book.

No, this isn’t going to be yet another regurgitated advice piece telling you to pay off the cards with the highest interest rates first because you’ll save money.  Anyone who suggests that’s the best and only way to prioritize cards for accelerated payback is simply scratching the surface of the options and is only looking at the problem from one dimension, interest rates.  The next time you’re going to resolve to pay off some plastic you should consider these options and pick the pay-off strategy that works best for you;

Paying Down The Card That is The Most “Maxed”

This is a credit score play, which is also an indirect financial play.  Remember, every single one of your credit card issuers has the ability to check your credit reports as often as they like through a process called “Account Management.”  That means your spending activities on other cards are no secret and can lead to adverse creditor actions, even with the CARD Act protections in place.

Having a card that is highly leveraged often leads to lower credit scores because of your elevated utilization percentage.  I wrote about utilization and how it’s calculated here.  Ignoring highly utilized cards can often lead to other credit card issuers increasing the interest rates on their cards, lowering their credit limits or closing the account altogether.  They’re doing this because they can clearly see that you’re bouncing near your credit limits, which is very indicative of elevated credit risk.

The Card With the Lowest Balance

I’m not suggesting this strategy because you’ll feel some sense of accomplishment when the statements stop coming, which may or may not actually be true.  I’m suggesting it because it’s also a credit score play, which comes with the same benefits as I described above.

There’s a measurement in the FICO credit scoring system that counts the number of accounts with a balance greater than $0.  In fact, for consumers who have decent scores this is one of the more common reasons why their scores aren’t even better.  Eliminating a balance, or several of them, softens the blow of this measurement.

The Card With the Lowest Interest Rate

This is a little counterintuitive but still a solid strategy, especially if you do business with trigger-happy credit card issuers who haven’t gotten their arms around their credit card default rates.  The last thing you want to do is give your credit card issuer an incentive to increase your interest rate from 12.99% to 24.99% just because your balance is too high.

The CARD Act prevents retroactive rate increases so it does them no financial good on the current balance to increase your rates.  But, if you’ve proven that you are willing to run up a huge balance on a low rate card then perhaps you’d be willing to do so on a card with a higher rate, where they will benefit financially.  As long as your card is at least 12 months old the issuer can increase your rate for any reason as long as they give you a 45-day advance notice.

The Card With the Highest Limit

There are a variety of reasons why it’s good to have high limits on your credit cards.  Perhaps the most significant benefit is the access to unsecured capital, which in most cases costs your nothing more than maybe an annual fee.  And, as previously mentioned, your credit scores benefit from having cards with high limits.  You’d like to maintain these benefits by NOT giving your issuer incentive to lower your limits.

There is a phenomenon in the credit card industry called “chasing the balance”, that became more commonly known of after Hurricane Katrina.  Many Gulf Coast residents were using their retail cards to survive and many issuers of those cards were lowering the limits down to the current balance.  When the cardholder made a payment the issuer would lower the limit in lock step, thus chasing the balance.

If your issuer feels like your risk has elevated, but not so much to close the card, they may either lower your limit by a predetermined percentage OR chase your balance right down to when you pay it off.  Keeping your balance moderate even on high limit cards can prevent this.

You’ve probably noticed that most of these strategies are either contradictory or, at least, not always in the best interest of the issuer.  Credit card issuer risk managers are tasked with controlling the downside risk of their cardholder portfolio and they don’t have all the answers.  That’s why your “risk” measurement is fluid from one issuer to another, and even from one billing cycle to another.  Clear as mud, eh?

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.

You can pick your credit card by the biggest cash back payout or lowest interest rate, but if you’re looking for the best travel benefits the choice is trickier. Choosing the right card for travel is different because you can incur fees you wouldn’t normally expect and find savings that you wouldn’t think to take advantage of. Here’s the best cards for frequent flyers or just aspirational ones.

Best for carrying excess baggage

If you are an inveterate golfer, clothes horse, or you plan to drag the munchkins down to Disney World with all their toys, then you could easily rack up baggage fees that add a pretty penny to an already expensive vacation. Randy Petersen, publisher of InsideFlyer magazine recommends United and Continental cards for their range of free checked baggage perks. With Continental’s OnePass card you get the first checked bag free every time you fly when you use it to purchase tickets on Continental or United (a savings of up to $50 per round trip per passenger checking bags). Up to eight people traveling with you will also get their first checked bag free if they are listed on the same reservation. The Continental Presidential Plus card (with higher annual fee) gives you – and up to eight people booking with you – two free checked bags.

Delta’s SkyMiles American Express card offers first free checked bag and for that of up to nine people travelling on the reservation. For all the extra gear you don’t send to the hold, premium cards from United, Southwest, and other airlines – or elite status in frequent flyer programs – often offer priority boarding or permanent booking into zone one on the plane, which will ensure that you’ll find space in overhead bins.

Regardless of what card you use, Southwest still lets passengers check their first and second bags for free and JetBlue offers one complimentary checked bag.

Best card to get you to exotic locations

Years ago there were some clear-cut winners if you wanted to use points to land yourself in a tropical locale. Nowadays global alliances such as oneworld and SkyTeam, mean that even mostly domestic airlines may have partners that will land you at hundreds of destinations.

But among the smaller airlines, there are some big differences. Frontier Airlines has no partnerships, and JetBlue won’t put you anywhere more exotic than the Caribbean. However, Alaska Airlines partners with American, Delta and 12 other airlines, so if you’re on the West Coast you can get yourself almost anywhere in the world. And with Southwest,  the points you earn through their program can be used on 50+ carriers – something that no other frequent flyer program allows.

Getting to exotic locations is one thing, but you don’t want the card that you booked with to be charging you those 3 percent foreign transaction fees on every purchases when you’re there. Capital One is the only major issuer to not levy that fee, while some American Express, Citi ThankYou cards waive it, as well as several of the higher-tier airline credit cards that carry steep annual fees.

Best card for infrequent flyers

If you’re more of a frequent buyer than a frequent flyer and earn most of your points through spending rather than flying or logging hotel stays, you’ll need to be more strategic in maximizing your miles.

“The best way to get free travel is to watch for unusually generous sign-up bonus offers, such as the recent 100,000 mile bonus on British Airways,” says George Hobica, the founder of airfarewatchdog.com. “You can sometimes negotiate your way to higher bonus offers than what is actually advertised with some airline credit cards.   It really pays to get on the phone and shop around; ask the phone rep how many bonus miles they’re offering and ask for even more. There’s always a deal lurking in their computers.”

Outside of those periodic sign-up deals, which you can search for on sites like frequentflier.com, insideflyer.com, and airfarewatchdog.com, Hobica recommends sticking with a cashback card. You can take the cash you earn and buy a ticket through discount sites like Kayak.com, Orbitz.com, or Sidestep.com. This will also help you avoid the capacity controls and blackout dates that are endemic to the frequent flyer programs.

Some general points cards like upper-tier Amex cards and the Chase Sapphire allow you to transfer points into some airline programs. Chase is currently offering a 50,000 point sign-up bonus, equal to two free domestic roundtrip tickets with its Sapphire Preferred card that carries an annual fee, and 25,000 points with its standard card. Points earned with the Starwood Preferred Guest American Express card can be used at Starwood hotels or transferred into some airline programs with a 25% bonus.

Best card for bringing along a companion

By now many of the frequent flyer programs have some sort of discounted companion ticket award that you get annually, or even more regularly if you have elite status. Alaska Airlines Visa Signature card and the Delta SkyMiles American Express sends cardholders a coupon code for a $99 companion ticket (plus taxes, of course) once a year.

For high rollers, the American Express platinum card offers free companion tickets when you book a business or first class ticket through AmEx’s travel services (with $78 booking fee). On international flights (where a first class fares start at $2,000), the benefits of that free companion ticket easily outweighs the $450 annual fee the platinum card charges, and the $200 in annual reimbursements for flight incidentals like baggage fees, flight-change fees, Wi-Fi, or in-flight food or cocktails makes it an even sweeter deal.

See Mint.com’s Ways to Save page to compare credit cards.

Michael Allegro is a New York-based personal finance writer who specializes in consumer interest, investing, banking products, and travel.

Photo: BigBeaks

It’s a very simple question with a very complicated answer.  Exactly how does a credit card solicitation find its way into your mailbox?  I don’t think most people understand just how many moving parts there are “behind the scenes”, all with the goal of getting a card into your back pocket or purse.  The chronology of events that occur prior to an offer being made is long and fairly misunderstood.

Step 1 – The Decision

Credit card issuers don’t do anything arbitrarily, especially when deciding whether or not to market a credit card to an individual or a group of individuals.  The decision is generally one that’s based on a variety of metrics including, but not limited to, take rate (the percentage of consumers who will actually bite on a credit card offer, aka “response rate”), activation rate (the percentage of approved applicants who will activate the card when received), usage rate (the percentage of approved and activated card holders who will actually use it), and profit and loss (the amount of revenue generated by the cardholders minus write offs and overhead).

If a card issuer determines that marketing a specific type of card to a specific consumer or geography will yield a large number of users who will generate enough revenue…then we’re on to step 2.

Step 2 – The Prospecting

Walk to your mailbox almost any day and it’ll be filled with credit card offers.  Why your mailbox?  Again, it’s not arbitrary but based on hundreds of decision variables, which is often called the “selection criteria.” In order for you to get one of those offers the credit card issuer has to believe that you meet their criteria for credit risk.  That’s usually one of the most important traits in the issuer’s mind.  How in the world do they know what kind of risk you pose if you haven’t applied for credit?  Here’s where it gets fun…

The credit reporting agencies all have massive databases and you’re in all of them.  And unless you’ve “opted out” of receiving pre-approved credit card offers, they’re selling your information to credit card issuers for their prospecting purposes.  Don’t get me wrong, they’re not actually selling your credit reports, yet.  They’re just selling the issuers a list of consumers and addresses that meet their criteria for credit risk. Follow me…

John’s Bank wants to test market a new credit card in the Atlanta market.  Let’s say hypothetically my bank wants to acquire 5,000 new test customers in that area.  But I don’t want just any 5,000 customers.  I want 5,000 customers with FICO scores greater than 720.

So, my next step is to tell the credit bureau that I want to buy a list of consumers who all live in Atlanta (I’ll give them a zip code list to go from) and all have FICO scores greater than 720.  The credit bureaus then take that criteria and provide me with “counts” or the volume of consumers who meet my relatively simple requirements.  Let’s say 2,500,000 people meet the “Atlanta plus FICO 720” criteria.

I can buy the entire list of 2,500,000 prospects if I want.  But, remember, I only want to take on 5,000 new customers for my small test.  A typical response rate for a credit card solicitation mail campaign is about half of 1%, which means if I mail my offer to all 2.5 million people I will likely end up with 12,500 new customers.  That’s too many for my test.  What does the bank do?

The next step in the process is for the list to get cut down to a size that will likely yield a number of new customers with which I’m more comfortable.  And, since the response rate will likely be about ½ a percent I tell the credit bureau that I just want 1,000,000 prospects.

Step 3 – The Deployment

Now that we’ve determined 1,000,000 prospects will leave me with 5,000 new customers it’s time for me to send them the offer.  The credit card issuers don’t do this in house.  They’ll outsource the process to a professional mail house that will take delivery of the entire list of 1,000,000 prospects and merge their names and addresses on the credit card offer and drop them in the mail.

At this point the mail house sends the credit bureau a list of everyone who was sent an offer.  It won’t be exactly 1,000,000 because some will be dropped because of address issues and other issues.  The credit bureau takes that list of posts promotional inquiries on their credit reports.

Step 4 – The Delivery

A few days later you get home from work, check your mail, and find a new credit card offer from John’s Bank.  99.5% of you will trash it straight away.  But, 0.5% of you will open it and find the offer appealing enough to fill out the accompanying application and send it back to me for processing.   What have you just done?  You’ve technically applied for credit with John’s Bank.

When I get the application back from you I’ll pull your full credit report and score.  I do this to set the final terms of the card including the rate and the credit limit.  Technically since I used credit report screening I have to offer you something.  That’s the law. It’s called a “firm offer of credit or insurance.”

There are ways around that requirement though, like if you just filed bankruptcy the day before.  But most of you will get a new card with a super cool John’s Bank logo on it.  Within 30 days an innocuous envelope shows up in your mail with a Delaware return address.  You open it and see your new card.  And after you call to activate the card I’m happy to call you a new customer of John’s Bank.  Welcome!

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.

(iStockphoto)

Should you buy extended warranties? I’ve covered the subject before and firmly stand by what I’ve said before:

If you’re thinking about buying an extended warranty, put the money into a savings account instead. You’ve just become your own insurance company. Over time, you’ll spend less on fixing or replacing your own stuff than you would have on warranties, and you’ll never have to argue about whether a particular mishap is covered.

But what if you could get an extended warranty for free? Good deal, right? Well, you can. It’s simple, and requires nothing more than a tool that’s most likely already in your wallet — your credit card. You can smugly tell the Best Buy salesguy about it when you decline his extended warranty.

Charge it

Before I get into the details, let me own up to a little hypocrisy. I’ve always taken my own advice about not wasting money on extended warranties, except when it comes to products made by a certain fruit-themed computer company. The standard Apple warranty is one year. Tripling that to three years for a laptop costs $249. I’ve dutifully ponied up the cash because (a) I break a lot of laptops and figure I’ll come out ahead, and (b) that Jobs guy doesn’t seem to have enough money and I feel sorry for him.

What I didn’t know until recently was that I could turn that one-year standard warranty into a two-year warranty without spending a dime, simply by putting my purchase on almost any major credit card. Visa (V), Mastercard (MA), and American Express (AXP) will all extend a manufacturer’s warranty by up to one year. Naturally, each card’s policy is slightly different. The details:

Visa Warranty Manager: If original warranty is 1 year or less, Visa doubles it. If original warranty is 1 to 3 years, Visa adds an additional year. You can even send a copy of your receipt and warranty info to Visa and they’ll keep it on file for you. Call 800-882-8057 for service within 60 days of product failure.

Mastercard Extended Warranty: If the original warranty is 1 year or less, Mastercard doubles it. If the original warranty is greater than 1 year, no benefit. Call 1-800-622-7747 within 30 days of product failure; you must supply the original receipt and warranty info. The deal also applies to purchases made on a Mastercard Gold Debit card.

American Express: If the original warranty is less than one year, Amex doubles it. If the original warranty is 1 to 5 years, Amex adds an additional year. Call 800-225-3750 “as soon as possible.”

Watch out

Naturally, all is not love and kisses and free warranties in credit card land. There are several gotchas to keep in mind:

Keep your documentation. “You must keep a paper trail,” says Mary Ann Campbell, a spokesperson for IndexCreditCards.com. “You need to have your original receipt and your original warranty.” In the case of Visa’s Warranty Manager, keep a copy of any documents you send them.

Keep the card active. If you charge a toaster on your Mastercard today, cancel the card, and then the toaster breaks, all you get is extended aggravation. In order to file a claim, you have to keep the card open and active.

Don’t split the check. To get the extended warranty on an purchase, you have to put the entire purchase on one card. Online computer vendors, for example, often allow you to split your purchase between two cards. Do so, and you blow your extended warranty coverage.

Read the fine print. Card issuers (banks) can set their own extended warranty policies. Check your issuer’s website. In addition to that, issuers keep a pretty long laundry-list of items that are not covered by their warranty programs, usually including items purchased for professional use, items intended to become part of real estate (for example, a ceiling fan or a window frame), computer software and used, antique or collectible items.

Extended warranty coverage isn’t a headline perk like reward points. You wouldn’t choose your credit card based on its warranty policy. And, by all means, if you revolve a balance, you should not charge your new laptop on a credit card just to get the extended warranty. The free extended warranty is truly free only if you pay your card balances in full each month.

But it’s good to know the policy on the cards in your wallet, so when you do buy a refrigerator and the ice machine breaks, you can make your bank pick up the tab. (And why do ice machines always break, anyway?)

When I bought a new laptop last year, I put it on my Mastercard and skipped the AppleCare. I collected some Amtrak miles and the double warranty and paid the bill right away. Unfortunately, I wasn’t at Best Buy, so the only person I could smugly tell was my wife, who will probably laugh at me when my laptop dies the day after its second birthday.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

photo: BigBeaks

Credit card utilization is one of the most important credit score-related topics, and also one that’s often misunderstood. This complicated equation, also called revolving utilization, is an incredibly important factor in your FICO credit scores. Grab your credit reports and a calculator as I walk you through it.

Credit card utilization is the relationship between the balances on your credit cards and the credit limits on all of your open credit card accounts.  It is expressed as a percentage and is calculated a number of ways.  It’s so important that it is a key factor in the “Debt” category of your FICO credit score.  The debt category is worth 30% of your FICO score points and while the credit card utilization percentage isn’t alone worth all 30% (that’s a myth), it’s certainly key to earning and maintaining great scores.

Line Item Utilization – Calculate this first

The first way to calculate your credit card utilization is by doing so for each one of your cards.  So, go grab each and every one of your credit cards, retail store cards and gasoline cards and make a stack.  As long as they have revolving terms, meaning you don’t have to pay them in full each month, they need to be in your pile.

Each of those cards has a credit limit, which is the highest amount that can be charged on that card.  You can find the limit by looking at a statement or by calling the credit card issuer.  Or, you can look at your credit report.  Getting the limits from your credit reports is the most important method (because that’s how credit scores calculate utilization) but they aren’t 100% accurate 100% of the time.

For every card that has a balance (meaning you got a bill this month), divide that balance by the credit limit.  Then multiply that figure by 100 and you’ll get the utilization percentage on that card.  So, if you have a $50 balance and a $500 credit limit you’ll get 10%.  Your goal is to have the lowest possible percentages.

Now, you’re going to be tempted to cheat.  Just because you already did or plan to pay the balance in full doesn’t mean your percentage is 0.  Credit scores can’t tell what your intentions are and as long as the balance is showing up on your credit report then you will have a utilization percentage greater than 0.

NOTE: Sometimes credit limits don’t show up on credit reports.  This is what I was referring to earlier about it not being accurate 100% of the time.  If your report has missing credit limits on open credit card accounts then you’re not out of the woods.  Look for the field called “High Balance” and use that figure in lieu of the missing credit limit.  The high balance is the historical highest balance on that account.

Aggregate Utilization – Calculate this next

The method for calculating aggregate utilization is exactly the same as it was for line item utilization except for one difference.  You’ll need to add together all of the balances on your credit cards and all of the credit limits as well.  Then you’ll divide the aggregate balance by the aggregate limit.

Now, it’s important you do this right.  Just because you have a credit card that doesn’t have a balance doesn’t mean it won’t count here.  You’ll still include the credit limit, which will help your percentage.  This is the number one reason you don’t want to close credit card accounts even if you don’t use (or want) the card any longer.  The unused limit helps your utilization percentage.

What’s a Good Percentage?

According to FICO, the consumers who have the highest scores in the country (760 and above) have an aggregate utilization of 7%.  That’s about as clean of an answer you’re ever going to get to a FICO score question.  Of course that doesn’t prevent people from giving answers that are all over the place.  I’ve seen 30%, I’ve seen 50% and I’ve even seen 70%.

The way the scores are designed rewards consumers for having a lower rather than higher utilization.  So, generally, the lower the number the more points you’re going to earn in your score.  30% is better than 50%, but not as good as 7%.  And I’m not sure where in the world someone got 70%, that’s just terrible.

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.

(iStockphoto)

One of my favorite things about writing for Mint is the quality of the comments to my articles.  I don’t care whether they’re supportive or adverse, at least you’ve thought enough about the issue to render and then express your opinions.  My article from last week about how the CARD Act will likely hurt men and women who don’ t have independent income resulted in many comments, so many that a follow up seemed appropriate.   

If you don’t have time to read the article, here are the Cliff Notes: Under the CARD Act, individuals applying for a credit card must have an income or a co-signer to be approved for a credit card.  Otherwise, no luck. I don’t like that provision, and I let it be known. 

That said, people in that position are still able to get or use credit cards, legally and ethically, with the four strategies below:

Become an Authorized User

An authorized user is someone who has a card with his or her name on it but doesn’t have financial liability for the payments (except in certain instances in community property states).  They do, however, have full charging privileges, just like the primary cardholder.  The card does show up on their credit reports, in many cases, so being an authorized user is a great way to establish credit or rebuild credit. 

Think of it like having a credit card with training wheels.  It’s a great way for young people to begin their credit journey.  Or, it’s a way around the CARD Act provision that prevents issuers from opening a card for someone who has no income.  The “authorized user” strategy is a generally accepted method of getting some plastic in your wallet… just be responsible with it! 

Find a Co-Signer

This is a dangerous road, so I caution anyone who chooses this option.  In fact, we’re now seeing students co-sign for other students in order to get credit cards: that’s bad news (though it supports what I’ve said before: people are going to find a way to get a card if they want one badly enough). Why? Because once you co-sign for a credit card, you are liable for that debt, no matter what.

In many cases the co-signer is going to be a spouse, which might seem completely benign.  However, with divorce filings at 50% of marriages it’s a chance that about half of you will wish you hadn’t taken.  Co-mingling debts is easy… de-mingling them is next to impossible.  And, in a divorce scenario, “working together” to separate debts (a requirement of the card issuer) seems unrealistic.

Find a Job

Yes, I know this makes all the sense in the world.  No income should equal no credit card, right?  Trust me, it’s just not that simple.  Hit a popular area mall at 2:00pm on a Tuesday during the school year and an overwhelming percentage of the people you’ll see are stay-at-home moms and dads, who have no individual income.  Eliminating their ability to get credit on behalf of their household seems unfair to me. 

Certainly you can get a job and then “work” your way around the income requirement provision (pardon the pun).  I just don’t think it’s a realistic to expect someone to go to a retail outlet, be denied a card because of no income, go find a job, and then come back to re-apply.  Which brings us to the last strategy on our list, which also happens to be much easier…

…Use Another Card

The income requirement, thankfully, only applies to new accounts.  It doesn’t apply to the continued use of an existing credit card account.  The CARD Act police are not going to knock on your door and take away your cards if you can’t produce a paystub.  (To me this is the very reason why the income requirement makes no sense.  Instead of allowing the “buyer” to open a new account and save 15%-20% off the purchase we’re going to force them to use an existing card, at no discount.  They’ll spend MORE, not less.) 

Look, I realize there are good reasons to keep certain people away from plastic.  In fact, there are some people who shouldn’t have credit of any kind… ever.  But to simply make it a rule that an income is required in order to open a card, which doesn’t mean you’ll ever use it or ever revolve a balance, seems like a nuclear approach to a surgical problem.  I’d always err on the side that thinks educating someone, be they under 21 or a stay-at-home spouse, on the dangers of plastic use is a teaching opportunity that pays immeasurable dividends. 

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.