Master Your Card » Credit Cards

Best Credit Cards for Bad Credit, Average Credit, Good Credit and Excellent Credit

Jack — Wed, 17 Mar 2010 10:35:37 +0000

If you grew up in an egalitarian society with a loving family, you’ve probably been told over and over to reach for the stars and set your sights high. You can achieve anything if you believe in yourself! Well guess what, that’s all a bunch of B.S. – at least when it comes to credit cards. It doesn’t matter how swell of a guy or sweet of a gal you are, there’s one major thing holding you back from the credit card of your dreams: your credit score. So, instead of getting your hopes up and then having them dashed into a billion little pieces, let’s be realistic. Set the bar low, if necessary. Go get your free credit score and then come back and we’ll show you the credit cards that are in your league whether you have bad credit, average credit, good credit or excellent credit.

Bad Credit – 500 to 580

A FICO score between 500 and 580 is in the range of bad credit. (Anything lower is worse than bad and you really have no business getting a loan or revolving credit account until you repair your credit.) Your primary goals as a cardholder with bad credit are to:

Avoid damaging your credit further.
Begin building up good credit.
Avoid getting destroyed by fees, penalties and high interest rates.

A cursory search for credit cards for people with bad credit will turn up a plethora of “prepaid” credit cards. However, these are essentially the worst of both worlds of credit and debit. High fees, restrictive rules (you have to pay money in to get a credit line) and you’ll be walking on thin ice the entire time. A better route is to choose a secured credit card, which is slightly different, but in very important ways. For one, secured credit cards aren’t prepaid, rather, they require you to put up a cash collateral. This is different than prepaying because you’re not depleting the balance of your collateral, you’re borrowing against it. They only take that money if you default. This eliminates the risk for banks and puts you on a leash short enough that you won’t likely hurt yourself but you’ll still have enough freedom to begin building up some credit. The downside: high up front costs to get your collateralized credit line going.

Recommended bad credit credit cards:

New Millennium Bank Secured Gold Visa® / MasterCard®
Bank of America Secured Visa
Centennial Secured MasterCard

Average Credit – 580 to 620

When you get into the 580 to 620 range, you’re getting close, but you’re not quite there. You’ll likely be able to qualify for something a little bit better than a secured credit card, but don’t expect any lavish rewards or ridiculous credit limits yet. Those with average credit typically have good overall track records, but have missed payment here or there or don’t have a very long credit history. Many students fall into the average credit range, and just about any credit card with the word “student” in it will be within the reach of a consumer with average credit.

However, if you fall on the upper end of the average range, there are some rewards cards within your reach – but you’ll get a much higher interest rate than if you had better credit.

Cards for users with average credit include:

Discover® More(SM) Card
Capital One Classic Platinum
BankAmericard Basic Visa

Good Credit – 620 to 720

They say that the average credit score in America is around 692, which means most consumers have allegedly good credit. If this were any time but now, then good credit would earn you very flexible credit card terms, ample rewards and a nice selection of credit cards with no annual fees. But as it were, the American credit card industry is going through some tumultuous changes, and the rewards aren’t quite as bountiful for the time being. Still, you do have a wide range of choices when it comes to credit cards. Getting one that benefits you is a matter of matching your spending style to the card’s features.

Here at MYC, we’ve reviewed a couple popular cards that are perfect for those with good credit. Read more about:

Escape by Discover Card Review
Credit Card Review: Biodegradable Discover More (really!)
Credit Card Review: Chase Freedom (I have this card and really like it.)
AMEX Gold Card Review

Excellent Credit – 720 and Up

The difference in magnitude between good and excellent credit isn’t that significant once you get in the upper 600s/lower 700s. But a combination of excellent credit and a history for high rolling and big spending can land you in the luxury credit card territory, where the credit limits are head-swimmingly high and the perks are ridiculously lavish. Examples: Personal and professional concierges at your beck and call 24/7 (it’s like having a personal assistant for your life), free hotel stays, free chaffeured rides to the airport, travel insurance and discounts for private jets. Of course, such royal treatment doesn’t come cheap – these cards come with annual fees in the triple to quadruple digits. And getting your mitts on the most elusive luxury cards, such as the legendary Black American Express Centurion Card, requires an epic series of quests, invitations and other qualifications that have consigned the vetting process for the world’s most exclusive credit cards to the realm of urban mythology.

With that being said, we would list a few of the top luxury credit cards here – but it would be useless. When you are rich and famous enough for one of these cards, they’ll find you.

Got another recommendation for a good credit card for bad, average, good and excellent credit scores? Tell us about it in the comments.

Img c/o Dave Hogg

Credit Card Fees: The Fed’s Latest Proposal

Jack — Wed, 10 Mar 2010 14:52:14 +0000

In its ongoing efforts to protect consumers, the Federal Reserve rolled out a preliminary ruling that aims to limit credit card fees, particularly the troublesome over-the-limit fees which have received much media attention in the past few months. This rule, pending public comment, will go into affect on August 22 and will (hopefully) help curb some of the exorbitant fees attached to credit cards. Here’s a quick rundown:

Restriction of Over-the-Limit Fees

The proposed rule would make it unlawful for credit card issuers to charge over-the-limit fees greater than the overage amount. For example, if you went over your limit by $10, the resultant fee could not exceed $10. In the past, there was a flat fee for over-the-limit penalties – usually in the ballpark of $39+. So, in that case, a $3 latte charged to your maxed out card could actually wind up costing you much, much more. Additionally, credit card issuers won’t be able to charge multiple penalties on a single transgression.

The caveat: This rule won’t stop banks from charging 100% of your over-the-limit amount. So, if you accidentally charged $300 on a maxed out card, you could wind up paying $300 in fees (rather than the typical, much lower, flat rate). Whether banks will adopt this practice to make up for lost revenue on smaller over-the-limit penalties remains to be seen.

Inactivity Fees

Another provision of the new rule states that credit card companies won’t be able to charge inactivity fees. Inactivity fees have cropped up recently in response to the increased restrictions from the CARD Act.

The caveat: It’s all just semantics. An easy workaround is to waive the card’s annual fee if a cardholder meets a certain spending threshold. (Again, annual fees have already seen a big comeback post-CARD Act.) This, in essence, is the same thing as an inactivity fee. Credit cards that don’t already have an annual fee may see one soon, while others may see a hike. As expected, banking industry groups have expressed concern that increased regulation slims down profit margins, which means credit gets costlier for consumers, too (it trickles down). New fees would be the most logical way for these cots to be passed on.

Re-evaluation of Interest Rate Increases

The Fed rule also seeks to force credit card companies to re-consider any rate increases after 6 months. In a best case scenario, if you had your rate hiked because of a change in credit score, you’d be entitled to have it bumped back down once you cleaned up your act. But in practice, card companies will simply raise rates according to shifts in the credit market, which will give them a bit more discretion when it comes time to “re-evaluate.” More likely, though, we’ll continue to see cards gravitating to a variable interest rate, which can be shifted around almost arbitrarily.

Ongoing Negotiations and the Philosophy of Banking Regulation

These new rules are small steps towards a longer race towards credit and banking reform. Consumer protection and the role of the federal government remain a hotly contested issue in Congress, with the key players being Sen. Chris Dodd (D-Conn), chairman of the Senate Banking Commission and Sen. Bob Corker, a republican from Tennessee. The two are working on creating a bipartisan bill that will appease both camps.

The two warring philosophies are this: Dodd and left-leaning legislators believe there should be greater consumer advocacy in the banking industry while the opposition believes its more important to ensure that banks remain financially safe and sound (i.e. no more big bank failures). Looking back at the past few years, it’s hard to argue against either viewpoint. It comes down to the question of whether you’d rather cough up cash on unfair penalties and deceptive business practices or have billions of tax dollars go towards another massive bank bailout.

There is a consensus, however: the banking industry is broken. The compromise that our lawmakers reach on how to fix it will greatly affect the cost of credit, how we get credit and who can get it. But no matter what happens, the large role that personal fiscal responsibility plays is unlikely to diminish. A high credit score will always be better than a low one and it will always be risky to overspend and underbudget. Our advice: keep an eye on the changes on Capitol Hill, but don’t forget to invest long in your own creditworthiness.

How do you feel? What’s more important, consumer protection or keeping banks healthy and bailout-free? How important is personal finance in determining the fate of the credit and banking industry? Let us know your thoughts in the comments.

Image credit: paskaru76

Rewards Credit Cards: Are They Still Worth It?

Jack — Wed, 03 Mar 2010 15:08:16 +0000

There were no words minced when the credit card companies let the world know that it’ll be tough for them to be so generous in the post-CARD Act era. And now, they’ve followed through. Our rewards cards aren’t quite so rewarding anymore, with cashback rates slipping from all time highs of 3% to an average of 1.25% and the annual fee making a comeback So, with the standards slipping, is it still worth it to try to rack up rewards points for free loot?

Well, it depends.

Determining whether a rewards credit card is a good deal mostly has to do with your own situation and spending habits. With that in mind, ask yourself these questions in order to decide if a rewards credit card is worth it.

Do the benefits outweigh the costs?

This is an easy one. Take a look through the rewards you’re likely to earn and compare it to the annual fee. Are you paying a $199 annual fee for the chance to earn a free night in a hotel worth $100? Then skip it.

Of course, when you’re trying to decide between two cards, the equation gets a little bit trickier. For example, let’s say card A has rewards but a higher interest rate plus an annual fee while card B has no rewards, a lower interest rate and no annual fee. Ask yourself: If I carry a balance on the higher interest card, will the rewards I receive exceed the amount I’d save if I went with a lower interest credit card?

To help you get a big picture perspective, do a true apples-to-apples comparison. Tally up those fees and run through a scenario where you carried a balance throughout the year by punching in some numbers into a credit card calculator.

Will I have to change my spending habits?

Ever see an offer and think, “Wow! I could earn 20,000 points instantly? But wait, I never shop at SuperWarehouseGoodsstore.com…” That’s a sign of a bad deal. You shouldn’t have to change where or how much you spend based on the possibility of earning rewards. When it comes to deciding where to spend your money, you should base your decision on your needs, your budget and where you see the most value without considering rewards. Chasing rewards points to obscure merchants and upsells is a highly inorganic way to manage your personal finances and will likely lead to a closet full of junk you don’t actually want or need and some consolation prize that is worth less than the money you blew on random purchases.

Let the rewards come to you. Choose a rewards card that matches your lifestyle and spending habits. Drive cross country every weekend for a rendezvous with your long distance heart throb? Get a card that rewards gas purchases. Saving up for a honeymoon? Get a Sandals Rewards Card that goes towards an all inclusive vacation. Love to travel but hate United Airlines? Skip the Visa Mileage Plus and grab the Visa Rapid Rewards for Southwest.

Can I get these savings elsewhere?

Consider this: a $25 gift card for Damon’s Grill from a certain rewards card program costs 2,500 points. Now, if you’re earning 1 point for every dollar you spend, you’re essentially spending $2,500 to save $25 on some baby back ribs. That’s about the same as cashing in a 1% discount coupon.

There are more ways to save money than through credit card rewards. Coupons, promotions, membership cards and good ol’ fashioned frugality are a few of them. And if you think about it, these methods aren’t much different than rewards programs. For example, a credit card rewards program has you shelling out $200 a year for the opportunity to rack up points, while buying a coupon book like the Entertainment Book has you forking over $20 for hundreds of coupons for restaurants, shopping, travel, etc.

How many points will I likely earn?

This is another easy bit of math. Take a look at your credit card statements from the previous year and find out how much you spent on average. Now, plug that number into the rate at which you’d earn rewards. You might be surprised at how little you actually spend and thus how little rewards you actually get – especially if you’re only getting 1 point for every dollar you spend. Either see what else is out there (check out billshrink.com for credit card comparisons) or just get a normal, low interest rate, low fee card.

All in all, it’s clear that getting rewarded by rewards cards isn’t as easy as it used to be. For some, it’s still a lucrative venture (i.e. big spenders who qualify for the luxury credit cards that banks are now pushing). But for most of us, there are better avenues for saving money than rewards cards. Take time to crunch the numbers and think realistically about your spending before you go chasing after elusive free stuff.

Image by hermanturnip.

The Death of the Credit Card: 5 Futuristic Ways to Pay (Today!)

Jack — Wed, 24 Feb 2010 14:16:00 +0000

This month’s Wired has a great article entitled The Future of Money: It’s Flexible, Frictionless and (Almost) Free which focuses on how technology is helping cut institutional interlopers out of the equation when moving money around. As we’ve discussed at length here at MYC, venturing through the realm of credit card transactions is a bit like walking through a seedy neighborhood at night – if you’re not careful, someone along the way’s going to steal your money. Whether it’s a wire transfer fee, interchange fee, credit card processing fees or one of 243 different fees that MasterCard charges, there are numerous ways for your money to simply disappear on its journey from your wallet to the merchant. And the more middlemen there are along the way, the more opportunities there are for someone to take a cut. It’s like passing a pack of gum across the classroom to a friend – the more hands it changes through, the more likely someone is going to help themselves to a stick so that by the time the pack gets back to you, there’s barely half a piece of gum left for yourself.

It’s an immensely inefficient and inconvenient system that’s starting to make less and less sense as our abilities to connect directly with one another expand. The aforementioned Wired article focuses on one such gamechanger we are all familiar with: Paypal, which was founded on the libertarian principles of Peter Thiel, who hoped it would help make it “nearly impossible for corrupt governments to steal wealth from their people” by giving citizens more direct control over their currencies. In a sense, cutting out the middleman (or at least some of them).

Of course, as we all know, PayPal hasn’t quite achieved that. Rather, it’s become more like a middleman itself, albeit a much friendlier one to individuals and small vendors and merchants on the web. Instead of being at the mercy of the restrictive (and expensive) terms of Big Plastic (Visa, Mastercard, American Express, Discover), PayPal handles the messy business of credit card processing for a fee that is considerably less than what most brick-and-mortar merchants charge per swipe. PayPal, thus far, has been less of a replacement for the credit card industry and more like a user-friendly front end.

What’s more promising, however, are the new technologies that are emerging that make it even easier for individuals to pay and merchants to take payments. Wired pulled out five of these “new ways to pay” that may significantly eat into the credit card market share and we thought it’d be interesting to take a closer look. Check it out:

Twitpay

Twitpay is a bit hard to understand until you try it out. It works via Twitter and is powered by PayPal. Essentially, to send someone money, you just reply to them with the word Twitpay in your tweet along with the amount you owe them and an optional memo. For example, you can do:

@jackbusch Twitpay $2 for keeping it realz

That’s it. Twitpay searches for all tweets mentioning Twitpay, so it automatically grabs your payment and puts it on your tab. So, now, when you visit Twitpay.me, it shows that you owe @jackbusch $2 bucks. In order to settle up, you log in to PayPal and complete the transaction like normal.

True, this is essentially a social media friendly front-end for PayPal. But what makes Twitpay useful and unique is that it keeps a running total of what you owe. So, if you sent @jackbusch $2, but then @jackbusch owed you $1 later on before you settled, you would really only have to transact $1 at the end of the day. In a way, Twitpay has created a digital currency. And most importantly, it’s free to use.

Twitpay in action

Note: This is all, of course, completely on the honors system. You don’t have to settle up after you’ve promised to pay someone. But since your profile is public (you can see the transaction I just did for this example at twitpay.me/masteryourcard), everyone will know that you’re a deadbeat.

Zong

Zong lets you bill people via cell phone number rather than asking them to enter their credit card information. And in a world where more people are putting their credit cards on ice or simply don’t qualify for a credit card, this might be handy indeed. When customers buy using Zong, the amount they owe goes directly on to their mobile phone bill (kind of like when you text Haiti to 90999 to send $10 to Red Cross). Zong won’t BS you though – the service is expensive, since phone companies typically take a 25% to 50% cut from the merchant. But Zong reportedly converts 10 times more often than websites that accept only credit cards and as models like this gain traction, it’s bound to get better and more competitive.

Square

Square (as in “square up” and not affiliated with the makers of Final Fantasy) was co-founded by Jack Dorsey, one of the masterminds behind Twitter, and markets a device that turns your iPhone into a credit card reader. Customers can even use the touchscreen to leave their signature and get instant receipts via text or email. Transactions are processed through Square, which saves small vendors (for example, artists at a craft sh0w) from jumping through the hoops and investing in the equipment required to work directly with credit card companies. Square also has marketing potential, as it keeps track of frequent visitors so they can be offered perks and rewards (though this may raise Big Brother issues) and social cred for donating $0.01 of each transaction to the cause or charity of your choosing.

GetGiving

GetGiving takes the iTunes approach to making it worthwhile to receive small payments without getting killed by fees. GetGiving focuses on charities seeking “microdonations” and helps organizations cut down on fees by sending them one monthly lump sum instead of forcing them to cough up a $0.30 to $1.00 transaction fee per donation (which, if people are only giving $5 at a time, can be an absolute downer). Like Twitpay, GetGiving is powered by PayPal.

Hub Culture

Hub Culture aims to make collaborating with international vendors, consultants, teams and creatives seamless and cost effective. One of the ways they do this is offering virtual currency called “ven.” Ven can be used to buy, sell and exchange services and goods with other Hub Culture members (of which there are 20,000 and growing). So, if you wanted to pay a web designer in London in ven, he could then take that ven and pay his SEO tech in India, all without worrying about those nasty foreign transaction fees and currency exchange hassles. Ven is now extending beyond the network and is available to anyone with an email address, meaning that, if you wanted to, you could pay for just about anything with ven – whether it’s a limo reservation, a case of vegan beef jerky or a bounty on your arch nemesis’ head.

Implications

The move to virtual currency and alternate modes of payment is certainly interesting. Still, one issue to remember is that the one important reason that these services are so seamless and successful is that they are lightly regulated (if at all). But when you think about the concept – inventing currencies for thousands of end users to exchange internationally – services like these are bound to become the subject of at least some government oversight. For now, it seems unnecessary. These entrepreneurial innovators need little incentive to provide value and accountability to consumers other than the fact that if they don’t deliver, they’ll fail. Fast-forward 50 years, though, when some of these industries may have grown and become as entrenched and sprawling as today’s credit card companies, and that might be a different story.

What do you think? Will virtual currency, social media and micropayments save us all from the usury and nickel-and-diming of the current financial structure? Or is it all hype? Let us know in the comments.

Image from House of Sims

The CARD Act: How it Will and Won’t Protect You After February 22

Jack — Wed, 17 Feb 2010 16:06:39 +0000

Nine months later, the Credit CARD Act of 2009 is finally going into full effect. We’ve seen banks slowly react to the new laws by working the loopholes, rather than complying ahead of time, but come Monday February 22, 2010, all the provisions of the CARD Act will be law. Here are a few of the key changes to the law that matter to consumers:

Credit Card Disclosures

Credit card issuers must now give you 45 days notice before making changes to your rates or fees. This includes:

Interest rate hikes (for fixed APR credit cards)
- Doesn’t apply to variable rate cards
- Doesn’t apply for changes after an introductory rate expires
- Doesn’t apply for defaulted accounts
Change annual fees, cash advance fees or late fees that affect your card
Make other “significant changes” to your terms

If you don’t like the changes, you have the right to close your account. Closing your account will let you opt out of the changes and you will have a minimum of five years to pay off your balance. Note: this could mean that your minimum payment will go up.

Credit card companies must tell you how long it will take to pay off your balance. A new section will be added to your bill that tells you how long it will take to pay off your credit card with the minimum payment as well as how much you will end up paying in interest. Also, your bill must show you how much you will have to pay to eliminate your credit card debt in three years and how much interest you will pay in that scenario.

Billing and Payments

Credit card companies must deliver your bill at least 21 days prior to the due date.

Credit card bill due dates must be the same each month.

Payments sent prior to 5 PM on the due date are considered on time.

If due date falls on a a holiday or weekend, credit card companies must accept payments as “on time” on the following business day.

Credit card payments apply to highest interest balances first. For example, if you have a cash advance balance at 20.99% and a normal purchase balance of 13.99%, your payments pay down the cash advance balance first. This does not apply to purchases for deferred interest plans. If you wish to pay down the balance on deferred interest, you must request that extra payments be applied to that balance. Otherwise, your credit card company will begin applying payments towards the deferred interest 2 billing cycles prior to the end of the deferral period.

Double-cycle billing, otherwise known as two-cycle billing, has been banned.

Credit Card Fees, Rates and Limits

Credit card issuers cannot increase your interest rate in the first 12 months after signing up for a card. There are the usual caveats to this rule, however:

Does not apply to variable interest rate credit cards.
Introductory rates can still be offered (for a minimum of 6 months)
Does not apply if you are over 60 days late on a payment

Increased rates will only be applied to new charges. For example, if you have $5,000 in debt at 13.99% and the credit card company raises your interest rate to 17,99%, you’ll still pay 13.99% on the original $5,000. Subsequent balance accrued will be financed at 17.99%.

Cardholders must opt-in for over-the-limit protection. Otherwise, your card will simply be denied if you are maxed out. If you do opt-in for over-the-limit protection, your credit card company can only fee you once per billing cycle for going over-the-limit.

Credit card fees are capped at 25% of the initial credit limit. This only applies to annual feels, application fees, etc. and does not include penalties.

Consumers under 21 must have a co-signer or show proof that they can make payments.

With all that being said, it’s important to note that the CARD Act doesn’t cover everything. Be sure you’re aware of what’s not in the CARD Act. After February 22, credit card companies will still be able to do the following:

What’s Not Covered by the CARD Act

Credit card companies can raise your interest rate after 12 months without cause. All they need to do is notify you, pursuant to the above rules. This will apply to your future purchases.

There is no cap on interest rates. This is something that consumer advocates fought hard for but didn’t get into the bill. Credit card companies can still charge you sky high rates if they want (and if its commercially viable). But of course, you can always close your account if this happens.

New fees are fair game. The CARD Act made the mistake of specifying the fees that it was restricting. The new kids on the block – stuff like dormancy fees, paper statement fees and foreign transaction fees – are still on the table. Read more about new credit card tricks in the post-CARD Act era.

Your credit limit can still be reduced. Issuers can still cut down on your rates or even close your account without the 45 day notice. Be sure to call and ask why if this happens, since it can be hell on your credit rating.

Variable rates still suck. While efforts have been made to protect your fixed rate APR from getting jacked up, variable rate credit cards, by nature, can still go up and up for essentially no reason.

How do you feel about the new changes thanks to the CARD Act? Do you feel safe as a credit consumer? Or do you feel like it’s too little, too late? Sound off in the comments.

Image: SEIU International

Hit ‘em High, Hit ‘em Low: Credit Cards for the Rich and the Poor

Jack — Thu, 11 Feb 2010 01:15:16 +0000

Credit cards are far from one size fits all and the big names in lending know it. That’s why they’ve devised each credit card to target a specific demographic and income level. Whether it’s so you can get the most rewards out of the credit card or it’s so the credit card companies can get the most profit from you is debatable. Either way, it’s interesting to see the vast differences between luxury credit cards and plastic for the poor, unemployed and possibly even bankrupt. Check out some of these outliers on either side of the spectrum.

Luxury Credit Cards for Big Wigs and High Rollers

The American Express Centurion (aka the Black AMEX)

Centurion, literally, means an officer in the Roman army. In other words, one of the most powerful individuals amidst one of the most powerful empires in history. And that’s exactly the message that the Black AMEX means to convey. This invite only luxury credit card is the engimatic credit card of the rich and famous with numerous high bars to keep the riffraff out, including a $2,500 annual fee. To even get on the radar, you have to spend $250,000 annually on an American Express Platinum Card, another exclusive invite only card that requires you to first rack up a big bill on your American Express Gold or American Express Green card. There are approximately 30,000 to 100,000 people out there who’ve jumped through enough golden hoops to wield this monocle-dropping piece of plastic including Simon Cowell, Beyonce Knowles, Kanye West, Jerry Seinfeld and Lindsay Lohan.

Visa Black Card

Barclay’s Bank came up with this “me too” card in early 2009 and are trying to build a mystique and prestige comparable to the AMEX Black Card by stating that the card is available only to 1% of the U.S. population. However, with an annual fee of $495 and the ability to apply online, the Visa Black Card is clearly the poor man’s luxury credit card. Still, Visa goes to great lengths to make you feel like a sultan even if you’re nothing but a lowly princeling by offering 24/7 “world class concierge” service, meaning they’ll do everything for you from coaching you on business meeting protocol in Japan to booking you a tee time or hunting down a rare, out-of-print book.

Citi Chairman Card

The Citi Chairman Card was designed to pamper C-level executives of global moneymakers at the dizzyingly high standard of luxury that they are accustomed to everywhere else they go. Originally catered towards clients of Smith Barney, the Citi Chairman card offers 24/7 concierge service, sweet deals on private chartered jets and ample insurance for pretty much any little thing that can go wrong at home or abroad, all for a $500 annual fee.

Credit Cards for the Poor

Visa ReliaCard

“Just because someone doesn’t have any money doesn’t mean you can’t make money off of them” was probably the rationale behind U.S. Bank’s ReliaCard, a debit card designed for the unemployed. For those out of work but still covered by unemployment insurance, you can choose to have your paychecks from Uncle Sam loaded directly onto your Visa debit card so you can use it just like any other piece of plastic. It’s actually kind of a win-win situation, especially for those who don’t have bank accounts: you avoid the exorbitant fees of seedy check cashing joints, the government saves on paper and the card issuer gets interchange fees.

Bank of America Secured Visa

A secured credit card is about the best route you can go when rebuilding your credit card after a bankruptcy or credit rating misstep. But they are becoming harder and harder to come by. That’s because they aren’t hugely profitable for credit card issuers since there is little to no risk of defaulting, overdrawing or incurring a late fee. For example, the Bank of America Secured Visa’s credit line is commensurate with the amount of collateral you put up and it can be as low as $300. The card only has a $29 annual fee and is really more like a credit card with training wheels for people looking to rebuild their credit.

AccountNow from Visa or MasterCard

The Visa AccountNow and Mastercard AccountNow are kind of like a payday loan joint and a prepaid credit card all rolled up into one. You can have your paycheck deposited directly into your AccountNow card and then use it like any other Visa or Mastercard. You can also wire cash to your card through MoneyGram or Western Union (making it great for Nigerian scammers, I guess). But the really whiz bang thing about the AccountNow card is the ability to get a little bitty loan from time to time. You can do so by requesting and advance by phone or online and then the money is put onto your card. You have to borrow in $20 increments and your charged an upfront advance fee of 12.5%. After that, iAdvance automatically takes a cut of your direct deposit paycheck to pay off your debt.

Of course, you should really, really crunch some numbers before deciding if this card is right for you. In fact, iAdvances own website says: “You should carefully consider the costs of iAdvance. Alternative forms of short-term credit exist that might be less expensive and more advantageous to you as the borrower.”

Know of any outrageous luxury credit cards or credit cards geared towards low income consumers? Tell us about them in the comments.

image by infrogmation

Pissed About Credit Card Business Practices? Take Action

Jack — Wed, 03 Feb 2010 16:13:21 +0000

Washington Post recently ran some required reading for all credit card users entitled “Five myths about America’s credit card debt.” Don’t be deceived by the somewhat banal title – this piece is actually very illuminating and broaches some topics not usually discussed in the day-to-day blogosphere.

The last myth is perhaps the most interesting and topical. Here it is:

“The CARD Act finally protects consumers against the credit card industry’s most abusive practices.”

The answer to this is a surprising “yes and no.” According to the Post, there is some overdue reigning in of some of the most egregious credit card practices, but some restrictions and protections are left out and some measures were simply too little too late.

This next paragraph is old news to anyone who’s been taken for a ride by the credit card companies in the past few months, but its still satisfying to see the mainstream media confirm it again:

On the negative side, Congress stipulated a nine-month phase-in period for these regulations. For millions of Americans, especially those suffering from employment and income interruptions, this is too late. If you’re in debt today, this bill doesn’t help you. Companies already have jacked up interest rates, sharply reduced lines of credit, increased service fees and diluted the value of loyalty reward programs. These trends have brought consumer credit scores down, triggering higher borrowing costs and greater difficulty finding work.

So, we’ve taken two steps forward when we really need a giant leap in credit reform. The “silver lining” of this relatively disappointing bill, according to Washington Post, is that more consumers are completely disillusioned with credit cards and are “leaving home without it.” But there are still some of us who haven’t quite weaned ourselves off of revolving credit and for us, there is still a considerable gap between federal regulation and lender practices that personal responsibility can’t quite fill. And to believe that the credit card industry will ever stop dreaming up new tricks and traps to maneuver around the new credit card legislation is just plain naive.

American consumers should start demanding a sequel to the Credit CARD Act now. In fact, a trilogy is probably in order (third time’s a charm, right?). The CARD Act was a small victory, but the industry and the lawmakers need to know that we as consumers still aren’t satisfied. We are still plagued by predatory lending practices, violated by debt collectors who call everyday and harass our family members and neighbors, subject to the whimsy of credit card interest rates and fees and treated like second class citizens in favor of profits and corporations.

I read the comments and the blogs everyday and I see a lot of people who are still angry and with good reason. But in order to affect lasting change – and get it right this time – we need to focus our efforts and rage in a way that the powers that be (that’s government and the lenders themselves) hear us. So, if you have been wronged, make sure you formally lodge your complaint through one of the following channels:

1. Submit an FTC Complaint

The FTC is supposed to protect you, but before they can take action, they need to know what needs to be fixed. The best way for them to get this information is for consumers to bring them their complaints. After a certain issue or complaint about a specific company or industry reaches a certain critical mass, the gears start turning. Send them your complaints about credit card companies using the FTC Complaint Assistant.

2. Sign a Petition

The actual civic affect that signing petitions has is hard to measure. But doing so online is so quick and easy that it certainly wouldn’t hurt. Here are a few causes you can rally behind:

MoveOn.org Urging Credit Card Companies to Stop Taking Cuts from Haiti Contributions
Consumers Union Petition Urging Credit Card Companies to Obey the Spirit and Intent of the Credit CARD Act
A Similar Petition from Colorado Senator Mark Udall.
Petition Online Action to Cap Credit Card Interest Rates at 19%

3. Write Your Congressman

Many of us are quick to blame the president for unfavorable laws and national policy, but its your congressman who may actually listen to you. Find out who your congressman is and tell them what’s on your mind. Track them on OpenCongress.org and see how they are voting. If anything they do is against the best interests of their constituents, let them know. It’s incredibly easy – it takes about as much time as it would to fill out one of those Facebook surveys.

Click here to write your representative.

Click here to write your senator.

4. Tell Your Story

As I mentioned before, I’m witnessing a lot of unrest in the blogosphere, which is great. Blog about credit card deception, leave comments telling your story and share other people’s stories on Twitter and Facebook. Most Americans know that the credit industry is broken, but there are still many who don’t know just how bad it is. Spread the word as far and wide as you can. If you have a local news channel, send them an email. Send a letter to the editor of your local paper. Share your story at ResponsibleLending.org. The world needs to know.

5. Complain to Customer Support

Remember – you, as a cardholder, are a customer. And remember when the customer was always right? Letting companies know you’re dissatisfied isn’t completely a lost cause and if you don’t, they may just assume that everything is hunky dory. Most companies have some type of metric for measuring overall customer satisfaction, and anything you can do to get those numbers as realistic as possible is in the best interests of the company and your fellow cardholders. Send them an email, fill out their contact form or call the number on the back of your card whenever you’re unhappy and let someone know. Who knows, they might even fix your problem.

6. Hit the Streets

If you live in a metropolitan area or near the headquarters of a credit card company, then you might consider organizing a protest. It’s a lot of work – a lot more work than signing a petition – but it has a far greater impact. Read up on how to organize a protest, educate yourself on your rights and get out there and be heard.

Have you had any success lodging complaints with or about credit card companies? Leave us a comment and tell us what worked for you and what wasn’t worth your time.

Image by Paolo Tarantini

Watch Your Back: 8 Up and Coming Credit Card Fee-Creep Tricks

Jack — Wed, 27 Jan 2010 17:20:01 +0000

February 2010 is almost upon us, which means the CARD Act is about to kick in to full effect. Of course, the credit card companies haven’t been resting on their laurels, waiting for the government to take away their moneymakers. They’ve been thinking up creative ways to sneak in extra fees and charges without you knowing. With a little vigilance, you can catch some of these – and even prevent them. Read on to find out how credit card companies are getting more of your money in 2010.

Paper Statements

All “Go Green” sentiments aside, it’s in the credit card companies best interests to forgo paper statements because it costs them in postage and supplies. To recoup their losses on printing statements when you can get them online, some companies are now tacking on “paper statement” surcharges of around $1 a month. Not astronomical, but it can certainly add up – especially when you consider that they used to be free. Watch your statement carefully for any new charges, or check out this list of companies now charging for paper billing compiled by The Consumerist. Or better yet, go paperless now just in case.

If you’re uncomfortable with leaving your financial details in the cloud, you might want to save a digital copy locally or print it off on your own. Personally, I use CutePDF to “print” off virtual copies and save them on my hard drive. Of course, this poses a greater security risk – especially if you have a laptop, since any punk in a coffee shop can nab it and have full access to your financial details. But saving some record locally – whether you keep it on an external hard drive that stays at home or in an encrypted volume – is necessary, since you may lose access to your online statements after you close your account.

Annual Fees

Annual fees are becoming the norm and it seems like just a matter of time before the free credit card is a thing of the past. This tactic is sometimes selectively imposed by credit card companies. Some consumers suspect that only cardholders who continually pay off their balance and never pay any interest are targeted for annual fees, though this hasn’t been confirmed yet. Other credit card issuers are applying annual fees to all of their customers.

Watch your mailbox for any nondescript mailings from your credit card company as these will often contain your new credit card terms. Also be on the lookout for any emails notifying you that you have new messages that can only be viewed when you login to your account (a pain, I know, but that’s the idea).

Inactivity Fees

Another way that credit card companies are making money from customers who don’t fall into the vicious cycle of paying off finance charges and late fees is by imposing an “inactivity fee.” Bloomberg reported on this a few months ago, This may have already existed in your contract but hasn’t applied since you set a card aside due to changing terms. Pull up your contract and sort through it to make sure that you aren’t liable to pay a fee after 12 months or so of inactivity. Or, just to be safe, order a pizza or a CD with your credit card, pay it off immediately, and then put it back in the drawer for a spell.

Secondary Cards, Replacement Cards

Credit card companies have also started charging for second cards (i.e. authorized users) and replacement cards. This isn’t really avoidable – when you need a new card, you need a new card. But if you’re shopping around for a new credit card, you may want to look for one that allows free secondary cards for family members.

Temporarily Waived Fees

Another way that fees and subscription charges can sneak up on you is when they are “waived” when you sign up but kick in after 12 months. For example, many credit card contracts have you agree to annual fees when you first sign up but you won’t notice because it’s waived for the first year. You’ll see these advertised as “$0 annual fee*” with “for the first year” in tiny print. Other cards come with a baked-in annual fee that gets waived after you pass a certain spending threshold or if you apply a certain amount of reward points. If your spending behavior has changed, you may find yourself blindsided by dormant fees.

Cap Removals, Upped Balance Transfer Fees and Rates

Balance transfers are notoriously tricky to navigate. On the one hand, they really can help you save hundreds of dollars in the long run. But on the other hand, they can sometimes hide big fees. Typically, balance transfer fees are calculated from a percentage of the balance you are transferring. To make these more consumer friendly, many credit card companies had a cap, so for example, you wouldn’t pay any more than $250. But some credit card companies are doing away with those caps, which means you can potentially pay much, much more, which might even negate the benefit of transferring your balance.

Raised Minimum Finance Charge

You’ve probably already heard the horror stories about consumers having their minimum finance charge raised. Oftentimes, these people are already on the ropes and could only afford to pay the bare minimum (a problem in itself). For some, when that minimum payment gets raised, it can force people to miss their payments, incurring late fees.

“Pick a Rate” Variable Rates

With the new legislation putting the kibosh on arbitrarily fiddling with fixed rates, many of us saw our cards being switched to variable rates. The formula they disclose for calculating your interest rate has a sheen of accountability – it’s usually pegged to the prime rate (i.e. + 13.99% of prime rate). But many credit card companies add a devious little caveat to that which says that the rate can depend on the “highest prime rate within 90 days.” Credit card companies can then pick and choose which prime rate to base their calculation off of. So, if there’s a spike in April, you’ll be paying that high rate until July. And if on July 2nd, there’s another spike, you’re back up at the top again. With a three month span of prime rate figures to choose from, there’s plenty of leeway for credit card companies to give you a high rate.

There’s no real hedge against this tactic except to always assume the worst when signing on the dotted line. Remember that we’re just coming off a recession – so the interest rates are bound to go up from here. Keep that in mind when you apply for a variable rate credit card.

Witnessed a sneaky credit card fee tactic? Let us know about it in the comments.

Image adapted from Marxchivist

What Happened To Rebate Checks?

Kristy — Sun, 03 Jan 2010 05:25:42 +0000

I don’t know about you guys, but I’ve been noticing an increasing trend lately that I’m not completely on-board with yet. Retailers who use rebates to lure us in are moving from a paper check to a prepaid debit card, and it’s not just retailers, either. Unemployment checks are on the decline, Instead, unemployment offices seem to be handing out reloadable debit cards when an applicant has been awarded unemployment. Each time they get paid, the card is loaded rather then cutting a check or sending a direct deposit.

After researching this a little more, I found a great article on why companies are doing this over at creditcards.com. You can read their article here.

As for my thoughts, let’s talk about the pros and the cons.

Pros

I try to be an optimist in these types of situations, so let’s start with the good.

# 1 – Less Paper

I’ve been working on making my life a little more green, and while I have a long way to go, I appreciate the fact that using these debit cards eliminates some paper usage…sort of. Some retailers decide to use more mail fillers to market their target audience, so I’m not referring to them. But, overall, issuing a prepaid debit card instead of a check does save on paper.

# 2 – Convenience

Getting a card in the mail means you don’t have to make a trip to the bank in order to use the money. You simply activate the card, if required, and go. Makes it nice and simple.

# 3 – Quicker Turn-Around Time

One good thing about getting the cards as opposed to the checks is that you get your money a little faster. It used to be that it would take anywhere from 6-10 weeks to get a paper check, what with the retailer needing to verify if you’ve met the requirements, processing the rebate, cutting the check, and then mailing it out. The debit cards streamline that process a bit more.

# 4 – Faster Processing On Lost Cards

Inline with getting your money faster, if the card is lost or stolen, the processes for having it replaced seems to be much easier as well. I’ve never personally experienced this, but from what I’ve been told, the wait time is much less than if the retailer issued a check because it’s all electronic.

I’m sure there are more pros to these cards, but in truth, I’m not a big fan so I find that I tend to see the cons a little more clearly. Perhaps readers can give us a few more pros that I’m missing?

Cons

And now let’s look at the downside of receiving these prepaid debit cards from both retailers and unemployment agencies.

# 1 – Difficult Access To The Money

Some of these cards make it difficult to access the money that is rightfully yours. Many retailers wish to keep the money they issue as a rebate in-house, so they won’t allow you to use the card with any other retailers, only within their stores. Other retailers make it difficult to access remaining cash on a card if it’s been used previously because you have to find someone who knows how to do a split tender transaction, or that allows such transactions. Surprisingly, this is not commonly taught in retail.

# 2 – Some Come With A Ton Of Fees

Aside from the fees that could be incurred just from trying to access the card, there are also maintenance fees to watch out for if the card is not used within a certain amount of time. Some even have penalty fees for using it outside the intended network. Then there are ATM fees to consider, as well as cash advance fees if you’d like to access the money that way.

# 3 – Expiration Dates

As if retailers haven’t made it challenging enough to accept these cards, they tack on a expiration date. I’ve lost out on several rebates myself because of this one. It is very easy to stick the plastic in your wallet and forget about it. If you don’t use the money by the expiration date, and provided there are no maintenance fees slowly eating away at your balance, you lose that money. The company is not likely to issue you another card.

# 4 – Benefits Lost

I actually have to credit Erica Sandberg over at creditcards.com for this one because I didn’t even think about, but it fits here so I’m repeating it. When you use these prepaid cards to make purchases, you’re missing out on the opportunity to gain reward point, airline miles, or other benefits you may receive if you had been using your credit card. While for some this may not be a significant issue, it is still a con as it relates to using the prepaid debit cards.

For myself, I don’t get rebates often enough to do much more then grumble when I get the card. I’ve actually been lucky, the few I’ve gotten have had no fees for cash advances, and since I work at a credit union, I’ve just done the cash advance to deposit to my account. It’s worked well. But, I have a member that we affectionately refer to as Mr. Rebate because he’s in at least once a week with a new stack of rebate checks. The frequency has started to slow down some and when we asked he said it’s because he’s getting rebate cards. He’s not a fan, he thinks it’s just one more way retailers make it difficult to get the rebate in the hopes that you won’t use it and they get to keep the money.

So, what are your thoughts on this growing trend? Do you think they’re a positive contribution to consumers or simply a devious plot by the retailers? Perhaps a little less dramatically, do you have any other pros or cons to add to the list?

How Many Credit Cards Do I Need?

Kristy — Mon, 14 Dec 2009 10:19:58 +0000

Sound familiar? I was recently asked this question by one of my clients and figured the question warranted discussion.

The average American has anywhere from 5-10 credit cards, though with the recent financial crisis, that number has probably gone down. Do American’s need that many? Maybe, maybe not. I think the number of cards themselves is less important than the amount of debt you can comfortably pay off each month.

As we’ve discussed before, your credit score is determined by several factors, one of which is the debt-to-credit-limit ratio on all of your cards. Ideally, you want to keep what you owe on each card between 25-45% of what your actual credit limit is. This ratio helps lenders determine what kind of risk you are, what kind of debt you can handle, and of course, your spending habits.

Credit cards are merely a tool, so the idea is to use them to help you build a solid credit history. As I explained to my client, the number of cards will vary based on each person’s individual needs. What they have to figure out is what those needs are and how many cards are necessary to meet those needs. In my personal experience, I’ve never needed more than two cards at most and have been comfortable with only those two cards.

However, in talking with people who’ve carried multiple cards, there are some misconceptions out there. I’ve heard that carrying one card from each of the major credit providers (i.e. Visa, MasterCard, American Express, and Discover) is a good idea because you never know who will accept which card. At some point, this may have been true, but the reality is that we are much more advanced now then we were when credit cards first came about. In the U.S., practically everywhere accepts Visa and/or MasterCard with more and more accepting Discover and American Express. Worldwide acceptance tends to favor Discover card, with the exception of Europe as American Express is more widely accepted there. While a combination of these cards may be advisable for acceptance reasons, that should not be the only concern when deciding whether or not to carry multiple cards.

Another factor to take into consideration is the upkeep all of these cards will require. By upkeep I mean that you’ll have to remember due dates and payments, etc. With our handy dandy computers, this is made much easier these days, so it may not be an issue for some. Others may struggle if they have too many cards, and so for this reason it would probably be best for them to have fewer cards. In either case, it’s important to have a system that works for you so that your bills are paid on time.

Whenever we discuss having credit cards, I’m always an advocate of not having them if you intend to carry balances. However, the reality is that a lot of cardholder’s were carrying balances on their cards, so my advice, while well-meaning, was often impractical to those people. In this case, I would say to consider your cards carefully. Irrespective of the number of cards you intend to keep, you should choose your cards based on your specific needs. That means if you intend to carry a balance on the card – whatever your specific reasons for doing so are – then you probably don’t want a rewards card with a higher interest rate. Conversely, if you’re a frequent traveler who could benefit from a miles program of some kind, it doesn’t always make sense to choose a gas rewards card.

A final factor to consider when deciding how many cards you should have is your debt-to-income ratio. I’ve talked about this before in terms of lenders and their lending practices, but as a reminder, this is what you have going out every month versus what you have coming in. Experts say the magic number is about 35-40%, meaning that your debts should be about 37% of your income. This number includes your mortgage, auto loans, student loans, credit card debt, and any other consumer debt that reports with the credit bureaus. The number of cards you choose to carry should reflect your understanding of how important this ratio is to your overall credit health.

With all of that said, I reiterate my initial statement that the number of cards is less important than the amount of debt you can comfortably pay off every month. The one good thing that has come out of this credit crisis is the change in perception for many people. Credit cards should never be a crutch to lean on in times of duress, that is what your emergency fund is intended to be. Credit cards should be a tool to help you build a good credit file. Simply put, I can’t tell you the exact number of credit cards you should have, only you can answer that question for yourself, based on your needs.

What do you think? If you’re comfortable, share how many you have and why you thought that was a good number. Do you think there is a limit on the number of cards a person should carry? Does it change when that person becomes a family?