Everything About Credit Cards

If you’ve applied for a new credit card and been told that you don’t qualify because there’s a problem with your credit scores, a collection agency’s dirty tricks may be the source of that problem.

Some collection agencies are now specializing in dirty tricks, and thousands of unsuspecting consumers are falling for them – and paying debts they do NOT owe!

First is the one that will hurt your credit scores. It’s attempt to collect on debts that were either discharged through bankruptcy or are so old that the statute of limitations passed years ago.

Here’s how it works: At one time, those collection agencies “purchased” the debt. They paid pennies on the dollar for the right to pursue collection and, hopefully, make a very large return on their investment.

Now, even though those debts have become legally un-collectable, they’re still there, hanging around in a moldy file. So, a debt collector can pull them out and start causing trouble. We’ve heard reports of debts discharged 20 or more years ago being used to try to extort money from consumers.

They know that calling isn’t going to get them anywhere, so they file a lawsuit. Then, even though it’s illegal, they use what’s called a “gutter” process server to deliver the notice to you. It’s called gutter, because they “toss the paperwork in a gutter” and it never gets to you. So you can’t go into court and show the judge that you don’t owe the money.

Thus, they win by default, and the notice of judgment goes on your credit report. Then the debt collector sits back and waits until you need to use your credit and find out your credit rating has been trashed.

Unless you check your credit report regularly, you won’t know it’s there until then. At that point, many consumers rush to pay the debt and get it cleared from their credit reports.

And so, collection agencies collect money that isn’t owed.

If this happens to you – don’t pay them. Send them a certified letter with proof that you don’t owe the debt. Then contact all the credit bureaus and fill out the appropriate paperwork to have the information cleared from your records.

Getting this straightened out may delay you getting a new credit card, or even a car or a house. But unless the amount is so small that you’d rather pay the bill than spend the hours to have it removed, you shouldn’t let them get away with this.

These people are just common crooks – and they don’t deserve your money.

By using your credit card each month and paying the balance in full as soon as the statement arrives, you’ll slowly build a reputation for on-time payments, which will raise your credit scores.

You should also be careful never to exceed 30% of your allowable credit limit during any one statement period. And, in the interest of your own finances, you should not allow yourself to carry a balance. The interest rate on poor credit credit cards is high.
The Applied Bank® Secured Visa® Gold Credit Card offers the best terms, with a $50 annual fee and only 9.99% interest, while New Millennium Bank offers a card with a $59 fee and 19.5% interest.
A third choice would be the Total Visa card with a $48 fee and 19.92% interest.

Thus, the only purpose in obtaining such a card should be to build or re-build your credit.

As you continue to make on-time payments in full, and assuming that you have no other ongoing credit issues, your credit scores will gradually build until you become eligible for a card with no annual fee and a smaller interest rate.

If you have some cash on hand, another choice is the secured credit card. These also require an annual fee and high interest, but they also will help to build your credit.
Pre-paid cards, on the other hand, will do nothing to help your credit scores.

First, the big benefit to using your cards: You’ll get the best exchange rate available.

While taking your traveler’s checks to a currency exchange counter or an overseas bank, you’ll be charged high retail exchange fees, plus additional fees. When you use your cards, you’ll get the wholesale exchange rate reserved for big banks and corporations.

The caution: Watch out for fees from your own bank and card issuers. Visa and Mastercard charge a 1% fee, and most banks will pass that on to you. But some will tack on their own charges as well and that could add up to an additional 2%.

Before you go – or before you choose a new card – learn the policies. Call each of your card issuers and find out their fees, then choose the two with the lowest exchange fees. Always take 2 cards, just in case one is lost, stolen, or damaged.

Since many credit card issuers are now trying to protect card holders, call each of them before you leave and let them know your travel plans. Let them know the travel dates and the countries and cities you’ll be visiting. Then the card issuer will know it’s you and not a thief.

If you fail to do this, the card issuer could put a freeze on your account – leaving you with no funds while you’re traveling. That would put a definite damper on your vacation.

While you’re talking to them, ask for an international contact number. You won’t be able to use their 800 numbers once you’re outside the country, so you need a working number with an actual area code – just in case your credit card is lost or stolen.

Do the same with your bank. Ask about their exchange fees, and their ATM fees. Since fees of $2 to $5 per use can make ATM withdrawals expensive, try to limit the number of times you use them. Make one large withdrawal to last a few days rather than using the machine each day.

Be sure to tell the bank about your travel plans and get their international contact number as well.

Test your ATM card before you leave home and if your PIN number includes letters, get it changed to 4 numbers. Many ATM’s outside North America don’t have letters on the keyboard.

If your plans change and you extend your stay overseas, be sure to use those international contact numbers to let both your credit card issuers and your bank know. Otherwise, when they see charges from Paris when you’re supposed to be back in Houston or L.A., they’re apt to freeze your account.

BestRateforCreditCards.com your resource for credit cards, business credit cards, student credit cards, secured credit cards, and prepaid credit cards. We also provide a weatlth of information about the importance of having credit cards and how they will benefit you.

The choice, of course, depends upon the purpose of the card.

If you are getting the card for the purpose of building your credit, get a secured card or a high interest card. If you wish to give a gift, get a prepaid card.

Secured credit cards are treated just like unsecured cards in the eyes of the credit bureaus, and your balances and payment record will count toward building a credit score. Prepaid cards are not reported at all, so are not a tool in building credit.

The choice of a secured card or a high-interest credit card might depend upon your cash on hand or the help available to you.

A secured credit card is a tool that enables a relative or friend to help you build your credit without risking their own. If you don’t have the cash available to set up a secured account, they can make a loan to you for the amount needed to deposit in the secured account.

Once you establish a good record of minimal use combined with prompt payment, your own credit scores will rise and you’ll be eligible for a low risk, lower interest card of your own. At that time, the secured account can be converted to an unsecured account, and the deposit will be returned to you, with interest. Then you can repay the relative or friend who helped you.

Of course, as with any credit card, running the balance too high or failing to make every payment on time will have a reverse effect – it will lower your credit scores.

If you have no one to offer this kind of assistance, consider getting a high-interest card and using it so wisely that you’ll soon qualify for a lower interest card. Some of these cards do require an annual fee, and that fee varies widely from card to card, so read all of the offers carefully. Don’t automatically assume that the best card is the one advertised in that offer in your mailbox. In all likelihood, that is the worst one!

Because they are all high interest, plan to use the card very little and pay the balance in full each month. Use it for a purchase you would have made anyway – such as a bag of groceries. Be sure to stay under 10% of your available credit and mail your payment the same day the statement arrives in your mailbox.

All of the earliest credit cards were “closed loop” cards. That meant that a three-way relationship existed between one specific bank, the consumer, and the merchant.

Diners Club and American Express cards, for instance, were issued to a select group of consumers and could be used only at merchants who chose to participate in the program. Early cards issued by banks were available only to that bank’s customers and were good only at local establishments.

While Diner’s Club remains in the closed loop, American Express has chosen to join the open loop system, which requires interbank cooperation and funds transfers.

Discover Card, first introduced at the 1986 Super Bowl, also began as a closed loop card. Originally a part of the Sears Corporation, Discover Card Services sought to create a new brand with its own merchant network.

These three, in an effort to boost revenues, expanded into the open loop network, but not without some trials along the way. Although these cards were gaining merchant acceptance, individual banks were locked into an exclusive agreement with Visa and MasterCard.

Finally the U.S. government and the Department of Justice became involved, and a 2004 antitrust court ruling against Visa and MasterCard allowed banks and other card issuers to provide customers with American Express and Discover Cards.

Not all establishments choose to accept American Express and Discover because of the additional set up and maintenance fees. But consumers carrying these cards can rest assured that their cards will be accepted anywhere the logos are displayed.

Now, although Visa still holds over 50% of the market share of credit card transactions, Discover Card is a major player in the Open Loop credit industry. Discover boasts a wide variety of cards for consumers with poor to excellent credit and offering a variety of rewards cards for students, businesses, frequent travelers, and more.

So who offers “Closed Loop” cards?

Gas companies and retailers such as Sears, Staples, and others whose cards are accepted only at their company outlets. These closed loop cards can be beneficial to both the stores and the consumers who use the cards regularly. The rewards, which can be substantial, give added incentive to use that brand rather than another.

For instance, Staples offers a rewards program (for those cardholders who apply) which gives money back on purchases – and gives extra when Staples own brands are purchased.

Back in the dark ages of credit card purchasing, merchants taking your card had to worry. Would the charge be approved, or would it be rejected?

If the person taking your card was an employee at a store and your charge was rejected and charged back to the store, would the employee be fired? They could be, if they had failed to follow procedure. Back then, merchants received a little booklet, printed on flimsy paper, that listed the account numbers of cards that they would not honor. Clerks were supposed to check to make sure your account number wasn’t listed in that book before they let you walk out the door with a purchase.

If your purchase was over a set amount – as I recall it was $50 – they were supposed to call in for approval.

Talk about a cumbersome process – and a frustrating one if other customers happened to be waiting in line behind you. Sometimes they didn’t bother, and sometimes it cost them money. Oh, they could try to collect from you, but if the amount was small it wouldn’t be worth the legal fees and hassle, and if you’d left town… The worst they could do to you was destroy your credit, which didn’t get their money back.

Next came the little “swipe” machine that took your number, checked it, and either approved or disapproved. It took a few minutes, but was easier than looking up numbers and making phone calls.

But now – all that happens in a matter of seconds.

When you hand your card to a clerk to swipe, or swipe it yourself at the check-out counter, the machine instantly sends a message to the merchant’s bank. That bank then instantly sends a request to MasterCard or Visa – who instantly sends a request to your individual card issuer. Assuming the charge is approved, those instant messages go back through the same route, you sign the charge slip, and go on your way with your purchase.

This all happens so quickly that you don’t even notice a delay, and no one behind you is left twiddling their thumbs.

When you order over the phone, the process takes a second or two more, because a human has to key in the information that you provide.

But convenience isn’t free. Your merchant pays a monthly fee for the privilege – even if no customers use a charge card in a given month. That’s why it’s more cost-effective for many small businesses to use a service like Pay Pal – they take a higher percentage of each transaction, but there’s no monthly fee.

Merchants also pay a percentage of each transaction. For most mid-size merchants, the fee is about 2%. It can be higher for small businesses that use the service less frequently.

So, while you’re standing there waiting to sign your receipt, three different banks are “talking about you behind your back.” It’s nice when they’re only saying good things!

Along with payments networks for MasterCard and Visa, Bank of America, Capital One, Citigroup, and Discover are participating in the program.

According to a report by the Fitch Ratings Credit Card Index, credit card charge-offs were 40% higher in January 2008 than January 2007, and the number is expected to rise. A charge-off occurs when a company gives up on trying to collect a bill and sends it to a collection agency. This typically happens when a bill remains unpaid for 6 months.

Card issuers are now reaching out to consumers to help them get back on track after missing a payment or two, or after a change in their financial situation. Issuers are offering customized solutions for individual cardholders – such as a reduction in interest, a waiver of late or over-limit fees, and lower fixed-payment plans.

The new service, called the “Help With My Credit” program, is aimed at providing assistance and education. Consumers can either visit helpWithMyCredit.org or call 1-866-941-1030. This is a toll-free number.

Depending upon the individual situation, operators will either direct the caller to a credit counseling agency or to a customer service representative with a credit card company.

The new work-out programs offered by these credit card companies can help consumers avoid the credit-damaging effects of a charge-off, and will of course help the credit card companies as well.

Interest rates in the 30% range, late payment fees of $39 per month or more, and similarly high over-limit fees can double a consumer’s debt in a few short months of non-payment.

Of course credit card issuers would prefer to collect the penalty fees and the high interest. However, they are willing to forgo collecting those extra dollars as an alternative to charging-off the debt. When an account is transferred to a collection agency, the card issuer receives pennies on the dollar, while the consumer still owes the full amount – interest, penalties, and all.

Credit card holders in financial trouble should note that even when the debt is charged-off their phone will continue to ring. The difference is that it will be a collection agency calling rather than the card issuer.

Thus, the work-out plans can be a win-win. They reduce the debt owed by consumers while ensuring that more dollars get back to the credit card issuers. The only “loser” in this scenario is the collection industry, because it is removed from the transaction.

Just because you’ve received an offer in the mail for a rewards card doesn’t mean the offer will still be open when you send in your application. So before you take the time to fill out the form, visit the company website and get the current details.

Because credit card companies have been hit hard with delinquencies and defaults, many are trying to recoup their losses by discontinuing or altering their rewards programs.

Some are shortening the expiration periods, charging higher fees for redeeming the rewards, and putting a cap on the rewards you can earn in a given time period. Others are requiring a higher number of “points” before you will earn a reward, such as airline miles.

If you are already using a rewards card, pay attention to all correspondence from your credit card company. Some of it may be informing you of changes that could effectively wipe out any rewards you have already earned. For instance, you could learn that you have only a month or so in which to redeem those rewards.

Among the changes that have already taken place, American Express has cut some double-miles opportunities on its Delta Sky Miles card and Citibank is eliminating one option for redeeming its Thank You Rewards. In addition, the Chase Freedom card now offers fewer ways for a customer to earn extra cash back.

A few card issuers still do offer rewards that can save you money, and you can learn about them here at enter site name. We’ve done some research for you and offer a few good choices – but do read each offer to see which one is best for you.

Each of us spends money in different ways, so choose the rewards card that offers savings on the items you buy most often.

Recently, Bankrate conducted a survey, asking consumers how their credit card usage might change in the coming year.

50% said their use would not change at all; 1% said they expected to charge more; and 32% planned to charge less. A whopping 15%, however, said they would not use their credit cards at all in the coming year.

This is in keeping with a trend among American consumers to cut back and attempt to get out of debt – the exact course of action recommended by financial advisors in spite of Washington’s plea that we all spend more.

On the other side of the issue, financial analysts are expecting credit card debt to rise this year as more consumers find themselves out of work and unable to keep up with basic monthly obligations.

This prediction is no doubt the thinking behind credit card issuers’ decision to lower credit limits for even their best customers. It is probably also the reason why some credit card issuers are now tracking their customer’s spending habits. Too many grocery purchases seem to signal declining income and a possible future default.

Whether you plan to charge less – or not charge at all – you know that your plans could be changed by the economic conditions around you. The one thing certain about this year is that nothing is certain.

That means it is in your best interest to have that credit available, even if you have no plans to use it.

If you already have credit cards, keep them open by charging a small amount occasionally and paying the balance when the statement comes in. This not only keeps the account open, but creates a good record on your credit report.

If you don’t have credit cards, now is the time to get one or two and use them carefully, for 2 reasons:
A credit card could be the safety net you need in the event of a job loss or a decline in income due to wage cuts being made across the country.
Wisely used credit cards will help build your credit score.

If you are among those fortunate consumers who are in a position to take advantage of low home prices combined with low interest rates, a high credit score will serve you well. The higher your score, the lower the interest you’ll pay on that home mortgage.

You may think that because your statement just arrived, you have a few days before you need to deal with it. Until the new regulations go into effect, that’s not necessarily true.

After July of 2010, credit card issuers will be required to send your bill 3 weeks ahead of the due date, giving you plenty of time to get your payment in before the deadline. But right now, that bill could be due just a few days from the time it lands in your mailbox.

So open the bill the day it arrives, and if it looks like there’s not time to get postal delivery by the due date, pay on line. This can also be tricky, because if you read the fine print, some card issuers require your on line payment to be made by a specific time of day. For instance, your bill may be due on July 3, so you assume you have until midnight – but the fine print clearly states that the payment must be made by 3 p.m. Eastern Standard Time. If you pay at 3:15 – you’re late!

Most card issuers do give you the option to schedule your payment ahead of time, so if you’re apt to forget on the due date, enter your payment ahead of time and schedule it for the due date. Be sure to write the deduction in your checkbook on the date you entered the payment. Don’t wait for the due date, or you may “forget” and spend the money that’s already spoken for!

Rule #2 – Never, ever, go over limit.

You’ve read that to preserve the highest possible FICO scores you must never exceed 30% of your available credit. Some experts say not to exceed 10% – but sometimes life happens. If the transmission goes out of your car, you go ahead and exceed the 30% because without the car you wouldn’t get to work – and wouldn’t have money to pay any bills.

This is the second reason to read your mail – carefully.

Panicked credit card issuers are lowering credit limits on cards and raising interest rates – even for some of their best customers. That means, unless you read everything you receive from your card issuer, you might think your credit limit is $5,000 when it has actually been reduced to $2,000.

So every time you receive a credit card statement, open it that day and look at the due date, the credit limit, the available credit, and your interest rate.

Going over limit not only costs you money in fees, it almost guarantees a large hike in your interest rate, and harms your FICO scores - so take the extra minute to read that statement.