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Managing Credit Is Essential

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The successful financial management of a household in a day of easy credit depends to a large degree on controlling the credit load you acquire. The amount of money being paid on credit card debt compared with income is a critical figure that household managers often don’t know, or simply ignore and it can lead to financial disaster.

Figures compiled by government overseers show that in 2001, 11 percent of all American households had debt that was using up more than 40 percent of their income. The ratio is even greater in low-income families, which have a greater tendency to use credit when cash is short. The 2001 study was conducted by the Survey of Consumer Finances, an arm of the Federal Reserve. Results indicated that 7 percent of all the households contacted had a payment at least 60 days overdue. Only 45 percent of the credit card-holding households surveyed did not carry over a balance on their accounts.

Using some smarts at the beginning of the credit card pipeline pays. But even this common sense approach often is overlooked. Only a third of those who responded to the survey said they compared the many offers being made to potential credit card holders before acquiring a card.

The low figures may reflect how individuals view credit purchasing in the overall management of their resources. Those who simply use credit as a convenience in purchasing, with no intent ever to have a balance, may see no need to compare. Even so, it pays to look at the fees, terms and special features of the many credit offerings.

The level of financial knowledge in a household often mirrors how finances are managed. The survey found that lower levels of knowledge often correlated directly with less efficient handling of credit debt.

Debt management and savings also had direct correlations. Families that had control of debt payment also were more likely to make regular payments into a savings account. Four-fifths of all the families surveyed reported a savings account, but fewer than half of these made regular contributions to their savings out of each paycheck.

Maintaining an emergency fund to cushion against financial shocks also tied sound credit management to being prepared. Many studies, including those done by the Federal Reserve, consistently show that more than half of the country’s households are unprepared, even for a moderate period of unemployment. Again, general understanding of financial principles lagged in those families least prepared.

Planning ahead for such things as vacations, college expenses, medical needs, replacement of vehicles and other large-tag items also should be considered when credit use is a factor. One area that should call for some particularly thought is the prospect of retirement. A third of those surveyed did not know how much they needed for reasonable retirement and many who had looked ahead were far short of the amount financial experts suggest.

The survey emphasized the need for making credit buying a significant factor when analyzing family finances across the board. And it definitely made a strong connection between knowing about finances and managing them. That can be taken as a word to the wise.

Do I Need to Get a Job to Get a Credit Card?

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We all know the importance of a good credit score. Its benefits range from getting the best loan and credit card terms to being able to rent a home without a security deposit, lease a car and get hired for certain financial or government jobs. However, many of us aren’t so sure how the Federal Reserve’s new rules concerning household income affects stay-at-home spouses’ access to credit cards and thereby their ability to build credit under their own names as well. So what say we take a closer look at the matter?

The rule
In a move altering a long-held credit card underwriting practice, the Fed a year ago announced a final rule mandating that individual (and not household) income is to be used for the purpose of evaluating a credit card applicant’s worthiness. According to a press release issued by the nation’s central bank, “credit card applications generally cannot request a consumer’s ‘household income’ because that term is too vague to allow issuers to properly evaluate the consumer’s ability to pay. Instead, issuers must consider the consumer’s individual income or salary.” This rule change, one of a series made to clarify the implementation of the 2009 Credit CARD Act, took effect on October 1.

The reasoning
The Fed proposed and ultimately adopted this rule in order to create a more logical system of credit card underwriting, where one’s access to credit is a function of only his own ability to pay back what he owes, and thereby ultimately lower the incidence of overleveraging. Credit card overleveraging ran rampant in the run-up to the Great Recession, primarily because an imbalanced system was in place. While income was being considered on the household level, debt obligations were considered individually, which meant that one’s living situation had the potential to mask a lack of disposable income.

For example, a consumer with no income of his own but $150,000 in annual household income and $15,000 in outstanding student loans might on the surface appear to be a good candidate for a credit card with a $10,000 credit line. But what if that consumer’s wife also had $1 million in debt? The couple would have no disposable income and would therefore be extremely unqualified for the aforementioned credit card, though the card’s issuer would have no way of knowing. The bottom line therefore is that you simply cannot evaluate a credit card applicant without knowing exactly how much available cash he or she has. The Fed’s individual income requirement allows this by forcing an apples-to-apples comparison of assets and liabilities.

Your move
But does this new rule also cut certain demographics, namely stay-at-home spouses, off from credit? That is the question that most people are asking, and the answer is no. In fact, such people have two options when it comes to getting a credit card.

Option 1: Some credit card companies offer joint applications, allowing couples to use household income as well as household debts and liabilities in applying for a shared credit card account, for which both parties will be held legally responsible. Finding such an issuer therefore represents a good way for stay-at-home parents to both maintain their spending power and keep positive information flowing into their major credit reports each month.

Option 2: While someone who doesn’t have steady income for one reason or another might not be able to independently qualify for an unsecured credit card any longer, anyone with at least $200 in cash and a valid Social Security Number can indeed still gain access to credit by opening a secured credit card. Secured credit cards offer what amounts to guaranteed approval because they require a cash deposit (hence the $200) that serves the dual purpose of acting as your credit line and ensuring that issuers don’t have to worry about whether or not consumers will pay off their balances. Secured cards also report to the major credit bureaus on a monthly basis and are, in fact, indistinguishable from unsecured cards on your credit reports.

While neither of these options might be perfect for some people, it should give everyone peace of mind knowing that banks are now making smarter decisions across the board and that stay at-home-parents still have means of building and maintaining credit should complications arise in terms of either their marriage or the health of their significant other.

The author of this guest article is Odysseas Papadimitriou, CEO of Card Hub, a website that assists consumers in finding the best credit card deals.

Christmas Shoppers Leaving Credit Cards at Home

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With the Christmas shopping season in full bloom, more Americans say they are doing the job without resorting to credit cards. A poll conducted by Marist College in New York indicated that overall, 56 percent of the shoppers say they will not use their plastic this year. Another 26 percent indicated they will pick up part of their presents using a card and  9 percent said they will not resort to credit at all.

Income level is a factor. Those who earn less—under $50,000— said they wouldn’t use their cards. Only 47 percent of those whose incomes tops $50,000 said they would not buy gifts with a credit card. That translates into age groups as well. The younger the demographic, the  less likely they are to resort to credit buying—likely because they have less “wiggle room” for debt. Seventy percent of those in the survey who were in the 19-29 year age group said they were not likely to use a card; 57 percent in the 30-44 year age group; 56 percent in the 45-59 bracket; and 48 percent in the 60-plus category.

Will You Buy Christmas Presents Online?

The Marist pollsters said they found more shoppers this year inclined toward making purchases online. Eleven percent said they would wrap up all their Christmas shopping  online; 42 percent that they would make some online purchases and 47 percent that online wouldn’t be an option for them. Those poll results compare with a similar survey in 2007, when 58 percent of the respondents said they would not make online purchases at all; 37 percent said they would use the online approach for some of their purchases and 4 percent that they would spend their time at the computer instead of in the stores.

How Much Will You Spend This Christmas?

When it came to the amount they plan to spend on Christmas this season, 57 percent of those who responded to the Marist poll  planned to spend the same as last year, despite the ongoing economic pressures spawned by a long-lasting downswing. Forty percent said they will spend less and only 9 percent that they were opening their wallets wider.  Again, the age groups seemed to reflect the effects of the recession.

Forty-three percent of the women surveyed said they are likely to spend less this year, and they tend to be more prone to shopping than their male counterparts, 37 percent of whom said they are likely to spend less during the annual gift-buying frenzy.

Credit Card Benefits For Christmas Shopping

In favor of using credit cards for shopping are people who make purchases and the merchant goes out of business. Credit card users were the only ones able to get refund for defective merchandise. If you plan to use your credit cards for shopping, make sure you check your budget.

How to Dispute Errors On Your Credit Report

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Your credit scores play a big role in your life and your ability to borrow money for large purchases at the lowest possible interest rate. Credit scores can determine whether  you can purchase a car or a house at low interest rates or high interest rates. So what can you do about managing your credit scores? Get a copy of your credit report and fix any errors you find.

Disputing credit errors may not be a fun thing to do but it is very important to managing your financial health. Why? Because banks use consumer credit history to determine your eligibility for a loan and to determine what interest rates they will charge you.   If you think you might be applying for a loan, it would be best to monitor your credit scores.

Finding Mistakes On Your Credit Report

Murphy’s law states that “anything that can go wrong, will go wrong.” This is especially true with credit reports. Experian, one of the three main credit bureaus, stores 65 trillion bytes of data. Mistakes are bound to happen. Consumers should remember that inaccuracies found in your credit report can significantly lower your credit score.  Raising your credit scores depends on  getting these mistakes corrected. Remember that disputing errors is free to you.

You will need to get a copy of your credit report from three credit bureaus:  Equifax, Experian, and TransUnion.  You should print a copy of these reports and go through each of them very carefully. If you find mistakes, highlight the data in question. It is important that you ask the credit bureaus to make corrections for you. Write down the credit report number for each of your reports. You will need to reference that number when communicating with the bureaus.

Once you have gone through all three credit reports, write an explanatory letter for each credit bureau. Your written request is generally called a dispute letter. Explain each disputed item clearly and concisely.  Send in your dispute letter with a copy of your credit report  via certified mail, call them or use an online form. Meanwhile, you can contact all lending institutions such as banks and credit card companies to tell them that your credit report is undergoing an investigation and that you have filed a dispute for erroneous information.

Contact Information For The Three Credit Bureaus

Equifax Mailing Address
P.O. Box 740241
Atlanta, GA 30374-0241
1-888-202-4025

TransUnion Mailing Address
2 Baldwin Place
P.O. Box 2000
Chester, PA 19022
1-800-916-8800

Experian Mailing Address
P.O. Box 2104
Allen, TX 75013-2104
1-888-397-3742

What The Bureaus Do

Once the bureaus have gone through your files, they have 30 days to respond to your request. They will send you a letter containing the results of the investigation along with a note that they will remove or erase the inaccurate information in your credit report.

Once that is done, you can also request the bureau to mail correction notices to banks and lending companies they have sent the report to in the last 6 months. If you ask, they can also sent it to places that have requested your credit report in the last two years. The credit bureaus should send  you a copy of your report and they should include the details of the revised information.

In instances where the dispute has not yet been resolved, you can request the bureau to update you on the status of your request. Consumers must remember they cannot remove erroneous information on their own. A dispute must be filed for an investigation to happen.

Recommended Reading

For further information about credit management, you can visit the Federal Trade Commission site where you will find consumer information about credit and loans.

Experian provides the latest >credit analysis news from 90 countries around the world. You’ll find out bits of information like New Yorkers have the most open credit cards and Phoenix has the least.

If you want to limit the credit card offers you receive through the mail, call 1-888-567-8688.

Strengthen your financial well being by educating yourself about managing your credit and making smart financial decisions.

Effective Use of Credit Cards

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Credit cards may be one of the most innovative and helpful inventions in the modern era. Through this little electronic card, we are able to make cashless transactions and online purchases. We are now able to live in comfort for credit cards make us think we can afford the finer things in life.

This is one of the advantages of having a credit card. The downside is that we also have to pay the banks interest fees for this service. People who do not manage their finances well can be charged high interest rates and huge penalty fees for late payments. This is a cycle they may never escape unless they seek professional assistance.

If you use credit cards regularly and you can control your spending, there are some ways you can get low interest rates. Read on and find out how.

There are essentially two paths you can take if you want lowered interest rates. The first one has to do with dealing directly with the credit card company. If this is not appealing to you, you can use the second option, which is to find a separate loan that has lower interest rate than your existing credit card rates.

In dealing with the credit card company, before you request a lower interest rate, you need to have a good credit rating. Remember that you can only qualify for lower interest rates if you have good credit scores. A good credit rating is an indicator that you pay your debts regularly and that they can rely on your monthly payments.

Now, if you want another way to go about this, you can approach other lending firms that are willing to offer you a lower interest rate as well. You can refinance your home loan. You may receive a lower interest rate because of this and it may allow you to pay off some of you high interest credit cards.

If you are serious about getting your finances in order and you instill in yourself a sense of discipline, there are a lot of ways for you to get the lowest interest rates possible. You should not expect overnight success when you are in search for a competitive interest rate, instead, practice some patience in the course of your research. Why not begin your search today? Call your credit card company or search the web for other options. There are numerous websites that can help you get started.