Credit Card Education

Live Thrifty Without Cutting Up Your Credit Cards

2008-09-19T01:19:00.000-07:00

It seems like times keep getting harder. The cost of living has skyrocketed while wage increases remain sluggish. When it’s hard to make ends meet with paychecks alone, it might be tempting to charge little extras to our credit cards. But is this really such a good idea?

It’s been popularly believed that Americans have been doing just that in the tough financial times of late. But studies have suggested that credit card use is actually on the decline. Whichever theory you hold with, it can’t hurt to educate yourself about the reality of using credit cards to cover your daily expenses.

Credit cards are best used in short-term situations. Ideally, card holders pay off their card balances every month to avoid interest fees. But when we use credit cards to pay for our everyday necessities like groceries and utility bills, we tend to carry a rotating balance. This racks up the interest and causes us to pay more for our monthly needs than we would if we paid cash.

Regardless of what we hear on the news, studies have shown that Americans are using their credit cards less. Instead of using their plastic to maintain their lifestyles, they are simply scaling back on their expenses by staying home and cutting out unnecessary charges, like premium cable. They are also using utilities more sparingly to avoid sky-high energy bills. And eating out is, well, out. More and more Americans are choosing to cook at home in the name of saving a buck.

If you’d rather strike a happy medium, consider getting a cash back reward card that gives you some incentive to make daily purchases. Cut back on your other expenses wherever you can, and use the money you save to make more than the minimum monthly payment on your credit cards.

Low-interest cards are another way to stretch your credit dollars as far as you can. Look for cards with a 0% interest phase. These introductory periods typically last 6 months to a year. The charges you make during that time won't be subject to interest. That's a good thing for thrifty card holders.

Taking Responsibility For Your Credit Cards

2008-09-19T01:18:00.000-07:00

In numerous cases, credit card companies issue cards to customers who may be deemed, risky. In many cases they do so at a higher interest rate. Some of these cards still have annual fee’s and additional charges. Now, granted, customers should avoid these cards. However, some customers who want a credit card, will do what they have to in order to get one. So begins the snowball effect.

A customer, who probably could not afford a credit card at those terms in the first place, proceeds to max out the card, get immediately behind on their payments, the fee’s begin to build, and that snowball continues to roll down the hill that did not have to be. Again, it is a shared responsibility. The credit card companies have to be aware of their risks and not issue credit cards for profit potential only. On the other hand, customers who take on credit cards, must accept the responsibility of owning up to their financial obligations.

There was once a time in our society where credit revolved around a simple hand shake. Those times have long since faded into obscurity. Why? For one thing, a hand shake was based on honor during a time when someone's "honor" actually used to mean something. Your hand shake was your bond, the reflection of you as someone who could be trusted. This was a reputation that was not taken lightly. Of course, honor does still exist, but it just seems to mean more to some than others. There are instances of course, where hard times just get the best of you and it has nothing at all to do with your honor- just your financial situation!

You end up taking on too much, and then you get buried in an ocean of credit related debt that continues to grow as you find it difficult to keep up with your payments. There is hope, though, and all does not have to be lost. You can still save your honor! You can climb out of the hole that you are in. Don’t give up the ship without a good fight.

Here is how to take responsibility for your credit cards:

If you are going to take on credit cards, you should be prepared to take responsibility for them. Until you can get your financial situation under better control, at least make an effort to make the minimum payment due, before it's due. This will avoid the addition of late fees or increased interest rates that are often the result of a late payment to a credit card company.

Do not depend on your credit card as a bail out. Use it responsively. Call your credit card company and ask to have your interest rate lowered. Many times it will be in the credit card companies best interest to lower the rate, rather than simply inherit a delinquent account. Organize your finances. Know what you have coming in and what you owe out on a monthly basis. Take responsibility for your credit cards and they will take care of you by giving you access to credit when you need it.

Credit Etiquette for First Time Card Holders

2008-09-19T01:16:00.000-07:00

Living on credit is a way of life for most of us. When we want to make a purchase but don’t have the money to cover it, that little piece of plastic in our wallet can be all too tempting. Credit cards can make life so much easier – if we use them responsibly. Thoughtless, frivolous spending can lead to a mountain of debt that feels impossible to scale.

If you’ve received many offers of credit in the mail, you know how easy it is to be seduced by the easy terms and other marketing gimmicks on the envelopes. But the truth of these offers is on the inside of the letter, and often written in small print. There you will find hidden fees coupled with high interest rates and rules that can change at the creditor’s whim. Still, it’s hard to refuse a credit card when someone really wants to give you one.

A little preparation can enable you to accept those offers of credit without the fear of digging yourself into a financial hole. If this is your first credit card, look to friends and family for credit etiquette. They can be good examples of how to handle your new credit limit, or they can serve as reverse role-models – living proof that you do not want to live beyond your means.

The first thing you need to do when you get a credit card is to look at your budget. Make a simple ledger or spreadsheet that lists your monthly income as well as your outgoing bills. Credit card interest rates can range from 15-30%. If you make purchases on the card, be sure that you can afford to pay them off each month. If the debt lingers from cycle to cycle, interest payments will make that purchase cost more than it’s worth.

Next, list your bills in order of priority. You have to pay for food, power, and lodging before you pay for credit cards. If your monthly necessities leave you little financial wiggle room, you might want to avoid using the credit card except in emergencies.

What if you’ve already accumulated a heap of debt? Start fixing it right away. Call your creditors, explain your situation, and see what they can do to help. Some lenders will grant a forbearance for a month or so, while others will accept partial payments. Make a good faith effort to take care of your debt, and establish a relationship with your debtors. Make sure they have current contact information, and don’t put them through the trouble of calling you first. Instead, be proactive. Let lenders know when you face financial hardship. If you get in touch with them, they’ll know that you care about paying off your debt - and they won’t hassle you so much.

These simple strategies can be put to use by anyone who has, or is thinking of acquiring, a credit card. Credit cards aren’t free money. Spend only what you can afford to spend, and stay in touch with your creditors if problems arise.

Understanding Frozen Credit

2008-09-19T01:15:00.000-07:00

Credit freezes are often confused with fraud alerts, but they are really nothing similar. A fraud alert is when new creditors are alerted that you may have been the victim of fraud, and the creditor is required to take additional verification steps that prove they should be accessing your credit and opening an account for you before they can issue the credit. Fraud alerts also remove you from receiving prescreened offers for insurance and credit.

A credit freeze is something a consumer can place on his or her own credit report – depending on where in the country you live. Some states allow anyone to put a freeze on their credit; while others only allow the victims of identity theft to freeze their credit. Here are other tips that will help you understand the basics of a credit freeze:

1. Even if your credit is frozen, your report can be updated by your existing creditors. Don't think that by placing a freeze on your credit report you can slide by with a few late payments that won't get reported!
2. A frozen credit will only prevent new creditors from accessing the information in your report. If your existing creditors want to check your credit report to see how you are paying your other creditors, they can.
3. A freeze of your credit is made with individual credit bureaus. If you freeze your credit with Experian, it won't be automatically frozen through TransUnion or Equifax. You have to freeze each manually if you want all access to be frozen.
4. “Thawing” a credit freeze; in other words, removing the hold you have on your credit report, takes several days to take effect (unless you live in Utah where they're able to unthaw in 15 minutes!) If you plan to apply for new credit or apply to rent an apartment or apply for a new job; you will want to thaw your credit a few days before you'll need it to be sure that these authorized people will have access to the report.
5. Freezing your credit does not prevent you from using your credit cards. It's not like “freezing” the credit card or “freezing” a bank account. It literally only effects the ability of a new lender to look at your credit report.
6. While the intent of a credit freeze is usually to prevent identity theft and fraud- there are still numerous ways around it that could result in you becoming the victim of identity theft or fraud, despite having a freeze on your credit. For example, in the event a lender doesn't try to check your credit before issuing a new account, new credit could be opened in your name if the criminal had the right details to do so.

Hopefully, this list has given you some useful insight into what a credit freeze is, and what it is not. Using a credit freeze may help reduce your potential for being the victim of identity theft, but if you are hoping to end the prescreened credit card offers or have creditors alerted to possible fraud activity when they begin to open a new account for you; chances are you are looking for a fraud alert service and not a credit freeze.

The Credit Card Industry Could Face Tough Changes

2008-09-19T01:07:00.000-07:00

There has been a recent move to force credit card companies to review and rewrite some of their more controversial practices. Right now, consumers are complaining that they are at the mercy of the industry’s whims. Interest rates change frequently and, sometimes, without any good reason. The companies argue that their own circumstances – with rates of default and delinquency the highest they’ve been in years – make such practices necessary. But customers and their advocates aren’t buying it. The credit card industry takes in billions of dollars each year, critics say, and can afford to treat their customers better.

Some of the practices under review include: universal default, too-short customer notice of changes to terms and conditions, and the retroactive application of new interest rates to a customer’s entire existing balance.

Universal default occurs when a customer’s credit score is lowered and their credit card company raises their interest rate as a result. There are many problems with this practice. For one, it’s too easy to implement. If a customer makes a late car payment, their credit card interest rate could suffer as a result. And higher interest rates make credit card payments higher, increasing the likelihood that the customer will default with many lenders instead of just the original one.

Credit card companies are also being asked to give more notice to customers when their rates are about to change. Right now, companies are only required to give a fourteen day notice by mail. Customers argue that, by the time they receive the mailed notices – if they receive them at all – they only have a few days to decide how to deal with the changes. If the new bill is passed, that notice period will be increased to nearly a month. Companies will also be required to send out bills 25 days in advance of their due dates, compared to the two-week cycle now in place.

The new bill could also change the way card companies handle punitive interest rates. Some companies will take the higher rate and retroactively apply it to the full amount of the customer’s balance. Customers feel that this is unfair; if they have been paying in a timely manner for years, why should they have high interest applied even to the debt that has been meticulously paid month after month? Companies are being asked to apply such rates only to the portion of the balance that caused the increase.

Credit card companies aren’t happy with the proposed changes. They are facing difficult times, they say, and rules and regulations forcing them to change their practices will only hurt their ability to offer credit to a large number of customers. They maintain that the credit card industry is competitive already, and that customers have no need of legislation to protect them from creditors.

Whichever stance you take, it’s possible that the credit card industry will be making a major overhaul in their business practices. In addition to the bill proposed last month by the House Financial Services Committee, the House Judiciary Committee wants merchants to be able to negotiate the amount they have to pay for credit card transaction fees. Despite card companies’ protests, change is on the horizon.

21 Credit Card Hacks : The Credit Card Holders Survival Guide

2008-09-19T00:59:00.000-07:00

Credit cards can be your best friend or worst enemy; it all depends on how you use them. Getting the most out of your credit card is often counter-intuitive or requires you to be aware of features that aren’t regularly advertised. This list of credit card hacks will provide you with the info you need to make the most of your credit cards.

1. Price Protection is a Geeks Best Friend
Don’t you hate it when you drop $600 on an iPhone or your now obsolete HD DVD player and it drops in price by a couple hundred bucks a month or two after you buy it? Many credit cards offer a price protection program which will refund you the difference when you purchase an item with the card and you find a better price within 30-90 days.

2. Read the Terms and Conditions
They are not nearly as long as you may think and fairly easy to read. The card companies are not always forthcoming with the details in their advertising and this is where you’ll find the hidden fees and rate information.

3. Balance Transfers Aren’t Always Worth It
Especially when your plan is to pay off the card anyways. There’s almost always a balance transfer fee and that fee, plus the interest accrued from it delaying the repayment of your card, often ends up being more expensive than just keeping the higher rate card and paying it off.

4. Choose Longer Intro Period over Lower Fixed Rate with Balance Transfers
This may seem counter-intuitive, but having a 6 to 18 month jump on paying off your debt, interest free usually ends up being a better deal than getting a lower fixed rate when you plan on paying off the debt. For more information click here.

5. Get Cards That Offers Rewards for NOT Using Them
Believe it or not they exist. Many will offer you free airline miles for just signing up or for making a single purchase. The Citi Driver’s Edge card offers you rewards just for driving your card; enough for free oil changes.

6. Don’t Carry A Balance
Credit cards are rarely the best source for financing a purchase long term. Most likely you can open a line of credit with your bank that offers much better terms. You can still use the card for the convenience but if you need to carry over the balance from month to month, transfer it to this line of credit.

7. Get Rewards You’ll Actually Use
If you travel a lot, an airline or hotel rewards card may be the best choice for you. If you don’t, don’t plan a trip around the rewards. Find a card with rewards you’ll use anyways like gas cards, saving for college, or funding a retirement account.

8. Cash Back is King
As we mentioned in a previous article, almost all credit card rewards are essentially the same, 1% cash back in one form or another. Knowing this, why would you want to deal with blackout dates, restrictions, expirations, etc. Just get the cash back card and use that cash to pay for whatever you want.

9. Take the Purchase Protection, Leave the Extended Warranty
Many cards offer purchase protection for items you buy with them, which not only act as an extended warranty, but will also often cover the item if you damage it or it’s stolen.

10. Have More Than One Card
If you insist on carrying a balance and for whatever reason are previous advice on opening a line of credit won’t work for you, then at least have a separate card for this. Ignore all the rewards and similar factors and just get the lowest rate you can. Use your rewards card for making everyday purchases and use this low interest card to cover expenses you plan on financing.

11. Track Your Expense
Most banks offer the same reporting on credit card accounts as on checking accounts. This includes the ability download to Quicken or MS Money. Don’t just log one big expenses for ‘credit cards’ on your budget, download and log your entertainment, dining out and other expenses as you would if it was your checking account.

12. Beware of ‘Poor Credit’ Cards
There are definitely some legit credit cards for those with poor credit, but there’s also no shortage of absolutely horrible ones. Some charge you so much in hidden fees upon opening the account that it adds up to near the available amount of credit you have on the card! Sadly that is no exaggeration. You should always read the terms and conditions on the cards, but this is especially true with those designed for people with poor credit.

13. Use a Separate Card for Business Expenses
No matter how small your business is. If you run an internet business or any other kind of small business odds are you use a credit card or at least debit card for most of your expenses anyways. Even small businesses (or with some cards, individuals) can qualify for a business credit card. Get one and use it and come tax time, those deductions will be a snap!

14. Closing Credit Cards Doesn’t Always Help Your Credit Score
By closing a card that is paid off, you end up raising the ratio of your used vs available credit which can often hurt your credit score. If you have an excessive amount of cards that you want to close out, that’s fine, but think twice if your reasoning for doing it is to improve your credit score.

15. Pay Off Your Highest Balance Card First
When getting out of debt you may be tempted to pay off your smallest debt first. While this give you a sense of accomplishment sooner, the best technique is to pay off debt with highest interest rate first, which is usually a credit card.

16. Everything Is Negotiable
If you’re a good customer, or even a mediocre one, odds are you can get out of paying late fees or get your bank to lower your interest rate just by asking. Here’s a video explaining how.

17. Beware of Two-Cycle Billing
The amount of interest you pay is based on your average daily balance. Many card companies have come up with a new method of calculating your average daily balance by considering not only this month’s average balance but also the previous months. The problem with this is that amount is usually higher when you’re in the process of paying off your debt making it even harder to do so.

18. Sign the Back of Your Card
Many people refuse to do this thinking they want the person accepting the card to be forced to check ID. The only problem with that, is if your card is ever stolen, the thief will have no problem signing the back of the card for you and will now have a perfect signature match. Not that most people really check the signature anyways, but don’t make it even easier on the thief. If nothing else, write “Please Check ID” in the signature box.

19. Personalize Your Card
You might as well have a card that reflects your personality. Most banks will let you personalize your card in a number of ways such as putting your team logo on it, your photo, or even provide your own card art. Take advantage of this, it’ll give you a card you love and make a great conversation piece.

20. Have a Discover Card
Have you ever noticed that although many merchants don’t accept Discover, at certain government agencies and wholesale clubs, the only accepted credit card is Discover? The reasoning behind this is somewhat complicated, but if you hate writing checks as much as I do, do yourself a favor and have at least one Discover card.

21. Never Pay the Minimum Payment
No list of credit card advice would be complete without the classic advice to never pay the minimum payment on a card. I’ll spare you the math but in short by doing so you’ll usually end up paying somewhere in the ballpark of three times what you borrowed and end up paying it over twenty or so years.

The History of Credit Cards

2008-09-19T00:54:00.000-07:00

Love them or hate them, credit cards are a part of everyday life in the twenty-first century. But where did they come from? Who thought up the idea behind a little piece of plastic that could be used to make purchases?

Credit has been with us since time immemorial. In the old days, stores would keep open accounts, or “tabs”, for their customers. The customers would take the merchandise they needed, the store owner would mark their purchases in a ledger, and the tab would be paid at a later date.

Credit in card form was first mentioned in literature in the 1887 novel, Looking Backward, by Edward Bellamy. The author theorized that, in the future, all customers would need to make purchases was a little card that represented their available credit. Now that was a good guess, and timely: Western Union issued purchase cards to its best customers as early as 1914.

Gas cards came before most other types of credit cards. In the 1920’s, more and more people purchased automobiles. Those automobiles needed fuel, so many gas stations began to issue cards which could be used to make fuel purchases. In an innovative networking move, various gas stations even accepted their competitor’s cards as a form of payment.

Next came store credit cards. Originally devised as a marketing ploy, these cards helped increase the customer base of many retailers. Customers liked the fact that they buy now and pay later, and retailers liked the fact that the period of repayment had a definite limit. That is, the customer had a specific amount of time in which to pay off their debt. Good customers gained a good reputation among merchants – the credit history of yesterday.

Revolving credit came onto the scene in the 1930’s and 40’s. The stores started off by allowing customers to pay off their debt over a series of months, requiring the debt to be paid in full before further purchases could be made. Then they did away with the repayment limits. This allowed customers to carry a balance on their credit cards that did not have to be repaid in a specified time period. Instead, the customer had to repay a certain amount of debt each month – the minimum monthly payment. This provided even more convenience for the customers, though many didn’t quite know what they were getting into. Credit card companies made revenue from fees and interest, just like they do today.

In the 1950’s, Ralph Schneider introduced the concept of an all-purpose credit card which could be used in lieu of multiple charge cards. Enter the cards we know today: Visa, American Express, Diner’s Club, and others. These major companies soared in popularity in the 1970’s and 80’s.

Today, credit cards have become a big business. It seems that every provider is eager to place a card in the hands of a customer, regardless of that customer’s credit score or demonstrated level of financial responsibility. This is good news for consumers who want to build up their credit, but can also mean big losses for an industry that was founded on the strength of a promise.

Why Credit Card Life and Disability Insurance is a Rip-off

2008-09-19T00:49:00.000-07:00

Chances are, when you apply for a credit card you will be asked if you want to enroll in additional life and disability insurance. If you don’t choose to enroll, rest assured the credit card company will call you a few months down the road and try to get you again.

You will be told that in case of death, critical illness or disability, your credit card payments will be taken care of, relieving you and your family of an additional burden. All you need to do is pay a certain percentage of your monthly balance as an insurance fee.

What you’re not told is that in such an unfortunate event, your policy would only cover your minimum payments – typically 4% of your balance, not your whole debt. You better believe interest will continue to accrue on the remainder of your balance. If you are able to return to work later, you will still be responsible for the remainder of the balance, on top of the medical bills you recently incurred. Essentially the financial institution is asking you to pay premiums on a policy that protects itself. You as the credit card (or loan, or mortgage) holder are not the beneficiary. Other than peace of mind, you don’t gain anything from such insurance.

It is the standard policy of many banks to include this type of coverage in personal loans. Most borrowers are not aware of this and unwittingly sign up. If that’s not bad enough, the bank receives up to 40% commission on reselling you this insurance policy simply for signing you up. You’re better off going directly to an insurance company and springing for a whole life policy that will benefit your family, cover all your debts, not just one and will cost you less money.

Credit lenders are aggressive with these offers, and when you initially refuse, often push you into a free introductory period. Don’t take the bait. These policies are notoriously difficult to cancel – you have to deal with the insurance company itself, so your bank’s customer service department won’t be able to help you. And it can be tough to even find contact information for the insurer.

Be careful to read the terms and conditions on credit card and other loan agreements before signing anything, and make sure your banker explains your agreement fully. When pushed to accept additional insurance, remember to just say “no.”

The Pros and Cons of Having a Credit Card

2008-09-19T00:47:00.000-07:00

Are you a credit card owner? If you are not, the thought may have crossed your mind. After all, you have likely received numerous credit card offers in the mail or you may have even been presented with credit card offers online. To determine if having a credit card is the best decision for you, you are advised to examine the pros and cons of having one. A few of the most influential pros and cons are outlined below for your convenience.

Perhaps, the biggest pro or plus side to owning a credit card is ease of use. It is no secret that credit cards are easy to use. Many retailers are simplifying the process of paying for purchases with a credit card. What does this mean for you? It means that credit cards are becoming even easier to use. Whether you regularly find yourself in a rush or if you dread holding up the cash register lines, when filling out a check or searching for the correct amount of a change, a credit card may be just what you need.

In keeping with ease of use, you will find another pro to having a credit card. That pro is the ability to shop online. In recent years, the popularity of online shopping has, literally, skyrocketed. Many consumers love having the option of shopping in their pajamas and having their purchases delivered directly to their door. Unfortunately, many online retailers have restrictions, in terms of methods of payment accepted. Unless you are lucky enough to find an online retailer that accepts electronic checks, you will not be able to benefit from online shopping unless you own a credit card.

The perks or benefits you often gain access to is just another one of the many pros to having a credit card. The credit card perks or benefits you receive will all depend on the credit card in question. In fact, that is why it is important for you to choose your credit card carefully. Credit card comparison enables you to choose the credit card that best fits you and your needs. If your cards are played right, that credit card can be one that you can benefit from immensely. It is common for many credit card companies to allow or offer balance transfers, rewards, and so much more.

It is also important to mention the protection that you receive. In the event that your credit card become lost or stolen, you should not find yourself responsible for any illegally made purchases. With that in mind, it is first important to fully review each credit card application you complete. Most credit card companies have rules and restrictions, concerning theft protection. These rules and restrictions may include a liability limit, as well as a time frame in which you must report your credit card lost or stolen.

Although there are a number of pros to owning a credit card, it is also important to examine the cons or downsides to owning one as well. If you have a television, a radio, or internet access, you likely already know how large of a problem credit card debt is. It is something that millions of Americans suffer from. Yes, having a credit card does put you at risk for debt, but this is a risk that you can eliminate. By properly using your credit card and making on time payments, you will not find yourself falling victim to credit card debt. In fact, your credit score may even improve from owning and properly using a credit card!

As outlined above, there are a number of pros to owning a credit card. Of course, the decision as to whether or not you want to own a credit card is your decision to make, but it is important to remember that credit cards can do more good than harm, if used properly.

How Credit Cards Work

2008-09-19T00:45:00.000-07:00

You find something you absolutely have to have, slap down a piece of plastic and voilà – it’s yours! Life sure is good, isn’t it? But have you ever wondered what happens behind the scenes, from the time your credit card gets swiped (actually or virtually) until the time the purchase shows up on your credit card statement?

Anatomy of the credit card

Transmission of the account number, a systematic rather than a random combination of numbers, is where it all starts. The account number identifies: the type of credit card being used (VISA, American Express, etc.), a bank number, an account number and a check digit. In the case of America Express, the third and forth numbers indicate the currency.

Equally important is the magnetic stripe on the back and it tells quite a story. For simplicity, let’s just say the stripe contains the account number, cardholder name, country code, expiration date and other validating information that’s unique to the credit card issuer and the banking industry.

The Credit Card “Family”

Quite a few organizations are involved in the credit card purchase and approval cycle. Here are the major ones:

* Acquiring Bank – The bank that the merchant works with to get credit card purchases converted to cash and deposited into the merchant’s account.
* Association – The family of banks and credit card issuers that are behind a branded card. Fort example: Visa and MasterCard are associations.
* Cardholder – That’s you and anyone else who carries a credit card.
* Independent Sales Organization (ISO) – This is the company that provides basic credit card services to the merchant such as merchant accounts and credit card funding reports.
* Issuing Bank – The financial institution authorized by the Association to issue credit cards to cardholders.
* Merchant – A place of business that is authorized to accept credit cards for purchases.
* Payment Gateway – The company that provides the credit card processing terminals and network that ties the merchant to the credit card processing network.
* Payment Processor – The company that moves the approved funds between the various financial accounts that exist between the cardholder and the merchant’s bank.

Authorization

The multi-step authorization process goes on hundreds of millions of times every day. This behind-the-scenes flow of data forms the foundation of credit card purchasing.

* The cardholder initiates a purchase from a merchant.
* The merchant access the Payment Gateway and transmits the customer’s credit card and purchase details.
* The payment gateway looks up the merchant’s acquiring bank and ISO details and forwards the transaction to the appropriate Payment Processor.
* The payment processor determines the Issuing Bank’s ID and sends the transaction information to that bank.
* The issuing bank verifies the customer’s account status, open-to-buy limits and security details. If everything is in order, the bank deducts the amount of purchase from the cardholder’s available balance (open to buy) and transmits an authorization code back to the payment processor. If there is any problem with the transaction, the issuing bank transmits a “transaction declined” message. In cases of fraud, the bank may also issue an order to pick up the card.
* The payment processor passes the approval or decline code back to the payment gateway.
* The payment gateway passes the approval or decline code back to the Payment Gateway.
* The Payment Gateway displays the message to the merchant who either completes or terminates the transaction.

End of Day Settlement

At the end of each day, the merchant performs a “capture routine” which sends details on all completed transactions to the Payment Gateway. The Payment Gateway passes the data up the chain to the Payment Processor which determines which issuing bank to send the transaction to. The issuing bank electronically transmits the money to the acquiring bank which transmits it to the merchant’s own bank account. And everybody is happy.

Line of Credit or Loan?

2008-09-19T00:42:00.000-07:00

When you need cash, is it better to obtain a line of credit or get a loan? The answer depends mainly upon your self discipline and what you plan on using the money for. If you want to make fixed payments over a specific period of time, then a traditional loan is your best option. If you prefer to have a line of credit that you can use whenever you need to as long as you have money available, then a line of credit is probably the route you want to take.

Loans work in the same manner as a home mortgage for the most part. You borrow a specific amount and you make monthly payments for ten to thirty years. Many people will opt for a fixed rate loan when they borrow money to start a business or improve their home. You can borrow from your fixed rate loan one time. That means, even if you've paid back half of the loan, you cannot simply call the loan lender and ask to reborrow the half you've paid back. You use it, you lose it!

On the other hand, a line of credit is much moe flexible and allows you to do just that. Basically, whatever your maximum line of credit is, that's how much you can borrow by writing a check, and in any amount up to that total. So if you have a line of credit for $30,000, you can write checks for $1600, $2000, $8000, or more- as long as the total amount of money you use is less than $30,000. Then, as you start making payments on the amount of money you've used from your line of credit, you can immediately reuse that money again. Many people who are unsure of how much money they are going to need, or know they will need irregular amounts will often select a line of credit. A line of credit is a good option for college tuition, buying a new car, or just knowing you have access to cash when it's needed.

Somewhere between a line of credit and a fixed rate loan is a home-equity line. For most home-equity lines, the loan period is actually divided into two different segments. The first is called a "draw" period, and lasts about five years. During this period of time, you are able to borrow money as you need, similar to a line of credit. As you make payments during the "draw" period, the amount of credit available to you is increased by the amount of your payment. When the draw period of your home-equity line ends, you will either be required to pay back all of the outstanding balance in a single, lump sum, or you will pay the outstanding balance back over a fixed period, with fixed payments just as you would a regular loan. Your contract will include the details for what happens during the "payback" period of your home-equity line- and are things you should understand before you sign the papers for the money.

In addition to the convenience of having these extra funds for whatever you need the money for, in some cases, you can deduct some or all of the amount of the loan or line of credit on your taxes. If you are improving or purchasing your home, you can deduct up to $1 million dollars! Basically, the government will subsidize the cost of borrowing the money if you use your home to secure the loan. If you pay $770 in interest and you can deduct that in the 27% income bracket, the federal government is going to pay about $200 of that interest. In some states, you can also claim the interest on your state tax returns, and increase the amount of your deduction.

Teaching Children about Credit Cards

2008-09-19T00:40:00.000-07:00

Young Children Do Not Understand the Concept of Credit Cards
It’s the 21st century, and most of the kids living in the United States are constantly watching their parents put a cute little plastic card into an automated teller machine and seeing the machine instantly spit out a wad of cash. It’s like magic! A machine that gives money whenever anybody wants it!

The concept of “the money that comes out of an ATM really comes from a bank account that holds money which was earned by working” is difficult for many young children to understand. Likewise, it’s hard to comprehend the notion that swiping a credit card in a machine at the store really means that mommy or daddy will get a bill in a month that must be paid with the money earned by going to work.

Life these days is so electronic that many parents wonder how their children will ever grasp the complexities of how internet banking, automated teller machines, and credit cards work… even in the simplest terms. However, several experts in this field have come up with tips on how to teach children the value of a dollar, how to save money, and how the concept of a credit card works. Learning how to understand these concepts and how to be responsible with money at a young age is knowledge that can help children succeed and prosper for the duration of their entire lives.

Make it Fun
Taking a small child who is learning to read and recognize numbers to the grocery store is a great and fun way to teach them about comparison shopping. While in the store, show the child a shelf containing many bands of the same item. Have him or her look at the differences in prices between all of the similar items. Talk about which one should be chosen for purchase, and why it is better… because of price, quality, or quantity included in the package.

While at the grocery store, allow the child to watch the checker scan all of the items, and explain that a computer is keeping track of all the prices associated with each item in the cart. Then, when it is time to pay, allow the child to swipe the credit card for you. This is a good opportunity to tell the child how a credit card works, and that eventually the credit card must be paid with real money.

Give Children an Allowance
When a child is given his or her own money to either spend or save, he or she begins to feel a sense of responsibility. Even if the allowance is small - - only a few dollars a week - - it will fill the child with ideas on what he or she wants to purchase with his or her very own money. This is also a good time to explain saving money to a child. For example, if the child is given two dollars, he or she should feel free to spend one of them, but be encouraged to save the other one. Then, the spare dollar can be placed in a bank account and the child can watch and learn about interest earned on money in savings accounts.

“I Want it NOW!”
Many young children know the concept of, “I want it NOW,” very well. Especially if the item is expensive and the child does not have enough money to pay for it on his or her own. This can be a prime opportunity to teach the child the difference between “wants” and “needs.” It is not a good idea for a parent to step in and pay for an item that falls into the “wants” category just to immediately satisfy the child. Teaching a child to save their money over time for something that is desired is a way to encourage good spending and saving habits.

What is a Home Equity Line of Credit?

2008-09-19T00:38:00.000-07:00

Home Equity Line of Credit May Have Tax Benefits
Anybody who owns a home may qualify for a home equity line of credit. A home equity line of credit can be used for any number of things, including paying for expensive renovations intended for the home, consolidating credit card debt, paying off large loans, or for having cash on hand.

The limit on a home equity line of credit usually depends on how much a house is worth versus the dollar amount of the mortgage(s) currently on the home. The amount, or limit, may be a few thousand dollars, or can be up to several hundred thousand dollars. The total available for a line of credit will all depend on the value of the home.

One of the positive aspects of a home equity line of credit is that it can sit idle until it is needed. For example, if a line of credit is opened for $10,000, and only $2,000 is needed, interest will only be charged on the portion that is being used. The remaining $8,000 of the credit line remains available for future use.

When a home equity line of credit is opened, the lender will likely provide a few different ways to easily use the credit. The borrower will probably receive a checkbook so that checks may be written against the line of credit. Also, the borrower will probably be given a credit card. When the credit card is used, the purchases will apply to the line of credit.

A line of credit must be paid according to the terms of the credit agreement. However, the terms of the agreement will probably require the borrower to send monthly payment to the lender, with a minimum amount due each month. The minimum amount due is usually calculated according to the percentage of the total amount of the loan currently being used. Some lenders may ask for a specific dollar amount as the minimum payment each month instead of a percentage of the loan.

As with regular types of mortgages on homes, the interest charged to the borrower of a home equity line of credit may be able to deduct a certain amount from their yearly federal taxes. Every situation is different, but it is a possibility. A certified public accountant should be able to tell any potential borrower if home equity lines of credit can be beneficial in terms of taxes.

A home equity line of credit is not the same as a credit card because the amount of the loan is backed by the value of a home. With a credit card, if the total amount due is not paid within the terms of the agreement, penalties can be added and a person’s credit score can be affected. When a person defaults on a home equity line of credit, however, the bank can put a lien on the home and even foreclose upon it.

When beginning to look at home equity lines of credit, it can become obvious very early in the search that there are many options. Using a mortgage broker will allow the borrower to compare and contrast the differences between the various loans available. There may be variations in the terms of the loan, the interest rate (and whether or not it’s fixed or variable), and the number of years it can remain open. In addition, different loans will have different fees and closing costs associated with them.

Before a home equity line of credit can be approved, there are several steps that must be completed. If a mortgage broker is used, he or she will explain all of the details on how to obtain and close the loan. One of the first steps is usually filling out an application. After a preliminary approval, an appraisal will probably be done on the home. When the numbers are worked out, more forms must be completed and signed. Finally, when the loan is approved, the borrower may begin using their new line of credit.

Understanding Credit Card Terms

2008-09-19T00:34:00.000-07:00

Credit Card Terms are Easy to Learn and Understand
Anyone who does not understand how a credit card works - including purchasing items with it, reading the monthly billing statements, and knowing the rules for payments - should not own a credit card. However, credit card terms and details on how to responsibly own a credit card are easy to learn.

There are several terms associated with credit cards that often appear on literature that come with credit card applications as well as monthly statements. Learning what these terms are and what they mean can be the difference between achieving and keeping a good credit score and getting into a large amount of debt that is hard to manage.

Average Daily Balance
The average daily balance on a credit card is the balance on a credit card divided by the number of days in that particular month. This number is then used to calculate the interest that will be charged to the credit card holder on each month's bill.

Annual Percentage Rate
This rate is often referred to as the "APY." This is the rate that credit card holders must pay as an interest rate in addition to the cost of purchases made with the credit card.

Balance Transfer
Transferring the balance on one credit card to another is one method many credit card holders use in order to achieve lower interest rates on balances.

Cash-Advance Fee
Most credit card companies will not allow credit card holders to use their card at an automated teller machine without charging them a fee. The rate of interest on a cash advance, or the flat fee a card holder must pay per cash advance is usually separate and higher than the rate of interest on purchases.

Card Holder Agreement
This is the agreement that gives all the descriptions about the credit card, the interest rate associated with the card, other fees, and every other detail related to the terms and conditions of the card.

Finance Charge
The finance charge is the amount of money that the card holder must pay in addition to the total due for purchases. The amount is calculated using the interest rate and the purchase balance on the card.

Minimum Payment
Each month, the card holder receives a bill. The bill will specify a minimum payment that must be sent to the credit card company by the due date. If there is a balance on the card, or if there have been purchases the previous month, there will be a minimum payment due. The minimum payment is usually a small percentage of the balance, or a minimum dollar amount - usually ten or twenty dollars.

Pre-Approval
Many people receive numerous "pre-approved" credit card applications in the mail every week. Many of these mailers have the words "Pre Approved" written on them. Pre-approved does not mean that a credit card is guaranteed. It only means that the person who receives the mail has a good chance of obtaining a card.

Secured Card
A secured credit card is one that is attached to the card holder's bank savings account. The credit card company uses the link between the credit card and the savings account to withdraw monthly payments. This type of account ensures that minimum monthly payments are never missed. Credit card companies often offer this type of credit card account to people who have low credit scores or a history of problems paying their monthly bills.

Variable Interest Rate
This is the percentage that the credit card holder must pay to hold a balance on their credit card. A variable rate is one that can fluctuate depending on the current national interest rate level.

Other Terms
There are many other terms associated with credit cards, statements and payments. Complete glossaries of them are located all over the internet, and just about every credit card company has them posted on their individual websites.

Making Sense Out of Your Credit Card Statement

2008-09-19T00:30:00.000-07:00

Whether you are new to the world of credit cards, or a seasoned veteran, understanding the information in your credit card statement can be confusing. There is a lot of information packed onto a single page, and if you’ve never taken the time to review your statement in detail, it may be a good idea for you to do so. That way you are more likely to notice if there are any abnormalities with a statement that might indicate identity theft or merchant errors.

The statement should display your account number prominently. This is the number that uniquely identifies you to the credit card company. When purchases are made using your credit card, they are all attached to this account number and charged to you. If you need to call customer service for any reason, you will be asked to provide the account number.

If you’ve ever used one of your credit cards and had difficulty making an online purchase or a purchase over the phone because the merchant says your name doesn’t match, it’s probably because you have used a middle initial on your card but not in the checkout process, or vice versa. On your statement you can view your name as it is saved in relation to your credit card account. Jane L. Doe is different from Jane Doe or Jane Lee Doe, so it’s important to note how your account is set up.

The statement date displayed on the credit card statement shows you all transactions that took place between the last statement date and the current one. The payment due date is the date which your credit card company should receive payment in order to avoid late fees and additional finance charges. While some companies allow you to postmark your payment on the due date, most want to receive it by the due date, so plan accordingly.

The credit line shows you how much money the credit card company will allow you to charge on their card at one time. You can charge multiple transactions, but the total amount owed must not go over this amount. If you do manage to spend more than your credit line, you will pay over-the-limit fees. The credit available displays how much of your credit line you still have available to spend.

The new balance information displays how much you have charged and have not yet paid back. If you pay the entire amount in this column, you will not be charged interest. The minimum amount due is the amount of money that you are required to send by the due date.

The transaction list is a detailed listing of everything that has occurred with your account since the last statement. It will detail purchases, returns and refunds, and interest charged to the account. If there is anything you don’t remember buying, contact the company listed in the transaction listing or call your credit card account immediately.

There is also a section that shows how your current balance was calculated. It shows purchases, finance charges, interest, your last payment information, and then the total balance of the card is shown again in this section as well as the minimum amount you must pay that month to stay current with your payments. You should always try to send more than the minimum, if not the entire balance, each month to avoid finance charges, and interest. The finance charge summary section will show you how interest and finance charges are applied to any balance that remains on your card from one month to the next.

Purchase Protection

2008-09-19T00:25:00.000-07:00

Most credit card companies provide purchase protection insurance for free, as an included benefit of owning their particular credit card. As competition among credit card companies is so fierce, creditors are attempting many different strategies in order to gain and retain loyal customers. Purchase protection insurance is one of the benefits a credit card company may offer that their leading competitor does not- in an effort to gain new customers and keep customers from "going over to the other side". It is difficult for creditors to retain customers when every other month it seems a new company is offering a 0% balance transfer option to new account holders. Customers have learned to play the credit card roulette game. When their promotional interest rates go up; they simply find a new card to transfer their balance to. If your credit card account is one that does not offer purchase protection insurance without charge as one of the included benefits, you should be able to pay an additional fee in order to obtain "optional purchase protection coverage".

The actual terms and restrictions of coverage for purchase protection insurance will vary from one credit lending company to the next, however, most insurance will cover purchases made using the credit card against theft, loss, or accidental damage that occurs within a certain period of time. Typically, purchase protection will cover you for about 90 days from the date of purchase. In order for a purchase to be eligible for coverage, it may have to be worth a minimum amount of money, also. In order to fully understand your coverage, you need to read through your credit card’s terms and agreements for all of the specific details regarding the type of purchase protection coverage you are entitled to. It’s always a good idea to know your rights and coverage before you actually need to use them. If you have any questions about what you read, don’t hesitate to call the credit card company’s customer service line- that’s what they’re there for!

What does purchase protection insurance coverage do for the typical credit card user? For most people, it will never actually do anything! Many people are not even aware that purchase protection exists, and don’t know whether or not their own credit card offers the protection. For credit card users who are aware of the coverage and want to use it, it covers you in the event that you purchase an item using your credit card that becomes damaged on the way home or soon thereafter, becomes lost, or someone steals it. These are the typical eligibility requirements for purchase protection coverage, although once again, be sure to read your specific credit card company’s policy for the exact details of your coverage. In most cases, the credit card company will refund the amount of the purchase (as shown on your store receipt or credit card statement) back onto your credit card account, although there is almost always a maximum limit to how much money can be refunded under the insurance. Most policies will also have strict exclusions for certain types of damages to items purchased, so a purchase protection insurance policy is not a perfect solution as not all instances of damaged items will be covered, but at least it is better than no coverage!

Purchase protection gives you peace of mind when you are making purchases online. While the majority of e-commerce sites are legitimate, there are a few that take your money and then don’t deliver the goods as stated on the site. In these situations, you may be able to call on your purchase protection insurance to assist you in getting a refund for the item.

Credit Card Usage Explained

2008-09-19T00:12:00.000-07:00

How often have you seen someone going through their wallet searching for a credit card in the checkout line- and were shocked by the number of cards they had in their wallet? Credit cards can be used as a form of identification when applying for a major purchase, or when renting a car; and they can be used for convenient purchases that you won’t have to pay for until a month after you buy them.

Except, that’s not how it usually happens. Typically, people who have an abundance of credit cards use them frequently, and have to carry a balance from one month to the next because they are unable to pay each card off in full when the bills come in. So what happens then? Credit card holders are being charged high interest rates for each of their purchases, sometimes up to 24%! Credit cards are habit forming. It is very easy to pull out a piece of plastic, swipe it through the register and buy something you couldn’t afford otherwise. It’s tempting to think that the money will come later, and you’ll pay for it then. More often than not, the bills are more than the money you have later to pay them with. A study in 1999 showed that consumers in America used credit cards to charge over $1.2 trillion.

Even with this kind of negative usage, credit cards, when used properly, are a terrific source of financial convenience. The trick is to not over indulge yourself when you use them.

It’s also helpful to keep only one or two credit cards available to you at one time. Even if you receive a new credit card offer in the mail every day, you should stick to having a general use credit card (one that can be used for any kind of purchase), and one for emergencies. An emergency credit card allows you the peace of mind of knowing if an unexpected expense comes up that you have to pay, but don’t have the extra money available to pay it, you at least have a backup in the form of a credit card that will allow you to pay for it.

Using a general use credit card should be done with extreme discipline. Select one that offers rewards, cash back or other features that you can benefit from. Make your weekly purchases on your general use credit card, from gasoline to groceries, and keep track of your purchases so you know how much money you are using on the card. That way, you will know when you’ve reached your spending limit for each week based on the amount you have budgeted for such purchases. Set aside money from your paycheck each week for your credit card. When the bill comes in the mail, immediately send out the check for the FULL AMOUNT. This avoids finance charges, but has allowed you to earn interest on the money for the full month that you kept it in your bank account prior to mailing the payment!

When you use a credit card for your every day purchases with the discipline required to keep your spending in check, you are going to benefit greatly from the rewards programs and interest free purchasing power you get when you pay off your balance each month in full. You are able to keep higher amounts of money in your bank accounts for longer periods of time, allowing the money to earn a little interest before the credit card payment is due. You also are building a strong credit rating by making purchases and paying them off each month, and will help you when it’s time to apply for a mortgage or large loan for a new car or boat or other high ticket item.