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Credit Cards

6 Rewards Credit Card Mistakes You’re Making

By | Credit Cards

Rewards credit cards typically hook you in with an enticing premise — the chance to build your credit and rack up points that you can later redeem for purchases you already make. When used judiciously, these cards can do just that. It’s no wonder that rewards cards are one of the more popular offerings in credit cards today. In fact, over half of consumers alter their spending habits depending on the rewards in play, according to a 2017 study from TD Bank. However, rewards credit cards do bring their own unique set of risks. If you toss away the fine print that the credit card issuer includes with your rewards credit card, chances are you could be missing out on some of the benefits you signed on just to receive. We’ve zeroed in on the top mistakes you could be making with your rewards and cash-back credit cards, so you can maximize the benefits and limit those risks.

1. Ignoring the Terms of the Sign-On Bonus

Many rewards cards dangle an introductory bonus to make signing up an even more attractive prospect. However, you may not realize just how much spending you have to do in order to qualify for that bonus. Usually you’ll have to reach a certain spending threshold, such as $5,000 within the first three months, in order to cash in on the bonus. Before you sign up for this kind of offer, be sure you’ll be able to pay back such a high balance without causing financial distress. And even if you do cash in on the initial bonus, you’ll want to review the other benefits the card has available and decide whether those perks fit in with your lifestyle.

2. Not Paying the Balance

When you carry a balance from month to month, the amount you’re racking up in interest probably cancels out the benefit of a cash-back rewards program. Also, if you aren’t careful, you could end up accumulating a mountain of credit card debt. The best bet: be strict with your rewards card purchases. Aim to charge only what you can afford to pay off, and don’t let yourself get swayed by unnecessary purchases just to earn more points. If you don’t think you can handle the temptation, a rewards card may not be the best choice for you.

3. Letting the Rewards Expire

Some consumers let their rewards points languish on their credit cards, thinking they can save up for a larger reward. Unfortunately, that strategy can often backfire if the rewards carry an expiration date. This is one area where it’s smart to carefully peruse your rewards card terms and conditions. The last thing you want is to work months or years toward a certain goal, only to see your points evaporate thanks to a “hidden” clause in the contract.

4. Not Shopping Around for the Right Fit

Patience is key. You don’t want to sign up for a card that offers benefits you won’t really use or that will tempt you to make purchases you don’t really need. The card that is best for your particular situation is likely one that offers benefits on the categories where you spend the most, such as groceries or gas. You could also opt for a card that will reward you with points or cash back regardless of the type of purchase.

5. Not Maximizing the Full Benefits

When people sign up for rewards credit cards, they’re typically looking to earn points or cash back toward high-dollar purchases, such as airfare and hotel stays. By focusing on these categories, you might be missing out on maximizing the full benefits of your card. You can often earn several points per dollar on other categories, such as gas, dining, restaurants, and entertainment. Make sure that you review the list of merchants that offer extra points when you use your card — it can actually make good financial sense to use plastic in these scenarios.

6. Overlooking the Annual Fee

Some rewards cards come with a steep annual fee in exchange for certain travel perks, like airport lounge access or TSA pre-check-in. But if you aren’t going to use these benefits on a fairly regular basis, you’re better off searching for a different card that offers a minimal or no annual fee.

A rewards credit card can be a very helpful tool as part of your overall credit-building game plan. For some additional assistance fine-tuning your credit report, reach out to Ovation Credit for a free consultation.

Spend Smarter: How to Use Credit Cards to Your Advantage

By | Credit Cards

Credit cards can be used for far more than an additional line of credit, but if this is the only way you’ve ever thought of using them, you’re not alone. To help increase your financial know-how, and maybe even fix your credit score, we’ve listed out all the ways credit cards can help you beyond just being financial safety nets. Become a wizard with these little-known credit card hacks.

1. Pay Down Debt Faster

If you’re already swamped with credit card debt, taking on another line of credit may seem counterintuitive to fixing your credit. However, it’s really not if the purpose is to transfer existing debt and consolidate your monthly payments. Choose a card with a better interest rate and more of your monthly payments will be put toward the principal, hence shortening the amount of time it would take pay everything off. Doing this will also improve your credit score. Even if you make your payments on time, too much debt can hurt you.

2. Credit Repair

A lot of people would rather own than rent, but the one major thing keeping them from purchasing their own property is bad credit. Either they can’t get approved for a loan or the interest rate pushes the monthly payments up too high. Of course, many people are also victims of credit errors and have to go into the process of credit disputes, which can take time and money.

To expedite the process, a faster way to repair your credit would be to take out a line of credit. Maintain on-time monthly payments, and your payment history will go up a bump. If your credit is too low for a standard credit card, get a secured credit card at first. Use it for your everyday purchases, pay it off each month, and in about half a year you should qualify for an unsecured card.

3. Pay for Travel

Choose a credit card with a great points system, and all of your normal, everyday purchases can help pay for your next hotel, rental, or flight. Each card is different, so be sure to verify which purchases earn you the most points. Just be sure you pay the card off each month so you don’t accumulate debt!

4. Roadside Assistance

Some credit cards offer roadside assistance to any car the cardholder is a driver or passenger in (just as long as it’s not a company car). Whether your car needs a quick jump start, tire change, or short-distance tow, you can get roadside assistance free of charge. Next time you’re on the side of the road, call your credit card customer assistance number (better yet, put their roadside assistance department in your contacts). The perks are not as great as having a AAA membership, but for free, you can’t beat the price.

5. Save Money When Renting

Car rental agencies are able to cushion their bank accounts by selling insurance to renters. Yes, insurance is always a smart thing to have, but it’s not smart when it’s a redundant purchase. Many credit cards offer free, comprehensive rental coverage to their card members. So the next time you need to rent a car for a long getaway, you could save yourself as much as $40 a day by declining an agency’s optional coverage plans.

6. Purchase Protection/Warranty Coverage

If you purchase an item and it breaks through no fault of your own, your credit card likely has a third-party claims program that you can go through instead of the original retailer (who too often fight returns tooth and nail). Your credit card company will then either refund you the full amount for the repair or reimbursement. Of course, verify any limitations your card has before your next purchase, but for many cardholders warranty coverage is a waste of money.

7. Stop Paying Top $$$ for Currency Conversion

If you’re a frequent traveler, your credit card can save you money on currency conversions. Many credit card companies only charge 5%, but others waive the fees altogether. Stop making visits to foreign banks or travel kiosks that overcharge you. Use your credit card to save time and money. For many people, this perk is the sole reason they take out certain credit cards in the first place.

Ready for Next Steps?

Talk to one of our credit specialists to learn how you can take back your financial freedom. Contact us at Ovation Credit to get your free consultation.

unpaid credit cards

Unpaid Credit Cards – You Can Still Repair Your Credit

By | Credit Cards

Statistics show that many Americans have bad credit, and one element that is a common factor is unpaid credit cards and how they affect your credit.

According to the statistics, VantageScore says there are about 220 million scorable people and 68 million of them have bad or poor scores (lower than 601), which is how they got to that 30 percent estimate. Figures from credit bureau TransUnion also say that 30 percent have subprime credit based on the VantageScore 3.0 model.

The good news is that you can fix it, but how do you repair credit when you have unpaid credit cards that, and possibly some in collections?

The First Step

Wondering how to fix your credit or how to improve your credit score? First thing is to find out your credit score and exactly what is on your credit report. Sometimes, there are items that should have been removed yet remain long after. These items are affecting your score and ability to do things like buying a home, buying a car, getting insurance, getting security deposits on utilities or, even worse, getting certain jobs.

If you have unpaid credit cards, they are often sent to third-party collection agencies that will try to collect the debt. One of the first things they do is list it on your credit report, which hurts your overall credit score. These debt collections remain active for seven years unless you take care of the charge, dispute it, or have it erased.

Disputing a Debt Collection

It is best to dispute a debt collection as soon as possible, generally within 30 days of when you were first contacted by the agency. This time frame is important because it allows you to request that the collection agency provide proof that you owe the debt. If they ignore your request or cannot prove the debt, then it has to be taken off of your credit report. If the debt does not belong to you in the first place, it has to be removed if they cannot prove it is yours.

Seven Year Dispute

After seven years, past due accounts have to be removed according to the Fair Credit Reporting Act. Keep in mind that some agencies do what is known as re-aging the account, which keeps the debt collection on your account longer and makes it look like the debt is more recent than it really is. If seven years have passed and the debt is still remaining, you can then dispute it and any backup information you have about the age of the account is helpful. The date of the collection starts from the moment you first went delinquent.

Deletion by Payment

How to dispute a credit report when it comes to deletion by payment is fairly easy. The one thing that debt collectors want is their payment. In some cases, the debt collector may agree to delete the debt collection from the credit report if you work out a deal to pay some or all of what you owe on your unpaid credit cards.

There are a few caveats to this deal. Make sure that if you are able to work out this type of agreement, do not rely on an oral agreement over the phone. You must get the agreement in writing so that the collection agency has to abide by what they agreed to do.

Any written correspondence should be sent by certified mail with a return receipt and if the collection agency does not follow through with their promise to delete the entry, you can then dispute it with the Credit Bureau by providing proof of what you were promised. Paying off the debt in collection alone will NOT improve your credit score.

Active Credit Cards

Strategic payments and credit line increases help with what is called your utilization rate. This is the percentage of credit limit you use and agencies that score credit look at this rate to determine your credit score. A good number to be at in your utilization rate is no higher than 30 percent.

If you have credit cards that are active and not in collections, there are ways to improve your score using these methods. This is done by having a lower utilization rate, where you are spending a lower portion of credit than what you have.

If your payments are on time and you have good standing with a credit card company, one way to improve your credit is to ask for a credit line increase without using it. It won’t be helpful to raise your score if you use up the credit line increase as soon as you get it.

For strategic payments, send in early payments and make fewer purchases to see results. Keep in mind that it is best to do this with all credit card accounts, not just the one you owe the most to.

For instance, you have three credit cards – $500, $300 and one with just $100 owed – do not just choose the largest to send extra payments. Instead, if you have planned on paying $100 extra, break that into three payments that you send to each debt equally. So, if your payments are $40 a month on all three, instead of paying $140 to the first card and $40 to the other two, pay $70 to all three to see faster results.

There are plenty of ways to help repair your credit even when you have unpaid credit cards. These are a few of the best that will help you on your way to a higher score.

Sources:

http://www.foxbusiness.com/features/2016/02/15/how-many-americans-have-bad-credit.html

https://www.thebalance.com/remove-debt-collections-from-your-credit-report-960376

https://www.credit.com/credit-repair/how-to-fix-your-credit/

https://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-reporting-act.pdf

4 Tips to Avoid Paying Credit Card Interest

By | Credit Cards

Can you imagine spending an additional $16 for every purchase of $100 you make? An expensive dinner at a nice new restaurant, a new handbag, even a parking space at a professional sporting event can cost you $100. Now, add $16 to each one of those expenses – before even considering the tax – and you are really paying $116.

This is essentially what you are doing each time you use your credit card. Today, a typical credit card is going to charge an interest rate of approximately 16 percent a year on your balances. There are some that charge up to 29 percent if you have been late on a payment and must cover the fee and penalty interest.

The best way to avoid paying these additional charges is by not keeping a credit card balance, and paying the bill prior to the due date every month. However, this is a rare occurrence. Three out of every five credit card accounts will have a balance from one month to the next according to information from a payment study done by the Federal Reserve.

Additionally, there is the factor that credit card companies regularly increase the interest rates on their cards. After all, these rates are tied to the federal funds rate, which is something the Federal Reserve is expected to increase again. This happened twice in 2017.

There is good news. Even though credit card interest rates are often high, there are steps you can take to avoid having to pay interest at all. Four ways to do this are found here.

1. Get to Know Your Credit Card’s Grace Period

This is the easiest and most common way to avoid having to pay interest on your credit card purchases. Chances are you already know something about this. However, there is a bit more to know than just when your bill is due.

The majority of people believe they only have a single month to pay their credit card bill; however, when you find out the company’s grace period, you may discover you actually have more time. The grace period is the amount of time the company gives you to pay off your balance without having to pay any interest. It begins at the last day of your billing cycle and goes through the due date of the cycle.

When you know what the billing cycle for your card is, it can provide you with an additional three weeks to pay off the purchases you make. The key to this is to not forget what the actual payment due date is and pay it in full on or before that date.

2. Pay for the Balance as You Make Purchases

If you want to make sure there is no chance you will have to pay credit card interest, then you should pay off any charge you make as soon as it is made. Your credit card companies will be more than happy to accept a payment anytime you want to make one. As a result, there is no penalty for paying off a purchase right away.

3. Switch Your Credit Cards

This is just a one-time option; however, if you are dealing with a high credit card balance and you must pay a huge amount of interest on it, there is an option to move it to another credit card. For example, if you get a credit card offer of zero percent interest for a year, and you can pay the debt within the time period, it will help you save money to do this.

There are quite a few credit cards that offer introductory deals such as this to encourage you to use their services. When you transfer to a card with zero percent interest for a certain amount of time, you can save quite a bit of money. However, there are a few caveats to be aware of:

  • If you are unable to pay the balance during the promotional time, you may be charged interest for the whole amount.
  • You should not add additional purchases to the new card, as this will increase the amount you have to pay each month.

4. Pay Your Balances in Full Each Month

If you don’t think you can manage the steps above, then all you have to do to avoid credit card interest payments is to pay your credit card balances off every month. You should do whatever you can to make sure the bill is paid by the due date. This includes sending yourself alerts via email and keeping track of the purchases you make to ensure you can pay the bill. You should also create and stick to a budget to prevent you from overspending.

Keep in mind, when you pay your bills on time you can increase your credit rating. Additionally, if you do this consistently, it could help you acquire credit cards with lower interest rates. But, the best benefit of using the tips here is that you will be able to purchase things on your credit card and earn the reward points or other perks without having to use cash.

To find more tips and information about managing and reducing your debt, visit the Ovation Credit Services website, or contact their friendly staff.

Sources:

https://www.nolo.com/legal-encyclopedia/what-credit-card-grace-period.html

http://money.cnn.com/2017/06/14/news/economy/federal-reserve-june-meeting/index.html

https://www.newyorkfed.org/microeconomics/hhdc.html

How to Pick the Right Credit Card

By | Credit Cards, Uncategorized

Choosing the right credit card can be a daunting task. You must consider your credit score and eligibility before anything else. If you have at least an average credit rating, then there are a set of questions you will always want to ask. Take the time to address these common factors to determine the best possible credit card for you.

Right Credit Card

 

What Type of Credit Card Is Right for You?

Are you a big shopper or is your credit card more about building credit? Regular spenders can look at cashback and other rewards. A slightly higher annual fee could get offset by the amount you get credited from your incentives. Meanwhile, what if you are getting a card to build your credit score? If this is the case, you should look for one that’s affordable to maintain with minimal use.

What about the interest rate of your card? You have little control over that unless you have nearly perfect credit. The best interest rates on credit cards are typically in the 9.49 to 12.99 percent range. But remember, these rates are still high; you should not feel comfortable carrying any real amount of debt on your card.

Alternatively, borrowers with good credit can opt for a 0 percent card. This option gives you the chance to avoid paying interest for a set period. If you fail to pay off your debt in time, the accrued interest will add on. This card is appealing for sure, but you should treat it like a consolidation loan.

Choosing the Right Annual Fee

You would think the best annual fee is none, but this is not always the case. You must compare the other details of a credit card to know what it’s worth to you. The other fees could pile up on a no-fee card and make it cost more than one with, say, a $39 annual fee. Nevertheless, if you are targeting a small limit ($300-500), it would make complete sense to choose the card with the lowest annual fee.

Chase Higher Credit Limits

Are you still establishing your credit? If so, the right credit card for you would be with a credit card provider that will increase your borrowing limit over time. You can ask the company or search in Google to see what experience others have had with the same card.

Increasing your credit limit does not have to be a bad thing. Keep your debts under control, and every limit increase will result in a reduction in your debt-to-credit (credit utilization) ratio.

Furthermore, if you are starting off with a secured card, make sure you can convert it into an unsecured card at a later date. Make sure this card actually converts and doesn’t just result in a pre-approved application for a different card, as keeping the original one helps you sustain a higher average credit age.

Choosing the Right Card APR

Credit card APR rates are based on the issuer. You won’t find any super low-interest rates, but there are some cards with a 0 percent offer for the first 12 to 24 months. If you can qualify, it would be a good idea to look into those options first.

You should absolutely compare credit cards based on their APRs. The problem is that you do not know ahead of time what rate you will receive. Your creditworthiness is evaluated, and your credit report gets pulled. After that, you get an offer for the card that states the APR you will receive.

The only easy way to compare APR rates by card is to check the range. Most cards come with three variable APR rates. You can assume, based on your credit status, that two of these rates are possible for your situation. So, look for the best cards (compare other terms) in the lowest interest range.

Keep in mind that your goal should not be to carry debt on your credit cards. Therefore, going with a card with more incentives but a 1 to 2 percent higher interest rate is perfectly fine.

Check the Balance Transfer Terms

You might not make balance transfers yet, but in the future, there is a strong chance you will find them valuable. So, you should keep an eye out for optimal balance transfer terms. Start by comparing the actual fee for making these transfers. Then, check the introductory offer — in most cases, you will receive around 12 months of no interest before your transfer must be paid off in full.

The fee for making a balance transfer is often in the 3 to 5 percent range. Some of these credit cards offer a promo period where there is no transfer fee. These particular cards will serve as interest-free loans, as long as you can pay them off before the promo period is over.

Now you are ready to find the right credit card for you!

Picking the right credit card for you will take some time. You must compare the options based on both your credit status and your spending habits. Some cards offer as much as 3 to 5 percent in cash on your purchases. Make a real effort to compare the terms, as you don’t want to be sucked in by a card that’s only good on the surface.

Sources:

https://www.nerdwallet.com/blog/credit-cards/choose-balance-transfer-credit-card/

http://www.thesimpledollar.com/best-balance-transfer-credit-cards/

http://www.thesimpledollar.com/best-rewards-credit-cards/

https://www.valuepenguin.com/average-credit-card-interest-rates

 

Build Credit: New Credit Lines vs. Authorized User

By | Credit Cards

“It takes credit to build credit.”

This statement is all-too-common and a big reason for why many new borrowers turn to relatives for help. The method of becoming an authorized user to build credit is nothing new. In fact, many parents put their children down as authorized users on their own credit cards for this exact reason.

But, is the authorized user route really better than trying to build credit with new credit lines or is this all just a mirage?

Build Credit Credit Card

 

Credit Lines & Authorized Users, What’s the Difference?

A credit line is a fresh account — this could be a credit card, loan, line of credit or something else. An “authorized user” is merely someone placed on your account for the purpose of permitting them to access your credit line.

Why Add an Authorized User?

In most cases, this is done so multiple individuals can legally share a credit card. The example of a child accessing a parent’s funds is a common scenario. Many spouses will also do this, especially if only one has good credit.

Next, some people choose to add authorized users to their accounts to help the other person build their credit. This technique is debated heavily and for good reason, but it can be effective if the circumstances are right. Even so, it’s important that the primary account holder knows what they are getting into before they help.

Does an Authorized User Hurt Your Credit?

Co-signing for a home loan will potentially destroy the co-signers credit score. The impact is not so extensive when merely adding an authorized user to an account. But there is still a majority similarity between these two situations because the main borrower is extending trust to the authorized party.

The primary account holder does take on an inherent risk, but not in the same sense as with co-signing a loan. There will be no credit score damage for the act of adding an authorized user. The problem comes as a result of the authorized user being irresponsible — for example, the primary cardholder’s score will drop from late payments.

Can Authorized Users Build Credit This Way?

Many credit card issuers will report authorized users to the credit bureau. These entries will not show the same as they do for the primary borrower. Positive behavior will look good and influence a better credit score in the long run. Negative behavior will do the opposite and can drag down the authorized user’s credit score too.

Furthermore, it’s important to look at just how damaging an authorized user can be for the primary account holder. The best way to understand this is by looking at how a person’s FICO score is calculated in the first place. Here’s the breakdown for the vast majority of FICO scores that exist:

  • Payment history (35 percent)
  • Amounts owed (30 percent)
  • Length of credit history (15 percent)
  • New credit (10 percent)
  • Credit mix (10 percent)

For the primary borrower, the biggest drag here happens with the “amounts owed,” particularly when an authorized user maxes the card. The utilization rate will hit 100 percent for this card and will ultimately lift the total credit utilization rate between accounts. The primary holder will feel obliged to pay off the debt for the authorized user — and if they don’t, their credit score could decline as a result.

For the authorized user, there’s not much to complain about when considering the scoring metrics above. The biggest issue arises when the primary account holder needs to extract funds from the card. This action could make it seem that the authorized borrower has a really high utilization rate, even when it’s not their fault. The other variables, such as new credit and payment history, are not as important and are a non-factor when there’s no borrowing history.

The Better Option: Build Credit With a Credit Card

The faster way of obtaining a higher credit score is by establishing credit lines directly under yourself. Forget about the authorized user option and begin building your score with a basic credit card.

Believe It or Not, Secured Credit Cards Rock!

Here’s a good idea: Go for a secured credit card and plop down a $1,000-$3,000 collateral. Make sure it’s a card that offers conversion to unsecured after you prove that you are a responsible and trustable borrower.

Why? Because a higher credit limit helps and makes it less difficult to be active with your card without triggering a high utilization rate. This factor is very important because your debt-to-credit ratio weighs heavily on your FICO score. In fact, 30 percent of your credit score comes down to this single variable.

Conclusion

Building your credit can be difficult when you have no history to show a card issuer or lender. Having someone who will put you down as an authorized user can often help, but only if the creditor reports you as well. Be careful before getting into any of these situations — and if you want quicker results, set up your own credit lines instead.

Sources:

http://www.creditcards.com/credit-card-news/credit-utilization-fico-1270.php

www.nerdwallet.com/blog/credit-cards/credit-card-secured-unsecured-change-switch/

https://wallethub.com/edu/authorized-user/24717/

http://blog.ovationcredit.com/2017/03/understanding-your-credit/

Credit Limit Increase – How and When Should You Request

By | Credit Cards

A credit limit increase is a net-positive scenario for your credit rating and report. You just have to avoid spending your balance and carrying a higher debt. If you can accomplish that, your credit limit increases will benefit your utilization rate. This is huge as it accounts for 30 percent of your FICO score calculation.

However, there is always a right and wrong time to try for a limit increase. You need to know the best approach for this process before moving forward. To understand more, read the advice found below.

Credit Limit Increase

 

How You Request a Credit Limit Increase

You can call the support line for your credit card issuer. From there, it is possible to inquire about adjusting your limit higher. This might result in a hard inquiry, but it is not always necessary. It all depends on your card provider and the strength of your credit report on your initial application.

Some card providers even offer the chance to request a limit increase online. Check your dashboard for this option to find out more. Also, take a look below for an idea on which card issuers require a hard inquiry to qualify.

Hard vs. Soft Inquiry, What Will Your Card Issuer Do?

Many cases vary based on the amount of the increase. For instance, anything above $1,500 through Wells Fargo typically requires a hard pull. Below that amount, however, would be a soft pull.

Here’s a look at what to expect from many popular card issuers:

  • American Express: No hard inquiry is required.
  • Bank of America: Usually a hard inquiry through TransUnion.
  • Capital One: No hard inquiry is required.
  • Chase: A hard inquiry when you request an increase.
  • Citibank: Some increase requests require hard inquiries.
  • Discover: Larger increases require a hard inquiry.
  • USAA: Usually a hard inquiry through Equifax.
  • S. Bank: Larger increases require a hard inquiry.
  • Wells Fargo: Certain cases require a hard inquiry.

Of course, these claims are not set in stone and can change with time. Your issuer might treat your situation different than others. It is best to ask first. If you are offered a credit limit increase suddenly, chances are you are pre-approved and the inquiry might not be necessary.

When to Ask for a Credit Limit Increase

You can ask your card provider for an increase at any time. The likelihood of approval will boil down to your credit history and your repayment history with that company. Sometimes there will be a hard rule in their system for accepting increases, such as only after so many months.

If your credit score is less than perfect, you might not hear about the possibility of increasing your limit any time soon. You can always ask your card issuer to see if there is a typical time frame for when the offer increases.

Tip: Wait until you get your first increase from the card provider, as it is likely to happen, and then inquire 3 to 6 months later about a further increase.

Requesting Credit Limit Increases on Secured Cards

This is where things get a little tricky. Secured cards do not work the same as unsecured cards. Some can transition into an unsecured card, and you might get your security deposit back, but not all issuers offer this.

You need to look for a secured card that converts to unsecured. This action lets you continue with the same credit line, which won’t hurt your average account age. You can take on the higher limit as well and get the utilization rate boost. Plus, it gives you the chance to give a higher deposit to build off.

What to Avoid When Asking for a Credit Limit Increase

First off, you should not make it look like you need the extra money. It should be about growing your overall credit availability and proving yourself with higher balances. This is necessary to show that you are a good borrower, beyond a measly $300 or $500 credit card. It will help you with proving yourself to an auto or mortgage lender, too.

The biggest sign of needing the extra cash flow is requesting the increase when your balance is near the limit. This shows you potentially cannot repay what you owe right now and that you might need extra financial assistance at the moment. So bring your credit utilization rate for that particular card to 30 percent or less.

You can always put the balance on a difference card for the month leading up to when you inquire about raising your limit. This is even more effective if your card issuer does not plan to pull your credit file. However, if a hard inquiry is necessary, it is better to reduce your overall debt load before you inquire.

Conclusion

Credit limit increases are golden opportunities for people looking to build credit. But it can be hard to get them if you have a lower credit score. You never want to deal with rejection, and hard inquiries can hurt your credit. However, the better credit utilization rate and long-term effects make it all worthwhile.

Take your time to plan out when and how you ask for a credit limit increase. Your issuer wants to make more money — so chances are you will get an offer soon enough. But you should still learn how your issuer typically handles increases and make your own request when it seems right.

Sources:

http://www.doctorofcredit.com/credit-cards/which-credit-card-companies-do-a-hard-pull-for-a-credit-limit-increase

http://www.doctorofcredit.com/increase-the-limit-on-your-american-express-card-by-up-to-3-times-its-starting-amount/

http://www.magnifymoney.com/blog/building-credit/convert-secured-card-unsecured-credit-card/

https://www.nerdwallet.com/blog/credit-cards/credit-limit-increase/

Credit Score Hit – Is the 10% Offer Worth it?

By | Credit Cards, Credit Scores

Credit Score Retail Credit Cards

We’ve all been there. You are out the checkout counter of a fancy department store when the cashier asks “Would you like to open a store credit card and receive 10 percent off your order?” On the surface, it sounds like a great deal. Who doesn’t like to save money? Plus, many retailers will offer additional benefits to cardholders, like 10 percent off every time you shop, or even special sales that are only for credit card holders.

The problem is that opening retail credit cards can affect your credit score (yes, even if you pay them off each month), and all the credit repair in the world won’t help if you are constantly adding to the problem. Here is what you need to know:

Regret is Real

According to Today, roughly half of all people who open retail store credit cards regret doing so. “You need to understand all the terms and the potential collateral damage that you might cause yourself,” says credit expert John Ulzheimer. “If you’re going to carry a balance on that new card for even a couple of months, you’ll give back any sort of discount you received at the register – and then some – in the form of interest.”

High Interest is the Norm

The discounts stores offer to people who open credit cards are there for a reason – the stores make money. It is not unusual for a retail store credit card to charge interest rates over 25 percent, even for people with good credit. Stores like TJ Maxx, Staples, Toys R Us, and JC Penney each charge their retail credit card customers annual percentage rates (APR) of 26.99 percent or more. Even Amazon charges its customers 25.99 percent APR.

It All Adds Up

Some retail store credit cards do charge less interest, but the average is still a whopping 23.4 percent APR. “Let’s say, for instance, that you rack up $1,000 in debt on a typical store credit card. You’d pay off the debt after six years, paying $833 in fees, if you paid only the minimum each month,” explains Time’s Money. “On a card with an APR of 15%, by contrast, you’d pay off the debt 18 months sooner and save $463.”

It Hurts your Credit Score

Even if you are committed to paying off your retail store card each month, there are still consequences. For one, expect your credit score to take a hit. According to Forbes, “If you already have a limited credit history, or if you’re straddling the line around 700 FICO, this could potentially move you from ‘good’ to ‘average’ credit and negatively affect your interest rates and credit allowances on future loans (like auto loans, mortgages, and even low interest credit card deals).” The thing is that your retail store credit card is treated like any other credit card when it comes to your credit score. You’ll get dinged for making the credit inquiry, hit for trying to open too many cards in a short period of time, and pinged if your credit utilization rate goes up (that’s the proportion of your credit card balances to your credit card limits).

Options are Limited

Also, just because you can qualify for a store credit card, it doesn’t mean you will actually get a credit card. You will still need good credit to qualify for a store credit card that is co-branded with American Express, MasterCard, or Visa. Without it, or if the retail store you are shopping doesn’t offer a co-branded credit card option, you will be stuck with a credit card that impacts your credit score but has a low credit limit and can only be used at that retailer.

At the end of the day, the 10 percent offer simply is not worth the hit to your credit score, let alone the extra interest you’ll pay and the limitations on how you can use it. If you have questions about retail store credit cards, other things that affect your credit score, or want to know how to repair your credit, contact us. Ovation Credit Services can review your credit report and design a personalized plan for repairing your credit that takes into account your unique credit situation as well as your financial goals.

If your credit score has taken a hit from too many retail store credit cards, we can help with that, too. Ovation Credit Services offers personalized credit help to help get you back on track and get your credit score back to where it should be. Contact us for more information.

4 Tips to Prevent Personal Liability With Business Credit Cards

By | Credit Cards, Personal Finance

Personal Liability Business Credit Cards

Are you starting up a small business? If so, there are many things you have to think about. You must consider variables like accounting, legal and tax concerns, and even what exact type of business you need to register. So it should come as no surprise that you could make a mistake that you will regret in hindsight.

The perfect example of a common “fork in the road” for business owners comes when getting business credit cards. This is a potential roadblock that many new business owners do not expect. Yet, the problems that could come up are sometimes extreme, which is why you must know what to expect ahead of time. One particular risk relates to putting yourself personally liable for your business debts. While this is fairly standard and most business card providers require a personal guarantee, you can find some workarounds to avoid this issue.

Personal Liability and Business Credit Cards

You might not be aware yet, but you usually qualify for business credit cards based on your personal credit. As a small business owner, this means you need to have good enough credit to qualify for a business credit card in the first place. Otherwise, it would be necessary to secure the credit card by giving a deposit of up to 100 percent of the card’s limit.

Even if you go the unsecured route, it’s possible that the card issuer reports your account to the major credit bureaus. Most of the time, this means Equifax, Experian and TransUnion factor your business card into your credit report and score. While you might think of this as a plus, it’s unfortunately a big problem.

How Business Credit Cards Can Destroy You

Say you took out a mortgage that’s fixed for five years, four years ago. What happens when you go to refinance?

Well, unfortunately, that all depends on the specifics of your business credit. Worst case scenario, you are unable to refinance your home because your credit rating suffers a dramatic drop. You can expect to see your score fall by upwards of 50 points just because of the new accounts. Even worse, if your running costs are sky-high, the card you need (even if secured) will cause your total debts to read sky-high.

Simply put, you DO NOT want your business credit card to mix with your personal credit information.

Avoid Personal Liability at All Costs!

This is not something you want to push aside, because chances are you will seriously regret doing so in the future.

Even if you have a $300 card for your business, you might find yourself increasing the limit later. This will just increase the amount of damage done to your FICO score. You cannot create a net-positive impact this way; surprisingly, this is the one scenario where it’s understandable for your credit rating to go up if you were to close your account.

Remember: Just because it’s a “business credit card” doesn’t mean they report to business bureaus!

Nevertheless, your business credit card is incredibly important. You will need to apply for one either way, but at least consider the workarounds that are available. Since there are many solutions, you do not need to assign personal liability to get a credit card for your small business.

Here are four quick tips that can help you out:

1. Find Card Issuers That Report to Business Credit Bureaus Only

You can get a card and only have it show up under one of the major business credit bureaus. To do this, you need to have a DUNS number for your business. DUNS stands for Data Universal Numbering System. This was created by Dun & Bradstreet, one of the major business credit bureaus. The other two major bureaus are Equifax Business and Experian Business.

2. Consider Alternative Financing Methods Instead

There are always other financing options available. One great workaround for small business owners is Amazon.com’s Corporate Credit Line. But when you get into these alternative options, you always have to consider whether the higher interest rate is really worth it. If you choose this option, look specifically for corporate credit lines through lenders authenticated by the Small Business Administration.

3. Incorporate or Register as an LLC

If your business is an LLC (Limited Liability Company) or a corporation, you can exempt yourself of some liability. This will not save you if your business credit card defaults. However, if you ever get sued it will exempt you from being financially liable. If you do not incorporate or register as an LLC, you will not get this protection.

However, things can get a little hazy. If you do get sued and you expect to lose big time, your business credit cards should be paid off and canceled. Doing this will prevent your credit from getting hurt if the claimant wins the lawsuit and your business debts default. This is a rare scenario and generally not something to worry about.

4. Move on to a Commercial Liability Card Later

It is possible to qualify for a commercial liability credit card once your business establishes a quality borrowing history. But you will need both a good personal credit record and a good credit report under your business’s file. This type of business credit card is backed by your business in the event of a default. Typically, you would do this if you run a larger business and you have major assets to back your corporate cards. After your small business develops a credit history and gains traction, it might be worth applying for a commercial card.

Sources:

https://www.smallbusiness.dnb.com

https://www.nerdwallet.com/blog/credit-cards/business-credit-card-personal-guarantee-explained/

Credit Card – To Close or Not to Close

By | Credit Cards, Credit Scores

Credit Cards - Close or Not

If you have several credit cards and are trying to improve your credit score, it might sound like a good idea to cancel the cards you no longer use. However, in many cases, this action can hurt your credit score rather than help it. That’s why it’s important to ask yourself a few questions before you decide whether to close one or more credit cards. Consider the following details before you make a decision.

1. How Will This Affect Your Credit Card Utilization Rate?

Your credit card utilization is a big part of your credit score, accounting for about 30 percent of the overall score on your report. In general, you should keep your credit card utilization under 30 percent if you want the highest score you can get. This should be easy if you don’t keep a balance on your credit cards, in which case closing one or more shouldn’t affect your credit score.

But if you do owe money on one or more cards, be careful about closing those accounts, because this action will increase your credit card utilization rate. For instance, if you have two cards — each with a limit of $1000 and a balance of $200 — your utilization rate is 20 percent, which puts you on the path to having a great credit score. If you choose to close one card, your available credit on that card becomes zero, taking your utilization rate from 20 percent to 40 percent.

The best way to avoid this, aside from keeping both credit cards open, is to pay off the balance of the card you want to close. That way, your utilization rate will remain the same even after you close one account. You can also ask for an increase in your credit limit on the card you want to keep open, assuming you won’t be tempted to use the card more and increase that balance. So if you cancel a card with a $500 limit, increasing your other card’s limit by $500 can likely keep the closure from affecting your credit score.

2. Is This Your Oldest Credit Card?

If you want a good credit score, you need to have a long history on your credit report. After all, the length of your credit history makes up around 15 percent of your credit score. So if you are thinking about canceling your first credit card that you got 10 years ago, this action might decrease your score. This is especially the case if all of your other accounts are only five years old, since your credit history will suddenly go from 10 years long to just five years long. This is why you should refrain from canceling your oldest credit cards.

On the other hand, if you have several other accounts that are about the same age as the credit card you are looking to cancel, you probably won’t see much of a drop in your score at all. This is because your credit history will still be the same age as before.



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3. What Are the Downsides of Keeping Your Credit Card Account Open?

As you can see from the other two questions, canceling credit cards is not always the best option, since it can end up reducing your credit score. However, in some situations, closing a credit card account is the right choice, even if it will reduce your credit score for a while. For example, if you have a credit card you rarely or never use, and it has an expensive annual fee, closing it might be in your best interest. You shouldn’t feel pressured to keep paying the fee every year just in case closing the card drops your score.

In addition, if you feel tempted to use your credit cards just because you have the available credit, you should probably close those accounts. After all, increasing your debt with impulsive spending on your credit cards will quickly raise your utilization rate, which will reduce your score anyway. And of course, if one of your credit cards has a high interest rate, you probably shouldn’t be using it, which means closing it is a good idea. Consider transferring any balance to a card with a lower interest rate before closing the card. If you don’t have that option, simply close it and continue making payments on the balance every month.

If it turns out that closing one or more credit cards is the best option, you have to do more than just cut up the cards. To close the account, you need to call the credit card company and request that your account be closed. You can also follow up by mailing a letter confirming that you closed your account. Be sure to monitor your credit report after this to make sure the account shows up as closed. It might take about a month for your credit report to be updated, but once it is, it may be time to find out your new credit score to learn exactly how the closure affected it in the end.

Sources:

https://www.discover.com/credit-cards/resources/credit-scores/maintain-and-protect/does-closing-a-credit-card-hurt-my-credit-score/

https://www.creditkarma.com/article/ClosingOldAccount

http://www.bankrate.com/finance/credit/closing-credit-card-good-or-bad.aspx

http://www.experian.com/blogs/ask-experian/deciding-when-to-close-credit-cards-with-zero-balance/

http://www.creditcards.com/credit-card-news/help/cancel-credit-card-6000.php

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