How Do Credit Card Grace Periods & APRs Work?

Man Studying Credit Card Grace Periods & APRs

Credit cards are a two-sided coin. On one hand, when used responsibly, they are a great tool for building credit. They can also be a great budgeting tool, helping you finance a large purchase over time, sometimes interest-free.

On the other hand, credit cards can put consumers in debt, when they aren’t used responsibly. With the purchasing power of a credit card in hand, it’s easy to make more purchases than you can afford to pay off when the bill comes.

Let’s talk about the cost of credit card interest, how it works and how to avoid having to pay it.

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How to Choose the Right Credit Card

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For many, choosing a credit card is a reflection of identity. It can help you pay for the things you need, enhance the things you love like traveling, and with time, it can improve your credit score. So, which credit card is right for you? Choosing a new card depends on a few factors. Take these steps before you apply.

Check Your Credit Score 

The first step is to learn which credit cards you qualify for. “You might want to check your credit score before searching for credit cards, as some are only available to those with good credit,” David Bakke of Money Crashers said. You can view your TransUnion and Equifax credit scores for free on our website here. It’s also wise to check your credit reports to ensure that your accounts are reported accurately and there are no errors that could impact your scores. You can also access your free reports once a year through Annual Credit Report. 

Decide How You’ll Use It

Once you know your credit score and the cards you qualify for, consider how you’ll use your card to narrow your focus. A few ideas include: 

  • Credit Score Improvement: If you’ve struggled with credit damage in the past, it’s a good idea to choose a card that can help you get back on track. Secured credit cards allow you to pre-load cash like a debit card to use for purchases. That said, your account activity is reported to the credit bureaus like a credit card with the same benefits of positive use. A successful trial period may also qualify you to convert your account to standard revolving credit.
  • Rewards for Everyday Purchases: Some cards offer rewards and cash back on necessity purchases like groceries and gasoline. Review your budget to highlight the big-ticket items; you may find a card that can help you save.
  • Investments: Some investment firms offer credit cards that allow you to funnel rewards into a retirement account or a college savings plan. This strategy frees up money in your budget while also helping you to focus on the future.
  • Airline Miles and Travel Perks: Some credit card issuers partner with airlines to provide miles and amenities to frequent flyers. Plan your trips and choose a card based on destinations, preferred airline and other travel factors. “Plenty of cards have generous sign up bonuses,” Bakke said. “And if travelling internationally, look for one with no foreign transaction fees.” 

Choose Long-Term Use

It’s tempting to open a credit card that offers short-term rewards or discounts, but it’s better to choose something that offers long-term benefits. The reason? Closing an account down the road could hurt your score and undo your efforts to improve. A lower credit score could impact your ability to secure a low-interest loan, finance a home or car and even open new credit cards.

Avoid Fees and APR 

The benefits of a credit card can amount to nothing if they are overshadowed by annual fees. Financial planner Jay Schurman of the Lincoln Financial Group advises clients to weigh their options carefully. “Do you really need a credit card that has a yearly fee?” he said. “They have to give you something of greater value than the fee or this is a bad deal.” Do the math before allowing upscale perks to persuade you.

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How Store Credit Cards Impact Your Credit

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These days it seems that everywhere you go, no matter which store you’re in, someone wants to sign you up for a new store credit card. Whether shopping for apples or zip-ties, the checkout clerk is often certain you need to save 10% on your purchase by applying today — and by the time they’re done describing the many benefits of your new card, you may begin to feel pretty certain, too.

However, just because the card offers you a nice discount doesn’t mean you should hop on its bandwagon. What many people often forget about the temptation-rich store credit card is the “credit card” part. The plastic may say “Kohls” instead of “Chase,” but that doesn’t make it safe; a store credit card can have just as much of an impact on your credit score as its more traditional counterparts.

Store Cards Can Have Real Credit Impacts

To start, the initial application for a store credit card comes with the same hard pull of your credit report as for any other credit application. Depending on the state of your credit, that hard pull can cause your FICO score to drop by as much as five points and your VantageScore by 10 to 20 points. If you have any major purchases coming up for which you might need a loan, such as a vehicle or house purchase, avoid opening any new credit accounts, including store credit cards.

Once you’ve applied, just as with a regular card, the issuer will consider your entire credit history before deciding whether to approve you. Despite popular lore, while store credit cards may be a bit easier to get than other types, stores (or, more specifically, the banks backing the stores’ credit cards) do not simply approve anyone who applies for a card. Those with less-than-perfect credit will have the best luck applying for a privately backed card (one without a major issuer logo). That said, if your poor credit is preventing you from obtaining even a store credit card, you may need to consider a subprime issuer who specializes in credit cards for bad credit.

At the other end of the spectrum, not only does applying for a store credit card impact your credit, but so too can closing an old one. Depending on how long you have had the card — and the age of your other accounts — you may actually see a dip in your credit score from closing a store credit card. The average age of all of your credit accounts combined is one of the main factors that goes into calculating your credit score.

On the Plus Side

While it may sound like a lot of negatives, store credit cards (and credit cards in general) aren’t all bad. The responsible use of a store credit card can have many of the same positive impacts to your credit score as would a non-store credit card. For instance, by avoiding late or missing payments on credit cards that report to all three credit bureaus, you can demonstrate positive credit behavior, improving your credit score and your chances of being approved for future credit.

Additionally, not only do many stores have special coupons exclusively for cardholders, but most stores will stack the cardholder discount with in-store coupons. Example? Pair a great Kohl’s coupon with the 25% discount for opening a Kohl’s charge card and you could save hundreds off your purchase.

Spend Wisely

Regardless of your reasons for opening the card, be it for the discounts, the peripheral perks, or simply to improve your credit, always be wary of carrying a balance on a store credit card. Store cards come with notoriously high interest rates that can quickly negate any savings from an in-store discount. To illustrate this point, let’s consider a shopping trip where $100 worth of items are purchased with a store card. If we say the initial savings from using the store card is 10% (or $10), it leaves a $90 balance on the card. By paying the minimum monthly payment of $5 and carrying the rest of the balance, it would take almost two years to pay off that shopping trip — and it will cost $21 in interest charges.

If you’ve already given into temptation — or a particularly convincing checkout clerk — a few too many times and gotten in over your head with store credit cards, you’ve likely already seen the negative effects they can have on your credit. While getting a handle on your debt is the first step toward rebuilding your credit, it isn’t always easy, especially if the debt is spread across multiple accounts. In this case, working with a reputable debt relief company can be the best way to establish a plan to get back in charge of your finances.

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5 Painless Ways to Cut Expenses in 2017

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Spending money is complicated; at least, that’s what our brains tell us. According to a Capital One Bank survey, 54% of Americans feel happy when they save money, and yet, 25% struggle to keep up with their monthly bills. Feeling motivated to save is tough when your wants and needs are at war, and let’s be honest: You aren’t likely to afford a home or save for retirement by kicking a Starbucks habit. Big changes require bigger savings. The good news is, there are a few painless ways to accomplish your goals.

  1. Track Spending: It’s difficult to cut expenses without a plan. Creating a budget is the fastest way to gauge financial strength and learn how to save. Download your free budget template
  2. Embrace Eco-Friendly Living: Saving money doesn’t always require a lifestyle change. In fact, it’s possible to cut costs and help the environment with a few basic steps. “Get a home energy audit conducted on your house through your energy provider; most do them for free,” David Bakke, financial blogger and owner of Money Crashers said. “Also, only run full loads of laundry and dishes.”

Take your efforts further by investing in a smart thermostat and Energy Star products that provide eco-friendly designs, monthly bill savings and even product rebates for mindful consumers.

  1. Negotiate Revolving Expenses: The average American household spent $103 per month on cable in 2015 according to a survey conducted by Leichtman Research Group. Even if you aren’t willing to cut the cable cord, there’s still room to cut costs. “You won’t get a discount without asking,” Andrew Marshall, a San Diego-based financial planner said. “Call your cable company, your phone provider and other companies with bills you want to pay less for and ask for a discount.  I recently had $80 taken off my monthly cable bill for being a longtime customer.”

Other experts suggest leveraging the competitive marketplace to slash fees in addition to your monthly bill. “There are so many TV alternatives; having a station that only has one program on at a time almost feels archaic. Ditch it,” Michael Newcomer, vice president of Retirement Advisory Consultants said. “Some carriers even eliminate taxes and fees, making it easy to budget phone and internet prices every month.”

The lesson: Everything is negotiable. Contact your service providers and communicate your budgetary needs.

  1. Clear Away Clutter: Financial dissonance can be as stressful as physical clutter. According to Phil Risher, the voice of Young Adult Survival Guide who paid off $30,000 in student loans in 12 months, there are a few ways to spring clean your spending. “As you question your expenses, ask yourself: Why do I have it? Does this fit with my goals in life? Will this change my life if I get rid of it?” Judging expenses based on emotional value could ease the pain of cutting back. Consider changing your perspective as you redefine necessity.
  2. Read the Fine Print: Automated bill pay has made life more convenient, but it has also created a risk of abuse. Mobile apps like FeeBelly sniff out hidden fees associated with paying off loans early, buying a plane ticket, transferring money and other transactions. Once identified, you may be able to have them waived or choose another provider who doesn’t impose the same costs.Similarly, other apps like Prosper Daily take the mindlessness out of spending by illustrating costs by frequency. “It highlights your recurring purchases,” said Jared Franklin, product manager for the financial tech company, Blispay. “It’s a good way to see a bunch of those annual $20-30 services you pay for, but don’t use much. I identified a few services this way that I cut ties with.”

Saving money isn’t always easy, but it doesn’t need to be painful. Take advantage of creative saving opportunities as they arise. The result can help you plan for emergencies, invest for the future and focus on credit health.

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Great Credit, One Day at a Time

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In 12-step fellowships, participants share their experience, strength and hope with one another by relating what life was like (when things got bad), what happened (the changes they made), and what it’s like now. As part of her recovery, Denise L. of San Diego chose to repair her credit. She shared with us the story of how she did t.

Bad Credit was an Obstacle

Denise L., at age 40, needed to rent an apartment. For past rentals, she was able to do so with a security deposit, first month’s rent and proof of employment. But landlords in California had begun to require credit checks for all applicants, and Denise had bad credit. She had a great job and enough money to move in, but with a score of 590, she still needed a co-signer to secure the lease. “It was embarrassing. Here I was, 40 years old, having to ask a friend to co-sign for my apartment. At that point, I realized that I needed to fix my credit,” Denise says.

“Credit reports and score are much more influential today than they were decades ago,” says Credit Expert John Ulzheimer, formerly of FICO® and Equifax. “Bad credit can be so damaging. You simply never know what important doors will close because of it, until they’ve already been closed.”

Denise’s credit score was low due to a bankruptcy and collection accounts. She also had extreme anxiety on the subject. “Every time I looked at my credit, I was overwhelmed. So I ignored it,” she recalls. “I didn’t understand the whole credit thing and didn’t know how to learn.”

Before Denise and her husband divorced, she relied on him to manage household finances. “While I was married, I didn’t think I needed to worry about it,” she says. They obtained their housing and cars in her husband’s name only.

“Denise made a common mistake when she relied on her husband’s credit without actually rebuilding her own. But how many marriages end up in divorce? Every consumer needs to have and protect their own good credit,” says Ulzheimer.

A Credit Epiphany

Denise got clean and sober right around the time of the fateful apartment hunt. She joined a 12-step program and began working with a sponsor, Mary. A few years in, they decided to tackle the issues of credit and financial responsibility. “It’s part of being a productive member of society,” Denise explains. “I need to be self-sufficient. I want to show my daughters how to handle their money. I have a good job and I pay my bills. I’ve cleaned up the financial wreckage of my past and I deserve to be recognized for that in the form of a good credit score. A score that truly reflects who I am now in recovery.”

Financial amends

Part of a 12-step program is to make amends to those who were hurt by the addict in the past. That includes oneself. “I needed to make amends to myself, and to make right the financial harm I had done to myself in the past,” she says.

Denise confided in her sponsor that she had considered using a paid credit repair service, but was afraid of getting scammed or of wasting money letting someone else do something she could do for herself for free. Mary’s response was simple and straightforward: “You could cut your own hair for free, but a professional can do a better job, right? If you don’t know how to do something, why wouldn’t you hire a professional?”

Paid credit repair

Mary’s answer gave Denise the confidence and resolve she needed to move forward. She researched legitimate paid credit repair services and chose Lexington Law. The cost was affordable, and they promised improvement within three months.

Once Denise signed up, Lexington immediately started working on her behalf. “I got my credit reports for them. Other than that, they did all the work. They made the calls, wrote the letters. Within a month they were knocking negative stuff off my reports.”

Credit education was not lost on Denise. She knew she needed a primer on good credit habits if she wanted to protect her score in the future. “Lexington explained what was going on every step of the way. I understood that I could do this myself. But every time I had tried in the past, I gave up. It was too much. I didn’t have all the answers. They taught me a lot about my credit and helped me fix it at the same time,” she says.

Denise’s credit score went up dramatically. She cancelled the service after three months even though a serious negative item remained on her credit report, because the improvement she had gained was satisfactory. “I still had an old judgment, but it was paid and I knew it was going to come off my report in another year or so. Plus they taught me what to do if the judgment wasn’t removed from my credit report when it was supposed to be removed.”

Building credit

Denise wanted even better credit, and again turned to her sponsor for suggestions. It was springtime and Denise expected a tax refund of several hundred dollars. “Mary told me to go to the bank and put that money down on a secured credit card,” says Denise. She did, and at the age of 47 received her first credit card. She used the card sparingly and paid the balance off in full every month. After about a year, the bank converted the account to unsecured and returned the money (plus a small amount of interest) that Denise had deposited as collateral. “My new card had a $1,000 limit and no annual fee. I put the $500 in savings, and started to add a little every month. That helped me avoid charging up the card.”

“Denise was lucky to get solid advice from her sponsor. The way to earn great credit is to have and use credit products responsibly. There is no silver bullet,” says Ulzheimer.

Credit Opens Doors

After cleaning up her credit reports, Denise continued to pay her bills on time and avoid debt. Denise’s credit score went up to 732.

In 2012, Denise’s car was rear-ended and was a total loss. She received an insurance settlement, but not enough to replace the car. Apprehensively, she went to a dealership and applied for a car loan. “I couldn’t believe it. They approved me on the spot for a 5.5% loan. I was floored,” she recalls.

Denise protects her credit carefully now. Her score has seen a few ups and downs. In late 2014, her dog needed $800 in veterinary services. She didn’t have enough cash reserves to cover the bill. When she charged it, she nearly maxed out her credit card and saw her score drop immediately. “I wasn’t worried, though. I knew I’d be able to pay it off with my tax refund, and when I did my score went right back up.”

Now, Denise makes plans. She takes vacations with her daughters. She buys things for her home that she could never afford before, like a new washer and dryer. She wants to eventually lease a large house and take in foster children, and now she’s not afraid of submitting her application for the rental. All of these things are possible because of her great credit score and the watchful eye she keeps on her budget.

Denise’s greatest pride is in her ability to teach her daughters how to build, monitor and protect their own credit. “Being able to show them how to have great credit is one of my greatest parenting achievements,” she says. “I’m really preparing them to be on their own financially, and that makes me feel so proud.”

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