Category: Credit

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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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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15 Smart Ways to Save on Your Wedding

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Planning a wedding can be an exhilarating and fun experience…until you see the price tag. According to The Knot, the average nuptials totaled $35,329 in 2016. Although you may want a lavish affair, paying for a wedding should never mean borrowing against your retirement accounts, emptying your savings or taking out a personal loan. So, how do you plan a beautiful wedding on a budget? Consider these strategies.

  1. Get Married on Sunday: Saturday is the most popular wedding day in America, and booking a venue for Sunday could shave significant costs off your site and reception rentals.
  2. Don’t Take Requests: Planning a wedding is tricky when everyone has an opinion. Your parents might want to invite their old friends, your sister wants her daughter to be the flower girl, your boss doesn’t eat gluten, etc. While it’s important to consider your loved ones in the process, you shouldn’t put yourself in debt to accommodate everyone. Make choices based on your budget and personal preferences.
  3. Choose Three Things—and Cut Them: Your wedding budget can spiral out of control without a little willpower. Look at your list of expenses and consider cutting three things. For example, choose one party favor to give instead of two, or choose one brand of wine instead to serve of three. Small savings can add up quickly.
  4. Outsource the Details: Family and friends are usually eager to help a couple plan their big day, and now is the time to enlist their help. If your sister runs an Etsy shop, ask her to make your guestbook instead of buying one. If you need a ride to the airport after the reception, ask a groomsman to give you a lift instead of renting a limo.
  5. Shop Online: Bridal shops are skilled at providing an experience that results in sales—often at a premium. Search online before buying anything at a physical store. You may find a better deal and waived sales tax through an online retailer.
  6. Hit the Outlet Mall: Ceremony and reception décor doesn’t need to be wedding-specific. For example, Crate and Barrel’s outlet store might sell votives for less than a typical bridal shop. Search online and check your local outlets to find the items you need.
  7. Send Digital Save the Dates: Save the Dates are a popular way to announce your wedding plans ahead of time, but printing and mailing them can be expensive. Consider sending a festive email or creating a free website through WordPress.com to keep your guests updated on wedding details.
  8. RSVP by Email: Wedding invitations usually come with an RVSP card with postage attached. Cut costs by asking guests to RSVP by email or through your website instead.
  9. Buy a Basic Photography Package: Wedding photos are something you’ll cherish, but you don’t have to buy the most expensive package right away. Most photographers store your images for later purchase. They may even have a registry that allows your guests to buy prints for you as a gift. Consult your budget and buy only what you can afford.
  10. Book a Flexible Venue: Hotels and event halls often charge couples a package price for their wedding that includes food and beverage. This means you can’t hire your own caterer or negotiate costs. Find a public park, formal restaurant or industrial space that allows you to choose your vendors.
  11. Shop Wholesale: Are you dreaming of a wedding filled with flowers? Costco can help with that. They advertise a variety of blooms for bulk pricing. For example, they offer 256 roses (16 bouquets) with eucalyptus for $169.99.
  12. Cap the Open Bar: An open bar can cause your catering bill to skyrocket. Consider putting a time or bottle limit on the tap, and then switch to cash-only for your guests.
  13. Go All-Inclusive: If you crave a beach wedding but can’t afford the price, consider hosting an all-inclusive wedding that allows you to predict costs up-front and simplify your budget.
  14. Register for Honeymoon Expenses: The honeymoon is the final and sometimes priciest piece of the wedding puzzle, and many couples choose to register for experiences rather than flatware. Consider booking your getaway with a hotel or resort that allows you to register for dinners, excursions and other costly honeymoon expenses.
  15. Remember Your Goals: It’s easy to get lost in the fog of wedded bliss, but it’s also important to remember your goals and responsibilities along the way. Prioritize your post-nuptial security and plan your wedding accordingly.

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