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Which Credit Card Debt Should You Pay Off First?

If you have a number of credit cards with balances on them, you might feel overwhelmed by having a large number of monthly payments or a total balance that is higher than you are comfortable with. If you have finally decided that it is time to take action and pay off some of this debt, there are several different ways to approach the task.

While each will get you ahead financially, it’s important to understand that they offer different advantages. Let’s discuss some of the common ways that you can pay off your credit cards and get ahead.

Determining Where to Start

There are several ways to approach the problem. Different strategies will appeal to different people. Think about the debt that you have, and what you think will help you most.

For some, paying less interest is important. Other people find that minimizing the number of monthly payments is important. For others still, freeing up liquid cash each month matters most. Some people might choose to use one of the best balance transfer credit cards to help them focus on one payment.

There is no “one size fits all” type of plan. Consider which part of your credit card debt bothers you most and then consider the options below.

Highest Interest Rates First

Many people aim to pay off the credit card with the highest interest rate first because this means that they will be paying lower interest in the long run. If the idea of paying a lot of interest is the part about your debt that bothers you most, this is a good place to start. Often store cards have higher interest rates, and many people will opt to begin by paying these off.

Importantly, you should review the interest rates for all of your cards. Ensure that you are not paying a penalty APR for making a late payment at some point. If you are paying a credit card balance that has a high-interest rate, such as over 22%, you probably want to focus on getting rid of this kind of debt first.

Highest Balance First

Some people become worried when they have a credit card with a large balance or one that is nearing the credit limit. Focusing on putting some extra cash toward payments on these cards can help minimize the stress of having credit card debt. When you put extra money toward this card each month, you will be able to watch the balance drop, getting you closer to financial freedom.

It can be very motivating to watch that high balance get a little lower each month. You may be inspired to devote even more of your extra cash to this project, therefore paying it off more quickly.

Pay Off Smallest Balances First

For some, paying off the smallest balances first can help to eliminate the number of monthly payments that must be made. The fewer the payments that need to be sent out, the less likely it is that you might accidentally forget or miss one and end up with a late payment penalty fee. Plus, as you pay off these smaller-balance cards, you will slowly have more money to make payments on the larger-balance credit cards. Close the credit cards that you don’t plan to use—unless you have had them for a long time and have a great credit history with them.

Final Thoughts

Understanding your credit is important. Keeping track of your credit cards and balances and making all of your payments on time is critical to your financial health. Each of these strategies can help you get closer to being debt free. Plus, each has their advantages.

Make a plan of attack by making a list of all of your debts. Go into detail listing monthly payment options, total balance, interest rate, etc. Then make a plan and stick to it. You will be delighted when you start to see progress!

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How To Prevent Your Card Being Canceled By Credit Grantor

Not everyone uses their credit cards on a regular basis. Imagine the shock of needing to use your credit card only to find that it has been canceled by a credit grantor. You hear horror stories of people vacationing overseas and discovering this problem, then spending hours trying to fix it.

Unfortunately, the credit card grantor reserves the “right” to cancel or change the terms and conditions at any time. While they are supposed to notify you, this could be lost in the mail, sent to your email spam folder, or simply overlooked.

There are a few main reasons why your credit card might be canceled by a credit grantor. Let’s review the most common ones to prevent this from happening to you.

Not Using Your Credit Card Enough

A credit card company issues a card to you so that they can make money. Not only will they make money when you pay interest and fees, but they do make a small amount of money on each transaction that you use the card for.

This is the most common reason for a credit card to be canceled.

When you do not use the card at all, or only for emergencies, the credit card company makes no money from having you as a customer. Fortunately, this is a problem that is extremely easy to avoid. Simply use the card for the occasional purchase. Try to use it at least once every few months so your account will remain open and active.

You can always use one of the best credit cards with no annual fee to help you keep your account active without having to worry about coughing up the money for any fees.

New Debt

Have you recently taken on new debt? Bought an expensive car or a new home? These are changes that can quickly raise your debt level, change your credit utilization ratio (how much of your available credit you owe), and affect your credit score.

The credit card company may see this new debt and quickly cancel your card. New debt on a credit card changes your credit utilization. But taking out a large loan may affect you as well. The credit card grantor may determine that you have too much outstanding debt to pay promptly.

Changes in Your Credit Score

Any time that your credit score changes or drops, you are at risk for having your credit card canceled by credit grantor. This is one of the most important reasons to keep regular tabs on your credit score. You can avoid having your card unexpectedly canceled. It’s also good to know in case of identity theft.

They Don’t Need a Reason

As mentioned before, credit card companies have the right to cancel your card, for no reason, at any time. Having a credit card is not actually your “right.” The credit card company gets to decide who they want to extend credit to. While this might be you, it could change at any time.

They are supposed to give you notice, but, might not always do so. Sadly, getting a credit card canceled, for any reason, looks pretty bad on your credit report. You definitely want to try and avoid having this happen if you can.

What You Can Do To Prevent Being Canceled By Credit Grantor

First, make sure that you at least occasionally use your credit card so that the account does not go completely dormant. Second, make sure that you keep an eye on how much you owe. Keep your credit utilization as low as you possibly can. Third, follow your credit report on a regular basis (at least once per year) to ensure everything is accurate.

Your credit is important and should be treated as such. You can prepare yourself for the unexpected by following all of the rules and staying on top of your debt carefully.

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Does Applying For A Credit Card Hurt Your Credit?

It can be tempting to apply for multiple credit cards in a short timeframe. You can use them to rack up the welcome offers for a lavish vacation. Or they can be used to receive some nice statement credits when making large purchases.

Having a few financial goals in mind, an analysis of your spending habits, and knowing the different types of credit cards can help you make the right decision.

While the short-term rewards can be the deciding factor when comparing two different credit cards, applying for too many credit cards at once can have consequences. Does applying for a credit card hurt your credit? While there is no rule that states a person must wait a specified amount of time before applying for the next credit card, there are some general guidelines to follow.

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Does Applying For A Credit Card Hurt Your Credit?

Let’s take a further look at how to avoid hurting your credit score and what you should do instead.

It’s All About The Credit Score

When applying for any type of loan or credit card (financial institutions consider it a form of revolving debt), they will look at your credit score. A credit score is a number that ranges from 350 to 850 (there are numerous variations in this scoring range). The higher the score, the more likely you are to repay your balance on time. There are several factors of short and long-term credit history that determine your credit score. Credit cards impact most, if not all, of those factors in one way or another.

Here is how your credit score is impacted by a credit card application. Ten percent of your credit score is comprised of “Hard Inquiries.” These occur anytime you give permission for a financial institution to run a credit check on you. It might be applying for a credit card, home loan, switching cell phone carriers, or applying for a new job.

Whether you get approved or denied, these inquiries cannot be erased from your report. If you haven’t checked your credit report in the last two years and you have had several life events occur, you might be surprised how many might have recorded on your report. Hard inquiries tell lenders if you have recently tried applying for similar financing and might have been denied.

Inquiries usually stay on your report for two years before dropping off. Normally, you do not want more than 5 inquiries on your report at any time, but three is an ideal number to aim for.

You can use one of the best Capital One credit cards for travel to build your credit so you can eventually upgrade to a premium travel card.

Other Considerations Regarding Credit Score

Two other factors are Types of Credit (10%) and Length of Credit History (15%). People with excellent credit scores normally have credit accounts that are at least 4 years old. A credit card issuer uses these two factors to find out how many credit cards and loans you currently have and how long you have had them for.

If you were recently approved for 2 or 3 new credit cards within the last 18 months, your length of credit history is going to be rather young. Even if you have never missed a payment and maintain a low debt-to-credit utilization ratio, your score will most likely be lower than when you applied for your first credit card.  You may still be approved for new credit cards, but the card issuer might authorize a smaller credit limit to offset the risk of having so many new types of credit.

Every time you apply for a new credit card or loan, your credit score will drop a few points. If you have a good or excellent score (720 or above) you can afford a few dings in your score and still qualify for the best rates. If your score is near 700 points or lower, each application will be a relatively harder hit.

Typically a score in the mid to upper 600s is still considered a “prime” score but these users are either recovering from credit history blemishes or have a minimal credit history. If you fall in this range, you should primarily concentrate on having one or two cards that allow you to gradually increase your credit score.

Does Applying For A Credit Card Hurt Your Credit?

How Often To Apply

Let’s talk about the temptation of credit card welcome offers. You might be contemplating churning credit cards for one of two reasons: balance transfers or travel rewards. There are more credit cards available than any one person can count on both their hands and feet. Just ask anybody who has done travel hacking for any period of time.

Once again, the guideline comes down to your credit score. The general rule of thumb for most people is to wait for six months between credit card applications. This allows you enough time to establish a credit history with your new card with on-time payments and the average monthly balance (debt-to-credit ratio).  The six-month period also provides an opportunity for your credit score to recover from the new inquiry.

When You Should Apply Depending On Your Credit Score

If you have an excellent credit score (800+), you will probably only have to wait three months before applying again.

As was mentioned earlier, these are “rule of thumb” guidelines. You will likely be able to apply for two credit cards simultaneously. You may get approved for both of them with a high credit score of 750 or above.

If you were recently approved for a credit card and are getting pre-approval offers in the mail for other cards, your score is high enough to receive another card. Should it be an offer that you like, apply for it. If not, wait the six months before applying for the credit card you do want.

There are certain times you will not want to apply for a new credit card. The most obvious time might be right before you are planning to buy a home and need to apply for a mortgage or during the application process. Lenders and underwriters do not like surprises and a new application may force them to rewrite some of the paperwork due to adjustments in your credit report.

The same can be said when applying for a car loan or any other type of loan for that matter. A new type of credit is perceived as an increased risk of default due to the lack of payment history. Lenders are looking to make secure investments with their money.

What If My Credit Card Application Is Denied?

Sometimes applying for several credit cards in a short time frame will cause an application to be declined.  What you shouldn’t do is apply for another credit card. It will count as another inquiry on your credit report for the next two years. Instead, call the card issuer that denied your application and find out the reason why your application was rejected.

You chose to apply for this particular credit card for a reason, so exhaust all options before moving on. If you have another credit card with the same issuer, you might be able to reduce your credit limit on your existing card to qualify for the new one. Sometimes it just takes a phone call to resolve an issue.

Another possible reason your application was denied could have been due to a low credit score. If that is the case, make sure you pay all your bills on-time. Pay them in full for several months and do not “max out” any account.

Ideally, keep your debt-to-credit utilization ratio below 20% for every credit card you own. To help determine when your score is high enough to apply for a new credit card, you can use a credit monitoring service that might provide you with a free credit score.

Does Applying For A Credit Card Hurt Your Credit: Final Thoughts

So, does applying for a credit card hurt your credit? It can. Knowing your credit score and being aware of your financial responsibilities can help. If you can manage your finances, you can bring up your credit score. Then you won’t have to worry about applying for a credit card.

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How Do Secured Credit Cards Work?

Do you have bad credit and want to repair it?  Maybe you have no credit history and need a place to start.  One way to build your credit score is by using a secured credit card!  By making monthly payments with a low credit limit, you will gradually be able to improve your credit history and qualify for better banking products in the future!

People get hit by tough times.  Maybe you lost your job or had some unexpected medical expenses.  In the process, you racked up the debt and your current credit score reflects those woes.  Credit cards, even secured credit cards, are not for everybody.  Let’s face it, to qualify for an auto or home loan, you need to have a decent credit score.  Using a secured credit card is not an instant fix, but the odds of getting approved increase dramatically by demonstrating to lenders that you can consistently make monthly payments and carry low monthly balances.

What Is A Secured Credit Card?

Secured credit cards get their name because they require a security deposit to start using it.  Non-secured cards, the most common type of credit cards, do not require a security deposit to use and are only issued to people with fair, good, or excellent credit cards as they are less likely to miss monthly payments.

Secured credit cards work identical as non-secured credit cards but normally have higher fees and lower credit limits.  A secured credit card is a credit card that requires an initial security deposit the same amount as the credit limit.  Credit card issuers require the security deposit in case the cardholder cannot pay the monthly balance, similar to landlords and new renters.  As an example, a secured card with a credit limit of $1,000 will require a $1,000 security deposit that is normally put in a Certificate of Deposit account.  If the cardholder has a balance of $750 for the month and cannot pay it off, then the issuer (aka “the Bank”) will pull from the security deposit to cover the loss.  The bank doesn’t lose any money, but the cardholder still needs to pay off the balance to keep using the card.  If the card is closed, the holder will get the security deposit back minus any outstanding balance.

Although a secured credit card sounds very similar to a prepaid debit card, the secured card has a monthly bill that needs to be paid.  If you miss the due date, the issuer can charge additional fees, interest, and report the event on your credit report (damaging your credit history).  The security deposit cannot pay the monthly balance and is only in place to protect the bank from paying from their own pocket if the cardholder becomes delinquent in payments.

Who Can Use A Secured Credit Card?

Secured credit cards are intended for people with poor or no credit that typically do not qualify for non-secured credit cards.

The following potential credit cardholders might benefit from a secured credit card:

  • Those who have declared bankruptcy or defaulted on a loan within the previous five years.
  • Currently 30 or days late on a credit card or loan payment.
  • Have little or no credit history.

A secured card is great for somebody that wants to build a credit history without the temptation of high credit limits offered by non-secured cards.  A prepaid debit card does not build a credit history, but a secured credit card will.  The secured credit card has a higher initial expense due to the security deposit, but the ability to establish a credit history can be worth it.

How To Choose A Secured Credit Card

Here are some of the best secured credit cards , although your personal bank probably offers a secured card too.

Here are several factors you will want to consider when applying for a secured card:

  • Annual Fee
    • Most cards require a fee ranging from $25-$35 annually.
  • Security Deposit
    • As the security deposit amount determines the credit limit, certain issuers will permit higher credit limits.
  • Interest & Fees
    • Interest rates & fees for secured cards can vary widely between card issuers. If missing a payment is a large concern of yours, consider cards with a lower APR & fee.
  • Rewards
    • Point & Rewards are normally reserved for non-secured cards, but some issuers will put the security deposit into a “high-yield” savings or CD account. It might not amount to much but anything is better than nothing.

As the primary intent for most who have a secured credit card is to build or repair their credit history, you will want to ensure the prospective issuer reports the payment history to the three credit bureaus: Equifax, Experian, and TransUnion.  When applying for a loan in the future, you do not know what bureau the lender will acquire your credit history from so it’s important to verify this before applying for a card, as each application will pull your credit history and temporarily reduce your credit score.

Also, ask the prospective issuer if they will “flag” the credit card as a secured card.  Flagging your card may prevent the credit history from improving your credit score.

You will also want to apply for the highest credit limit possible.  This might depend largely on how much of a security deposit you can afford, but you do not want to “max out” your card every month.  The same principle applies to non-secured credit cards too, but your goal should be to keep your monthly balance lower than 30% of the total credit limit.  For example, your monthly balance shouldn’t be higher than $300 if you only have a $1,000 credit limit.  Keeping the monthly balance below the 30% mark will help improve your credit score quicker.  Making monthly payments is essential, but this practice helps the process.

How Long To Keep A Secured Credit Card

After getting accepted for a secured credit card, the next question is how long you need to make on-time payments before you can either apply for a non-secured card or a new loan.

Your card issuer will periodically review your file and may offer you the opportunity to upgrade to a non-secured card within one year!  You might also start receiving offers in the mail for non-secured cards from other companies.  Of course, you can always monitor your credit score yourself and ask your issuer to upgrade as well.  If they say yes, you can close your secured account and the issuer will refund the security deposit.

With any application for new credit, do not apply for too many at once.  Each application will penalize your credit score & you might have to wait even longer to get qualified for a loan or non-secured credit card.

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How to improve your credit score through credit cards

Trying to clean up your credit score just before applying for a loan is a lot like working out to get 6-pack abs just a few days/weeks ahead of your beach vacation!

Such shortsighted efforts won’t be good enough to undo months of reckless mistakes. However, people who know how to discipline themselves and who can get into the habit of making well-informed decisions, can definitely see some improvements. That sort of discipline is all the more important for people who’re about to apply for a loan within the next 2-6 months.

Good credit score

While there are some tried and tested methods that can help you build a long-lasting healthy credit score, you can also make some small-small changes into your credit card habits right away and see an improvement in your score in some time.

Just by changing the frequency and timing of your monthly payments, apart from using the right credit cards for your purchases, can lift up your score by around 20 points or even more, in a matter of two months! The extent of improvement will depend on your present financial habits and some other factors. Following are some useful ways in which you can use your credit cards to improve your credit score:

Pay your monthly card bills on time

This is easily the best thing you can do to improve your credit score. The payment history of your credit cards carries a 35% weightage in calculation of your FICO score (used by most lenders). That weightage is higher than any other factor that makes up your credit score. So, ensure that every credit card of yours is paid on time, every month.

Keep your account balances low

The amount of money you owe on your different credit cards carries the second biggest weightage (30%) in calculation of your FICO score.

A good way of understanding this factor is by paying heed to something known as credit utilization ratio. This ratio is the percentage of credit you’re actually using, from the total credit available to you. For instance, if the total credit limit on all your credit cards combined is $ 20,000 and you currently carry a collective balance of $ 4000 on them, you’re using 20% of your available credit.

Normally, people pay off all their cards in full, or to the maximum extent possible, to keep this ratio closest to zero. However, anyone who can’t afford to keep a zero balance must ensure that his/her credit utilization ratio is well below the 10% mark. At any cost, he/she should never exceed 30%.

And that applies to all of your cards. Many times people who’re looking for a loan in the near future, opt for balance transfer cards for bringing their card balances well below the 30% threshold, but they often do so without paying heed to the balance transfer fees involved. This fee can be 3% or more, often resulting in a fee amount that may not be worth paying for a credit score boost.

Make frequent payments

Paying your credit card bill only once every month may not be good enough for improving your credit score. The balance appearing on your credit report is normally the balance from your last statement/s. And people running up high balances on their credit cards may get penalized in terms of their credit score, even if they do clear those balances in full every month.

For instance, if a person makes a $ 5000 purchase on a credit card (with $ 10,000 credit limit) in a specific month, his/her credit report may still show him/her as having used 50% of his/her credit limit on that card, even if s/he pays that card in full by the end of the month.

Such records may not matter much to someone who isn’t planning to apply for a loan anytime soon, but for an individual preparing himself/herself for a credit check, they may make or break the deal. Hence, it’s always better to make multiple credit card payments every month as and when you use your cards.

Put your credit cards to use

Although you should never run up your credit card balances to the extent that you can’t afford to pay them in full, you can’t help using your cards if you want them to be counted as a part of your payment history either.

It’s not necessary to use your cards every month, but make sure that you use them every once in a while, so that there are records of purchases and their timely payments. Furthermore, there is a risk of card issuers cancelling the cards that haven’t been used for many years. A cancelled card can reduce your total available credit, putting a dent into your credit score.

Keep your oldest accounts

Although it may seem tempting to get rid of your old credit cards that you’ve rarely used, people wanting to apply for new loans should hold onto such cards until the completion of their credit checks. Closing a credit card automatically reduces the total available credit to you. Such a step can be even more detrimental if you’re carrying hefty balances on some of your other credit cards, as it can increase your credit utilization ratio. However, such dips are only temporary in nature, and the credit score normally rebounds in the next few months as the credit agencies discover that you’ve actually not taken on more debt. But, even if temporary, such dips can indeed become the cause for loan rejections. So, avoid closing any credit card if you’re planning to apply for a loan in the next 2-6 months’ time.

Keeping or closing the old card accounts can also impact the length of your credit history, which carries a 15% weightage in your FICO score. Nevertheless, the impact is most likely to be minor in nature. Moreover, if you’ve been paying those cards in full every month, your credit score may not drop at all by their closure.

Following these basic suggestions, you can effectively use your credit cards to improve your credit score. Last but not the least, check your credit history at least once every year to ensure everything is in order and all the information in it is correct.

 

 

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The Best Secured Credit Cards

The Best Secured Credit Cards

Credit cards provide a method of funding for some of life’s unexpected or major expenses, but these revolving credit accounts are not readily available to certain individuals. If you are just starting out in your financial life and have not yet established a credit history or profile, securing a new credit card can be a challenge. The same goes for anyone with previous credit issues, such as late payments, accounts in collection status or high balances on revolving credit accounts. Fortunately, credit can be established or repaired through the use of a secured credit card.

Credit providers offer some individuals the opportunity to open an account without previous credit history or with a less-than-perfect credit through a secured credit card. This type of credit card is made available with a lower credit limit than conventional credit cards and is secured by collateral, such as a savings or checking account. Secured credit card providers extend a revolving credit limit based on the amount of the pledged savings or checking account balance to help offset the risk of taking on a borrower who otherwise may not be able to qualify for a credit card. Over time, secured credit cards evolve into traditional credit accounts, sans the need for pledged collateral, but only if and when the provider is certain the borrower has established a solid history of on-time repayment.

Here are the best secured credit cards available to individuals with no credit history or a lackluster credit past.

Discover it Secured Credit Card

Discover is a sound starting point for individuals seeking a secured credit card to shore up past credit mistakes or establish a new credit identity. The provider offers a secured credit card through its Discover it brand, available with no annual fee and no late fee assessed on the first late payment. A minimum deposit $200 is required for all applicants, and total credit line is determined based on a review of credit history, income and other outstanding debts. Discover reviews each account after month 12 to determine if the initial deposit can be returned, based on the individual’s borrowing and repayment habits.

One of the reasons Discover it Secured credit card tops the list is that it offers borrowers the opportunity to earn rewards on purchases – a unicorn in the secured credit card world. Up to 2% cash back can be earned for restaurants and gas station purchases, up to a cap of $1,000 in spending each quarter. All other purchases receive 1% cash back. For new card members, Discover will match any cash back earned for the first year automatically. It is important to note that the annual percentage rate on Discover it Secured credit card may be substantially higher for new borrowers compared to other secured or unsecured cards.

Capital One Secured MasterCard

For individuals looking for a low deposit secured card, the Capital One Secured MasterCard is a great choice. Depending on credit history, Capital One offers a credit line of up to $200 with a deposit as low as $49. No annual fee is assessed for cardholders, and a credit line increase may be applied for without an additional deposit within the first six months of account opening. The APR offered to new card members is a variable rate, starting at 24.99%.

The Capital One Secured MasterCard is a no-frills option for individuals needing a card with a lower deposit, but there are some drawbacks. Capital One imposes more stringent qualification requirements on borrowers, despite its secured nature, meaning a recent bankruptcy or no checking or savings account will disqualify an individual. Additionally, the secured credit card does not offer perks in terms of rewards or cash back. For these reasons, this card is best suited for individuals looking to establish credit history in a cost effective way, as opposed to those looking to repair severe credit damage.

OpenSky Secured Visa Credit Card

Individuals looking for a secured credit card for credit history repair may find solace in the OpenSky Secured Visa Credit Card. Underwritten by Capital One Bank, the OpenSky secured card offers a credit line of up to $3,000, equal to the deposit made at the time the account is opened. Borrowers have the opportunity to ask for a credit line increase after the account has been established for some time, but an additional deposit may be required to offset some of the lender’s risk. The annual percentage rate for new cardholders is relatively low compared to other secured card providers, starting at a variable 17.64%.

The OpenSky Secured Visa credit card does come with an annual fee of $35, and it does not offer any rewards program or cash back for purchases. However, the secured card does not require an initial credit check nor is a checking account necessary. Individuals in need of credit repair without concern for the amount of deposit to secure the credit card are a good fit for the OpenSky Secured Visa credit card.

U.S. Bank Secured Visa

The U.S. Bank Secured Visa is a solution for both newbies to the credit scene as well as though with less-than-stellar credit history. A deposit of no less than $300 is required to establish the account, but borrowers may pledge up to $5,000 for collateral. The credit line offered is equal to the total deposit on hand, and an annual fee of $29 is assessed for all cardholders. The annual percentage rate charged on purchases is less aggressive than some card offers, starting at 18.99%.

Borrowers who utilize the U.S. Bank Secured Visa do not have the ability to earn rewards or cash back, but a review of the account can be done as soon as 12 months after account opening to determine whether an unsecured card is available. The amount used for the deposit is held in an interest-bearing savings account which is beneficial when the deposit is returned. For a simple, lower interest rate card, the U.S. Bank Secured Visa is a smart choice.

USAA Secured American Express or Visa Card

For active or veteran military members and their families, the USAA Secured American Express or Visa Card is a great solution to repairing poor credit or establishing a credit history. The secured card offerings through USAA require a deposit of no less than $250 but can be as high as $5,000, and the credit limit is equal to the amount set aside. What makes the USAA secured cards different from most other providers is the fact that the collateral is deposited into a two-year certificate of deposit (CD) that earns more interest than a traditional savings or checking account. As the interest is credited to the CD, borrowers have the opportunity to request a credit line increase.

The USAA secured credit cards assess an annual fee of $35, but the interest rate on purchases can start as low as 10.15%. There are no rewards associated with either the Visa or American Express secured cards through USAA, so this option is best fit for military members looking for an account that provides additional interest on deposits and a potentially lower interest rate on purchases.

While secured credit cards provide an opportunity for individuals to establish a credit profile or repair past credit mishaps, not all cards are created equal. Prior to applying for a secured credit card, it is important to fully understand the annual percentage rate charged on purchases, any annual fees imposed, and the rewards or lack thereof available.

See all the best credit cards here. 

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Which Debts Should I Pay Off on my Credit Cards First?

Which Debts Should I Pay Off on my Credit Cards First?

Chances are that you have credit card debt. We all do or at least have had it at some point, and the question we had or have to face is “how on earth are we going to tackle this pile of payments?!”

Hopefully you were able to catch yourself from making your balance any bigger than it needed to be and were able to minimize the damage, but many cases are not that clean cut and easily stoppable. Some credit users are lucky enough to have a single credit debt owed to a single lender, but many others have multiple debts owed to several different credit card lenders, and the question that they now face is “Where do I start?!”

Below is list of possible starting points that you can use to begin your journey out of debt and on your way to turning around your credit score.

 

Understanding credit lenders

Before we start handing out suggestions on how you can best un-bury yourself from your credit card debt, it’s good to know why exactly you are getting into such debt in the first place: the lenders.

Credit card companies get their money from you as the card holder from interest and annual fees. The annual fees, although they may look huge as they leave your wallet once every year, is only a slice of the gigantic pie. The real money lies in the interest payments that you pay every time you have another month go by that you do not pay back your credit card expenses in full or to their specified monthly minimums. This focus on interest rates and compounding debt amounts is what lenders are banking on you to provide to them as long as you keep your account with them. Its pure profit for them.

Interest rates are not something that you need to be inherently afraid of. For those who can be responsible with their cards, they won’t need to bother worrying about interest rates and compounding amounts as they go about their interactions with credit lenders. If you keep on top of your payments and continue to pay them on time and in full, then you will have no debt.

Sounds pretty easy, but as you know by now, staying on top of the ball for every expense that goes through you is no easy feat. Emergencies pop up that you cannot cover in their entirety and rather than taking out a loan from an outside source, you just swipe the plastic. This happens a few times and before you know it, you are $16,678 deep in credit card debt. Life happens and payments are due, but to quickly dig yourself out of any pits you may have fallen into, you should know the best methods.

 

It’s all about the interest rates, baby

Let’s say that you have multiple credit cards that you have debt on. One card, “A” has a large amount of debt, but a very low interest rate, another, “B” has a small amount but a very high interest rate, and the last, “C” has a moderate sized debt with a moderate interest rate. Instinct may tell you that you need to take out the largest sized debt, “A” first, because it looks like it is the biggest. Right?

The interest rate is what is killing you and keeping you in debt. The best practice to start taking out that debt is to knock out the debt with the highest interest rate first, regardless of the current amount. Taking out these debts shortens the length of time that you are trying to pay off your total amount because your biggest amount with a very low interest rate (“A”) is not going to grow nearly as fast as debt “B”. “B” will grow like crazy and go from a small amount into one that is even bigger than “A” in less time than you think.

Going by interest rates rather than lump sums, rank your credit card debts in order of highest to lowest and use that order for which debts will be taken out first. Stick to this order and you will dig yourself out of debt much faster than you may have planned. So using the examples from above, pay them off in order of “B” then “C” and then “A”.

 

Don’t be afraid to move debts around

If all of your cards but one have an astronomical interest or compounding rate, consider moving over all of your debts onto a single card, or set of cards with a single low interest rate.  Move as much of your debt as your credit limit will allow. By doing so, you can eliminate the ability for your debt to continue growing out of your control.

Now before you dive for that phone to call up your lender to make a transfer, keep in mind that there is usually a debt transfer fee that is pretty up-there in cost, and it may wind up biting you back due to its own price tag. If the cost to move over your debt is worth the cost it is to make the transfer, make it happen, but evaluate if the cost is worth it first. This is not a one size fits all suggestion.

 

Equal installments as compared pinpoint payments

Whenever you come across some surplus income and want to throw it at your credit card debt, a temptation may be to break it into even chunks and disperse it evenly across all of your debts. Remembering what we mentioned earlier about the weight of interest rates, focus the amount on a single debt rather than all of them. Spreading a single amount across differing debts of varying amounts and interest rates will just absorb your payment and end up not making a bit of difference in the overall debt.

Pinpoint the debt with the highest interest rate and throw what you can at that one debt until it is all gone, and then move to the next one. Keep doing this until they are all payed up.

 

 

Although you may want to attack the largest amounts of debt first, this is a practice that is best avoided as a first impulse. There is nothing inherently wrong with attempting to knock out the biggest amount first, because by being disciplined enough to tackle a pretty huge sum in its entirety, it can be a pretty huge confidence boost. To see a debt drop from over $16,000 to zero can be the mental boost needed to reaffirm your actions and keep you focused to keep pushing onward to paying off all of those debts. Use what methods are best for you that you can honestly stick to.

There is no cheat sheet or concrete answer key to paying off debt because everyone’s situation is different. There is no blanket answer because like a snowflake, no two credit situations are the same (pardon the elegant analogy). Hopefully the above tips and practices will help you discover how you can best chip away any debt of your own that you may be struggling with.

Have any tips that weren’t covered above that can help others? Comment and share below!

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How Many Credit Cards is Too Many?

 

When it comes to your credit score, bigger, and more, is better. With the exception of how much debt you have (obviously you want that as small as possible if not gone completely), you always want bigger with your credit line. If you have more credit cards, then your credit limit rises, which means you can have that much more available credit to your name. Although more credit cards is a good thing, not being able to manage them wisely can end up being pretty devastating to your score. With all these pros and cons, how can you decide what the magic number of open and running credit cards is right for you and your situation?

Below are some factors to consider in deciding just how many active credit cards is right for you to have in your wallet at once.

 

Why would I want more available credit?

Credit lenders check to see that you are wise with the amount of credit you already have available and at your disposal, and you want them to see you as responsible as possible. A single credit card, for example, may give you $1000 in available credit, and if you are wise in your credit usage, you keep your usage to below 50%. That means that you only have about $500 dollars of for-the-most-part guilt free usable credit that won’t be too heavily scrutinized by credit lenders.

Now $500 dollars is not so bad in terms of guilt free credit for when you are first starting out, but as time goes by, the expenses that need to be immediately covered get taller and taller, and you may want to stretch out and use the other $500 dollars of available credit that you otherwise leave ignored and unused. Although it may seem that you are just using what it rightfully yours, if you spent $999 of an available $1000 credit limit, guess what that tells your lenders? “I like to spend as much money that isn’t mine as possible!”

Jokes aside, you don’t want to look like you abuse your credit. To avoid going over that sweet spot of 30% to no more than 50% of your credit, expand how much available credit you can use. You can do this by either appealing for a larger credit limit on you already existing credit card, or you can apply for more credit cards. For example, your already standing $1000 limit gets raised to $1500, and you add two more credit cards each offering a $500 limit, and you have $700 in expenses due. Your debt to credit ratio went from 70% of a $1000 limit, to 28% of $2500. By expanding how much credit is available to you, you dropped your ratio all the way from being in the danger zone (70%) safely into the green sweet spot (28%). Lots of numbers flying at you, we know. Just bear with us.

Your available credit works as a pool that you can constantly add to and grow, and if can realistically keep track of every available card that you add you your pool and keep accounts in balance and in check, then more cards can be a great help to you. However, the more cards you add, the more difficulty it becomes in keeping everything straight.

 

 

No one card is accepted everywhere

Keeping one single card is much easier to manage than five or six, to be sure. One single bill, one single payment, and one set of rewards to monitor and keep track of. The disadvantage of having a single card is that your limit can only get so high, and your credit service may not be accepted everywhere. Visa, MasterCard, Amex, and Discover are some of the major services, and as we’re sure you can recall from time spent out and about shopping for goods, not every location accepts the same cards.

Sadly there is no universal currency out there that is accepted by all vendors with absolutely no fees (other than cold hard cash, but who uses coins and paper anymore??), but when you are out to dinner and are rocking a cashless wallet with only an Amex, and they only accept Visa, what are you going to do? We’ve all had this nightmare at one point in time, and the only way to avoid this scenario, besides asking right up front what cards they accept every time you go outside, is to get the most common credit card services.

 

Don’t open cards just for the rewards

A misconception that may be reached here is that you can just keep opening accounts and rack up a whopping pool of available credit that you can dip into at any time the mood strikes you. If this sounds like a great way to live to you, know that every time you open an account, a lender checks your credit, which dings your score. To that end, if your account goes unused for too long, or is deemed to be too risky to keep open by the lender, your account will be closed which also dings your score. So before you think about applying for 40 or so new credit cards so that you can soak up all the rewards, think about your already fragile and delicate credit score and the stress that it will endure as you go about opening new accounts and closing old ones.

 

So how do I know how many cards I should have?

The bottom line is that there really isn’t a set number of cards that blankets everybody’s financial and credit situations. Some individuals can keep track of an endless list of pending payments and billings, and others can’t even keep track of the one credit card they already do own, and even though it is set to “Automatic Bill Pay” online, it still causes them stress. It depends on how well you can keep track of your expenses and bills.

Opening and having access to more credit cards, such as two or three, or even as high as six or seven can have its perks, but if you cannot handle the mental strain that ensues to keep track and balance all of your accounts and not miss or be late for a single payment, then keeping your card count down may be best for you. Same goes for having less cards. One single bill and one set of rewards to keep track of can be freeing and stress-less, but it does limit where you can use your card and what kind of rewards you can have at your disposal.

 

How many can you manage best?

These factors in mind, consider if you can handle having two to three credit cards. Having different cards opens the door to varying rewards, raises your usable credit limit and also protects you from the embarrassing but at some point inevitable “I’m sorry ma’am, but we don’t accept that kind of card here”. Only acquire what you can realistically handle, but if you do decide to get more cards, learning how to balance your accounts and remain on top of the ball is a useful skill to obtain.

 

So as of right now, how many cards and accounts do you think you can honestly manage and manage well?

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Why You Should Apply for a Business Credit Card

If you own a small business, you probably should consider establishing some credit in the name of the business, rather than relying entirely on your personal credit. You might be surprised to know that fewer than 50% of small business owners are using business credit cards that are in the name of the business and not their personal name! Keeping everything in your own name may put your personal assets at risk, so read on and consider these great reasons to apply for a business credit card!

Tips For When You Apply For A Business Credit Card

So what should you look out for when you apply for a business credit card? Here are a couple of tips to consider.

Keep Business Expenses Separate

Keeping business expenses separate not only comes in handy at tax time, but it helps you stick to both a business AND a personal budget. When you are simply comingling all of your money and spending it as needed, it can be difficult to know how much money you are making from your business and how much you may be investing towards the future.

When you carefully keep everything separated, you are protected by a “corporate veil,” which allows you to be separately responsible for profits and losses. Your personal assets will have protection. Having a business credit card helps you to reinforce that protection, and reduce the risk to your personal assets.

Details, Details, Details

When you use a business credit card, it is far easier to keep detailed records of any expenses related to running your business. Whether you keep your own books or use a bookkeeper, the tasks will be monumentally easier when you keep your finances seperate. Business credit cards often offer you special spending reports and graphs that can help you build a balanced budget and stick to it. It also makes it easier for you to quickly see your profits and losses.

Establishing Credit

One final, and very important reason for getting a business credit card is that you can establish a credit history for your business. When it comes time to apply for a loan or any other kind of financing, you will have a solid credit history and be able to show that your company is credit-worthy. You won’t have to worry about depending on your personal credit history. Plus, you will be eligible for different rates and terms for loans as they pertain to a business, rather than an individual.

Additionally, it is important to keep your business credit separate from your personal credit, especially if you are going to incur any significant business debt. You don’t want this appearing in your personal credit history and bringing down your credit score.

Here’s what you need to know before you apply for a business credit card:

Consider the type of business credit card that you need.

How much of a credit limit do you need? Will you be considering a secured or unsecured card? Are you hoping to get a rewards credit card? There are many things to think about before applying!

Find out your credit score.

This means you need to know your personal credit score, as well as any credit score for your business if you have any credit established yet.

Don’t be blinded by perks.

Sure, special benefits and great perks can draw you to a particular card. But, don’t rely only on the perks. Know the actual terms of the credit card—annual fees, APRs, any other charges, and fees, etc., before applying. Make sure you know whether or not any special offers are going to expire after an introductory period, too.

Be selective.

Don’t apply for a ton of business credit cards. In most cases, one is probably sufficient. If you have employees, then make sure you look for a business credit card that offers low cost or free additional users, because these are the kinds of charges that can add up quickly.

Always be careful when applying for credit, whether for business or personal use. You need to protect your personal—and business—assets and maximize profits. When you are educated about the various terms and conditions, and understand what you are getting into, you will be able to make the right decision for your company.

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You May Be Eligible For A Credit Card Retention Bonus

Earning miles and points from your credit card is fun—especially when the annual fee is waived for the first year. Once that anniversary comes around, however, you may be required to pay an annual fee—which might not be what you planned. Since you have earned tons of points, you don’t want to simply cancel the card. Let’s talk a little bit about your options and what might be available to you.

Consider the Retention Bonus

Many of the bigger credit card companies will offer you a special “retention bonus” on your anniversary date. This can range from a tidy sum of extra bonus points to a free baggage check, to a free night in a hotel, and more. Often the value of the retention bonus is far greater than the cost of the annual fee—so consider this part carefully when you are thinking of canceling the card. It might be well worth it to keep the card. While there are some cards that have pretty hefty annual fees, taking a look at what you get is a wise move. See if it is worth it to keep.

Consider the Credit Impact

Closing a credit card can negatively affect your credit score, so consider this move carefully. Now, this doesn’t mean that you should automatically keep a card with an expensive annual fee just because you don’t want a short-term ding on your credit. But, you should not be opening and closing credit cards on a whim if you want your credit to stay clear and clean.

Take an inventory of all of the cards you have and consider the fees and benefits. Also, consider your history with them and your available credit. Then, and only then, should you determine whether or not to close a card when your annual fee is up. Don’t rush to close a card simply because the fee is due.

Make Your Plea

You may not realize this, but you can actually request that the fee is waived for another year. Keep in mind that if you are a good customer, the credit card company will not want to lose your business. They may agree to waive the fee for another year. Sure, that will put you in the same position next year, but that gives you time.

Ask for a Downgrade

Many credit cards offer no-fee versions of their more expensive cards. The perks are fewer, but you don’t have to close the card and take the hit on your credit score. If you have a good history with the credit card, consider this option. When you can keep the line of credit open for free, and not have a hit on your credit card, this is really a win-win.

Final Thoughts

You will hear about loopholes and how you can exploit the system by getting a retention bonus just before the anniversary and canceling. Alternatively, you can pay the annual fee for a huge retention bonus and then cancel and keep the bonus. But the reality is, many of the best credit cards out there will offer you some sort of incentive to stay.

Whether you get a companion certificate, bonus points, or something else, it is up to you to determine if that is worth it for you to stay. Don’t impulsively cancel a credit card. You may regret it when it hits your credit score. As with any decision related to your credit, be careful and do your homework to figure out what is going to be the best decision for your personal situation. Often you won’t be able to reapply for a card once you cancel, so make sure it’s really what you want to do!