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Posts Tagged ‘credit cards’

College students who end up carrying a credit card throughout their college careers need to be aware of the repercussions of credit card spending before they charge those books, tuition fees, and entertainment expenses.

Many students end up graduating with incredibly high credit card bills because they develop a credit card habit early and end up paying hundreds or even thousands of dollars in interest payments.

According to Sallie Mae’s 2009 study on undergraduate credit card usage, the typical graduate had an average of $4,100 in credit card debt.

Choosing the best low-interest credit card and advising the student to charge wisely may help to deter a heavy debt load upon graduation.

Here are four tips for selecting a credit card for your student who is about to start college:

Continue reading “4 Tips to Select a Credit Card for Your Kid Going to College” »

Question: “I have good credit and own four credit cards with a combined credit limit of $24, 000. Three cards are at zero balance, and the other one has a balance of $100. I would like to close the newest card because I’ve only used it once. It has a credit limit of $2, 000. So if I close it, will it cause my credit score to drop?”

Answer:

The short answer to that question is yes, it can cause your credit score to drop. So many people mistakenly think that closing a credit account, a credit card in particular, might be beneficial to them in some way, or perhaps might even increase their credit rating.

Unfortunately, the exact opposite is most often the case. It will lower your credit score.

Now, you have to understand that your credit score is based on a host of factors, one of which is your credit utilization rate. Let me explain quickly what that means. Your credit utilization rate simply means the amount of credit you’ve charged versus how much credit you have available.

In your case, you said that you have $24, 000 available and a balance of only $100. That means your credit utilization rate is super low, less than 1%. That’s very outstanding, that’s stellar, which probably speaks to why you have a good credit rating.

But let’s say you charge $12, 000 out of the $24, 000 you had available. Well, that would mean you’d have a credit utilization rate of 50%, because you would have charged up half of your available credit.

Now, this credit card that you’re thinking about closing has a relatively small credit limit, $2, 000. So the fact that that’s only about 10% of your overall credit limit that you have combined, because you said you have $24, 000 available, tells me that the impact on your score might be minimal.

I also say that because you said that this is your newest card, meaning that you haven’t had it opened very long, although you didn’t specify how long you’ve had the four cards open.

But in general I tend to think that closing that one card would probably not do as much damage to you, for example, as it might to do somebody else, based on the most recent card… You know, based on us talking about you thinking about closing your most recent card, and based on the fact that that credit card only has a small limit.

So I hope this has been helpful to you. Sometimes, I know, people want to close cards because, you know, they have an annual fee, or because the interest rate on the card is way too high, and, you know, for that kind of situation, I might advise somebody to think about doing it or to close it after they make sure that they’ve had other cards for a longer period of time.

Those two issues, high interest rates or a big annual fee, don’t seem to be the issue with you. You indicated you only want to close the card just because you’ve only used it once.

My suggestion in general would be, “Oh, don’t worry about it too much. It’s probably just fine if you keep it open.” If you only use it once and you continue to have very infrequent credit usage, chances are the creditor, the bank issuer who issued you the card might, in fact, close it anyway, because increasingly, amid the current credit crunch, banks are, in fact, closing out credit limits when people haven’t used them.

Either way it goes, if they close the card or if you close the card, that part doesn’t play a role in your credit score. The credit score doesn’t take into account, in other words, who asks or who dictates that the credit card be closed.

What does matter are those factors that I mentioned before, your credit utilization rate and also the length of your credit history.

Remember, 15% of your credit history… I’m sorry, 15% of your credit score is based on the length of your credit history. Generally speaking, the longer a credit history you have established, the higher your FICO score will be.

Here’s how to get your FICO credit score free

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If one of your personal or financial goals is to get out of debt this year – or at least eliminate your debt as soon as possible – now is a great time to get started. Becoming debt-free takes work. But it doesn’t have to be an overwhelming chore.

Simply following proven strategies below to knock out your debts sooner rather than later:

1) Write down all your debts.
To get a clear sense of your finances, you really need to know exactly how much you owe, to whom, and how much interest you’re paying on your debts. You don’t want to guess about debts. Do you owe $5,900 or is it more like $9,500? Getting your bills listed in black-and-white is a sure-fire way to simplify your finances and see where your cash is going. To get a jumpstart on this process, download this free form called “I Debticate Myself to Being Debt Free.” It will help you list all your debts.

2) Call your creditors and negotiate your interest rates.
Even though banks have been raising interest rates during the credit crunch, in 2010 you’ll have more power to negotiate with your creditors. Why? Starting February 2010, key provisions of the Credit Card Reform Act begin. Among the changes: credit card companies can’t retroactively raise your interest rate on an existing credit card balance – unless you’re 60 days or more late paying your bill. Even if your rate has been raised to a “default” rate, the new law restricts creditors to hitting you with that higher for just six months, if you pay on time. So every six months or so, starting today, call up your creditors and ask for lower interest rates. Often, credit card companies will lower your rate on the spot, simply because they don’t want to lose your business to another company offering lower rates. If you can knock down the interest rate on a card with a 21% interest rate to 12% or so, you’ll be saving yourself a lot of money. Your minimum payments will also be less each month.

3) Pay your bills online.
Another benefit of the credit card reform law is that, starting February 2010, banks and other credit card issuers will be banned from charging fees to customers who pay their bills via the telephone or the Internet. So if you’re not already doing so, set up your credit cards to be paid electronically. Online bill payment is a great service for busy people. Use it as a time saver to pay those fixed monthly expenses, such as your mortgage, car note, or insurance payments. Online bill payments also helps ensure that you don’t forget to pay bills, which can result in late payments or negative marks on your credit report.

4) Pay more than the minimum amount due.
Don’t fall into the minimum payment trap. Minimum payments in the short run really mean maximum payments in the long run. To avoid paying exorbitant amounts of interest and being in debt for life, you must pay more than the minimum balance due. If possible, try to pay 2 to 3 times the minimum payment.

5) Use more cash than plastic.
Before you go shopping for anything this year, even groceries, hit the ATM first – armed with your budget and your “need” list so that you don’t buy more items than you planned, or purchase items priced higher than you should be spending.  Take out exactly the maximum amount you’ve determined you can afford and will need to purchase your items of necessity (not just the items you want, but the items you “need”). Later, when you are out of cash, that’s it. Leave the mall or whatever store you’re in. Resist the temptation to whip out plastic to buy more stuff.

6. Get financial help with debt
Having lots of credit card debt lowers your credit score and forces you to live paycheck to paycheck. So if you’re struggling to pay off debt, and nothing you’ve tried has worked, consider getting help from a trustworthy credit counseling agency. One reputable resource is the National Foundation for Debt Management, a non-profit agency that negotiates with creditors, gets your interest rates lowered, and creates a plan to quickly get you out of debt.

7. Use a tax refund to pay debt

If you’re expecting a tax refund, or any other financial windfall, apply it to pay down your credit card debt. It was money you didn’t have the day before so don’t use it on luxuries. If your refund can pay off any one of your credits cards in full, pay it off. It will be one less bill you’ll have to worry about. Paying off a card will also help raise your available credit, which, believe it or not, helps to raise your credit score.

By using these techniques, you’ll be out of debt in no time.

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By Lynnette Khalfani-Cox, The Money Coach

The inauguration of Barack Obama as the 44th President of the United States ushered in a new era.  As he said in his speech on Tuesday, January 20, 2009:

“What is required of us now is a new era of responsibility — a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character, than giving our all to a difficult task.”

1) Use more cash than plastic.
Before you go shopping for anything, even groceries, hit the ATM first – armed with your budget and your “need” list so that you don’t buy more items than you planned, or purchase items priced higher than you should be spending.  Take out exactly the maximum amount you’ve determined you can afford and will need to purchase your items of necessity (not just the items you want, but the items you “need”). Later, when you are out of cash, that’s it. Leave the mall or whatever store you’re in. Resist the temptation to whip out plastic to buy more stuff.

Related articles

• Lynnette Khalfani-Cox on The Daily Drum WHUR 96.3 Howard University Radio (askthemoneycoach.com)
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