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A Crash Course on Credit Cards

Posted on by Cheryl Rauh

What is a credit card?

Photo of a stack of credit cards.

A credit card represents a line of credit (money available for borrowing) that allows the card holder to borrow funds quickly. Think of swiping your credit card like taking out a mini loan for whatever you are buying. Similar to loans, you are expected to pay back the amount you borrow. This amount normally comes due at the end of the month. If you miss your monthly payment or carry a balance forward into the next month (owe money on the card), the company you are borrowing from will charge you the predetermined interest rate. The average interest rate on credit cards currently is 21.68%. When you are issued your credit card you will notice that there is a credit limit, this is the maximum amount you can borrow on your card. Overtime, this limit can be increased if you are managing your card well.

Differences between Credit Cards and Debit Cards

Credit Cards
 Debit Cards
  • Connected to line of credit
  • Monthly bill for purchases
  • Interest builds on unpaid balances
  • Additional fees
  • Builds credit history
  • Fraud protection (liable up to $50)
  • Connected directly to your bank account
  • No monthly bills for purchases
  • Overdraft fees if money runs out
  • Requires pin number
  • Fraud: liable up to 50$ if reported within 2 days; if 2-60 days liable up to $500

Managing your credit card:

Credit cards can be a big responsibility due to the potential for them to be mismanaged. If you are not careful you can rack up a lot of debt and fees that you might not be able to pay off. Additionally, if you miss payments or misuse your card it can hurt your credit score. Your credit score is like your financial GPA and is calculated based on five different things.

Credit Score Factors Graph: 35% Payment History, 30% Amounts Owed, 15% Length of History, 10% Types of Credit, 10% New Credit

  1. Payment History: 35% of your credit score is based on if you make your payments or not. Be careful not to miss payments!
  2. Amounts Owed: 30% of your credit score is determined on your usage of the credit made available to you.
  3. Length of History: 15% is determined by how long you have had credit; the longer the better.
  4. Types of Credit: 10% is effected by how many different types of credit you have. It is actually good to have several types of credit (i.e. a mortgage, student loans, and a credit card).
  5. New Credit: 10% is based on how often you apply for credit.

Finally, to check your credit report, you can go to this website for a free credit report three times a year (due to the pandemic, you are currently able to check your report weekly): Annualcreditreport.com. Your credit report is like your financial GPA, it includes information about your credit accounts, account payment history, and credit limits. It is important to check your report frequently to catch identity theft. Any credit usage under your name and social security number will appear on the report. If there is activity that you know isn’t you then sound the alarm! (Identity Theft Information). Your report will also show your credit score which is like your credit worthiness. Credit scores can range from 850 to 300. The higher your score the better with 700 or higher considered excellent. Having a good credit score is important because if you have a low credit score you could pay higher interest, have a lower credit limit, and it can even impact your employment or renting opportunities.

Three Helpful Tips:

To maximize your credit card for your benefit, I recommend keeping these tips in mind:

  1. Pay off your credit card every month so that there is a zero balance at the end of every month.
  2. Only use 30% of your credit limit. For example, if your credit limit is $2,000 you should keep spending to a maximum of $2,000 x .30 = $600. This means that you should try to keep your credit card spending under $600 for a month.
  3. Shopping and applying for credit cards can decrease your credit. Make sure you only apply for one credit card at a time!

Helpful Links:

If you have any questions about credit cards or want to learn more, please feel free to schedule an appointment with us at Powercat Financial. All appointments can be made on our website: Powercat Financial.

Abram Mugler
Peer Counselor II
Powercat Financial
www.k-state.edu/powercatfinancial 

Keeping Current with Credit

Posted on by ekoochel

With the credit card market being as large as it is, changes are happening all around us. Credit companies are making changes to stay competitive in the market which could end up being beneficial for customers. Simply contacting your credit card company could result in more savings in your pocket than you would think. A survey done by Creditcards.com found that of 952 credit card holders, 8 out of 10 people who inquired or made requests from their credit card company were successful. Let’s examine this survey closer and take a look at several ways simply reaching out to your credit company could be beneficial for you.

Waived Fees

Are you facing high annual fees on your credit cards? 82% of people in the survey done by Creditcards.com had their fees waived by simply reaching out and asking. The reason for this is due to the high competition amongst credit companies and their need to keep customers happy as to not lose them to the competitors. Of course, this is not the case for all credit companies and depend on each individual situation, but it can’t hurt to try especially if you have strong credit and a solid history of making on-time payments with your credit card.

Lower Interest Rates

Are you receiving high interest rates on your credit cards? Nearly 70% of those who inquired about lower interest rates were successful. Lower interest rates mean less money coming out of your pocket on outstanding payments. The study reports that only 19% of people requested lower interest rates, however, 13% of those people were successful (69%). Similar to the waivers on annual fees, this is contingent upon each individual situation.

Higher Credit Limits

Are you wanting a higher limit on your credit card? 89% of people in the survey reported receiving a higher credit limit after contacting their credit company. Why isn’t everyone doing it? The study reports that only 28% of people requested a higher credit limit but of those 28%, 25% were successful (89%).

As you can see, credit card companies are a lot more flexible than one would think. It seems so simple yet still not many people ages 18 to 26 have ever reached out to their credit card company (almost 7 out of every 10 millennials reported never having done so). Next time you believe your annual interest rate is too high, want to negotiate a higher credit limit, or feel like a fee isn’t justified, don’t let it go without reaching out to your credit card company first! You never know what could happen by asking.

Schedule an appointment with Powercat Financial today to learn all you can about credit, budgeting, student loans, and more!

Sydney Johnson – Peer Counselor I

Reference: http://www.creditcards.com/credit-card-news/late-fee-waiver-poll.php

Know What Goes Into Your Credit Score

Posted on by ekoochel

If you are one that pays your bills on time, you deserve some sort of reward. That is exactly what your credit score is for. Basically, your score can tell lenders, credit card companies, landlords, and even employers how much of a credit risk you are to them.

So check out what your score means, what goes into making your score, and some tips on how to improve it!

What does my number mean?

The most used credit score is called your FICO score, which will normally range from 300-850.

750 or Higher: Having a score higher than 750 will put you in the top 20% of all U.S. consumers. This will lead to the lowest interest rate available when applying for loans.

700-749: If you have a score that falls in this category, you are still sitting at above average. Here, you should feel pretty confident when applying for a loan but should know that your score can still be improved.

640-699: With a score in this category, you will find yourself at the national average. This should tell you that you have plenty of room to grow and that you should look for new ways to establish credit.

580-639: Having a score in this category, you find yourself below the national average. With this score, you may or may not be accepted for loans or new credit, and if you are, the interest rate will be often fairly high.

579 or Lower: This is the lowest category. If your score sits below 579, you should definitely look for new ways to establish credit so that you are able to take out necessary loans when that time comes.

Debt can be scary, but it is extremely difficult to establish a solid credit score without taking on some amount of debt. Do not be credit invisible and begin to establish a credit history.

The five factors that go into making a credit score:

35% – Payment History: Your payment history carries the biggest wait of all five factors. It is vital that you make your monthly payments on time so that your score is positively affected. The way you handled money in the past is often the way you’ll handle it in the future.

30% – Amounts Owed: Lenders want to see that you don’t overuse your credit. Often times, you should want to keep 75% of your credit line available at all times to increase your score.

15% – Length of Credit History: Your credit score will take into account the oldest and newest accounts into consideration. The longer you have an account open, the better. Never cancel old accounts, even if you are no longer using them.

10% – Types of Credit: Your score considers a mix of types of credit. This will include credit cards, student loans, mortgages, etc. Make sure you don’t open too many or too few of one type of account.

10% – New Credit: Don’t open multiple new lines of credit in a small amount of time. This could lead to hard inquires that will negatively affect your credit score. Hard inquires occur when lenders or creditors request your credit report to approve you for a loan or credit card.

Credit cards are not the culprits; abuse of credit cards is!

Tips to help improve your credit score:

  • Check your free credit report quarterly to make sure there are no inaccuracies on your report. You can pull one free report from each of the credit bureaus per year (Equifax, Experian, Transunion)
  • Pay the bills on time to show that you are a responsible consumer
  • Reduce your debt. Each time you make payments on your debt, your credit score will improve
  • Put the shared utility bills in your name and make on time monthly payments
  • Shop for loans quickly. If lenders make multiple hard inquires within a two week period, they will only count as one inquiry.

Nolan Keim
Peer Counselor I
Powercat Financial Counseling
www.k-state.edu/pfc

 

Credit Cards Are Changing: Are You Ready?

Posted on by ekoochel

Fraudsters finding their victims in the United States have met their match. Financial institutions across the U.S. have created a new standard to help protect credit card users: EMV technology (Europay, Mastercard, and Visa). EMV technology is simply a small chip on the front of your credit card. Many people have already made the transition to this new card. However, the transition is still taking place. This article will explain and help you understand the new change to EMV, as well as the actions everyone should take.

Why the change to EMV?

EMV Technology is much more difficult to counterfeit. Traditional magnetic strip credit cards use the same information to verify the card at every transaction. On the other hand, EMV cards create a new code for every single transaction. This dynamic data will make counterfeit fraud extremely difficult. Although it is more difficult, there is still a degree of risk involved. Consumers should still use caution and protect their personal financial information just as usual.

How is it used?

“Chip dipping” will soon become the new “swipe”. Consumers will be required to insert their card, chip side in, into a POS (point-of-sale) system instead of the usual swipe. We will all have to be patient: the EMV technology takes a moment to verify your information with your financial institution. After doing so, the card may be pulled. As of now, signatures are still being required to hold the consumer liable for charges. The ultimate goal (2-3 years projected), is to do-away with the signature and require a pin for every transaction.

Do I need an EMV card?

Eventually (probably another 2 years), EMV will be required. As of now, consumers can stay with their traditional magnetic card. Making the transition is extremely beneficial to the consumer. Not only is it a more secure transaction, but it will prevent fraud liability from being shifted to you instead of your financial institution. Most major financial institutions have set a deadline of October 1, 2015 for this liability shift. The liability of a fraudulent transaction will fall on whichever party is the least compliant with EMV.

What do I do if an EMV point of sale system is not available?

The expense of buying EMV point of sale systems will restrict an immediate transition. As a result, traditional magnetic sales are still available for businesses to use. To guard yourself as a consumer, simply make sure that all of your credit cards are EMV compatible. Having an EMV compatible card will ensure that the most negligent party (responsible for fraud liability) will be the business that has not yet ungraded their POS system.

How do I upgrade to EMV?

Most financial institutions are executing a plan to send out new cards. If you have not yet received your new EMV card, they can be requested (usually free of charge). If your institution offers free card design changes, maybe this would be a good time to do so!

Although this technology is new to the U.S., it has been the standard internationally for many years now. Large businesses such as Walmart, Costco, and Target made the transition early in an effort to stay as compliant as possible.

Source: http://www.creditcards.com/credit-card-news/emv-faq-chip-cards-answers-1264.php

Keaton Dugan
Graduate Assistant
Powercat Financial Counseling
www.k-state.edu.pfc

What You Need to Know about Getting Your First Credit Card

Posted on by christyne

For students trying to build credit, credit cards can be a great option, but some risks come along with them that you need to be aware of.

The Credit Card Act of 2009 requires those under 21 to either have proof of income, or an adult cosigner in order to have a credit card. For many college students who have very little income or are under 21, this can leave you with few credit card options.

If you have enough income or can get a cosigner, which could be a parent or family member, a student credit card could be a good option for you.  Many student credit cards have no annuals fees, have reasonable interest rates, and offer rewards, such as cashback. Some credit card companies will even provide you with your credit score, which can be a great perk if you are trying to build credit. Many credit card companies also have apps for your phone that can help you track your spending and pay your bills. Most student credit cards have interest rates between 11.15% and 21.99%. Another option could be a credit card offered by your bank or credit union. Be aware of the interest rate, late fees, and any other fees for any credit card that you apply for. Always research any credit card that you are thinking about before you apply.

If you are not approved for a credit card, or have bad credit, there is another option: you can apply for a secured credit card. A secured credit card is for those who want to build or rebuild their credit. For a secured card, you are required to deposit money into a savings account to be used as collateral if you are late with your payments, and that deposit will then become your credit limit. A secured card works just like a credit card, and you will have monthly payments and be charged interest if you do not pay off your balance. Secured cards usually have an annual fee, and usually do not have the same benefits as many other credit cards. However, secured cards may be the only option to build credit for some.

Just remember that if you are not paying your balance in full every month for any credit card, you will be accruing interest, which will add up over time.

Tips:

  • If possible, pay your balance in full every month to avoid the costs of interest.
  • At least make the minimum monthly payment.
  • Always pay on time.  Late payments stay on your credit report and score for 7 years.
  • Never exceed your credit limit and try to stay between 1-30% of your limit.
  • Use credit sparingly.
  • Explore your options before applying for a credit card on a website such as http://www.nerdwallet.com/ or http://www.bankrate.com/
  • Always read all terms and conditions before you apply for a credit card.

Sources:
https://www.creditcardinsider.com/credit-cards/student/
https://www.creditcardinsider.com/credit-cards/secured/
http://campusgrotto.com/credit-card-act-new-rules-for-student-credit-cards.html

Heidi Hilton
Peer Counselor I
Powercat Financial Counseling
www.k-state.edu/pfc

Your Credit Score: the 3-Digit Number

Posted on by kdarnell

A 3-digit number affects your financial life significantly. This number is called a credit score. A credit score shows your creditworthiness, and it also indicates the possibility that you will not pay your bills. Different lenders use different scoring formulas to create credit scores, so your score can vary from lender to lender. Most scores range from 300 – 850, but you should have a credit score goal of at least 700.

A good credit score brings you several benefits. Some of the benefits include:
• Low interest rate on credit cards and loans. Interest is charged when you borrow money, and so the interest rate is tied to the cost of loans. With a high credit score, you will be qualified for the best interest rate.
• Higher chance to get loans and credit cards approved.
• Get higher credit limits.
• Better auto insurance rate.

Some tips to achieve and maintain a good credit score include:
• Pay your bills on time. One way to do this is to set up automatic payments at creditors’ websites or from your bank’s website. Pay more than the minimum payment if you have the ability to do so.
• Don’t get too close to your credit limit. If you use too much of your total credit line, you will hurt your credit score. Keep your credit utilization ratio less than 30%.
• Don’t apply for too many credit accounts in a short time, otherwise it will affect your credit score negatively.
• The longer the credit history, the better. The longer time you have credit in your name, the more experienced you are, and the more information creditors have to determine whether you can take care of your finances.
• Get your free credit report every year. You can get three credit reports each year at www.annualcreditreport.com . It is necessary for you to read through your credit report to ensure your information is correct and to verify that you have not been a victim of identity theft.

When you have a low or nonexistent credit score, you will get higher interest rates on loans if you are approved, which are more costly in the long run. When you apply for jobs, many companies perform background checks as a part of the interview process and they are going to check your credit. Some companies also check your credit history when you are considered for promotions.

To check your credit score for free go to www.creditkarma.com. If you would like to meet with a financial counselor to discuss your credit report or score, simply request a free and confidential appointment at www.ksu.edu/pfc.

Lei Cao
Peer Counselor I
Powercat Financial Counseling
www.ksu.edu/pfc