3 Tips to Avoid Credit Card Annual Fees
3 Tips to Avoid Credit Card Annual Fees
The main "hook" with which credit card companies snag cardholders is the interest rate every card carries; however, credit companies also employ a range of other means of squeezing money from cardholders. One of these means is the annual fee which many cards still carry.
The annual fee is a fixed-fee associated with a credit card which is one of the ways credit card companies make a profit, which continues to be employed, albeit in fewer cases. Often, a bank will seek to "balance the see-saw" by tagging cards with low interest rates with higher fees and vice versa. The type of card and, in some cases, the number of purchases made with a card can also affect annual fees.
One very simple way of avoiding fees is to choose a card which has no annual fee. Cardholders with a great number of credit cards may want to take another look at the terms of each card, take into account the utility of each card compared to its costs, and cancel those cards which do not balance favorably. This should not be taken to mean that maintaining multiple cards is useless, only that one should choose his or her credit card(s) carefully.
One must not necessarily cancel a credit card to be free of annual fees associated with it; polite negotiation with customer service representatives can pay off when handled well. It is wise to keep in mind that rudeness will get you nowhere.
A tactic that can be used if a card has no balance is to tell the credit card company that you wish to cancel a card because of its annual fees. Faced with this situation, a company may negotiate lower fees or waive the fee for a year. For a card with a balance a different bluff can be employed: If you tell the representative that you would transfer more funds onto the card in question in return for eliminating the annual fee and that you may cancel the card otherwise, the company might be willing to negotiate.
A cardholder can make his or her life easier by being a good and diligent credit card owner. Credit companies will consider a cardholder's consumer credit report as well as the payment history on the card in question when dealing with a cardholder. Important keys to being a good cardholder include being aware of the terms and conditions of one's card(s) and maintaining a good payment history. One who follows these guidelines may be able to eliminate annoying annual fees.
5 Ways to Boost Your Credit Score
Credit concerns got you down? If you’re worried about your credit score, rest assured there are easy ways to improve it. Try these five tips to boost your credit score:
1. Use credit cards. No credit history is just as bad as a horrible credit history. If credit cards make you nervous, only use yours to pay off a monthly bill, or when you go out to eat. Manageable debt is better than not having a credit score at all.
2. Keep your balances small to nonexistent. Don’t max out your cards unless you can pay them back down quickly. Use half or less of the full balance on each card when you make purchases. Keeping balances near the maximum will negatively affect your credit score.
3. Avoid late payments. Serial late payments can trash your credit score. Pay down the minimum amount each month, if not more. (Note: Many credit card companies will wipe your first late payment off your records if you say it was an accident. After that, you’re on your own.)
4. Avoid acquiring too many credit cards. Not only does this complicate your debt life, but it reflects badly on your credit score. There’s no ideal number of credit cards, but try to keep it below six (including store cards).
5. Do not open more than one credit card at a time (this lowers your accounts’ average age), or close too many credit cards (resulting in less credit available). Both actions reflect poorly on your credit rating.
More credit card worries
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The presence or not of information about a minimum payment didn't affect the proportion of participants who said they'd pay the balance off in full. However, among those 45 per cent of participants who said they'd pay only some of the bill, the presence of information about the minimum required payment had a dramatic effect on how much they said they'd pay.
Among the partial payers, those who saw information on the minimum required payment (which was £5.42) said they'd pay off 70 per cent less than those who didn't see information on the minimum payment. It also turns out that people who pay more than the minimum but less than the total every month are unconsciously influenced by the minimum require payment - the higher it is, the more they will pay, and vice-versa. The reason has to do with anchoring, a cognitive bias much studied by behavioural economists.
It's well known that credit card companies make a lot of money from people who maintain outstanding balances but keep up-to-date with their minimum monthly payments, so I don't suppose they will be too unhappy about this particular finding. By advertising a low minimum payment they can pull off the happy trick of appearing benevolent and making more money. But for the many people who rely on credit cards, these are not trivial results - the study's author estimates that in practice people could end up paying double the amount of interest they need to, simply as a result of this biasing effect.
This is a nice illustration of how behavioural economics can shed light on issues of practical importance - rather as the authors of this year must-read, Nudge, have been arguing.
Bad Credit Score: Not a Problem these Days
There is no doubt that a bad credit score affects your ability to get finance but it is no longer true that bad credit does not allow the borrowers to find a suitable lender. The creation of the concept “Bad Credit Personal Loan” has solved this difficulty with the creation of the concept. Due to more strict rules and regulations in the past there was a shortage of funds in the financial system and most importantly lack of ideas. Earlier there were only loans which were available to satisfy the needs of those with good or perfect credit. And those with bad credit had almost no way of getting finance and they only had to resort to family or friends. The non traditional lenders saw the opportunity to make money by lending within a niche that had been left abandoned by the traditional lenders. But many went out of business since lending to people with bad credit has risks. The qualification and approval have not changed much since then. Lending to people with bad credit can also be a good business and this has been discovered by the financial institutions nowadays.
Should Credit Card Rates Freeze?
credit cards
While President Obama met with executives from the leading credit card companies yesterday two senators have called on the Federal Reserve to immediately implement an emergency freeze on interest rates tied to existing balances on credit cards.
The Federal Reserve plans to put a new set of rules in effect for credit card lending beginning July 2010 but that’s an entire year from now.
In the meantime Senators Chris Dodd (D-CT) and Chuck Schumer (D-NY) wrote a letter to the Federal Reserve Chairman Ben Bernanke and other regulators saying that companies are increasing interest rates now before the new rules go into effect so Americans need help now.
“Consumers describe situations to our offices in which the interest rates on their accounts have doubled or tripled overnight, without any misconduct on their part,” the letter says. “This kind of practice clearly violates the spirit and intention of the rules, even if the delayed implementation date has the effect of making such behavior legal.”
Congress is currently developing legislation that will rearrange and organize the Fed’s new rules but they still have a way to go.
After meeting with 14 executives from companies like Bank of America, Wells Fargo and Visa, President Obama said that his administration would work with Congress to evaluate proposals for reform.
“We’re at a time where issues of credit and how businesses and families are able to finance everything from a car loan to a student loan to just paying their bills every day is on a lot of people’s minds,” President Obama said. “We want to preserve the credit card market, but we also want to do so in a way that eliminates some of the abuses and some of the problems that a lot of people are familiar with.”
The card executives at agreed to work with the Obama administration to address the President’s concerns according to the American Bankers Association, and are currently working to implement the Federal Reserves’ new rules.
The Credit Path
Credit
As Alternatives Credit Union has grown and changed, our use of the Credit Path model of financial empowerment has changed as well. Originally developed by Bill Myers as a way of understanding our members’ financial situations and incorporating that into our business planning, the Credit Path describes where people are situated at various points along a continuum between poverty and self-sufficiency. Our job, as a community development financial institution, is to help our members move along that continuum by empowering them to make decisions, and offering opportunities, that will move them towards financial self-sufficiency.
The Credit Path model has provided Alternatives with guidance in designing products and services to meet members’ needs at their different points along the path, and help them progress towards successful asset ownership. Over the years since the Credit Path model was developed, government policies have moved the country towards greater financial inequities. The growth of predatory lending practices has made it more difficult for low-income families to move along the path.
As shown in our drawing of the Credit Path, progress can be slow, and missteps can prevent people from moving ahead. We’ve found that financial education—developing spending and savings plans, acquiring business skills, planning for home ownership--- is often the key to helping members move more swiftly, but securely, through the process of building financial strength without unnecessary risk. Financial education combined with access to capital creates a powerful combination.
We are now moving towards development of the Credit Path as a replicable model that other organizations can use to help promote financial advancement for their members. We are working with national funders on research projects which will provide rigorous evaluation of the Credit Path, so that the experience we’ve gained over the last 24 years–and conceptualized in the Credit Path--can lead to systemic improvement in the community economic development field.
We see our members moving along the Credit Path in stages:
Transactor: For our poorest members, those who are new to the banking system, immigrants, and others who need access to basic financial services. Transactors need to cash checks, purchase official checks, get change, or wire money to others. As banks charge more for these services, transactors turn to fringe financial providers, such as check cashers, and pay high fees. We price these services to be affordable to members, but sustainable to the Credit Union. In 2003 we added a free tax preparation service for low-income earners, with the hope of introducing previously unbanked people to the fair (and friendly) services of the Credit Union.
Saver: We provide incentives for this traditional credit union market by paying interest on all accounts with a $5 minimum balance and charging no monthly fees. We offer special Savers Certificates with a minimum of $100. Individual Development Accounts (IDAs) significantly expand the likelihood of success at this stage by providing both a savings match and financial education.
Borrower: Responsible borrowing is a financial tool that can lead to greater wealth. We help our members develop good credit records by offering several “starter” loans, including the Alternatives Debit Card, Credit Builder Loan and Community Partnership Loans. New in 2003, a short-term loan for those who used our free income tax preparation services and wanted quick access to their tax refund. One of our goals is to help members avoid the high rates and endless refinancing of predatory lenders. Much of our lending at this stage is consumer lending: cars, personal loans, VISA cards and lines of credit. As members handle these loans successfully, they can build up to larger amounts.
Owner: Learning to save and developing a good credit record help people move towards becoming owners of homes or businesses. We offer a variety of home and business loan products, many to members who started at the beginning of the Credit Path.
Credit card potholes coming for retailers
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Here it comes…the second wave of rules instituted as part of the Credit Card Act of 2009. Beginning in February, card issuers will be held to a plethora of new standards…which means a plethora of new charges and changes are quickly hitting consumers now, in anticipation of lost revenue.
While I don’t pretend to be an expert when it comes to figuring out all the ins and outs of issuing banks, Jean Chatzky (Financial Editor, NBC) is. Here are a few of her tips to keep in mind as credit card statements begin landing in your mailbox:
• Check your credit card statement every single month to see if the interest rate has been increased. Even those of you who have religiously paid your balance in full and on time are at risk; some rock solid customers are suddenly seeing eye-popping interest rates in excess of 20%-25%.
• If you do see your rate shoot upward, beyond your comfort zone, don’t just automatically cancel the card in protest. That might hurt you more than the bank-—especially if it’s a card you’ve had for a long time and you’re planning on applying for significant credit in the next 12 months (think: home equity loan, new mortgage, car loan, etc.). Closing a long-held account can do significantly more damage to your credit score than slowly paying its balance down.
• As an alternative to cutting up the high rate card: (a) open a new account elsewhere; (b) either transfer the balance from the high rate card to the newer low rate card -or- begin paying down the high rate balance down as fast as you can while (c) continuing to use that card sporadically to avoid non-activity fees-—another one of the new twists appearing on statements. Use the card monthly to buy one small item, simply to keep the card active. The last thing you want is for the bank to cancel your card because you haven’t been using it-—that definitely won’t help your credit score one bit.
Now…for those of you thinking a debit card is the solution, here are a couple of nuggets I’d like you to chew on:
• Debit card warning #1: Check with your bank to confirm they offer the same levels of charge protection and dispute resolution as a credit card. While 98% of vendors are responsible about how they handle plastic, there are those who aren’t (not surprisingly, the tighter the economy gets, the looser that handling seems to be). If a vendor inaccurately charges your card, then drags their feet on rectifying the problem, credit cards give you the option of filing a dispute, returning the money to you or correcting the charge amount. Most debit cards don’t offer that protection, which puts you at risk every single time someone charges on it.
• Debit card warning #2: Debit cards take money out of your bank account the moment they’re charged. Credit cards give you up to 30 days before asking for repayment. If you don’t know the difference, you have zero business using a debit card for business expenses. A couple of errant vendor charges can wipe out your cash; if they occur without your knowledge, your first hint will be when overdraft notices begin appearing in your mailbox, each with a $30+ fee attached (the average for most large banks).
• Regardless of whether you’re using a debit card or a credit card, do not keep credit card numbers on file with vendors for open use. Require written authorization for every single charge, no exceptions. Their responsibility is to fax an invoice to you before the credit card is touched; your responsibility is to respond within 24 hours, faxing a written authorization for that exact invoice number and dollar amount. Yes, it’s added hassle on both sides of the transaction, but would you allow vendors to reach into your wallet without talking to you first? This is exactly the same thing.
• Do not, do not, do not give credit card numbers verbally (ie, over the phone). No paper trail means no proof of what you did or didn’t authorize. A paper trail is your friend.
Yet again, credit is going to be one of the massive buzz issues this year (in addition to commercial property tax foreclosures, if my crystal ball is accurate). Make staying on top of the plastic your number one New Year’s Resolution and you’ll be three steps ahead of your competition…
…while steering clear of financial disaster.