Selecting The Best Credit Card Offers For Your Needs (How To Guide)

[toc]There are two ways of approaching the opportunity to obtain credit:

1) Simply apply for credit, get a big grin on your face once you have it, then without any clue as to the consequence that follow, start to use it. That’s the way most people obtain and use credit.

2) Discover exactly how credit works and learn how to use credit to your financial advantage. With a little bit of knowledge you can use a credit card to save 1% to 5% on everything you buy. There are many other perks that come with using a credit card, but understanding how credit card companies operate is vital if you want to benefit from them.

Imagine what you could do if you actually learned how to “master” your credit cards.

Actually, we will help you imagine. Picture this:

Joe Smith wants to buy a new house and needs to borrow $200,000 to make the purchase. Without understanding how to manage his credit, the interest rate he obtains could be 1.8% higher than someone who is a credit master.

1.8% doesn’t sound like much, does it?

That’s the problem. Without knowing how much of a difference it can make, the motivation to master your credit isn’t there. The following will help you see just how much money Joe would save if he planned ahead and became a credit master.

***These are estimates only. The interest rates offered today will be different from tomorrow. In addition, there are many different options depending on the banking institution you borrow from.***

  • 1.8% is the difference in paying $1,339.00 or $1,533.00 in monthly payments. That’s a difference of $2,328.00 per year. But where it really adds up is over the term of a 30 year loan. At 1.8% Joe pays $69,840.00 in interest over 30 years.
  • Banks also charge points or fees when you obtain a loan. A credit master will pay a few hundred dollars in fees while a credit rookie will pay thousands of dollars. On average, that could be as little as $200 or as much as $6,000.

What you can look forward to when you have mastered your credit

  • Hundreds of dollars in monthly savings on home loans and even car loans.
  • Thousands of dollars saved in interest over the life of the loan.
  • 1% to 5% cash back savings.
  • Free travel and hotel stays.

We will dive into the details below, but first here’s a quick infographic summarizing this guide

The_Best_Credit_Card_Offers

What You Need To Know To Master Your Credit

Before you can master your credit you need to understand credit terminology. Terms like; credit score, credit rating, and credit reports. In addition you need to know how your credit score relates to almost everything you do with your credit cards.

There are many aspects to managing your credit cards such as; interest rates, monthly payments, and how you manage the balances on each credit card.

All of the above will help you understand the value of managing, as opposed to being managed by your credit cards. This will keep you from spiraling into debt, and will help you qualify for other benefits, like lower interest rates.

Most people today pretty much go with the flow. In other words, they simply accept whatever the credit card companies offer them and they don’t have a clue how much they are being taken advantage of.

It all boils down to this; credit card companies are out to make money, lots and lots of it. They do not set up their terms and conditions of giving you credit to make your dreams come true. Yes, they do like to portray this idea in commercials with the tag line,

“. . . but giving your daughter the wedding of her dreams – priceless.”

Of course, the way to that dream is by borrowing money from them, and by the time you completely pay it back, they have set you up so that you are paying double, triple and even quadruple the amount you originally borrowed.

If you are to be the one in control, the one who calls all the shots, the credit card master, you must not allow the credit card companies to put you in the poor house and send you into the black-hole of credit card debt.

Credit Terminology

Understanding terminology can be quite helpful when speaking with anyone who plays a part in your financial future. The following terms cover the basics of what you need to know.

Credit Report:

Your credit report contains your payment history, tracking all credit-related activities. This data is collected and used as the basis of your credit score. Lenders look over your credit report to see the details of your credit history to better understand your credit score.

You can obtain a free credit report once a year from each of these three credit bureaus at annualcreditreport.com.

Credit Score:

Your credit score is made up of a single number ranging from 300 to 850. An excellent score starts around 740. This is also referred to as your FICO (Fair Isaac Corporation) score. Credit lenders use your credit score to determine their risk in lending you money based on how you manage your finances.

The lower your score the higher their risk in lending to you. The higher scores open up the door to phenomenal savings on home loans among other things.

You can obtain your credit score for a small fee of about $15.00 per credit union. There are three US national credit bureaus; Equifax, Experian and TransUnion.

These three credit bureaus compete to capture, update and store the credit history on most U.S. consumers. Your credit score can and most likely will be different between all of the three credit unions. This is due to a few differences in the data collected.

Some credit card companies do not report to all three credit bureaus. The result of this is the data collected from each one is not presented on your credit report in the same manor. This is why your credit score may differ greatly between the three.

If you do not want to pay the $15 to to check your credit score, you can get a rough estimate at CreditKarma.com. Although it is not 100% accurate, it still gives you a solid idea of what your score is.

Credit Utilization Score:

Another important part of your credit is your utilization score. For example, if you have a total of $10,000 available between three credit cards and you use $5,000 of that, your utilization score is 50%. The balance ($5k) divided by the limit ($10k) is how this percentage is determined.

Credit Rating:

Your credit rating is a bit more difficult to explain. Your credit report and your credit score provide the lender with the data they need to understand how you manage your finances. The better you manage your money, the higher your rating will be.

In general, lenders do not want to tell you how they come up with your credit rating. This is a good example of how knowledge is power. Credit companies count on you not fully understanding what they do. This gives them a great deal of power. Having even a little insight into how they operate will empower you to use credit to your benefit.

APR:

APR is an acronym for “annual percentage rate.” This is the interest rate a credit card company charges its customers.

Soft Hit & Hard Hit Credit Check:

When a lender or creditor requests a credit report they must get your permission to do so. This is called a “hard hit” because it lowers your credit score. On the other hand, a “Soft hit” comes from things like employer background checks or preapproved credit card checks. “Soft hits” will not show up on your credit score.

It is important to understand the difference so you can avoid unnecessary hard hits in your credit history. In some cases you will want to plan ahead and have these hits occur in a single month. That’s good to know if you are considering buying a new car or home.

Understanding credit terminology is a good start. The above information highlights how important it is to have a good credit report. This will allow you to achieve and maintain an excellent credit score. Let’s consider how you can do that next.

Building Your Credit History

In order to obtain an excellent credit score, you need to have credit. And the easiest type of credit to obtain is a credit card. Even if you have zero income you can obtain a credit card and begin to build your credit history.

Making Smart Credit Card Choices

Your first step toward building credit history starts with understanding what different companies offer.

Some cards offer points that are more flexible than others. For instance, should you decide to pass on using points for a hotel stay, you might be able to redeem those points in cash. There are many options to consider when it comes to bonuses offered by various credit card companies.

If you are a frequent flyer, look for a card that gives you airline miles, or hotel discounts. If you’re a Disney fan there are banks and creditors that offer Disney points for free hotel stays and park vouchers.

The most flexible type of bonus would be a card that has a point system where you have the option of spending your points on a variety of things. This gives you flexibility, whether that includes spending your points at Amazon.com or saving them for travel.

The point is that you must do your homework, then consider the incentives. Ask yourself if the benefit offered is of value personally, or just a gimmick?

Optimizing Your Credit Cards

Once you obtain a credit card you need to set up an automatic payment plan so you will never miss a payment. The goal is to pay your bills on time, with room to spare. While it is a bad idea to make only the minimum payments on your credit cards, it is worse to accidentally miss a payment. Setting up automatic payments will help you avoid this. Always set up the auto-pay before it is due. This will ensure that it won’t be late, and will lower the interest paid on the remaining debt of your credit bill.

Paying off your credit card at the end of each payment period is the best way to handle your credit debt. If you pay off your card each month your account will never accrue interest. So even if your interest rate is 29% or more, it simply will not matter.

Knowing Your Benefits

Remember the value of researching the rewards offered by credit card companies before you apply? Aside from the publicly displayed rewards offered, such as frequent flyer miles and cash back rewards, credit card companies offer other fantastic benefits to their customers.

Did you know that some credit card companies offer travel protection services for times when your trip is canceled due to severe weather conditions, sickness or other covered situations? The coverage amount varies and can include up to $10,000 per year for your prepaid, non-refundable travel expenses.

Another great benefit is for purchases that come with a warranty. After the manufacturer warranty expires your credit card company may still cover it.

The protection plans that some credit card companies offer can save you a lot of money and help you avoid spending money on unnecessary items such as added car rental or flight insurance. To learn more about what is covered, not covered and how to file a claim visit your credit card companies website online or call up and speak to a service rep.

Credit Card Fraud and Disputed Charges

Both Visa and MasterCard must follow a “mandated by law” responsibility for credit card fraud. Should you become a victim of unauthorized use of your credit card your money will be refunded. The time you have to report it will vary between 25 to 55 days. Once it has been reported the money stolen will be immediately refunded. Consumer liability ranges from $0 to $50. Should you discover your card has been lost or stolen, report it immediately. Once reported you will be issued a new credit card and account number. Your old account will no longer be valid. You will only be able to resume activity on your new card once you receive it in the mail and activate your new account by phone.

There are many consumer benefits and protection services provided by each credit card company. To learn exactly what they are simply call and talk to a service rep who can go over these additional rewards.

Preapproved Credit Card Offers

Every year credit card companies solicit potential customers via postal or email. Accepting a credit application through the mail is like throwing darts at a map to plan a vacation, while blindfolded; you will always be surprised.

Picking a credit card should be well thought out. You want to pick the card that has the rewards that are practical for you. The goal of these types of offers is to sell you on an image. They appeal to emotion. Shred them as soon as you get them.

Online offers should be trashed immediately. There is no way to know if they are real or some type of scam.

To opt out of these offers visit Optoutprescreen.com.

Secured Credit Cards

If you cannot get approved for a credit card because you have no credit history, bad credit, or even no income, you can still apply for a secured credit card. These cards can be obtained simply by depositing $200.00 or more into a secured account. Your credit limit is the same as your deposit.

Most secured credit cards come with an annual fee. These are generally bare bones credit cards that don’t offer any of the rewards that conventional cards do.

The Discovery It ™ secured credit card could be an option if you have no credit history. This is a newer offer from Discover and it includes cash back rewards and no annual fee.

In addition, if you maintain good credit history, Discovery It ™ can be transitioned into a standard credit card after a year. Better yet, you will get your deposit back and you may qualify for a higher credit limit.

If you cannot qualify for a Discovery It ™ secured credit card, give your local credit union bank a try. Most credit union banks do not charge an annual fee. You may not get the benefits of a rewards program, but you will be able to begin establishing a good credit history.

Look Before You Leap

The most important lesson here is that research is your friend. Look at the positives and negatives before taking on the responsibility of any type credit card.

How Many is Too Many?

This question is not easy to answer. The key here is to remember your goal; to build good credit that will help you achieve a higher credit score. Your credit score is made up of more than your credit card data. It also includes home equity lines of credit, vehicle loans, even your utilities. This is all considered in your credit score.

A good way to build credit is by adding no more than one credit card or credit loan per year. Remember, each time you apply for credit your credit history is checked. That’s a “hard hit” on your credit. Therefore, adding in three credit cards and an auto loan in a single month can lower your credit score greatly.

It takes time to build your credit score. The hard hit of applying for credit can be overcome within 6 months by responsible use of your card. However, if you apply for multiple cards and loans in a short period of time your credit score could take over a year to recover.

Retail Credit Cards – Worthless

Remember all the rewards you can get with a standard credit card? Good. Now forget retail cards. They offer little real value if any to their customers. Enough said. Let’s move on.

Missing One Payment

Missing just one payment can ruin years of building your score. Remember 740 is the sweet spot in the credit score good to excellent range. All the benefits of having a high credit score are achieved with a score of 740 and above. Those benefits are quickly lost when payments are missed.

The higher your credit score the more points you will lose if you miss a payment. According to FICO data, if you have a score around 800 and miss a payment, you can lose as much as 100 points.

In addition, you’ll be charge a late fee, which is like flushing money down the toilet. You’ll almost never get it back.

Setting up automatic payments will spare you from these horrible consequences. You can set up alerts by email to remind you when your payment will be withdrawn from your account, this allows you time to edit the payment amount if you have to.

If you have to eat rice and beans for 2 meals a day in order to make your minimum payment, it’s worth it. Your monthly payment history has by far the greatest impact on your credit score.

Do not miss a payment – ever! 

OK, that may sound a bit dramatic. Perhaps you have already missed a payment. It’s in the past, nothing you can do but move forward. Life is not predictable. If you have missed a payment you will most likely recover from the ding in your credit within a few months.

In some cases, if you have established a good credit payment history, you can call the service center and plea for the removal of the late fee and any additional interest fees accrued due to the missed payment.

Usually a late payment of just a few days will not be reported. Of vital importance here is communication with your credit card company. Remember, they want your business and will usually work with you to keep you as a customer.

APR and Fee Negotiations

The interest rate as well as the annual fee on your credit card are not set in stone. With good credit history you can ask to have the interest rate lowered and your annual fee removed. If removing the annual fee is not an option ask if you can switch your account to another card within that company. Be sure to ask if closing and moving your account will reflect negatively on your credit report.

If you pay your credit cards off every month, in time you may qualify for a lower interest rate. Before you call up your credit card company and ask the service rep if you qualify for a lower rate, do a little research to see what competing creditors are offering. Use that as leverage when you speak to the customer service rep. Tell the service rep you are considering transferring your balance to another company (Capitol One for example) in order to lower your interest rate.

Your credit score and monthly payment history are what they will consider when deciding whether or not you qualify for a lower interest rate. In some cases they may only lower it for a set period of time. In any case, if you have a large debt on a high interest credit card, make it a habit to call and request a lower rate every six months or so.

Activity Counts – Keeping Your Credit Cards Active

It is important to keep your credit cards active. Some creditors will cancel your card if there are long periods of inactivity. This can reflect badly on your credit report and cause you to lose a few points on your score. Keeping your cards active is easy to set up and you can do so without using them constantly. How?

Simply set up one of your monthly services to be paid through your credit card automatically each month. Any type of service that requires a monthly payment will do. You can also set up your credit card to automatically pay your account balance in full each month. This arrangement will keep your credit card active as well as paid in full each month without any more effort on your part.

The longer you keep your credit card the more weight it will have when lenders are considering you for a larger type of loan, such as an auto or home loan.

Even though you may not need more than one credit card to satisfy your spending needs, there are several reasons why you should never close any of them. One reason is due to unforeseen circumstances. Emergencies are unpredictable and costly. You may never need to use all or any of the credit you have, but isn’t it nice to know if you did, you could?

Keeping Your Utilization Score Low

Another reason to keep your credit cards open has to do with the utilization score. Remember, this score is based on your credit balance divided by your credit limit. The lower your utilization score the lower risk you are to the lender. There are only a few things you need to know about this, but ignoring it could hurt your ability to qualify for large purchases, such as a home loan or home equity line of credit. Lenders like to see a low utilization score on your credit report.

If you are going to purchase a home you want to keep this score as low as possible. Lenders do not like it when potential borrowers have maxed out their credit cards. Keeping your utilization score under 50% is a good idea. It is also another way to help you qualify for a higher credit limit.

If you decide to keep multiple credit cards be certain you can control your spending. The more credit you have access to, the greater the risk of getting deep into debt.

Half-Baked Ideas to Avoid

Using your credit card for friends or family so you can get the cash back or point rewards. Even if you receive the cash upfront it’s a bad idea. In order to make this work you have to apply that cash to your credit card.

It’s way too easy to forget that step and put the cash in your wallet. And what happens to cash in your wallet? You spend it! So do yourself a favor and avoid it.

Randomly applying for credit. Every time you apply for credit your credit score will suffer. If you want to make a big purchase at a retail store like BestBuy and you find the offer to obtain your purchase for 18 months interest free hard to resist, stop and reflect on what you are doing.

Remember all of the things we’ve discussed so far? What about your goal? If you want to make a big purchase plan ahead. Don’t allow yourself to get into a situation where your goals are compromised.

Let’s Recap the Big Plan

First and foremost the goal is to build good credit. As you build up a good credit history your credit score will increase. Your goal is to get that score above 740. It may take some time, but it is worth it.

Benefits of a High Credit Score

At some time in your life you may want to buy a home, refinance your home for a lower interest rate, or obtain a home equity line of credit. These types of loans will benefit you most when you have a high credit score. The higher your score the higher your rating by the lender, and the lower your interest rate will be.

A, B, C, D equals excellent, good, bad, and too risky for business. You want the A rating. You’ll save hundreds of dollars a month, thousands of dollars a year, and in some cases hundreds of thousands of dollars in your lifetime.

Rewards, points, and bonuses – OH MY!

Remember to look and compare the types of rewards and bonuses that are offered by the wide variety of credit card companies. These include rewards that you may not have been aware of until today. You won’t know until you make the call and see what is available.

Plan Ahead For the Win

Planning takes time and most people have difficulty finding that time, but that is no excuse. You’ve learned far too much now to be lazy and miss out on the benefits of becoming a responsible borrower. After reading about how and why you want to build your credit so you can obtain a high credit score, what will you do next?

PLAN AHEAD – Worthy of a Recap

#1 Decide how much credit you will allow yourself to spend based on what you can afford to manage. Be sure to include the possibility of a job loss. What will happen if you are sick and/or unable to work for a week, a month, or several months? How will you manage your credit debt should this happen to you?

The amount of credit you borrow should not put a strain on your budget. If you borrow money on your credit card be sure you can pay all of it back at the end of the month.

If possible never use your credit card with the idea that you can afford to make the minimum payments. This can extend your debt by years.

#2 Do your homework. Research to find the best credit card company with the rewards that match your needs, not theirs.

In the next lesson we’ll be covering why it is beneficial to have at least one checking and one savings account. Most people have a checking account to manage the money they are using on a day to day basis. However, if you have yet to discover the advantages of having a savings account, the next section will motivate you to do so. You might also be convinced that online banking is the best solution for you.

Learn More About Credit Cards and Managing Your Credit Below: