Credit Cards

[Silvia20T]

I'm trying to decide on what credit card to go with, and I was wondering if anybody had any positive or negative feedback on any particular credit card company. Thanks

 

[///M-Spec]

I'm trying to decide on what credit card to go with, and I was wondering if anybody had any positive or negative feedback on any particular credit card company. Thanks

Go with whatever charges the lowest interest rate and lowest annual fees. Sometimes a bank runs a special promotion for students or first time card holders. Take advantage of those if you can, but beware that once the promotional period is over, the rate usually jumps to something crazy.

If you are just starting to build your credit, I suggest keeping a low balance but don't not ever use it. Banks like to see you keep a balance, but not over extend. It's a fine line to walk.


M

 

[Pupik]

Pay off the balance every month, and on time, unless you have sudden and unexpected open-heart surgery.

 

[Duke]

Let me amplify what ///M-Spec says:

Look for the lowest FIXED interest rate. Avoid 'Prime Rate Plus X' cards. Even though interest rates have been generally stable, that may or may not last forever. If you look around you can find a fixed rate card that's not much higher than the current adjustable-rate cards (if any higher)... and it will STAY that way.

It may or may not be available to a new user, but also, 1% cash back rewards are nice IF they don't come with a higher interest rate. Annual fees should be easy to avoid in this day and age.

Definitely use the card A LITTLE - stay within your means - and pay the balance off every month. Treat it as a 'cash replacement' rather than a 'cash extender'. Your credit rating will be very solid if you do that.

 

[Pako]

Listen to their words of wisdom! They speak the truth.

 

[Danoff]

There's no need to look at the interest rate because it doesn't effect you. You should NEVER run a balance on the card, so you never have to worry about what the interest rates are. If you're planning to run a balance on the card, don't get one - get a debit card instead.

Choose the card with the most cash back. I use a Fidelity Visa which gives 1.5% cash back as long as I contribute my cash back to a Fidelity-based retirement account (which is nice because it comes with tax advantages). Since I was going to contribute to the retirment accounts anyway it's as good as cash.

Aside from that card, I'd say discover is best. I have no idea what the interest rates are on those cards, but it shouldn't matter. If it does matter to you, you shouldn't be using the credit card in the first place.

If you have open-heart surgery get a loan from the bank, don't put it on the credit card.

Once you've proven to yourself that you can use a credit card properly (ie: never run a balance), put everything you can on it. Groceries, gas, bills, cars, tuition, whatever you can. That way, you end up paying only 98.5% of anything.

A $10k tuition bill costs you $10k if you write a check.
It only costs you $9,850 with 1.5% cash back.

 

[///M-Spec]

I think Duke and Pupik have given good solid advice, but I disagree with them in one small detail.

You will have a minimum payment every month. You should ALWAYS make this payment on time, no exceptions. However, I do not think you should ALWAYS pay the FULL balance of any revolving credit account every single time.

Leaving a very small balance without missing any payments is usually slightly beneficial to your credit over time. Keep in mind that banks not only want you to pay on time, they also want to make more money by charging you interest.

EDIT: Whatever you do, don't just keep making minimum payments over a substantial period of time. Then you may as well bend over and spread 'em.


M

 

[Danoff]

Leaving a very small balance without missing any payments is usually slightly beneficial to your credit over time. Keep in mind that banks not only want you to pay on time, they also want to make more money by charging you interest.

I have to disagree with this. There are cheaper and easier ways to have a good credit score. Student loans are a far better form of debt than credit cards, as are car loans - or pretty much any other form of debt. Paying your bills is an easier way to build credit.

Paying in full will be a sufficient boost to your credit score from your credit card, just don't open too many, and don't open and close them rapidly.

 

[///M-Spec]

I have to disagree with this. There are cheaper and easier ways to have a good credit score. Student loans are a far better form of debt than credit cards, as are car loans - or pretty much any other form of debt. Paying your bills is an easier way to build credit.

Dan, I didn't tell the guy a credit card was the only way to build credit. I told him that financial institutions see a running a small balance as "not a bad thing".

If you buy a new TV for $1000 in Feb, and pay $900 in March, then the rest in April, they are not going to freak out and knock your FICO score -100 pts. This is a example of responsible credit management.

This is better (for building credit) than a guy who opens a credit card and never uses it.


M

 

[Danoff]

If you buy a new TV for $1000 in Feb, and pay $900 in March, then the rest in April, they are not going to freak out and knock your FICO score -100 pts. This is a example of responsible credit management.

This is better (for building credit) than a guy who opens a credit card and never uses it.

Absolutely. Opening and never using isn't a good idea (though I do have one emergency card I almost never use). And I agree that your credit score isn't going to be hurt if you run a balance, it'll probably go up. But, even from a credit score point of view, it doesn't make financial sense to borrow anything from the credit card companies.

 

[daan]

A guy joins a video game/automotive forum, and his first post is about what credit card to get....

 

[V1P3R]

What would be things that would hurt your credit score? I know the obvious but I want to hear the list of them.

I told him that financial institutions see a running a small balance as "not a bad thing".

What would be the definition of a "small balance"?

 

[YSSMAN]

From a few of my own personal expiriences, I'll share a few of my stories...

Make sure you have a checking account, as most credit card companies like to see that you've got some amount of money. Beyond that, it would be wise to have a debit card as well, as it makes paying some of the bills a bit easier.

First of all, you're going to need to choose a brand of credit card that meets your needs. My first card was a deal I signed with Capital One, and although I do not recall all of the specifics of the card, they had noticed that it was my first credit card, and they sent me a bunch of stuff telling me what to do, and what not to do with my credit line. Was it helpful? Yes and no, as my parents did a good job telling me what to do and what not to do, but the information they sent, at least in my mind, told me that they at least care a bit for their customers.

...Beyond that, Capital One also gave me a staggered, graduated credit line. When I first opened my account, they only gave me a $200 line with which I believe I used very rarely, and only bought things when I knew I had the money to back it up. Six months of on-time payments and they bumped it up to $500, and I believe it is on-track to get bumped-up again, but I don't use the card too often.

So after a while, I decided I'd apply for a new card just to see what happens. On a whim, I had decided that I 'needed' a GM or a VW credit card, and just for the heck of it, I applied for a VW one. I had a response within about two weeks, and lets just say they gave me a lot more than I had expected. About five times what I would have expected. Do I need that much money? No, but it is helpful, being in school and all.

So, what tips do I have?

- Never put more money on the card than what you have in the bank. Certainly in desperate times, by all-means, you do what you have to do... But there isn't any reason why you should be loading-up the card with more money than you can pay-off.

- Most times, try to pay-off the card as soon as possible. Granted, that doesn't mean that you shouldn't leave a little bit on the card, but be as reasonable as possible, and do what you can afford.

- Just because you have it doesn't mean you have to use it, but at the same time, you should use it every once in a while. There have been times where I've gone months not using the card, but lately I've been putting a few dollars on each one a month, pretty much just to tell my company that I'm still using their services. Now, my father for example has credit cards, and never uses them... If you've got a card with cash-back or bonus rewards, thats just silly. But on the opposite token, my friends Dad has several different cards that he uses on a nearly daily basis, each one specialized for a different thing (dinner, clothes, bills, gasoline, groceries, etc)... He does it for organizational purposes, apparently, but I don't see the benefit overall.

...So, yeah. I'm not sure if that helped at all. You've got to start small, basically, and you've got to be responsible with your credit. You do well, and you may get a surprise like I did with that VW card...

What would be things that would hurt your credit score? I know the obvious but I want to hear the list of them.

Not paying bills on time, not paying them at all, having too many credit cards, etc. There are a surprising number of things that can be done to screw-up your credit score beyond just the basic things around credit-cards...

 

[///M-Spec]

But, even from a credit score point of view, it doesn't make financial sense to borrow anything from the credit card companies.

I hesitate to make blanket statements about very complex things like personal finances. Everyone is different and their situations are different.

I can think of two instances where it may be worth it to let a credit card company make a little money from you; auto and home. Especially the latter. A few points on your FICO can translate to points on your interest rate. A few points there can mean literally tens of thousands of dollars over the life of a 30 year mortgage.

I'd much rather let Chase or Bank Of America make a few hundred bucks off me over 5 years while building a good credit score than being ultra-conservative in the same 5 year span (using cards super sparingly, in small amounts and always paying them off) and then getting turned down for a good rate because I have 'insufficient depth'.

But again, I stress that everyone is different and I won't throw a blanket statements around. I'd even say that my usage of the term "usually" in my earlier post is a bit too much. I should change that to "in some cases".

What would be things that would hurt your credit score? I know the obvious but I want to hear the list of them.

Lots of things. Obviously delinquency (missing one or more payments) is a big one. 30 days is bad. 60 days is worse. 90+ days late and your score is going to in the gutter for years.

A high debt to income ratio can also hurt you. Even if you pay everyone on time, your score will drop if 1) you carry very high balances and/or 2) borrow too much vs. your income, a classic sign of over-extension. Having TOO MUCH credit can hurt you too, even if your balances aren't that high. This is another sign that you are in danger of overextending.

Not having enough credit history can hurt too. This is usually a problem for someone with 3-4 years or less credit history. Years ago, I was once turned down for a car loan EVEN THOUGH I already had a loan for my existing car and never missed a single payment in over 2 years, carried low balances on my revolving credit lines and was never late on any payments.

Opening many new lines of credit in quick succession can also lower your score.

What would be the definition of a "small balance"?

It depends on your limits. 5% is what I consider "low". But you should balance that against what you end up paying in interest. Obviously you should avoid keeping a $1000 balance on a card with 14.99% APR. Pay it off and close that sucker.


M

 

[V1P3R]

Ok... well, I'm a little baffled because I'll be honest there was a couple of times I missed a payment but I went to check my credit score expecting it to be on the ****ty side but it was still good.

 

[Danoff]

I can think of two instances where it may be worth it to let a credit card company make a little money from you; auto and home. Especially the latter. A few points on your FICO can translate to points on your interest rate. A few points there can mean literally tens of thousands of dollars over the life of a 30 year mortgage.

Running a balance on your credit card is one of the most expensive ways to boost your credit score. I'd prefer more cost-efficient methods like student loans. Of the types of debt that you can take on and successfully prove that you can pay off, credit card debt is pretty much the bottom of the barrel.

I agree that it's important to keep the credit score high for getting a good mortgage, but I don't think credit cards are an efficient way to do it. That is, you should use a credit card often, and pay it off in full. The added benefit of running a balance isn't worth the money since there are better ways to build credit.

 

[UnoMOTO]

One important thing that lenders will look at in the future would be your balance to limit ratio. A mortgage lender would look more favorablely on person if you caried a $100 balance on a $1000 limit rather then $900 on a $1000. Even if you pay on time every month, high balances to limit will not get you very far with other loans.

 

[TopHat]

Tip 1 - Memorize your PIN number, my dad forgot his for a while...

Also, don't keep on shakin' the credit tree. You'll end up in a double wide trailer with a score of 200.

 

[Omnis]

http://freecreditreportdotcom.ytmnd.com/

 

[Pupik]

A guy joins a video game/automotive forum, and his first post is about what credit card to get....

With so many members using their favorite GT cars as usernames, it's easy to think they've been here for a few months or so. In any case, this is good info for anyone getting a credit card.

Tip 1 - Memorize your PIN number, my dad forgot his for a while...

Actually, destroy the PIN information before you read it. Cash withdrawals are usually charged a higher interest rate (which can compound interest daily, in some cases) from the moment the money appears out of the ATM. This is from my own experience.

Also, I've read that making the minimum payment (usually $20-40/month) will mean you'll pay off the average credit card in 25-40 years.

 

[///M-Spec]

Running a balance on your credit card is one of the most expensive ways to boost your credit score. I'd prefer more cost-efficient methods like student loans. Of the types of debt that you can take on and successfully prove that you can pay off, credit card debt is pretty much the bottom of the barrel.

I agree that it's important to keep the credit score high for getting a good mortgage, but I don't think credit cards are an efficient way to do it. That is, you should use a credit card often, and pay it off in full. The added benefit of running a balance isn't worth the money since there are better ways to build credit.

Dan, you are combining two separate arguments into one when they need to be addressed completely separately.

The first and original question is whether or not you should pay your balance IN FULL each month on a revolving credit line.

The second question is whether or not a revolving credit line is a good way to take a loan.

Both questions are highly contextual and there are no hard and fast rules that can apply to everyone and for every situation.

If you are a student and have access to subsidized loans with good terms, then obviously there is little need for you to use a Visa or Amex to buy books or furniture for your dorm.

But for people out of this context --ie NON students, the door is wide open depending on what you are purchasing, which has an impact on what your loan options are going to be.

So just saying that a credit card is always the worst way to pay for something isn't always going to be true --You first need to know what the effective rates are for every lending option you have.

If someone asks whether A car or B car is faster, how would you even begin to know unless you have basic performance information like weight, horsepower, gearing, wheelbase, track, etc??

Some goes for lending. There's a ton of little details that go into the total cost of a loan and unless you look at them all, you simply won't know.


M

 

[Duke]

Actually, Dan, my credit card interest rate is low enough that it would have been cheaper to pay for my BMW on the card than it would have been to get a used car loan from my credit union.

Now, BMW Bank even beat that, so that's where I went... but still.

 

[Danoff]

Dan, you are combining two separate arguments into one when they need to be addressed completely separately.

The first and original question is whether or not you should pay your balance IN FULL each month on a revolving credit line.

The second question is whether or not a revolving credit line is a good way to take a loan.

Those are the same question. Not paying in full is effectively taking a loan from your credit card company, and so whether your credit card is an effective place to take a loan is a central question to understand whether you should pay it in full. The notion that you can get side benefits from credit card debt is irrelevant because you get the same benefits from making payments on other loans as well.

Both questions are highly contextual and there are no hard and fast rules that can apply to everyone and for every situation.

There are a few hard and fast rules that apply in every situation. Like that you want to avoid paying as much money as possible (total, which includes future things like applying for a mortgage etc.). So if you're planning on one day having a mortgage, you have the additional objective of raising your credit score.

So you want to raise your credit score as much as possible while balancing that with spending as little as possible. That means finding the most cost-efficient way to raise your credit score. Credit cards are one of the least cost-efficient wasy to raise your credit score. So unless you're in a really weird situation, you should avoid running a balance.

If you are a student and have access to subsidized loans with good terms, then obviously there is little need for you to use a Visa or Amex to buy books or furniture for your dorm.

But for people out of this context --ie NON students, the door is wide open depending on what you are purchasing, which has an impact on what your loan options are going to be.

The student loan was an example. There are other types of loans that can help build credit, and simply having a credit card and paying it in full helps your credit as well. Paying your bills/rent on time and paying your credit card in full every month - combined with paying off a small auto loan or student loan is a good way to build a solid credit score. No need to waste money on credit card companies.

So just saying that a credit card is always the worst way to pay for something isn't always going to be true --You first need to know what the effective rates are for every lending option you have.

Well, credit cards are the best way to pay for something, but not paying in full is one of the worst ways to borrow. Yes, it is possible that the lending rates can make it a good way to borrow, but that's extremely unusual. Most credit cards charge 150% to 300% as much interest as a loan from the bank.

Actually, Dan, my credit card interest rate is low enough that it would have been cheaper to pay for my BMW on the card than it would have been to get a used car loan from my credit union.

Now, BMW Bank even beat that, so that's where I went... but still.

So you went with a Bank instead of your credit card because the credit card interest rate was higher. Doesn't surprise me. It sounds like your credit union had a fairly poor interest rate.

Now I know that there are offers for transferring balances from some form of debt to others, and some of those are very attractive. Discover offered me a 0% transfer rate on debt (for a limited time), and so Discover suddenly became the best possible way for me to borrow money. But these kinds of one-time transfers aren't equivalent to a normal month-to-month rate.

I've never heard of a month-to-month credit card interest rate beating the average bank (until now). Still, it doesn't surprise me to find out that banks were still the way to go.

Until I start seeing (or hearing about) some credit cards with half the interest that I'm used to seeing them charge, I'm going to hold to my position that getting a loan is a better way to borrow money.

 

[Duke]

My credit card rate is under 6%, with no annual fee and 1% cash back. That's tough to beat with a signature loan at many banks, though of course, not all.

 

[Danoff]

My credit card rate is under 6%, with no annual fee and 1% cash back. That's tough to beat with a signature loan at many banks, though of course, not all.

Well sure, with a credit card like you're in good shape. I don't know how one obtains a credit card like that, but I'm guessing that it isn't available to people who are starting out and trying to build a good credit score. Still, I have to think that by the time you can get a rate like that from a credit card, you don't need it.

BTW - That's the best rolling credit rate I've ever heard from a credit card.

 

[Duke]

Well sure, with a credit card like you're in good shape. I don't know how one obtains a credit card like that...

Agreed, it's not a starter card. Here's what we did, since getting married:

1) Buy a reasonably-priced car and put more than 20% down. Finance rest for less than 36 months, and pay it off on time.

2) Pay off all student loans on time.

3) Buy a reasonably-priced house and put 20% down. Finance rest for 30 years or less. Double your principal payment every month (that's cheap in the beginning). Around 10 years in, refinance remaining balance for 10 years (cutting 10 years off your original loan length without increasing payment); continue double-paying principal every month.

4) Buy additional reasonably-priced cars ONLY AS NEEDED, always putting at least 20% down and financing no more than 36 months (or 48 months at absolute maximum, and only if you're confident car will reasonably last at least 72 months).

5) Use credit card as a convenience only, and pay off balance in full nearly every month. Do not miss payments.

I will say that throughout this time, we've only changed credit card companies about 3 times, each time only for an ironclad, long-term-better card. Although our original post-college-age cards were around 12%, it wasn't long before lower rate offers started coming in regularly. Then it was a matter of just reading the fine print and picking a new one that had decidedly better terms than the older one. Our current card, which we've had for about 3-4 years, was our first cash back card because it was the first one that offered a decent interest rate besides. Now that we have that little discount, we move most of our expenses through the credit card - to the tune of $30-35,000 a year or more.

 

[Danoff]

So here's the kicker.

5) Use credit card as a convenience only, and pay off balance in full nearly every month. Do not miss payments.

If you do that ^^, why do you care what the interest rate is? Sure, now that you've got a good rate you might use it. But when you didn't have a good rate it shouldn't matter if you weren't planning on running a balance.

Our current card, which we've had for about 3-4 years, was our first cash back card because it was the first one that offered a decent interest rate besides.

If you weren't planning on running a balance, you could have had a cashback card the entire time - because the interest rate makes no difference.

BTW - I charge about $18k/year on my credit card not counting big stuff like car purchases and tuition.

 

[Duke]

So here's the kicker.

If you do that ^^, why do you care what the interest rate is? Sure, now that you've got a good rate you might use it. But when you didn't have a good rate it shouldn't matter if you weren't planning on running a balance.

Because emergencies or golden opportunities do happen, and sometimes you need to carry a balance for a month or two. Also, if your payment happens to get there 2 days late, you incur interest for the whole balance for the whole month... so it pays to make that pain be as small as possible.

 

[Danoff]

Because emergencies or golden opportunities do happen, and sometimes you need to carry a balance for a month or two. Also, if your payment happens to get there 2 days late, you incur interest for the whole balance for the whole month... so it pays to make that pain be as small as possible.

I don't ever charge more than I have cash to cover - but if I did, I'd probably transfer the debt from the credit card to the bank at a lower rate before any interest actually kicked in.

I have a lot of trouble figuring out how I'd incur interest on my card. It's such a remote possibility that if it does happen, I'm willing to deal with the difference between 6% and 18% APY.

Actually, apart from an amazing interest rate like you have on your card Duke, I can't see why anyone ever needs to/or should run a balance on a credit card. But if you did have to do it once or twice in your life, the difference between a really good rate and a really bad rate won't matter to you - because you've got more important things happening.

 

[///M-Spec]

Those are the same question. Not paying in full is effectively taking a loan from your credit card company, and so whether your credit card is an effective place to take a loan is a central question to understand whether you should pay it in full. The notion that you can get side benefits from credit card debt is irrelevant because you get the same benefits from making payments on other loans as well.

Dan, you are supposing there is always a lending alternative to a credit card and that it always be cheaper. That's simply not always true.

My original point, if you go back to the beginning, was to say "it's not a bad thing if you run a very small balance, in fact it can sometimes be helpful".' This isn't something I pulled out of a hat. Go read page 13 of this primer from myfico.com.

There are a few hard and fast rules that apply in every situation. Like that you want to avoid paying as much money as possible (total, which includes future things like applying for a mortgage etc.). So if you're planning on one day having a mortgage, you have the additional objective of raising your credit score.

So you want to raise your credit score as much as possible while balancing that with spending as little as possible. That means finding the most cost-efficient way to raise your credit score. Credit cards are one of the least cost-efficient wasy to raise your credit score. So unless you're in a really weird situation, you should avoid running a balance.

You keep saying this; can you demonstrate it?

Well, credit cards are the best way to pay for something, but not paying in full is one of the worst ways to borrow. Yes, it is possible that the lending rates can make it a good way to borrow, but that's extremely unusual. Most credit cards charge 150% to 300% as much interest as a loan from the bank.

As ANY loan from ANY bank? That's some might broad strokes you're painting with. Credit card companies ARE banks. And using a card is ALSO a loan. It is an unsecured revolving credit loan.

If you compare that to a typical automobile loan, which is a secured loan, sure it's going to have a better rate. That's because they have something to seize if you default.

If you compare that to a home equity loan, sure THAT's going to have a better rate. Because they can take your house if you default.

But if you go into a bank and ask them to give you a blank check to buy whatever you want without anything to secure it, it's going to be as high as the credit card companies... because it's the same type of loan.

Until I start seeing (or hearing about) some credit cards with half the interest that I'm used to seeing them charge, I'm going to hold to my position that getting a loan is a better way to borrow money.

I have a good friend whom, like Duke, ended up looking at a bunch of bank loans on a car and ended up going with his credit card which was 2.9% for life.


M