The Credit Card Thread

[George]

I have a few questions for those of you who know more than I about credit cards:

1. What is the best way to keep your credit score high? I know paying bills on time and not having huge outstanding balances is a few ways, but if you have a number of cards with zero balance, is it better for for your score to keep the account open, or better to cancel it? I currently have a number of cards that I don't use with zero balance.

2. What is the difference between fixed and variable interest? I know that fixed is better, because it stays the same, but is it hard to come by? Also what is considered a good rate? Whaen they say 9.99 APR, then is the monthly interest 1/12 of that?

3. I get offers almost daily for credit cards, can you suggest one that is better than the others? Or things to look for in a credit card?

4. If you have good credit and keep recieving offers in the mail, can you literally avoid paying interest simply by transferring the balance to a new, non interest charging account (limited time of course) every year or so?

[Mark]

George, I can't answer your first question exactly, but I do know that having a number of outstanding balances (large or small) and proof that you're meeting repayments on these is just one way to achieve a good/high credit scoring here in the UK. There are numerous other factors involved, including (again, over here) the credit rating of your address. Example: a bad debt by the previous occupant of an address can cause it (and anyone living there) to be effectively blacklisted for credit. This has happened to me before now. You can normally straighten things out by contacting a credit reference agency, who hold all the records of people's credit.

Bit OT, but I thought I'd add it anyway.

[George]

George, I can't answer your first question exactly, but I do know that having a number of outstanding balances (large or small) and proof that you're meeting repayments on these is just one way to achieve a good/high credit scoring here in the UK. There are numerous other factors involved, including (again, over here) the credit rating of your address. Example: a bad debt by the previous occupant of an address can cause it (and anyone living there) to be effectively blacklisted for credit. This has happened to me before now. You can normally straighten things out by contacting a credit reference agency, who hold all the records of people's credit.

Bit OT, but I thought I'd add it anyway.

No, that was helpful Mark. Thanks. 

[MishaK]

I'm assuming you live in the US, correct?

I have a few questions for those of you who know more than I about credit cards:

1. What is the best way to keep your credit score high? I know paying bills on time and not having huge outstanding balances is a few ways, but if you have a number of cards with zero balance, is it better for for your score to keep the account open, or better to cancel it? I currently have a number of cards that I don't use with zero balance.

I am actually not sure about this one. In some respects, having more lines of credit may be good. I have only one personal credit card and one corporate card through my employer. Have never seen a need for more. Keep in mind that many cards these days allow you to accumulate miles on airlines. It makes more sense to consolidate all your purchases on one cards to collect miles and get you free flights more quickly. Also makes it easier to track your spending. There are ways to get a free credit report which will also list for what reasons they are deducting points.

2. What is the difference between fixed and variable interest? I know that fixed is better, because it stays the same, but is it hard to come by? Also what is considered a good rate? Whaen they say 9.99 APR, then is the monthly interest 1/12 of that?

A fixed interest rate will not change for the period indicated. A variable interest rate will fluctuate up and down as the fed adjusts interest rates. Check the definition of the variable interest rate. It will usually be whatever indicated reference rate, plus a given margin. Whether or not a fixed rate is good is a gamble based upon expectations as to whether market rates will rise or fall. You may be getting a good deal or a bad deal. I have no idea what good rates are these days for credit cards. Interest is usually calculated on the basis of a 360-day year and twelve 30-day months. So how much exactly accumulates will vary. But check the fine print for definitions of how this is calculated.

3. I get offers almost daily for credit cards, can you suggest one that is better than the others? Or things to look for in a credit card?

Depends. If you have a bank with a decent checking account, they will usually offer a credit card with no annual fee. That to me is a minimum. I will not pay an annual fee. On the other hand, an annual fee may be OK for you if, e.g. you rent cars frequently, in which case the rental car insurance that comes automatically whenever you use American Express to pay for a rental may come in handy and may save you some money. Otherwise, I'd just make sure to find the card with the least hidden charges (e.g. for foreign purchases), no fee, low interest and, if it matters to you, which accumulates miles on your favorite airline or network. Otherwise, try to get a card that is accepted widely across the globe, i.e. avoid Diners or Discover. Some cards offer convenient services, like mine provides me an annual summary of my spending, categorized by types of vendors (e.g. travel, entertainment, food, clothing). Others may lure you with offers you can't resist (like two free airline tickets).

4. If you have good credit and keep recieving offers in the mail, can you literally avoid paying interest simply by transferring the balance to a new, non interest charging account (limited time of course) every year or so?

No idea. But I would get myself on a list to avoid these solicitations. As I have just found out, your credit score can be lowered by a few points due to "too many inquiries". Credit reporting agencies don't distinguish between inquiries by your existing creditors checking up on you vs. inquiries by people trying to sell you new cards. There is a number you can call (usually listed in fine print at the bottom of new offers) which gets you off everyone's mailing lists for five years or something like that. I find it a violation of human rights that my privacy can be invaded at will and that I have to do something to prevent it and then I am only entitled to temporary protection -- but that's what you get for living in a country that values money over people.

[Larry Rinkel]

Here are some good links. I'll write a bit more later.

http://articles.moneycentral.msn.com/SavingandDebt/ManageDebt/ManageDebt.aspx

http://moneycentral.msn.com/banking/services/creditcard.asp

http://www.bankrate.com/msn/news/debt/debtmanageguide/improve-score1.asp

http://www.bankrate.com/msn/fico/calc.asp?lpid=BKRATE29

[Larry Rinkel]

I can't answer all your specific questions, but my experience with credit cards makes me think this:

1 ) Try to get a card with no annual fee.
2 ) Try to get a card with a grace period.
3 ) Pay your balance in full by the grace period. If you can't pay in full, pay as much as you can as soon as you can. In this way you lower potential finance charges by having a smaller average daily balance. Remember each month you incur a finance charge, interest is charged not only on the original balance but on the finance charge as well.
4 ) You don't have to wait for a statement to come due to pay your balance.
5 ) Don't open any more new accounts than absolutely necessary.
6 ) You don't have to close inactive accounts. Just don't use them and stash the plastic in a safe place.
7 ) Use a debit card rather than a credit card whenever possible.
8 ) Don't take cash advances on a credit card.
9) The key rule with credit cards is to not let the bank make money off you.  Most of my suggestions above simply elaborate this rule.

[George]

Thanks Larry.

Can you answer one specific question?

When the interest is 10%, is that 10% of the balance (plus interest) per year or per month?

For example, if I have $1000 balance and 10% interest (fixed), what would be the interest charge for one month?

[Larry Rinkel]

Thanks Larry.

Can you answer one specific question?

When the interest is 10%, is that 10% of the balance (plus interest) per year or per month?

For example, if I have $1000 balance and 10% interest (fixed), what would be the interest charge for one month?

Try this:
http://www.ace.uiuc.edu/cfe/ccs/ccs4.PDF
http://en.wikipedia.org/wiki/Credit_card_interest

[George]

Try this:
http://www.ace.uiuc.edu/cfe/ccs/ccs4.PDF
http://en.wikipedia.org/wiki/Credit_card_interest

Thanks again, Larry.