Last month I posted Too Little Debt, in which I discussed how a zero balance credit card bill is actually a negative to your credit score.

Today, I’d like to offer another aspect of your credit score – the Average Age of Open Credit Lines. Here, longer is better. This is one criteria that I really object to. Think about it, a card issuer decides to raise their rate or annual fee and you decide to get a new card from a different bank. If you had only that one card, you may be dropping your average time from many years right down to zero.

You can see from this chart, a snapshot from Credit Karma, that offers a view of the image of account age on your credit score. So, find a credit card or two with no fee and stick with it. Keep in mind, it’s simple math, if you have a few credit lines, adding a new one will have less impact on average time than if you only had one. You are also far better off canceling a more recent line than one that’s older than your personal average.  How old is your oldest card?

written by JOE \\ tags: Credit, credit karma, Debt, fico

Last year, I wrote Your Credit Score, in which I discussed the factors that go into the Fico Score. One item, representing 30% of your score was credit utilization.  In other words, using $1000 of a  $2000 total credit line was far wore than using $2000 of a $10000 line. Since the amount reported is what’s shown on the bill, regardless of how much you pay or even if you pay in full each month, the bill amount still ripples to your score. So as part of some experimenting, I paid my cards in the last cycle before the bill was cut. Yes, just before.

(Note – you can click to enlarge the image) You see, this was just brilliant. By owing less than 1/2% of my available credit, I managed to go from a potential A to a C for this criteria. Owing zero is exactly as bad as owing 41-60% of your available credit, which in my case would mean $30K+. An A ranges from 1% to 20%, so unless the Janes and I plan to do some real damage, I think I’ll quit this experiment and let the bill come in before I pay it. Lesson learned.

Joe

written by JOE \\ tags: Credit, credit karma, Finance

Today, I’d like to give the soapbox to a fellow blogger who has started a new project with great potential. You see, part of the cash/credit discussion often turns to (a) the fact that many get some kind of rewards back for running charges through their account. Our card puts 2% cash into a 529 account, and I’m expecting that account to pay for a semester of college, and (b) there’s no motivation to pay cash and ignore the reward. Now JM introduces Discount With Cash, which I hope gains some traction:

Credit cards are the highest tax on goods and services you have never heard of.  Merchants pay fees every time they swipe your credit card and of course they increase the price of what you buy to cover that cost. You are paying extra for the convenience to use your credit card. Is it worth it? Sometimes it is, but most times it is not. Especially with some businesses offering a discount when you pay with cash. That idea is the basis behind a new website, Discount With Cash. Discount With Cash aims to provide customers with a list of local businesses that offer a discount for paying with cash. Since Discount With Cash is in its infancy they are currently looking for anyone out there that knows of businesses that offer the discount. So next time you are at the register, ask for a discount for using cash. If you get one, make sure to share it over at Discount With Cash.

Interesting idea, JM, thanks for introducing it on my blog.
Joe

written by JOE \\ tags: Credit, Debt, Frugal

Effective yesterday, the CARD (Credit Card Accountability, Responsibility, and Disclosure) ACT’s next phase went into effect. From the Federal Reserve, here is a summary of the changes you should know about:

Reasonable penalty fees
Let’s say you are late making your minimum payment.

• Today: Your late payment fee may be as high as $39, and you likely pay the same fee whether you are late with a $20 minimum payment or a $100 minimum payment.
• Under the new rules: Your credit card company cannot charge you a fee of more than $25 unless:
  • One of your last six payments was late, in which case your fee may be up to $35; or
  • Your credit card company can show that the costs it incurs as a result of late payments justify a higher fee.

In addition, your credit card company cannot charge a late payment fee that is greater than your minimum payment. So, if your minimum payment is $20, your late payment fee can’t be more than $20. Similarly, if you exceed your credit limit by $5, you can’t be charged an over-the-limit fee of more than $5.
Additional fee protections

• No inactivity fees. Your credit card company can’t charge you inactivity fees, such as fees for not using your card.

• One-fee limit. Your credit card company can’t charge you more than one fee for a single event or transaction that violates your cardholder agreement. For example, you cannot be charged more than one fee for a single late payment.

Explanation of rate increase

• If your credit card company increases your card’s Annual Percentage Rate (APR), it must tell you why.

Re-evaluation of recent rate increases

• Today: Your credit card company can increase your card’s APR with no obligation to
  re-evaluate your rate increase.

• Under the new rules: If your credit card company increases your APR, it must  re-evaluate that rate increase every six months. If appropriate, it must reduce your rate within 45 days after completing the evaluation.

Note: A number of other rules went into effect on Feb 22, and you can read about it at the Fed’s site, New Credit Card Rules Effective Feb 22.

written by JOE \\ tags: CARD, congress, Credit, Debt, federal reserve

As I mentioned last week, I’m in the midst of one more refinance.
Today, the appraiser came, and looked around. Given that the loan to value is less than 35% on my guestimated value, I’m not too concerned. On the other hand, I’m always curious how accurate sites like Zillow are.  I don’t care so much what the house is worth. When we move, it’s all relative, if we move into a like neighborhood, the transition would be lateral, sort of a trade. If we trade down, we’ll pocket some money, but that’s not in the plan.

I also just got my credit scores in the mail. There is a bankruptcy score, I scored 476 on a scale of 1 to 600. Never heard of that before. Don’t know if it’s good or bad. Then the actual credit score, drumroll, 800. I trust this to be a FICO score, maybe it’s not. Credit Karma is not quite the same, but close. It had me at 784 the past few months, but dropped me to 782 for the fact that I had this “hard inquiry” in submitting this application. I’d be higher except I have “Too many open accounts with outstanding balances.” Interesting. I pay in full every month and have been using 3 cards. An Amex Open that gives 5% at office supply stores and 3% for gas, and 2 cards from Citibank both giving miles on American Airlines, one an Amex, one a Mastercard. Citibank runs promotions that vary for each card. Also, some stores (like Costco) only take Amex. I suppose after I close on this new loan, purely for research, I can experiment by paying these cards before the statement is cut. The float has little value to me as rates are so low, and it would just be a data point to add to my understanding of how these thing impact the scores. Also I should check my AnnualCredit Report and see if any accounts show open that I meant to close. I had opened a WaMu (Washington Mutual) account as they provided an actual FICO score, but that deal is gone with Chase taking them over. Time to cancel that one.

When it comes to your credit score, some things are counter-intuitive. Refinance to a lower rate, and cancel a bunch of credit cards, grabbing one new one that has no fee and low interest and then max it out consolidating all the high interest debt, and you may very well trash your credit score. It’s all relative though, I can take a hit and easily recover from it. It’s more a science project for me than anything else.

For more reading on this topic, check out The Military Wallet’s article Credit score needed to refinance a VA Loan and Wealth Pilgrim’s 5 Ways to Improve Your Credit Score Fast.

Joe

(By the way, today is the 33rd anniversary of the release of the original Star Wars, I can still recite the opening introduction word-scroll)

written by JOE \\ tags: credit karma, fico, money, refinance

I just wrote about debit card fees a couple weeks back, and my timing couldn’t have been better, although the Times always manages to produce a better chart.

This past week the New York Times reported Debit Fee Cut Is Rare Loss for Largest U.S. Banks. The article didn’t specify the exact changes that were voted on, as with any new regulations, they tend to run 1000 pages and be buried in fine print. As I discussed, and you can see above, debit card fees, while slightly lower than credit, are still based on the value of the purchase (thus my article’s catchy title “Ad Velorem Debit Card Fees”) while the true cost doesn’t change.
Beware, however, the unintended consequences of this set of regulations. Regardless of the savings the business and customer will enjoy, the card issuer will seek to make up that revenue. However they do it, it will come out of our pockets.
Currently, debit/credit card issuers have their own rule that merchants are not permitted to enforce a minimum purchase to use the card, e.g. “$10 minimum for charge purchases.” While I agree it can be convenient, it’s a burden to the store to process a charge for much under $5. The regulation will permit stores to set a minimum.
Let’s see how this story plays out. What do think of it so far? Will it help? Will it cost you?
Joe

written by JOE \\ tags: credit card, debit card