Credit Card Application

The risks of being a guarantor on a credit card

admin — Thu, 02 Sep 2010 02:23:47 +0000

A credit card guarantor is a person who agrees to pay the credit card debt of another person, should that person not pay it themselves. In this manner, the other person will be given a higher credit limit and a lower interest rate than they would otherwise get, and so some people view being a credit card guarantor as merely being a good and helpful friend or relative. However, there are dangers in doing this and it is a good idea to know what those risks are before agreeing to become a guarantor.

The requirement of a credit card guarantor is to have a good credit record, allowing the other person, who usually has either a bad credit record or an inadequate one, to apply for and receive a credit card on better terms. In a way, it can be seen as borrowing a credit rating from another person.

Usually a credit card guarantor is related to the person applying for the card, although there is no legal requirement for the two people to be related. These cards are most commonly used by students, who need the financial freedom that credit cards provide but do not have the credit record that allows them to get a good one, with a low rate of interest or a reasonable credit limit. The guarantor will usually be one or both of their parents, who tend to be at the peak of their earning power and generally have a good credit score.

Another group using guaranteed, or co-signatory, credit cards more frequently are retired parents who have credit cards guaranteed by their adult children.

There are a number of dangers for credit card guarantors. The obvious danger is being liable for the debt run up on the credit card. The card’s main user is expected to repay the credit card regularly, but if they don’t the guarantor is liable for the balance.

Besides financial difficulties, there are a number of reasons the main user may cease making payments. For the guarantor, it can be a shock to receive a credit card bill on the death of the main card user, or when he or she leaves the country for a long holiday.

If payments are missed, the credit record of the guarantor can suffer, another danger in co-signing a credit card. Clearly, if one does agree to fulfill this role, it is important to keep track of both expenditures and credit card repayments, as well as the main card user’s location and financial situation.

Credit cards you can get without a credit rating

admin — Wed, 01 Sep 2010 07:25:29 +0000

When assessing an application, credit card companies rely heavily on the person’s credit rating, or their record of repaying debts. A credit score is a good predictor of how likely a credit card holder is to default in the future.

This creates a catch-22 situation for the person who does not have a credit rating. As banks and other lenders rely on credit ratings, then a nonexistent or patchy one makes it difficult to be accepted for a credit card with which to earn a credit rating.

Various categories of people may find themselves in this situation. Recent immigrants to Australia will find they have no credit rating even though they may have earned a top-notch one in their old home nation, as credit ratings are not international. Young, people and many students do not have credit records, as they are just entering the financial world, or the rating they do have doesn’t cover a sufficient length of time to be a true indication of their future repayment behaviour.

But even in this situation, there are different cards available for a person without a credit rating. It must be remembered that these cards tend to be more expensive than standard credit cards.

There are some credit cards that are marketed toward people without a credit score, particularly students or recent immigrants. Other cards are marketed on the basis that they will be issued even if the applicant does not have a credit score, or has a low credit score. Again, these cards tend to be expensive.

Store cards are another option for people without credit, as they can be easy to obtain when they are applied for in the store. These store cards are often a good way to earn and maintain a credit rating. If the person has some savings to deposit, a secured credit card may be an option, as in that case the debt is backed by funds lodged with the credit card provider.

Prepaid cards and debit cards are not very useful for building a credit record, but they do allow for transactions within the credit card system.

Credit cards from department stores

admin — Tue, 31 Aug 2010 12:09:09 +0000

Many department stores offer credit cards branded with the store’s name. These store credit cards can be a good choice as a first credit card for a person seeking to build a credit score. However, they tend to have quite high interest rates.

Store cards existed before big-name international credit cards, which largely replaced them. They were known as credit accounts and they were offered by shops to trusted customers to retain their custom. Many such accounts offerred a membership card to identify the account holder, enabling credit purchases at all stores in a chain and not only the local shop.

Store cards usually were only accepted within the store, and administration of the card and account were performed in-house.

When credit cards became popular, some banks started to offer their services to shops as white label providers, meaning the bank would perform the administration and credit check in return for a share of the profit or for a fee. The store would perform the card’s marketing. This expanded the store cards’ usage to the VISA and MasterCard networks, which in turn allowed these cards to be used around the world rather than in only one shop.

Store cards can offer some of the best rewards of all credit cards, as the rewards come from the store branding the card. However, the rewards also tend to be less flexible. As is usually the case with credit card rewards programs, there is a trade-off between the value of the rewards and their flexibility.

Store cards can offer a quick response to applications, as they are often issued in the store. Sometimes the signing-on bonus is an instant discount, so a customer who would otherwise pay cash can lower the total sum charged by applying for a credit card at the time of purchase. Credit checks are generally not extensive.

Store credit cards tend to have higher interest rates than standard cards, partly because the credit checks are not as extensive. While store credit cards are very convenient, it is harder to check rival offers.

Are your credit cards more expensive than they could be?

admin — Mon, 30 Aug 2010 01:04:15 +0000

Credit cards can be a flexible way of borrowing money, but they can also be the more expensive option. There are ways to lower the costs of credit cards.

Many people have credit cards they’ve carried for years, which they continue to use. While this is sensible, it can be a potential issue. Credit card companies tend to be complacent about their long-term customers, as shown by the fact that zero per cent interest rates and other introductory offers aren’t offerred to existing credit card customers.

This complacency with existing customers is shown in other ways, as well. It’s likely the credit card companies are slowly increasing the interest rate and fees charged to long-term customers, who have shown by their steady usage that they aren’t prepared to move. Attractive offers are concentrated on attracting new customers and even if overall credit card interest rates are going down, they’re provided for new cards rather than existing ones.

There are other reasons staying with one’s current credit cards may be more expensive than getting new ones. Over time, many people improve their credit scores as their careers advance and they become financially more responsible. While the credit cards they currently carry may have been the best they could obtain on their old credit scores, they’re unlikely to be the best these card holders can get based on their current credit scores.

For all these reasons, customer loyalty toward a credit card company is an expensive option for the customer. While constantly changing credit cards can be damaging to one’s credit score, a part of any financial management program should be an annual or twice-yearly examination of one’s credit cards. This examination should consider interest rates, terms and conditions, annual fees, and any rewards programs, while comparing these features to those of other credit cards currently on the market. Often, the card holder may be pleasantly surprised with the new options that are now available.

Credit cards when starting a career

admin — Sat, 28 Aug 2010 04:27:09 +0000

When starting their careers, most people don’t immediately consider how to manage their student or existing credit cards. However, it does bear a few minutes’ thought, as the potential savings at this early stage can be quite high.

When starting a career, most people earn more money than they have ever earned before, and if they don’t go off on a spending binge, it’s natural to put some of that money aside. But rather than parking it in a savings account, even a high-yielding account, the best returns are likely to come from paying off any existing credit card debt.

Credit card interest rates are often three or four times higher than the amount earned by a savings account. There may also be a tax advantage here, as the interest on a savings account usually is taxable.

For those who decide to pay off their student or existing credit cards, it’s a good idea to concentrate the repayments on the credit card with the highest interest rate while making minimum repayments on the others. This minimises the amount of interest paid overall, maximises the amount of principal reduced with each payment, and shortens the time required to discharge the debt.

With their new and higher earning power, many people starting a new career are offerred credit cards carrying lower interest rates and higher credit limits. Transferring balances and consolidating debt onto cards with lower interest rates is another way to reduce the new graduate’s debt load quickly.

Another possibility is to apply for a consolidation loan. These loans can be less expensive than carrying credit card debt, and the fixed repayments are spread over a negotiated time period, making budgeting easier. However, the new careerist should resist the temptation to start spending on their credit cards again, increasing their debt without recognising it.

For the new careerist, credit cards are powerful financial management tools, capable of smoothing the peaks and troughs of earnings, but they should not be seen as a way of simply spending more.

Credit cards when starting college full time

admin — Thu, 26 Aug 2010 13:55:47 +0000

When starting university full time, the student’s need for a credit card becomes greater. After all, in many cases this is the first time a student has left home and many items once purchased through a parent’s payment facilities are now to be purchased by the student themselves.

Of course, there are some accompanying dangers when students begin applying for their own credit cards. This is also the first occasion for many students to assume full control of their own financial affairs and to be expected to pay all their own bills. In short, they now have the ability to make a mess of their finances. No matter how well parents have prepared their children, some mistakes are bound to happen. However, some of these can be avoided.

Although credit cards can be a genuinely useful financial tool, new credit card users should exercise caution as well as a healthy dose of scepticism when entering this market.

The two areas where scepticism is most needed are applying for offers and examining introductory interest rates. Many credit cards, particularly those aimed at students and young adults, carry tempting introductory offers, such as shop vouchers, gift cards for clothes, concert tickets, or even free pizza. It is not always the case, but it is very frequent, that these credit card offers include some of the highest interest rates and worst terms and conditions on the market.

Introductory interest rates are somewhat more attractive, sometimes falling as low as 0% on purchases made with the card. This can appear very competitive. However after a few months the introductory rate will expire and the student will be stuck with the standard interest rate that the credit card charges.

One issue that can affect students when applying for credit is that they either have no credit record, or that their credit record is very sparse. The solution for this problem may be a co-signatory credit card for the first year or so.

A co-signatory card requires two people to apply for the credit card, the main user and a secondary user, who is often a parent. In effect the main user borrows the secondary user’s credit record, as the secondary user agrees to repay the credit card balance should the main user default. This allows the credit card to carry a lower interest rate and a higher credit limit than otherwise would be possible. A co-signatory credit card helps the student build their credit rating and allows them to acquire their own credit card after a year or two of demonstrated responsible financial management.

I can’t remember an item on my credit card statement. What should I do?

admin — Wed, 25 Aug 2010 13:23:21 +0000

Sometimes a person looks at his or her credit card statement and finds an unfamiliar transaction there. It could be for a significant amount of money or it could be for a small sum. Either way it should not be ignored.

Many people assume if they see an unfamiliar shop or service on their credit card statement that their memory is playing tricks on them. This is not always the case and it could be that an unauthorised transaction has actually been made.

However, some research should be done before this assumption is made. After all, many perfectly respectable merchants don’t put their business name on the credit card statement. This can be for a number of reasons, but often it’s because the business trades under several names for different shops and websites, and the group shares one merchant account. There’s also the situation where there is simply an abbreviation.

Therefore it’s a good idea to look up the questioned transaction’s merchant description on the internet. This will often link in to the company’s brands and shops and may jog the card holder’s memory.

If the card transaction is still unfamiliar, the next step is to contact the credit card provider. They will have more detail on the transaction and can also make enquiries with the vendor.

If the transaction was not an authorised transaction and if it has been reported in time, it’s likely to come under a “zero liability guarantee,” which means the card holder will not be liable for the transaction. Either the shop will refund the purchase or the credit card provider will.

Unless this is a mistake on the shop’s behalf, this may be evidence of credit card fraud. In that event, the card holder will most likely be issued a new credit card, and the account cannot be used for several days until the new card arrives. Also, any regular payments charged to the old credit card, or online merchant accounts linked to it, must be reassigned to the new one.

At this time, it’s also a good idea to examine previous statements for earlier unauthorised transactions. It can often be the case that if one has been found, others come to light once past statements are examined more thoroughly.

Should I store credit card statements on a computer?

admin — Tue, 24 Aug 2010 11:20:07 +0000

The practice has arisen recently of storing financial information on computers, including credit card statements. This can have a number of advantages, but there are cautions that should be remembered.

There are two main ways of storing credit card information on a computer. The first is by scanning in credit card statements. These can then be attached to items of credit on personal finance software such as Intuit or MYOB. However, the data will still need to be entered separately and the advantage of this method is that it can quickly access the information and open the file if it is needed.

The second way is to download credit card statements from the issuing bank’s website and store it on one’s local machine. This may then be saved according to the software preferred by the credit card provider, such as html, text, comma separated variables (csv), or Excel readable files, amongst other possibilities. These can aid analysis before being imported into one’s personal finance software, and they are good for analysis in their own right.

There are some pilot programs underway that allow for direct access between personal finance software and certain types of credit cards. This has the potential to save significant amounts of time, particularly if certain stores are linked with certain types of expenditure for organising purposes, e.g., non-taxable, grocery, utilities, etc.. This may also encourage people to use their credit cards more, by simplifying recordkeeping.

There are a number of advantages to storing credit card statements on a computer. The first is that the paper records can be shredded immediately. (It is important to remember that personal statements should not simply be thrown away, but shredded first.) The second advantage is that the statements can be accessed quickly and without fuss if there is any dispute about a payment or transaction. Finally it makes credit card expenditures far easier to analyse and evaluate.

There are some disadvantages, the most obvious being data theft. If a computer is stolen or sold to another person, it can often be possible for the new owner to steal information off the hard drive. It is always a good idea to ensure data is not stored on a laptop computer that travels around a lot, but is instead stored on a desktop machine. It’s also a good idea to ensure a computer is thoroughly cleaned before it’s given away or sold.

Credit cards to cover business expenditure

admin — Mon, 23 Aug 2010 00:13:21 +0000

Credit cards can be used to cover business expenditures, although care needs to be taken that this is a suitable form of borrowing and that personal spending is properly segregated from the business expenditure.

There are many small business credit cards now offered that not only lend to a small business owner, but also claim to be designed with his or her needs in mind. These cards come with a number of features which aren’t always available for standard credit card accounts, such as the ability to issue a large number of subsidiary cards for employee usage.

These business credit cards are often touted by banks as a means of borrowing that is flexible and unsecured. However, it can also be very expensive if used over the long term. Credit cards are handy for small, ongoing expenditures, such as covered employee expenses, a cash flow shortage, or a sudden, necessary purchase.

However, over the long term credit cards should not be used as a replacement for regular loans, as the interest charged is considerably higher. Business credit cards can also camouflage large or excessive outflows, making it difficult to ascertain the company’s true financial situation and hiding debt amongst the day-to-day spending.

Another problem with using business credit cards is that personal and business expenditures can become confused. This not only makes it harder to differentiate personal finances from business costs, but it also becomes harder to determine the proper tax deductions for interest and credit card fees and penalties.

One solution for that problem is to carry two separate credit cards, one for the business and one for personal usage. If so, the business credit card should be tied to the business rather than to the business owner, to minimise personal liability if the enterprise fails. This of course is easier for an incorporated business rather than a sole proprietorship, as many credit card companies require a personal guarantee and charge a higher rate of interest for these smaller and generally riskier businesses.

What sort of person should be looking at a cash back card?

admin — Thu, 19 Aug 2010 23:36:42 +0000

Cash back credit cards return a certain proportion of each transaction to the credit card user. So on a 1% cash back credit card; if a person were to spend $500 on the card then they would get back $5.

One important fact to remember about cash back credit cards is that carrying a balance on the card will wipe out any advantage it offers. The issue is not the total interest rate that is charged but the differential in the interest. Simply put, cash back credit cards don’t offer as low a rate of interest as certain no-frills credit cards, and so the amount of money the card holder receives back won’t equal the amount of money that could have been saved through using a card with a lower interest rate. If the card holder is likely to carry a balance, then a cash back credit card won’t suit.

The sort of person who best benefits from a cash back card is one who only uses the card for convenient spending and who pays off the entire balance every month. The amount of money returned by the credit card company can then make the offer worthwhile.

Employees who use their credit cards for work expenses are also good candidates for cash back cards. If the employee or the company’s accounting department pays the balance off every month, then the cash back element can be fairly lucrative for the credit card holder. In this circumstance, the cash back card should be kept separate from any personal cards, particularly if the personal card is not paid off every month.

Introductory offers on cash back credit cards are also attractive for people who anticipate spending a lot of money at a certain time, such as for a wedding or a house move. Introductory offers have a higher rate of cash back for the first few months the account is open and it may be as high as 5%. Applying for a cash back card at the right time can earn the card holder a discount of 5% or so on planned heavy expenses, although this may be discounted by any interest.