Educate Yourself
While a credit card company might present an incredible option to you, make sure that you understand everything about the package before signing on. The greatest example of this is a card that offers 0% on balance transfers. There are three things that you need to know about this before you choose to participate
- Fees: there might be a balance transfer fee. While it probably won’t cost you more than you’ll save, you need to be aware that this will be added to your balance immediately upon the completion of your transfer.
- Variable rate: that inviting 0% APR will not last forever. Whether your introductory rate is 6, 9, or 12 months, you need to know that eventually that rate will adjust to something much higher. If you are able to pay off this balance before the expiration, though, you will save yourself hundreds of dollars.
- Multiple balances: every card carries different interest rates for each kind of balance that you can hold. Typically, your card has a separate balance for purchases, transfers, and cash advances. Using the balance transfer example, you might pay 0% on them, but you’ll be paying 22% on purchases.
When you read the fine print, you will understand how each of these components contributes to the length of your account.
What Exactly is Universal Default?
Universal default describes the likelihood that you will not be able to make payments on account based on your behavior with other accounts. Basically, your credit card company can change your interest rate based on your failure to make your mortgage payment on time. This can apply to everything that requires a monthly payment: your auto loan, utilities, phone bill, etc. Even if you had these accounts for many years and have only had one or two problems, universal default will allow your credit card company to change your rate.
This is not only legal, it is very common, but there is a level of fairness to it. Regardless, you can control this factor by always staying on top of your many payments. Try to anticipate if you will have any problems and handle them proactively. If there is an emergency, communicate with your creditors and try to negotiate your payments. Another way to prevent these kinds of problems is to always pay more than your monthly every month. This way, when you call your creditor they will see that you are responsible and be more likely to be flexible with your arrangement.
Credit Cards in 2010
In May of last year, the FED met with the National Credit Union Administration and the Office of Thrift Supervision convened to agree on changes to credit card policies for 2010. Their goal is to make policies fairer for consumers who may be struggling to meet the sometimes strict arrangements.
The first significant change comes in the form of grace period regulation. Now, credit card companies must give you at least 45 days notice before they can make any changes to your account. If you missed a payment, or are dealing with a universal default issue, you will always have at least 45 days before they change your rate. This can give you time to reestablish your budget, or in some cases find a new place to open an account.
The second thing you should know is that every credit card carries multiple balances. There is one for balance transfers, one for new purchases, and one for cash advances. While your statement reflects the total amount of credit you have spent, your monthly payments used to get applied to the lowest interest-bearing rate, which kept your high-interest balances open longer, allowing them to bear more interest. This, of course, means more profit for your lender. However, the new laws force credit card companies to apply your payments to your high-interest balances first. This is supposed to help you reduce lower your credit score by paying down your balances faster than ever.
The best way to see if your getting a great deal on credit cards is to firstly read what the acceptance levels are this will ensure that you don’t apply for something that you are not eligible for i.e. over 21, earning X amount as the more searches that appear on your credit report the lower your credit score goes.