BIDaWIZ Blog » CREDIT CARDS

Should I Apply For a Personal Loan Or Use My Credit Card?

The BIDaWIZ Team — Fri, 28 Mar 2014 22:45:47 +0000

Unlike a mortgage or a auto loan, a personal loan can be used for almost any purpose. It’s set up for a specific length of time at a fixed interest rate which is typically lower than most credit card APRs. Many banks and credit unions offer personal loans and now there is a whole new market of peer to peer lending networks established by companies like LendingClub and Prosper.

Do I need collateral to get a personal loan?
Typically, personal loans are unsecured, so no collateral is necessary. But that also means interest rates are higher than those on secured loans, like mortgages. Some financial institutions do offer secured personal loans, so you can use items like your savings account or certificate of deposit with that financial institution as collateral. Having a secured personal loan might garner a lower interest rate than that for an unsecured loan.

What else is required?
Even if you apply for a secured loan, it’s likely your bank or credit union will want you to provide information about your employment status and monthly income. With an unsecured loan, financial institutions generally focus on a person’s credit score and credit history, as well as their employment and income, to determine the loan’s interest rate. Some also take your other assets into account, while others don’t consider them.

The alternative lending platform such as LendingClub and Prosper offer many compelling reasons as the rates can be as low as 6.03% if you’re a high quality borrower and the loan can be funded in days. However, don’t consider these options if you have a low FICO score or have a debt to income ratio the exceeds 25% (excluding a mortgage). It’s also not recommended to send in multiple applications for loans as that can hurt your credit.

Compare to credit cards
Regardless of whether you apply for a secured or unsecured personal loan to get your hands on quick cash, the interest rate will typically be cheaper than that of a credit card cash advance. Some credit card companies offer low- or no-interest cash advances for a short period of time, but charge a transaction fee that is often 3 percent to 4 percent of the amount borrowed. Unless the cash advance is paid off within a few months, the interest rate soars.

More Financing Questions?

Is Your Spouse A Joint Cardholder Or An Authorized User?

The BIDaWIZ Team — Fri, 27 Sep 2013 13:12:08 +0000

As part of the new credit card regulations implemented by the Consumer Financial Protection Bureau, issuers are no longer allowed to deny applicants based on their income. The regulations have caused some issuers to discontinue offering joint cardholder products. What does this mean for you?

Responsibilities for joint cardholders
Joint cardholders, as opposed to authorized users, are equally liable for the amount owed. When there is only one cardholder and one or more authorized users, only the primary account holder is liable for the debt. As you might expect, this means that the primary cardholder is responsible for all of the debts accumulated on the account, no matter who made the purchases.

Many issuers are eliminating joint credit cards
Chase recently announced plans to eliminate offering joint cardholder accounts to new customers in response to the regulations. Several other issuers such as HSBC and Capital One have already eliminated the offering. It’s important to note that this only applies to new cardholders, not existing ones. In case you’re wondering, American Express and TD Bank never allowed joint cardholder accounts.

Which issuers still allow joint cardholder accounts?
Bank of America, Wells Fargo, U.S. Bank and Discover still allow customers to open joint cardholder accounts. However, we believe that it is a matter of time before these other issuers will remove joint cardholder accounts altogether.

More credit card questions? Browse answers or ask your personal finance questions online.

Useful Credit Card Benefits That Are Often Overlooked

The BIDaWIZ Team — Fri, 26 Jul 2013 03:08:29 +0000

Credit card companies are mainly known for extending credit to their customers when they don’t have cash in hand. To the surprise of some cardholders, there are many other ways that credit cards may provide benefits.

Lost, stolen or damaged items
Most consumers and businesses don’t realize that they have what is called purchase protection when they use their credit card to purchase an item that is lost, stolen or damaged. This coverage can come in handy when the merchant won’t provide a refund and there are no other options. Every major credit card issuer offers purchase protection for free with the exception of Discover. American Express offers the greatest protections at $1,000 per occurrence and $50,000 per year for basic cards and $10,000 per occurrence and up to $50,000 for most platinum and centurion cardholders. Visa Signature cards provide coverage of $500 per occurrence and up to $50,000 per year. Mastercard offers coverage of $1,000 per occurrence and $25,000 per year, with certain cards eligible for a maximum of $50,000 per year. It should be noted that all major credit card issuers provide coverage up to 90 days from the purchase date. Hence, make sure you report the claim to the credit card company immediately. We would also add that it make sense to use your American Express for expensive items for the added purchase protection.

Car rental and travel insurance are usually not necessary
When you’re at the checkout counter to pickup your rental car, you’ll almost always be offered insurance for an additional $30 or $50. The added protection to cover you in case you get in an accident may be enticing, but your credit card likely provides most if not all of the same coverage. Always decline the collision damage waiver.

The same rules apply for travel insurance. Many air carriers will offer travel insurance in case you cancel because of sickness or injury. Most credit card issuers also provide this same coverage and even protect you if you’re luggage is lost or stolen.

Prices drops for purchased goods or services
Many credit card companies offer to reimburse you should the price of the service or good drop within two months of the purchase date. The savings can be significant if the item later goes on sale.

More credit card questions? Browse answers or ask your personal finance questions online.

Will Closing Credit Card Accounts Hurt My Credit Score?

The BIDaWIZ Team — Fri, 14 Jun 2013 19:33:44 +0000

There are many consumers holding too many credit cards. This may be because they’ve signed up for new cards for the offers or they’ve accumulated credit card debt and opened a few additional ones to survive. Whatever the case, this may be the year to consider closing a few accounts. This can be achieved, but act with caution.

Monitor your credit utilization ratio
This ratio measures your total credit balance across all cards divided by the total credit limit. For instance, if you have a $3,000 credit card balance on a Visa with a limit of $5,000; a $2,000 balance on a MasterCard with a limit of $10,000, then your credit utilization ratio would be $3,000 + $2,000 divided by $5,000 + $10,000 or $5,000/15,000=33.33%. Ideally, you should try to keep balances below 30% of your credit limit.

Should I close my credit cards with zero balances?
Technically, you could close credit cards with zero balances. However, there could be a consequence to your credit score depending on the credit limits on those cards as well as the debt balances on the cards you are keeping open. We’re specifically referring to your credit utilization ratio as discussed above. The reason being is that when you close a credit card account, your total available credit decreases and your credit utilization ratio increases. You can offset the negative impact to your credit utilization ratio by requesting an increase in credit for the cards that you are keeping open.

Another factor to consider is whether or not the credit cards have annual fees. If not, then it’s probably best to keep them open until you pay down the remaining credit card debt.

What about credit cards with a long history?
Another point to consider is that the age of your credit card accounts is valuable. Closing a credit card with a longer history than a shorter one can be very hurtful to your score.

It is also important to understand that closing a credit card account doesn’t mean that your balance goes away too. The balance remains on your credit card account until it is paid off.

More credit card questions? Browse answers or ask your personal finance questions online.

Should I Sell My Car to Payoff Credit Card Debt And Lease One Instead?

The BIDaWIZ Team — Fri, 12 Oct 2012 18:30:05 +0000

The average household still carries over $7,000 of credit card debt, with many above ten thousand. Credit card debt is perhaps one of the worst types of debt to carry as interest rates are typically high at 15%-20%. One option that debtors may want to consider to lighten the load, is sell their car and lease one instead. Is this a smart decision for you?

Should I consider leasing instead?
It depends on your credit card balance, but its likely that every month or so, you need to pay at least a few hundred dollars in principal and interest. Couldn’t you put that money that’s in your budget towards a lease? There are plenty of decent vehicles on the market that cost around $200 or less per month. If you can sell your car for a decent price and obtain a lease with a low interest rate, you’ll be able to payoff your credit card debt and keep it off.

Why you should be concerned about credit card transfers?
If you have credit card debt and recently moved it to a zero APR account, you should be very concerned about interest rate resets. While balance transfers into a zero APR account can be attractive, the interest rates typically reset after a period of time and can be very high. This would be another reason to sell your car and consider a lease instead.

Do you have any other questions? Find out ways to payoff your credit card debt online.

Should I Withdraw From My IRA or 401K to Pay Down Debt?

The BIDaWIZ Team — Fri, 28 Sep 2012 15:30:48 +0000

This is a common question that frequently crosses our desk. Individuals with credit card debt often consider withdrawing from their retirement accounts to pay down debt. While this may seem like a simple decision, there are many factors and costs to consider before withdrawing.

The interest rate isn’t the only factor
On the surface, it may seem like this is an easy decision since a 15% annual interest rate on credit card debt is greater than the 5-7% you earn on your retirement income. However, there are more costs to consider. If you withdraw from your retirement account, you will owe federal and state incomes taxes. The amount of taxes you will owe, depend on what ordinary income tax bracket you are in and where you live. For instance, if you withdraw $10,000 from your retirement account, that can quickly turn to only $7,000 after factoring in federal and state incomes taxes of say 25% at the federal level and 5% at the state. What’s more, if you withdraw from your retirement account before reaching 59 1/2, you will be taxed an additional 10% on the withdrawal. Therefore, that $7,000 has quickly turned to $6,000 and you’ve effectively lost 40% of your retirement withdrawal to taxes. In addition, you will lose out on the compounding interest in your retirement account.

What other retirement income do you have?
Unless you have a significant amount of retirement income in other places, generally it is not recommended to withdraw from your retirement account to pay down credit card debt. There are certain situations in which you may need to consider withdrawing from your retirement income. If it means avoiding filing for bankruptcy, then it may be considered.

Do you have any other questions? Ask your credit card debt questions online.

Protections For Small Business Credit Card Holders Continue to Lag

The BIDaWIZ Team — Thu, 09 Aug 2012 18:00:30 +0000

Many small business owners are finding that consumer credit cards are providing more financial flexibility and greater protections than business cards. Specifically, the credit card act of 2009 provides significant protections for consumer issued cards. Should you consider a consumer credit card for your business purchases?

The advantages of a consumer card over a business card
Consumer credit cards have greater protections when it comes to fees, arbitrary rate increases, changes in credit limits, and consumer liability for theft and fraud. Those same protections in the congressional Regulation Z of the act, are not present in many credit cards issued for businesses. Moreover, many business cardholders can be dealt with heft late payment fees, credit limitations to their account and significant interest rate increases. This can make a big difference businesses that use their credit cards as a line of credit to make long-term investments. The credit limit for a business card can be slashed without much notice which would significantly limit the company’s spending capability.

What about accounting for business transactions on a consumer credit card?
This is where businesses need to be very careful. Accounting for transactions can become a bookkeeper’s nightmare if you commingle personal transactions with business transactions. If you are going to use a consumer credit card for business transactions purely for the protections and financial flexibility, use a separate consumer card for business transactions. This will allow you to easily determine how much interest and fees you can deduct at the end of the year. In addition, recording transactions and reconciling balances will be straight forward. If you own a corporation, you also want to be careful about not piercing the corporate veil by commingling personal purchases with business transactions.

Should I use a consumer card for my business?
If your business has a squeaky clean credit card record and you don’t anticipate any hiccups in the future, a consumer card isn’t necessary. But, those businesses that are struggling to survive, may want to look into using a consumer issued credit card.

More questions? Browse answers or ask business credit card questions online.

What Actions Will Hurt My Credit Score?

The BIDaWIZ Team — Fri, 20 Jul 2012 16:00:54 +0000

One of the hot topics the past few years relates to credit, since it is so difficult to obtain these days. It is quite possible that certain actions you have taken or are thinking about taking now, will hurt your credit score. Find out what they are.

Should I apply for a credit card to get a shopping discount?
Many shoppers are eager to get that ten to twenty percent discount off their first purchase by applying for the store credit card. While it is true that having a high amount of credit available to you can lower your credit utilization ratio, several credit inquiries in a short period of time can be more detrimental to your score. It is okay to open up one or maybe even two store credit cards, but the credit bureaus track the number of applications or what they call inquiries which raises a red flag.

Should I apply for a credit card with my spouse?
It depends. If both spouses have excellent credit scores and reports, then it is perfectly fine to open up joint credit card accounts. However, if one spouse has a credit score in the 700 plus range while the other is sub 550, then it can be detrimental to the spouse with the higher score. The result is that it will be more difficult to obtain a mortgage with favorable lending terms.

Should I be hesitant in closing my oldest credit card accounts?
There’s a misconception that closing credit card accounts that you’ve had for a long time will lower your average age of credit history. That’s not true at all. Even if you close a credit card account, the history stays on your credit report.

Will shopping around for the best mortgage rate hurt my credit score?
Any time you apply for a mortgage an inquiry is generated which is documented on your credit report. As we’ve previously mentioned, it can be hurtful if you have many inquiries in a short period of time. However, under the new FICO scoring formula, you can shop around for a mortgage, auto loan or student loan with no impact to your score if done within 30 days. If it is within 45 days, it is only counted as one inquiry, no matter the number of inquiries.

Old debts can eventually hurt your score
Any debt you owe, regardless of whether or not it is due to the government, can eventually hurt your credit score. The lender can file a claim with a collection agency which will be tracked on your credit report.

Do you have any other questions? Ask your credit score questions online.

Should I Close My Old Credit Cards?

The BIDaWIZ Team — Thu, 14 Jun 2012 23:00:58 +0000

Over the years, you may have accumulated several credit cards ranging from traditional ones to those issued by gasoline companies and department stores. Some of those cards may hardly be used since you only opened those accounts for the original discounts. Now, you are thinking about closing the accounts for a few cards. Before you do this, act with caution.

Understanding your credit utilization ratio
This ratio measures your total credit balance across all cards divided by the total credit limit. For instance, if you have a $3,000 credit card balance on a Visa with a limit of $5,000; a $2,000 balance on a MasterCard with a limit of $10,000, then your credit utilization ratio would be $3,000 + $2,000 divided by $5,000 + $10,000 or $5,000/15,000=33.33%.

Closing a credit card account reduces your total limit
In the above example, let’s suppose that you want to close your Visa account which has a balance of $2,000 and a limit of $5,000. By doing so, your overall balance doesn’t change but your credit limit or the denominator would decrease. Specifically, it would go from $15,000 to $10,000 and thus your credit utilization ratio would go from $5,000/$15,000 or 33.3% to $5,000/$10,000 or 50%. Lenders and the credit bureaus may identify a higher credit utilization with a borrower that is closer to maxing out their credit cards across accounts. This should be avoided since your credit utilization ratio accounts for ~30% of your credit score.

It is also important to understand that closing a credit card account doesn’t mean that your balance goes away too. The balance remains on your credit card account until it is paid off.

Increase the credit limit on another card before closing an old card
There is a way to avoid being penalized for closing an old credit card account. Increase the limit on another card before you close the old card which will prevent an increase to your credit utilization ratio and thus a hit to your credit score.

More credit card questions? Browse answers or ask your personal finance questions online.

Do You Need A Cosigner For A Loan?

The BIDaWIZ Team — Wed, 30 May 2012 19:00:59 +0000

Many students and potential homeowners are unable to obtain a loan on their own because they lack a strong credit history. Now more than ever, lenders are risk averse when it comes to issuing loans to new debtors. Is there a way around this common problem?

Cosigner for a loan
Parents are the most common cosigners as students often lack the credit history needed to obtain a student loan and young professionals have little if any earnings history to show mortgage lenders.

Most co-signers will need to have an established credit history to help the borrower obtain the loan coupled with the ability to absorb the debt should the debtor be unable to make interest payments. In addition, cosigning must not have an impact on their own financial plan. Most cosigners don’t realize that the loan can affect their own ability to get financing since a co-signer is legally obligated to pay the debt if the borrower defaults. It counts the same as their own loans on a credit report. Therefore, in most cases a co-signer will need to have a more financially sound credit profile than if they were to obtain the loan themselves. In any case, having a cosigner can be the difference between having your loan application accepted versus rejected.

Can the cosigner be released from the loan obligation?
Over time, the debtor may be able to meet the lender’s loan requirements as they establish credit and their income grows. Most lenders will require that the debtor make timely interest payments for one to two years as well as show income growth. They also can’t slip up on interest payments for other sources of debt as that will appear on their credit report too.

Who can claim the tax deduction on the interest payments?
Either party may deduct the interest expense, or the parties may divide the interest expense deduction.

More Personal Finance Questions? Browse Answers or ask cosigner loan questions online.