Darwin's Finance » Credit cards

Free FICO Score with 7 Day Trial from Equifax- Why Not?

Darwin — Thu, 01 Apr 2010 00:02:24 +0000

Equifax has a promotion running where you get get a FREE peak at your actual FICO score (this one is the most valuable and utilized routinely in the credit industry compared to any of the individual credit bureau scores). Additionally, you get access to Score Power which tells you where you stand in comparison to others and how various actions will impact your score should you perform certain activities. All you have to do is sign up for the trial and cancel within 7 days.

Your FICO score is critically important so many facets of your financial life ranging from what kind of rates you’ll pay on car and home loans to whether employers will pass during a credit check even if you did well during your interview. Since it’s free and effortless, it’s definitely worth the couple minutes to check it out and see where you stand. Visit the Equifax FREE FICO Score page for access.

The fine print (red bold was added by me):

* To receive your 7-Day free trial, you will be required to provide a credit card when you sign up. If you don’t cancel by the end of the 7-Day free trial period, we will automatically renew your subscription and charge your credit card $14.95 for each month that you continue your subscription. You can cancel your subscription at any time. Cancellation will be effective as of the end of then-current monthly period.

Chase Freedom Cranks Up Rewards to 5% Cash Back

Darwin — Tue, 16 Mar 2010 01:41:28 +0000

Today, Chase Freedom upped the cash back rewards from 3% to 5% cash back for popular categories like gas, groceries, home improvements, airline tickets and other categories that rotate periodically. When spending outside these categories, the card pays a full 1% cash back as well. While many credit card customers are irate over shrinking benefits, rising interest rates and companies tacking on fees, Chase Freedom’s headed in the opposite direction. Perhaps this is an attempt by Chase to come in and woo new cardholders with a more lucrative reward package? Whatever the motive, given the alternatives, 5% back on popular spending categories sounds great to me.

If you already pay your balance off monthly, it’s definitely worth checking out. If you have an existing balance, you mind find some cover under the 0% APR for the first 6 months as well. If you carry a balance that you don’t foresee paying off soon though, often times, the cash back rewards cards carry a higher interest rate than other cards without such rewards, so consider whether you’re robbing Peter to pay Paul (or worse) if your motive is to reap rewards while incurring high interest debt elsewhere. In those cases, your best bet is to simply pay no interest with a 0% balance transfer card.

We use a combination of a couple cards and optimize spending in various categories on each to realize between $500-$800 in tax free cash back rewards each year. This has the taxable equivalent of about $1000 per year for simply signing up for the right cards (we DO pay off in full each month).

To summarize some key stats for the Chase Freedom card:

5% Cash Back in Popular Categories that rotate
No Annual Fee
0% Intro APR for the first 6 billing cycles that your Account is open for Elite and Premium Pricing.

You can check out more on Chase Freedom here

Today’s Financial Priority: Get a Free Credit Score from myFICO

Darwin — Sat, 07 Nov 2009 21:35:40 +0000

Routinely checking both your credit score and your credit report is increasingly important these days. Between identify theft and more rigorous credit assessments for everything from AT&T demanding a larger security deposit for high credit risks to what rate you’ll pay for a car loan, if you’re not checking both of these routinely, you’re incurring risk and expense unnecessarily – especially since you can monitor/improve your standing for free. While you can get your credit report from free as mandated by the government at annualcreditreport.com, (don’t fall for the paid sites with similar names, it’s often not actually free when they’re through with you), there is no government mandated free credit score option. But you can get your credit score FREE – see below.

Why is Your FICO Score So Important?

The only widely accepted and utilized credit score in industry is the oft-cited FICO score. This score is compiled and provided to corporations for them to assess credit risk when determining what interest rate they should charge you. In effect, by having a lousy credit score, you’re likely incurring tens of thousands of dollars in additional interest payments over a lifetime regardless of whether you ever default on a loan. The only way to know if this is happening to you and whether you need to take immediate action to improve your credit score is to start by obtaining your score.

Why Prioritize This?

You should act today – This is a process that takes a few minutes but could save you thousands of dollars on your next loan. You never know when you’re going to have to up and move for a job and take on a new mortgage or if you get in a car accident tomorrow and need to buy a new car and finance the amount your insurance company didn’t cover.

How to Quickly and Easily Obtain Your Free FICO Score

You have to go to myFICO.com which is run by Fair Issac, the originator and owner of the FICO score model. Sign up for the Free 30-day trial of Score Watch and you have to provide some simple info like your name, address, DOB, and SS#. While you have to provide your credit card, you won’t actually be billed unless you decide to stay with your 30-Day Free Trial of Score Watch. This is a legit company, so you don’t have to worry about the same tactics some of the “free annual credit report” companies utilize to block you from canceling.

Upon answering a few questions posed by the process, you get immediate access to your score and other key measures you’ll surely find useful like types of new credit, payment history, etc. and how your history is viewed by ratings agencies.
A very cool feature as well is how they’ll tell you where your rate falls on a scale and what that means for a mortgage interest rate scale (great credit scores get the best rates and poor FICO pay much more).
A Very, Very cool feature if you stay with it is that you can have myFICO actually update you in real time each time your credit score changes or hits a range you’re targeting. This could help inform when you should make a large purchase to save thousands in interest payments.
Remember that 30 days of Score Watch are free and if you decide to to stay with the program, the cost will be $89.95 a year. Depending on whether you want just a one month peek at your credit or whether the auto-inform option suits you, you can opt whether the annual fee is worth it. It really depends on your situation.
If you opt to cancel, it’s simple and quick – you can do so right from your account interface. No emails, phone calls, written notification. Simply do so through your account settings.

How my 800+ Credit Score Saved Me Thousands

I view this as one of those “High ROI” Financial activities that’s absolutely worth the couple minutes to complete. Having benefited tremendously from having good credit myself and getting a 4.625% mortgage rate (30 yr fixed conventional, no points!) and 0.9% finance rate from Honda when only the highest credit scores were being offered the best rate (car companies sometimes advertise a very low rate but most credit scores don’t meet the requirement and they get you to buy at a higher rate anyway), I can’t reinforce enough the benefits we’ve realized from having good credit. To find out where you stand and whether you need to take action on this, visit myFICO.com.

The Truth About Rewards Credit Cards – But, Is it Really True?

Darwin — Thu, 05 Nov 2009 12:01:08 +0000

There was an interesting article going around the Personal Finance circles yesterday about this ABCNews segment entitled “The Truth About Credit Card Reward Programs” and it concluded that people that utilize credit card rewards programs are irresponsible with their cards via the following statement verbatim (I bolded):

“First, studies have shown that credit card users with reward programs spend twice as much as credit users without reward programs. This leads to increasing your debt level.”

This is completely misleading and sloppy reporting in my opinion. How does one conclude that by putting a greater portion of your spending on a credit card, you’re increasing your debt level? What is true is that if you spend more than you make and you put ANY of your spending on a credit card, you are increasing your debt load on credit. But if you spend less than you make but happen to rely on a credit card as your primary means of payment, you are not incurring debt, but rather you’re a saver, right? Also, when you say “studies have shown”, what legitimacy does that lend? What studies are they referring to? Who conducted them and what were the authors’ conclusions? Not only does the statement lack substance, but remember the tried and true statistical mantra:

Correlation is not Causation

Consider our family’s situation. We’ve been very disciplined for years and 1 person handles all the finances (me) so I have complete visibility of all inflows and outflows. I’ve never paid an interest payment on a credit card save for one month when I was in college and messed up – and I’ve never forgotten it, even though it was like 27 bucks. I hate the idea of paying an above market rate of interest on anything. Paying 4.625% on a mortgage? Fine. Paying 30% to a predatory lender? No way. But since that date, we’ve always executed the discipline required to do the following: Charge virtually everything and optimize cash back rewards each month. This discipline and opportunistic role-reversal on the credit card companies derives upwards of $500 per year in tax-free income for doing nothing except abiding by good money habits. If I eat lunch at work, I charge it. If we make a large purchase, I charge it. I charge gas. While many tried and true anti-credit card advocates will certainly cringe, this is how we live and it works for us. We’re getting paid to exercise discipline.

Now, back to the premise. Because we charge a high portion of a decent annual income, we are probably charging much more than the typical American. However, the typical American carries several thousand dollars in credit card debt. I don’t believe this is an anecdote, but rather, many Americans employ the same tactic we do.While some think they’re getting these great rewards at 1-3% and then they’re paying 20%+ on a credit card are being foolish, many others are never paying a dime in interest, but they are charging a fair amount – and contrary to the article’s statement – They Are NOT Increasing Their Debt Load.

Simply Put:

Let’s take two consumers:
Consumer #1

Post-tax monthly income of $2500 and a credit card user.
NON-rewards card.
They carry debt and hence opted for a lower interest rate card that didn’t provide rewards.

Consumer #2

Post-tax monthly income of $5500 and a credit card user.
Rewards card holder.
They don’t carry debt and utilize the card heavily to maximize rewards.

Consumer #1 takes home $2500 per month, but spends a total of $3000 per month. Even though they use the card sparingly, they’re still tacking on at least $500 in additional credit card debt each month to make up for the cash they don’t have coming in the form of the paycheck. They live month to month which draws a hefty toll long term.

Consumer #2 takes home $5500 per month and spends a total of $5000 per month. They are a net saver, not spender. However, since they seek to optimize credit card utilization, they’re charging $3000 per month and paying it off the next month.

Tell me which consumer you’d rather be? While Consumer #2 is a rewards card holder and charges more/spends more overall, they’re living within their means. The inverse is true of Consumer #1.

My overall point here is that the type of card you carry does not define how much credit card debt you incur. In fact, it may be the exact reverse.

Could it be that the type of debt you carry actually drives what type of card you use? Think about it, if you already have high credit card debt, you’re probably going to seek out a 0% balance transfer or low fee card and not worry about rewards at all. You may charge as little as possible because you don’t want to add to your existing debt. However, if you have no credit card debt and don’t really care about interest rates because you have no intention of every paying an interest penalty, you’d go for a rewards card instead of a card with a low rate and no benefits, right?

It is whether you are a net spender or saver during any given timeframe that matters. The fact that reward card holders charge more is surely a multifaceted complex series of contributing factors that does not necessarily translate into an overall greater level of credit card debt per capita (at least based on the actual data provided in the article).

Informal Poll: Do you use a Reward Card or Not? Do you Have Recurring Debt or Not?

Credit Card Issuers Growth Prospects From A Micro Level View

Darwin — Sun, 27 Sep 2009 13:29:16 +0000

This is a guest post by Mr Credit Card from Mr Credit Card. Mr Credit Card has a review site full of credit card offers. Today, he is going to talk about insights from his perspective that might influence credit card issuers stock. If you are looking for a new card, check out his best credit card offer and deals section.

Since the stock market hit its lows in March of 2009, it has been on a steady rise since (depending on when you read this post, things may be different off course). Many pundits are wondering whether this rally is sustainable. Today, I would like to highlight my thoughts on the credit card industry since it is my expertise. I will go through some moves that issuers have made since the financial crisis and offer opinions on where stocks of credit card issuers are heading.

The most important point to note is that prior to the crisis, credit card issuers have been too liberal and granted credit too easily. Due to the competitive nature of the industry, they also offered to many rewards to consumers and they were not compensated for it. For the industry to get back on it’s footing, they would have to resolve these two issues. Here is what they have been doing.

Cost Cutting Measures

Increasing increase rates – Even though the Federal Reserve has essentially kept rates close to zero, credit spreads remain wide. As the securitization market has shut down, credit card issuers have found that borrowing costs have gone up as well. To preserve their margins, they have raised interest rates on existing card holders. Initially, the increases were dished out on folks who were late. A lot of credit card customers who carried a balance were pissed as hell. Then, credit card issuers decided to come clean and just say they were due to “economic conditions” (at least they were being honest about it). Then once the CARD act was passed, they simply decided to raise rate across the board.

Cut credit lines – Credit Card issuers have also been reducing credit card limits for many customers. Credit lines could be cut for so many reasons. Credit card issuers have statistics on consumer behavior that could lead to an increase in default rates. If any ones hits that trigger, they could very well have their credit limit cuts.

Here’s an example of what typically happens. A card holder has a card with a $20,000 credit line that has not been used and suddenly charges $5,000 to the card. A credit card company might slash the limit to $5,200. The reason for this is that people who suddenly use their card when they have not used them for a long time are perceived to be higher risk because they probably are using it as a last resort.

Here’s another example where Amex has cut customers lines because they shopped at Walmart.

In other instances, an unused card will simply be canceled by credit card issuers.

Reduce Rewards – During the bull market easy credit days, credit card issuers had to compete to get new customers. Because the market was already saturated, issuers had to increase their rewards. But very often, this made the cards unprofitable. Here are some examples of how they have cut their rewards.

In the good old days, the best cash back credit cards paid 5% rebates on things like gasoline, supermarket and drugstore spending. Cards like the Citi Dividend Card and the Chase Freedom (old version) had such formulas. Then they cut back to paying 3% rebates, then 2%. Now, there is hardly any card which has such generous formulas. These days, cards may still pay good rebates on certain types of expenditure, but they only pay them during certain periods of the year. The industry jargon for this is the rotating category.

Credit Card issuers has also been cutting back on gas rewards. gas credit cards used to pay 5% rebates for gas purchases. But many gas station cards are now paying rebates based on gallons purchase rather than price. Cards have also cut down their rewards from the lofty 5% levels. For example, the Discover OpenRoad Card is now paying 2% on gas rather than 5%. Amex Business Platinum is also reducing gas rebates from 5% to 3%. They are also putting limits on how much spending you can have on gas before they stop paying any rebates.

Credit Card reward programs have also been cutting on their airline travel rewards too. In the old days, you needed a fixed amount of points to get a free ticket to a particular destination. For example, it normally takes 25,000 points to get a round trip coach ticket around the continental US. But that meant that a ticket that cost $400 would be a better deal if the card holders used his or her 25,000 points than if the ticket cost $150. Such arrangements hardly exists anymore. Instead credit card issuers have arranged with online travel sites and basically, you now need 100 points to redeem for $1 worth in ticket price.

Imposing foreign transaction fees – Credit card issuers tend to slap a 3% fee when you use your card in other countries in foreign currencies. Now most cards impose that fee even if the transaction is US dollars but the company that you purchased from is a foreign company. This is another sneaky way to get more “fees”.

Getting Rid of silly Balance Transfer Offers – In the good old pre 2008 crisis days, credit card issuers were competing furiously with one another by offering ridiculous 0% balance transfer offers with no fees. There was a stage where almost all issuers had identical 0% deals for 12 months with the balance transfer fees waived. The expectation was that folks who transferred their balances would eventually be sticky customers. But instead, they simply switched to another card.

But worse than that, folks started taking on these deals because they were cheaper than a home equity line of credit! Some even took these deals and put them in online high yield savings accounts (which yielded 5% in the good old days).

These days, issuers are now imposing balance transfer fees and cutting down introductory periods to 6 months. They have also essentially removed most balance transfer offers from business credit cards.

Cost Cutting Over – Now what?

As I have illustrated above, credit card issuers have done the necessary measures to weed out “high risk” accounts. They have also for the most parts reduced the rewards that they pay out. But does that mean that they are good investments now? I’m not too sure. Here’s the missing piece of the puzzle.

Consumers have too much debt – The problem with the whole credit card industry is that the market is pretty much saturated in the United States (unlike some emerging markets elsewhere). Most folks already carry a few cards. So it really makes me wonder where will growth come from. I hunch tells me that it will come from innovative offerings to those with very good credit.

Traditionally, issuers like Amex and Discover have tended to target more affluent households. But even some like Amex have been swept up by the “easy money” era. Rather than sticking to their charge cards, they went after the unsecured credit card sector. Their Platinum Card used to be pretty cool until they issued it to thousands of folks and came up with the Centurion Card. But if Amex went back to their core competencies and only did charge cards to high end accounts, their company would be a lot smaller than today!

Impact of CARD Act – The immediate impact of the card act is that credit card issuers have less leeway to make money on things like late fees, over the limit fees etc. They also need a longer time to inform customers of any rate changes.

With the passing of the CARD Act and the fact that consumers are in a debt reduction mode, I think credit card issuers will have a slow growth path ahead. Yes, we might see default rates drop down the road, but my suspicion is that the days of people getting new credit cards all the time are over. My two favorite issuers are American Express and Discover and I think that if they can shrink their business and focus more on high end customers, they will have a very sustainable business model.

Issuers like Chase and Bank of America are in a consolidation phase because of their past credit card acquisitions. Chase took over Bank One’s portfolio and BOA bought out MBNA not too long ago. We are likely to see them consolidating their credit card products and trimming customers. So from that perspective, we might see some positive effects from product consolidation and cost cutting.

Reputation Tarnished – The actions that credit card companies took (like hiking rates and reducing credit lines) may have been necessary to protect themselves against a rise in default rates. But there was a lot of collateral damage in that folks with great credit also got hit. I get lots of angry comments on my blog and I think that many folks are so pissed (coupled with the fact that these companies got taxpayers money in a bailout) that many will not be too thrilled applying for another credit card if they do not need one.

Conclusions – For folks looking to invest in credit card companies, you obviously have to look the financial statements, data and valuations to see if there is any compelling valuations. What I’ve tried to put here is some perspective from someone who see their actions on a micro level. From where I sit, I do not expect this sector to be a great growth story going forward.

If you’re looking to Guest Post at Darwin’s Finance or Everyday Finance, see these guidelines and contact instructions.

Sallie Mae Study Shows That College Students Are Using Credit More Often

Darwin — Tue, 19 May 2009 02:10:06 +0000

The following is a guest post at Darwin’s Finance from Think Debt Relief. If interested in guest posting here, inquire further via this contact form.

A recent study by student lender Sallie Mae shows that college students are now relying more heavily on their credit cards than they have at any time in the past. College students carry an average balance of nearly $3,200 and graduating seniors leave their institutions with more than $4,100 in credit card debt.

The number of freshman college students that carry a zero balance has dropped to just 15%, down from nearly 70% in 2004. The average freshman college student’s debt is $939.

The study also showed that 6 in 10 college students indicated that they were surprised by the size of their balance. Four in ten student respondents admitted charging items that they could not otherwise pay for.

Graduate students haven’t fared much better. According to 2006 research conducted by Sallie Mae, the average graduate student’s credit card balance was more than $8,100, and older graduate students Ã¢â‚¬â€œ those between the ages of 30 and 59 Ã¢â‚¬â€œ carried an average credit card balance of nearly $12,600.

Ninety-two percent of students said that they had used their credit cards to pay for education expenses like textbooks. This represented a seven percent increase from the 2004 study group. According to the latest research, three in ten students had used their credit cards to pay tuition expenses, up from 28% in 2006, and up from 24% in 2004.

What’s most concerning about the use of credit cards to pay tuition bills is not the percentage of students who do that, but rather the amount they’re putting on their credit cards. In 2004, survey respondents said that they had charged direct education expenses of $942 on average. The 2008 study group reported that they had charged on average $2,200 in direct education expenses, an increase of 233%.

Only 17 percent of respondents said that they paid their credit card bills in full each month, a 3 percent drop from the earlier survey. According to the survey, college students have 4.6 credit cards on average, and half of all 1,200 respondents had more than four credit cards.

One-third of students in the survey reported that they never discussed credit cards with their parents. These students were most likely to use their credit cards to pay tuition and were most likely to be surprised by their credit card balances.