Archive for the 'Credit Cards' Category
A look at how your credit score works
Comments(1)Credit scores determine everything from job positions, insurance premiums and most importantly, the interest rate assessed to your line of credit. Your credit score is your worth as a borrower and a way for banks to determine risk. A high credit score shows that you have paid your bills on time, and that you are in good standings with your current creditors. A low score shows that you are unlikely to repay your debts. A credit score is calculated several factors, race or gender do not play any role. Neither do things such as time length of employment or medical history.
Your credit score is calculated by the amount of debt you have, the types of debt, how often you have paid your bills timely, how much new credit you have been seeking and how long you have had credit.
The largest portion, 35% of your score, is based solely on your payment history. If you have paid on time without being late on payments, chances are good that you will possess a good credit score. Lenders like to see that you can pay them back in a timely manner, thus they give lower rates to people with good credit.
The next 30% is based on how much money you owe, also known as utilization, or the amount you have used of each line of credit. If you have spent $10,000 on a credit card with a $15,000 credit line, you are above a 50% utilization, therefore your score will be negatively affected. Creditors like to see that you can manage your credit lines, rather than be slave to them.
Another 15% of your score is dedicated to your credit lifespan, or how long you have had credit lines open. Keeping old credit cards open, even if you do not use them, helps boost this part of your score by raising the average age of your accounts.
The remaining 20% is split between the types of credit you have open and how much credit you’ve been seeking. Its good to have a portfolio of credit, such as a credit card, mortgage and a car loan. This shows that you have experience with debt. The bank also takes into consideration how many inquiries are on your credit report, if you are actively seeking credit, you probably are in a financial hardship. When this is the case, most often lenders will either not want to lend you money, or they will do so at a greatly increased interest rate.
Let credit cards pay you
Comments(1)Frequent flier miles, cash back on gas and fast food purchases and a free 55 day loan? Many people associate the savings of cash back and miles as the only way to produce revenue from a credit card. In fact, a credit card is a great way to buy everything on an interest free 55 day loan while collecting the card’s rewards.
Credit cards and their billing cycles can be very difficult to understand. Generally speaking, a billing cycle is a 30 day period on which you can make charges followed by a 25 day grace period, or the amount of time before a credit card payment is due.
Take for example a large purchase such as a sofa. You want a great new $700 couch to put in your living room and of course want to pay as little as possible for it. If you were to charge the couch on the 5th of the month, you would only be 5 days into your billing cycle, therefore you still have 50 days to pay it off; 25 more days in the billing cycle and 25 day grace period.
Instead of paying cash, you put the couch in a credit card for $700. You will not actually have to pay for the couch until the bill is due and you will profit from any rewards programs (such as 1% cash back) in the meantime. Just by using your credit card, you will get a nice $7 back in rewards, and receive an interest free loan for 55 days, or 50 days in this example.
Another benefit is that your cash can sit in your bank account until the payment is due. Considering a 3% yield on deposits, you will earn an additional $3 just by keeping the amount ($700) in your bank account. In total you are receiving a return of $10 for the $700 purchase that you were planning to make anyway. You can see over the course of a year how quickly your savings will add up. A credit card can be used to pay virtually everything, mortgage, utilities, gas, groceries all on a 55 day interest free loan.
If you were to use a credit card for your entire monthly budget of say $2500, you would get $25 in cash back rewards and save $11 in interest each and every billing cycle. A $36 savings just by paying with a different medium is nothing to balk at, that is like getting your cable for free.
