How To Maximize Your Credit Card Rewards?

For some, credit cards can be a trap, creating a never-ending spiral of debt and high-interest rates. For others, credit cards are a source of free airline miles, gift cards, and even extra cash. If you are a savvy consumer and always pay your bill in full, credit card rewards are the icing on the cake, giving you free perks just for spending on the stuff you already buy.

If you are financially responsible with a strong credit score, you can get in on these credit card bonuses and enjoy a steady flow of cashback, gift cards, airline miles, travel perks, and other offers. While you make sure to avoid the common credit card mistakes, read on some tips for making the most of your credit card bonuses too.

Book Some Quick Rewards with Signup Bonuses

Competition is stiff among credit card issuers, so much that banks will pay you to take their cards. If you watch the offers and choose your cards carefully, you could scoop up hundreds of dollars in sign-on bonuses just for using your new card.

Requirements differ, and you will need to read the fine print and make sure you satisfy all of the qualifications. Some bonus offers require a minimum amount of spending in a set period, while others ask that you maintain a bank account at the issuing bank. Be sure to follow up once the requirements have been met to make sure you get the points or cash you have coming.

Sign Up for Extra Points

From time to time, credit card issuers offer exclusive bonuses, like five times the points at restaurants or gas stations or extra cash back or points for shopping online. Be sure to sign up for email alerts, so you know which offers are active and how to take advantage of them.

Keep careful track of when these various special offers expire so you can adjust your card use accordingly. It may take some juggling, but these bonus offers can pay handsomely if you are willing to work at it.

Use the Right Cards in the Right Places

If you truly want to maximize your credit card rewards and take advantage of the best bonus offers, start by using the right card at the right time and place. If you have a card that gives you bonus points when eating out or buying groceries, pack that plastic before heading out to the store or local restaurant. If another card offers extra points for gasoline purchases, make sure you have it the next time you fill-up.

These bonus offers are subject to change, so make sure you keep abreast of the changes to maximize your rewards. And be sure to double-check your monthly statements to make sure you are getting all the base and bonus points you deserve.

Maximize Rewards with Discount Offers

Once you have earned the rewards, it is up to you to maximize them. Different rewards can have different monetary values, so look at your options carefully and choose what is best for you.

For instance, you may be able to turn your credit card points into cash, but a gift card could be an even better value. If you can get a $125 gift card to a favorite merchant instead of a $100 check or statement credit, that could give you the best bang for your credit card buck.

It is easy to get sucked into a spiral of credit card debt and high-interest charges. Still, there is another side to the financial equation. If you are highly disciplined with a solid budget in place, you may be able to beat the credit card companies at their own game, starting with the reward maximizing strategies listed above.

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What to Consider Before Getting Your First Credit Card

Getting your first credit card means setting off on a road of financial freedoms, as well as taking on a huge responsibility. When researching credit cards, there are a lot of different things to consider! From interest rates, to payments, as well as all of the reasons to have one, you should keep in mind a lot of different things.

Why are You Getting a Credit Card?

All in all, getting a credit card is a major life decision. How you use it and manage the payments can greatly affect you in the future! Before you get your first card, you should really contemplate all of the reasons why you are getting it. You can also look into why you should get a card to begin with!

Why are You Getting a Credit Card?

You Need it for Purchases

If you’ve traveled in the last few years, or tried to make a large purchase, you will find more and more things require a credit! Not only that, but you can’t even make the purchase without one! Here are a few things that you will likely need a credit card for:  

  • Building a Credit History. In order to build a credit history beyond student loans and mortgages, a credit card is a good idea. This will help you to make large purchases down the road. All things considered, houses, cars, boats, condos, anything having to do a credit check beforehand will lead to you needing a good credit score.
  • Renting a Car. Not only can you travel using credit card points, but you can also use a card to rent a car. It’s actually a requirement for most major rental car companies. Because companies don’t want to risk their assets, if you damage a rental car, they need you to pay. A card is a great way to ensure they get their money.
  • Reservations for Hotels, Cruises, Vacations, etc. Although you can make a lot of reservations with a debit card, there are some companies that only make reservations with a credit card. Not only can you not book the destination packages, but you may not be able reserve the holiday of your dreams to begin with!

Altogether, there are more and more purchases that you can only make with a credit card.

Credit Card Rewards

One of the reasons you may be looking into your first credit card may be to reap the widely advertised benefits. You can get discounts at places you regularly buy goods from, or even services provided. Not to mention the wide array of cash rebates, travel rewards, merchandise perks, gift cards, and so much more that credit card companies offer! All things considered, it’s not a BAD reason to get a credit card and build a credit score.

First Credit Card Need to Know

Before you get you first credit card, you should know how you’re going to pay it off, all of your personal limitations with spending, as well as how you’re going to use it! Like knowing what happens to your debt when you die, you need to know all the different details about your own spending and debt.

Whether you simply use it to fill your gas tank, to get groceries, or even to buy plane tickets, you should first know whether you can pay your minimum monthly payment. Once you know this information, you can get down to the nitty gritty of what you need to know before getting your first credit card.

How Do Credit Cards Work?

One of the most important factors to consider when getting credit cards is how they actually work! Having a credit card is like taking out several tiny loans. First, you’ll get approved for the card. Secondly, you’ll begin to make purchases with said card. Thirdly, you’ll repay the outstanding balance within your thirty-day period to avoid interest. Building your credit history can be uncomplicated, inexpensive, as well as rewarding!

Credit Cards Interest Rates

There do come times when paying off your entire balance within the thirty-day period is, in a word, impossible. Because your first card will be a new experience, it’s important to understand interest rates before you sign up!

Credit Cards Interest Rates

Interest rates are calculated according to your unpaid balance, or your average daily balance after your payment is due. Next, this figure is multiplied by the card company’s annual percentage rate (APR), as well as the number of days in the month, and other figures in your contract. Finally, you have your monthly interest rate that accrues if you continue to let your balance go unpaid.

It’s good to know exactly how this works in detail. If you have questions, or even need someone to explain it to you in more thorough detail, you can always contact the credit companies directly. This makes it easier to understand what may happen if you can’t pay the entire balance each month, as well as how you can help avoid paying the rates to begin with!

Knowing the Ins and Outs of Your First Credit Card

There are so many things to consider when researching getting your first credit card, perhaps of many. Whether you’re looking into finding the interest rates, knowing how you can pay off the minimum monthly payment, as well as finding the right rewards, there are a lot of factors! Using these helpful points, you can confidently sign up for your first credit card and start spending wisely.

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Don’t Fall for the Minimum Payment Scam

Don’t get trapped!

I’ve written a lot about credit cards and their many advantages.  Things like earning rewards, extended warranties, travel benefits and fraud protection just to name a few.  I wrote a post very recently about how credit cards are so much better than debit cards.

But credit cards can also be death to your finances.  If you don’t pay on time and in full, you will be subject to late fees and interest.  A LOT of interest.  Credit card interest rates are easily in the double digits.  And some cards can be in the 20% range.  There is no reason anyone should be paying this much interest.

And consumers know this.  Most adults know that not paying your credit card in full will lead to interest being charged to your balance.  Knowledge isn’t the problem.

The problem is that the credit card companies have made it palatable for consumers to carry a balance and be charged interest along the way.  The way they do this is by offering the “minimum payment.”

And it’s a complete scam that is designed to take money from consumers and turn it directly into profits for the credit card companies.

‘Til Debt Do Us Part

Here is a screenshot from one of my recent credit card bills:

Every credit card statement includes a message like this.  They are literally telling us that making the minimum is bad for our finances and showing us how bad it is.  In this case, the minimum payment was $25.  That’s such a reasonable amount why wouldn’t I take the credit card company up on this offer?

Because the interest rate on this card happens to be 15%, and it would take me 2 years to get out of debt.  And most people have multiple credit cards asking for a minimum payment.  And all of this assumes that you will never spend another cent on your card (which is why it’s called revolving debt by the way.  Debt is being paid off while new debt is being created).

So even with this warning from the credit card company itself, why do so many people just default to just paying the minimums on their cards?  Because it’s just easier.

We live in a monthly payment type of society.  And it just seems a lot cleaner to add your credit card minimum payment to your pile of monthly obligations.  Put it on auto pay along with the car loan, student loan and mortgage.  Just set it and forget it right?  But in this case, forgetting about all of that interest building up in the background will destroy your finances.

Credit Card Debt is an Emergency

There is no such thing as a free meal.  If you get a “free” meal, you will most likely be on the receiving end of a sales pitch.  Just eat, smile, nod and be on your way.

Paying off credit card debt is the closest thing to a financial free meal you can get.  Getting into credit card debt and paying 20% in interest month after month is not ideal.  A situation like that, which many families find themselves in unfortunately, will keep you in financial prison forever.

But once you realize this and commit yourself to getting rid of that debt, no other financial decision matters.  As high as credit card interest rates are, there is no investment out there that would justify you not getting rid of that debt as fast as possible.

If you’re paying 20% interest on a credit card, getting rid of that debt will be the equivalent of getting a 20% return on your money!  While avoiding the debt is a much better first step, paying it off ASAP is the next best thing.

That’s why I consider credit card debt an absolute emergency!  All discretionary spending such as new cars, vacations and fancy dinners out should be put on hold until the debt is gone.  It’s much easier said than done but it’s the only way you’re going to get out of financial hell.

The worst part is that credit card companies don’t want you to feel this.  They want you to feel comfortable shelling out 20% more money than you should each month.  The goal is for credit card debt to become the “new normal”.

But you know better than that.  Take care of credit card debt first and then focus on your other goals.  That’s the closest thing to a financial free lunch you will get.

Enrich Yourself, not Visa

Banks make a TON of money off of credit cards.  That’s why we will keep getting bombarded with credit card offers for as long as we live.

It’s actually pretty absurd.  Banks are simply offering a 30 day loan and charging an exorbitant amount of interest for it.  At least with an auto loan you can enjoy your car and get some use out of it.  But with credit card debt there is no collateral that you can really make use of.  Those fancy dinners out are just a memory at that point.

So don’t fall for the minimum payment scam.  There is no use for it except to keep consumers in debt for their entire life.  It’s all very sinister if you really think about it.  People become depressed and even commit suicide because of debt.  But as long as banks continue to profit off of credit cards, they couldn’t care less.

Free yourself and pay off your debt in full!

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How to Raise Your Credit Score FAST

Ride some coattails to a higher credit score!

Living off the grid sounds great.  You don’t have to field calls from telemarketers or keep up on with the latest Trump headline.  As long as you find a way to take care of hygiene once in a while, life will be good.

For those of us not looking to live in the wilderness with our family, a credit score becomes very important.  To get a house, car or education, you will need a loan at some point.  In order to get a loan, and then get a great interest rate on the loan, you will need a great credit score.

Many writers, including myself, have written about how to increase your credit score.  FICO, the people who assign your credit score, even have a nice graph that shows what factors affect your score the most.

As long as you make your payments on time and keep your credit utilization low, you should be good.

It can take years to build up a great score.  But what if you want to increase your score quickly?  And with almost no work needed?

There is a way to do just that by using a little feature all credit card issuers offer.  Enter the authorized user.

Authorized User Pros

Almost all credit card companies allow you to assign an authorized user (AU) to your account.  The primary card holder will sign them up, and it can be usually done online by entering some information about the AU.

Once the AU is approved, they get their own card with their name on it.  But all charges need to be paid by the primary card holder.  If the AU goes on a spending spree, the burden will still fall on the primary card holder.  So be very careful who you choose.

The AU does get a number of benefits:

1.  Credit score boost!  This is arguably the biggest benefit of being an AU.  If someone is young with no credit history or has a low credit score due to some past mistakes, becoming an AU can be a good option if the primary card holder has a great credit score.  Being an AU will put the primary card holders info on the AU’s credit report.

While nothing is guaranteed in the credit score boosting arena, if the primary card holder has a great score and a stellar credit history, the AU will almost always see a boost in their own credit score.  This can especially be helpful if one spouse has a great credit score and the other needs to build some credit.  Just add the spouse as an AU and watch their score skyrocket.

2.  Using a great credit card they would have otherwise not have been approved for.  Many people either have no credit or a low credit score.  This means they will likely not be approved for any of the awesome reward cards on the market.  Even though the primary card holder technically gets the rewards, if a family member is an AU it’s more points for everybody!

Having access to a great card such as the Chase Sapphire Preferred or American Express Platinum card has many additional benefits such as primary rental car insurance and travel benefits.  And with the associated credit boost that comes with being an AU, they might be able to get that great credit card on their ownat some point!

3.  Responsibility.  With a safety net.  A credit card is like a machete.  It is a tool that can be used to your benefit.  You can track all of your expenses in one place.  And you can earn some great rewards depending on what type of card you have.  Responsible credit card use has many benefits.

But it is also a tool that can harm you if not wielded properly.  Late payments and carrying a balance will dig you a financial hole real fast.  Double digit interest rates will quickly erase any gains from investments you may have.  And it’s really easy to get into credit card debt if you’re not careful.

Being an AU eliminates the risk of you getting into trouble with a credit card.  But only because the responsibility is on the primary card holder!  Hopefully, they are savvy enough to be able to erase your mistake and counsel the AU on not making them again.  This is a rare free pass in the financial world.

So the risk falls squarely on the primary card holder.  The AU is in the clear.  But if they’re not careful, the primary holder just has to make a call and tell the company to drop the AU.  So the risk is there, but can be minimized in an instant.

Big Upside with Little Risk

Adding an AU is an easy process that can be potentially beneficial for the AU.  It can provide a nice credit score boost if the primary card holder has a great score.  And the AU will get the benefits of using a credit card with potential rewards.

The risk falls on the primary card holder.  If the AU has a spending problem, the primary holder has to foot the bill.  Luckily, they can also cancel the AU in an instant.  So the risk is relatively small.

So to summarize, you CAN increase your credit score pretty quickly if you become an AU with someone that has a great score.  A lot will still depend on your own credit activity, but if you make it a point to pay your bills on time and not over utilize your credit, signing up as an AU can provide a nice credit score boost.

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Credit Cards vs Debit Cards: Not Even Close

Poor debit. He never stood a chance.

We don’t use cash much in this country.  Most online and in person transactions are done by credit or debit card.  Even with things like Apple and Samsung Pay, a card is still the thing making the transaction.

But is credit or debit the better option?  Do people even know why they use a credit card or debit card?  This post will answer both of these burning questions.

So in honor of the great (and overrated?) Floyd Mayweather retiring this year, here is the round by round breakdown of the matchup between credit cards vs debit cards:

Round 1: Credit Score

Unless you live off the grid, having a great credit score will give you lots of advantages.  You’ll be able to be approved for the best reward credit cards.  You will most likely get approved for and be offered the best rate on loans, including car loans and mortgages.  And achieving a high credit score isn’t too complicated.

People with high credit scores are just more trustworthy in the eyes of lenders.  And responsible credit card use will help you get a high credit score much easier than a debit card would.

The companies that track your credit history don’t care how much you use your debit card.  They want to know how many credit cards you have and if you pay them back on time.  And the more responsible you are with your credit, the more credit banks will be willing to lend you, which increases your credit score even more!

But you can’t get all of those credit boosting benefits if you use your debit card.  Start small by using one credit card and paying it off in full every month.

Winner: Credit cards.  Debit was just being toyed with in the first round.

Round 2: Rewards

Now the fun begins.  I think there should be some incentive in choosing to use a card for payment instead of cash.  And credit cards provide that incentive in the form of credit card rewards.

It’s no secret that I enjoy chasing credit card sign up bonuses.  They are an easy way to get some cash back or travel points for spending money on the things will buy anyway.  Even if you don’t chase sign up bonuses, many reward cards will give you 1-2% cash back on every single purchase.  Why would you not take advantage of that?

Not every credit card comes with rewards.  But it’s easy to find many that do.  Debit cards?  Hardly any give you rewards.  And the debit cards that do have rewards offer very minimal incentives.

Whether it’s chasing sign up bonuses or just getting some incentives for every purchase you make, credit cards are superior over debit in every way.

Winner:  Credit cards by a landslide.  I don’t think debit even landed a single punch.

Round 3: Fees and Interest

Here’s where things can get a little dicey for credit card users (but only if your’e not careful!).  When you swipe a debit card, that money comes straight from your checking account.  So there’s no need to worry about paying off a balance on time or accruing interest.  Unless you love overdrafting your account, you will never spend money that you don’t have or incur any fees with a debit card.

Credit cards are not so nice to people.  If you are late with a payment you will get hit with a fee.  If you don’t pay your balance off in full, you will be charged ungodly amounts of interest.  And if you do things like this consistently, you will make the bank very rich while making yourself very poor.

So the biggest things to keep in mind for credit card users is to always pay on time and in full.  Any rewards from credit cards will quickly be negated by fees and interest.  And many cards charge an annual fee, even if you don’t use the card!

So if you know you are the type of person that will not pay in full, then stick with debit.  While you will have a boring life, you will avoid getting into credit card debt, which has ruined many people’s lives.  Just don’t overdraft your account.  Those fees are pretty egregious.

Winner:  Debit by a hair.  I think credit was feeling bad so they let them get a round.

Round 4: Liability and Disputes

I have a feeling this is the knock out round.  Like I said before, there should be some incentive to using a card instead of cash.  And while credit cards can offer nice rewards, another great incentive is liability protection and disputing transactions.

If someone steals your card or gets the number somehow, most likely they will try to run up some purchases as quickly as they can.  This happened to me a couple of times.  I’ll see an unusual purchase or get a text about one, and then contact the card company.  What they usually do is just send you a new card with a new account number and give you an immediate credit for those fraudulent purchases.  Pretty easy.

Debit cards are not so easy.  Since you can bypass the PIN feature for debit cards at most stores, it’s easy enough for someone to steal your card and use it anywhere.  The problem is, the money they spend is siphoned directly from your checking account! Which means you run the risk of losing all of your liquid funds in an instant.

And while you will most likely get your money back, the process is longer with debit cards and you will be left to deal with a depleted bank account for a few weeks.  There is just so much more liability protection with credit cards it’s not even funny.

Another nice feature with credit cards is the ability to dispute transactions.  If you bought something by accident or are not happy with your purchase, you can dispute it and your card issuer will usually just give you a credit for it while hashing things out with the company.  They are fighting for you right after they get your money back.  With debit cards, it’s much tougher to dispute a purchase and even if you do, it takes longer as well.

Winner:  Credit cards.  Debits corner had to throw in the towel to save him.

Winner by KO:  Credit Cards!

Having financial awareness, especially of why you use credit cards instead of debit, is the key to financial success.  There are just so many inherent advantages to credit that it’s almost a no-brainer in an optimal financial plan.

So take some time to find the right credit card for your needs, make sure to pay the balance on time and in full, and enjoy the benefits for years to come.

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How Many Credit Cards Should You Have?

 

Credit cards are one financial topic that everyone has an opinion about.  Even people who don’t have much interest in finance will have some sort of take on credit cards.

Some people swear by them.  Other people swear AT them.  Some people use them for every transaction.  While others have never used one in their lives.

Credit cards are an ever present force in our society.  You can’t go on an airplane nowadays without being asked to sign up for the latest and greatest credit card.  Commercials, magazine ads and internet ads with credit card offers inundate us regularly.

And let’s not forget good old snail mail.  Everyone’s mailbox will eventually receive an offer for the latest sign up or balance transfer offer.  It’s inevitable.

I’ve written before about the utility of credit cards.  They are a tool, and just like any tool they can help you or hurt you depending on your use.

Almost all of us have credit cards.  The question is, how many should we have?  Can you have too many?  Or even too few?  Let’s take a look at the factors that will decide how many cards you should have.

1.  Life Experience

Right now, I have 36 credit cards open.  To most people, that may seem like a lot.  But believe it or not, to others that does not seem like that much.  You’ll find out later why that number is just right for me.

I got my first credit card at age 19.  It was a gas station credit card that gave a whopping 2% cash back at BP gas stations.  I didn’t know much about personal finance (or life) at 19, so I thought that card was all I needed.

I would not have been able to handle more than one card at that time, let alone 30+.  I just didn’t know enough about how life worked to be able to handle more.  So life experience is definitely a key ingredient for being able to handle many credit cards.

2.  *****Paying off your balance in full******

Notice the asterisks.  This is THE KEY factor that will determine if you can handle many credit cards, or none at all.  Being able to use credit cards is not a right but a privilege.  And the privilege comes from NOT being the type of person that gets into credit card debt.

Credit card debt is expensive.  It’s one of the most expensive type of debts out there short of owing a loan shark.  And most of Americans have it.

I won’t go all Dave Ramsey on you and say no one should have credit cards.  But if you routinely do not pay off your balances in full, you should not have a credit card.  Period.

Credit card interest rates are insane.  Cards on the “low end” will be about 8%, while many cards can easily approach 30%.  No one should be carrying this type of debt.  So if you carry any type of credit card debt, unless it’s a 0% promotional offer, you need to pay that off ASAP.

And don’t make it worse by racking up more credit card debt.

3.  Credit Score

When it comes to having credit cards, your credit score is a key factor.  If you want to be approved for many credit cards, you need to have a high credit score and a credit history clear of any delinquent activity.  A long history of on time payments helps too.

And contrary to popular belief, having lots of credit cards DOES NOT lower your credit score.  While opening up some new credit will temporarily lower your score by a few points, it will not hurt it in any appreciable way.

The most important factors in one’s credit score are on time payments and credit utilization ratio (this is straight from the people at FICO).  Having many credit cards helps BOTH of these categories.

Having lots of on time payments will help your credit score.  And having lots of cards, but not using most of them, will keep your credit utilization percentage very low.

My credit score has skyrocketed ever since I started applying for credit cards.  And that’s because I always try to pay on time and only use the cards when I need them.

4.  Rewards Chasing

This is the only, and most lucrative, reason anyone should have many credit cards.  As you can tell by just checking your mail once in a while, credit cards love offering sign up bonuses.  Those offers that say something like “Spend $2,000 in 3 months and get 10,000 points”.

These offers are real money makers for credit card companies.  While they are giving up a little in terms of points or cash back, they get that back and then some with swipe fees and interest payments.  And many people don’t even redeem their reward points anyway.  The credit card companies have everything to gain.

But if you’re disciplined enough not to overspend and always pay off your balance in full, the consumer stands to gain a little as well.  There are many really bad sign up offers.  But there are some great ones as well.  The key is to find the great ones, do just enough to meet the sign up offer, and then store the credit card away if it’s not useful for you. (Frequent Miler is my go to resource for this).

Using this method, I’ve been able to take my family on many flights and hotels for almost nothing.  I’ve also gotten a good amount of cash back rewards (which are tax free!).  So reward chasing has definitely been worth it.

But it’s only worth it if you maintain your great credit score and never carry a balance.  Interest rates on rewards credit cards are notoriously high.  If you end up carrying a balance on a rewards card, it will quickly negate any sort of rewards you earn.

5.  Organization

The last important thing you need in order to be able to handle many credit cards is being organized.  This is especially important for rewards cards since they can have annual fees that can be avoided if you close them on time.

A simple spreadsheet will do just fine.  I use one that has the date I applied for the card, the sign up bonus requirements, any annual fees and when I closed the card.  Trying to do all of this in your head will eventually lead to a mistake.

And you need a central place for all of your credit cards.  I currently store them in an old checkbook box.  But I think I may need to upgrade to a shoebox.  Or you can just have a drawer with all of your unused cards.  Just keep them all in one place away from your kids.

So how many cards SHOULD you have?

It depends.  I know, I hate that answer just as much as everybody else.  But it’s true.  There are some people that have no business having more than one card.  Or any cards at all.  People who regularly carry balances fall under this category.

And then there are others who can seamlessly handle 50 cards at any time.  It takes a good understanding of your personal financial system and a lot of organization.

Plus, it has to be worth your while.  And chasing the best of the best rewards can definitely be worth it.  So if you don’t feel you can handle many credit cards, no need to despair.  Just do what you’re comfortable with at the moment but make it a point to learn about the credit card industry and how you can use it to help your finances.

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How to Kill your Credit Score

Your credit score is one of the most overlooked parts of personal finance.  Most people don’t know what their credit score is, why it’s important, what contributes to your score and how you can improve it.  I will go into all of that and more.  If you take away only one thing from this discussion, it should be that improving your credit score is a sure fire way for you to save THOUSANDS of dollars across a lifetime.  This is because if you have a great credit score, you will get the best interest rates on mortgage and car loans.  Getting the best rate can save you tens of thousands of dollars on your mortgage alone.

Credit Score basics

Your credit score is a number between 300-850 that lenders use to determine if you are a risky borrower or not.  Generally speaking, the lower your credit score, the more risky you look to lenders.  Which means they will offer you the higher end of their interest rates.  The opposite holds true for those with high credit scores.  This means you will get a great rate for your mortgage, car loan and be accepted for all of the awesome credit cards available.

What goes into your credit score?  Let’s go straight to the source:  The Fair Isaac Corporation (FICO).  Your credit score is also called your FICO score, so it pays to listen to what they tell you.  Here is a nice little pie chart that lays it all out there for you:

Creditsesame

Looking at the chart, it’s easy to see what makes up the majority of your score: payment history, amounts owed and length of credit history.  So as long as you make your payments on time, don’t go near your credit limit on your cards and do that for a few years, your credit score will most likely be excellent.

Conversely, there are a few things that can absolutely KILL your credit score.  And it’s a lot easier and faster to lower your score than it is to increase it.  Making late payments is the #1 surefire way to kill your credit score.  Looking at the chart makes that obvious, but it also makes perfect sense from a lender’s point of view.

If you’re shopping for a home loan, the lenders will look at your credit score.  If your score is low, it tells them you probably don’t pay your bills on time.  While this may or may not be a fair judgement based on one number, a low credit score will nonetheless discourage them from offering you their lowest interest rates.

And late or missed payments can include anything:  Credit card bills, past mortgage payments, rent, car payments, cell phone bills, utility bills and student loan payments.  All of this stuff gets reported to the credit bureaus, so staying on top of your payments is vitally important.

Do Business Online

What’s the best way to make all of your payments on time?  Do everything online.  This makes things really easy as you can just bookmark all of your monthly bills and pay them right online.  Many also allow automatic payments, which pretty much guarantees on time payments.  Use technology to your advantage when it comes to your credit score.  Your future self will thank you.

Another way to hurt your credit score?  Getting really close to your credit limit.  This usually refers to credit cards, and it specifically refers to your credit utilization ratio.

If you have a $20,000 credit limit across all of your cards, and are consistently charging $19,999 every statement period, this shows lenders that you’re using too much credit.  You are a risky borrower in their eyes.  There are two ways to fix this.  The obvious one is don’t spend up to your credit limit!  Either switch to cash for some payments or go through your spending history and cut out the unnecessary stuff.

Another way is to request a credit limit increase.  Just call the number on the back of your credit cards and ask if you can get your limit increased.  Some will do it and some won’t.  But any increase in your credit availability will help your ratio.  Increasing your credit limits and decreasing your spending at the same time would be the ideal way to go.

Conclusion

According to the FICO pie chart, new credit and types of credit used also contribute to your score.  This is only 20% of your score, so it’s not really worth focusing a lot of your time on, especially if you have problems with late payments.  Opening a lot of lines of credit will temporarily decrease your score a few points, but it will go back up once they realize you’re still making your payments on time.  Focusing on late payments and high credit utilization ratios, the two credit score killers, is the quickest and most important way to improve your score.

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Why Doctors Tend to Have High Credit Scores

(Hey everyone.  The following is a guest post from my friend Ryan, who specializes in financial planning for physicians.  He’s doing great work since many physicians and other health professionals are clueless when it comes to their finances.  In this post Ryan talks about a unique aspect of doctor’s credit scores.  Enjoy!)

As a financial planner who specializes in working with doctors and their families, I’ve realized over time that many doctors do have high credit scores. Having a high credit score enables doctors to get competitive interest rates on mortgages, car loans, and more. It also shows lenders that they’re not only accomplished physicians but responsible borrowers who pay their bills on time.

I’ll expand more why doctors typically have high credit scores by outlining how a credit score is actually calculated. That way, if you’re a doctor who wants to raise your credit score in anticipation of a big purchase, you’ll know the steps to take to increase your score to get the best opportunities available to you.

Here are some of the reasons why physicians typically have high credit scores:

1.  Length of Credit History

The length of your credit history definitely factors into your score. For many doctors, taking out student loans is the first step in establishing a credit history. If you start taking out loans as an undergraduate, you’ll have at least 7-8 years of credit history by the time you finish residency.

If you didn’t take out student loans as an undergraduate but you did as a graduate student or medical school student, you’ll still have a few years of credit history under your belt. This helps to improve your score.

2.  Payment History

Your payment history is probably the most important aspect of your credit score because it makes up a whopping 35% of your score. This is the part of your score that shows lenders you’re a worthy investment and that you’ll pay them back on time.

The great news is that once you take out student loans, you’ve started a credit file. Even if your student loans aren’t due yet, your account is in good standing month after month while you’re in school. Lenders love to see this.

If you have credit cards in addition to your student loans, be sure to pay these on time as well. Even if your student loan accounts are in good standing, missing a credit card payment will be detrimental to your score. So, make those payments on time every time solely because your payment history factors so heavily into your overall credit score.

3.  Debt Utilization

 Having a low debt utilization percentage is a fancy way of saying that you’re living within your means. Your debt utilization percentage is how much debt you have relative to the amount of credit available to you. So, if you have 5 maxed out credit cards, your debt utilization percentage will definitely hurt your credit score. However, the more available “space” you have on your revolving credit, like credit cards, the better your credit score will be.

The great news is that student loans are considered installment debt, not revolving debt. They’re a different type of debt than credit cards and thus aren’t factored into this debt utilization score. So, if you have hundreds of thousands of dollars in student loans but you’re not carrying a balance on your credit cards, your debt utilization percentage will be low, which is good for your credit score.

Now that I’ve listed the three parts of a credit score where doctors typically excel, I want to take the time to write about what can hurt your credit score too.

After all, the goal in life is generally to become financially well off, self-sufficient, and happy. Having a strong credit score can enable you to get lower interest rates on some of your biggest purchases, saving your thousands and thousands of dollars over the course of your life. This, in turn, will allow you to use your hard earned money for the things you actually want to do.

So, be aware of these two parts of a credit score as well:

1.  Credit Mix

 Lenders actually want you have a few different types of loans, called a credit mix, because it shows them that you’re able to successfully handle various types of payments like a house payment, credit card payment, and a car payment.

If you only have student loans, this could lower your score, but if you mixed it up a bit (see what I did there?) you could raise your credit score by a few points.

For older doctors who own houses, cars, and have business loans, it’s easy to have a decent credit mix. However, newer doctors who are just finished training might not have many different types of loans.

Keep in mind that credit mix is a small portion of your score and you shouldn’t go and take out loans that you don’t need for the sole purpose of improving this part of your score. However, if you need to bump up your score a few points to qualify for a better mortgage interest rate, diversifying the types of loans you have is something you can try.

2.  New Accounts

This might seem a little counter-intuitive to the point mentioned previously, but it’s something worth mentioning. Basically, lenders don’t like it when you open a bunch of new accounts at once. It signals to them that you’re in need of a lot of credit quickly or that you’re somehow in need of financial help.

So, avoid opening several different credit cards in one year. At the same time, avoid closing your old accounts. Lenders might not like to see a lot of new accounts but they love seeing old accounts in good standing. It shows that for many years you’ve been good about having loans and paying them back on time.

Keep in mind that as you go through your daily life, your credit score will fluctuate. It’ll fluctuate as you pay down debt. It’ll change if you refinance your student loans. It will also change if you get a new travel credit card or a new house. It’s okay for your score to go up and down some, as long as you’re consistently making your payments and checking your credit report regularly to ensure your identity is safe. I tell my clients to sign up for an account at Credit Karma because it’s free, you can check your score whenever you want, and you can dispute anything that’s not right your credit report easily and most importantly, quickly. After all, you don’t have a lot of free time to worry about your finances, right?

So, the good news for all the doctors reading this is that you probably have a high credit score already due to the points I mentioned above. However, if you don’t or if you’re looking to boost your score a few points, that’s absolutely possible by understanding how your credit score is calculated and knowing how you can improve it over time.

Ryan Inman is a fee-only financial planner who specializes in helping physicians and their families build a solid financial future through his firm, Physician Wealth Services. As the husband of a physician, Ryan has a unique insight into what it’s like to be a part of a physician family and thoroughly enjoys helping his clients. To schedule a free 30 minute consultation, feel free to contact Ryan at any time.

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3 Easy Steps to Becoming a Travel Hacker

You hear the word “hacking” a lot nowadays.  Traditionally, hacking was thought of as something negative.  Something we would not want our kids to do.

We think of a recluse living in his parents basement trying to break into a federal organization.  Or a group trying to take down a big evil organization’s website (which is pretty cool depending on who the big evil organization is).

But hacking has evolved recently.  Now you see articles about hacking your sleep or hacking your parenting.  You can find hacks to make it easier to cook dinner or decorate your home.  A hack is essentially a quick shortcut to make your life better.

The term travel hacker has also been in the media lately.  You read about people that have taken month long expeditions around the world for free (disclaimer: it’s not really free).  I’ve talked to many people about travel hacking and most shrug their shoulders and adopt a “must be nice” attitude.

As in, “must be nice for them but I would never be able to do something like that.”  While not everyone has the time or resources to travel hack their way to around the world trips, I will show you how pretty much anyone can travel for a lot less money.

Levels of Hacking

I’ve played basketball since I was a little kid.  I still enjoy playing it whenever I can get time.  Technically, I would call myself a basketball player.

You know who else is a basketball player?  Steph Curry.  While he is a (slightly) better basketball player than me, we’re both basketball players.  He is just on a (much) higher level.

The same thing applies to travel hacking.  If you just look at those “Steph Curry’s” of travel hacking who make elaborate trips to every continent with points, you will get disappointed.

But travel hacking, specifically travel hacking with credit cards, is a very accessible endeavor that can be scaled up as much as you wish.  It just depends on how much time you’re willing to put in.

I’ve been doing some low level travel hacking with credit cards for a few years now.  My wife is from the West Coast so we make trips there every so often.  Our goal is to at least make those trips with points along with a couple of vacations per year.  This is very attainable with a few hours of planning per month.

If you want to travel with your family of 5 to fancy European cities in first class, this is attainable as well.  But it’s going to take a lot of work.  It will amount to a full time job between signing up for credit cards, and staying on the phone with airline reps.  But it is possible, if you’re willing to put in the work.

My strategy:  Get the most lucrative credit card offers I can find and use those points to take our eventual West Coast trips.  This is essentially getting the “low hanging fruit” of travel hacking and optimizing it as much as possible.

It’s kind of like the 80/20 rule.  Give 20% effort to get 80% of the results.  That’s good enough for most people.  If I want to get better results, I need to give more effort but the work will be a lot more.  I currently don’t have the inclination to work 20+ hours a week to get better point redemptions, but I can if I choose to.

Anyway, here are the nuts and bolts of my current travel hacking strategy.

3 Steps to Travel Hacking

BIG Disclaimer:  Travel hacking with credit cards should not be an option if you plan to make late payments and not pay your balance off in full.  Any interest or late fees will quickly erase the reward benefit.  You have been warned!!

Without further ado here are the three steps it takes to get started in travel hacking:

1.  Apply and get approved for a credit card with a great sign up bonus.  (See some examples at the end of the post.)

You will need a pretty good credit score to get approved for most reward cards.  While there is no hard and fast rule, a credit score of 700 or above is usually good enough.

2.  Meet the minimum spend to snag the sign up bonus.

If a card offers a bonus of 50,000 points, for example, you will have to meet a minimum amount of spend in a certain amount of time to get those points.  A common one is spend $3,000 in 3 months.

While there are a ton of ways to increase spending artificially (and there are many blogs that will teach you how in depth), start with a bonus offer that is attainable with your regular everyday spending.  You can always scale up to a bigger offer once you feel comfortable.

3.  Repeat with another card.

You should cancel the first card if it has an annual fee and you don’t plan on using it.  If there is no annual fee, just keep the card and stick it in a drawer since having more credit will improve your credit score over time.

Something for Everybody

And that’s all there is to it.  There are so many strategies involving finding the best cards to apply for and when to apply.  Countless methods also exist to “manufacture” spend which will allow you to spend more to meet sign up bonuses without actually spending any of your own money.  So this stuff can get deep.

You can take a deep dive if you wish to find out more about these strategies.  Two sites that will provide you the advanced strategies you need for travel hacking are Million Mile Secrets (where I was featured once here!) and Frequent Miler.

But if you want to just stay on the surface and do one credit card bonus at a time to get easy rewards every few months, that’s okay too.  Travel hacking has a place for everybody.

Here are some good credit card bonuses that are currently available and some brief information about them (I don’t make anything off of these links):

Chase Sapphire Preferred:  Get 50,000 Ultimate Reward points after spending $4,000 in 3 months.  This is the go to card for many people including myself.  It gives you double points on travel and dining purchases.  And Ultimate Reward points are very versatile.  You can use them for cash back, flights or transfer to airline or hotel programs.

Chase Freedom:  Get $150 cash back after spending $500 in 3 months.  This is a great cash back card to have since the bonus is easy to get and it features 5% categories each quarter.  So one quarter of the year you will get 5% cash back on dining purchases, for example, and the next month will get 5% on gas purchases.

Chase Southwest:  Get 40,000 Southwest points after spending $1,000 in 3 months.  I fly Southwest a lot and I know a lot of people that do as well.  Southwest points are pretty valuable, and this sign up bonus can easily get you $500 worth of flights.

American Express Premier Rewards Gold:  Get 25,000 Membership Rewards points after spending $2,000 in 3 months.  AMEX has many good travel cards and this is one of the best.  Membership Reward points can be used to book flights directly and can be transferred to other programs.  This card also gets you double points at restaurants, grocery stores and gas stations.

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I Would Love to do Peer to Peer Lending but…

check-cashing

Our state is too good for P2P lending, but not too good for establishments like this.

Update:  As of February 2016, Lending Club is now open to Maryland residents!  Click here for the details.    I will be doing some heavy research into this before I take the plunge, so look for an update on my journey into P2P lending.  Edit:  Still no Prosper though 🙁  

I’ve been hearing a lot about Peer to Peer Lending (also known as P2P lending).  It’s one of those topics I just kind of glossed over since I had more “pressing” things to learn about like student loans, investing and trying to freelance.  Before last week I had a rough idea of how it worked.  Many people were reportedly getting great returns, but it seemed like a lot more work than I would have liked.  It seemed complex and then some bloggers reported that they were still getting good returns, but not as high as before.  I didn’t think it was worth my time.

But last week I heard an interview on the Stacking Benjamins podcast (which is a great podcast by the way).  The interview was with Simon Cunningham, who runs a website called Lendingmemo.  His interview pretty put P2P lending in a much clearer light for me and I was itching to learn more.  I went over to LendingMemo and got some great information.  Here are what I believe to be the pros of P2P lending:

  • You’re loaning capital to actual people, and not a big corporation.  The vast majority of borrowers on P2P sites are looking for help paying off credit card debt.  I could definitely get behind that.
  • It’s relatively low risk.  The two big P2P sites are Lending Club and Prosper, and they each have their own algorithms they use to determine the risk that a borrower will default on their loan.  According to LendingMemo, the default rate for Lending Club is around 5%, which was a lot lower than I expected.  Higher risk borrowers give investors the potential for higher returns, while low risk borrowers give less a return but a good chance that you will get a return at all.  It’s like a balancing act between risk and reward, which is what investing generally is.
  • Returns are solid.  According to Lending Club, historical returns of their lowest risk loans range from 4.91%-8.38%.  That’s a very good return for what seems like a low risk investment.  And it certainly beats the pants off of an online savings account or CD.  While past returns don’t reflect future performance, it’s good to keep them in mind.
  • It seems like fun.  My preferred method of long term investing, making regular contributions to index funds, is pretty boring.  The only thing I may have to do is rebalance, which takes just a few minutes.  Otherwise, it’s set it and forget it.  With P2P lending there are a few more decisions you have to make, and while they do have an automatic contribution system to make things super easy, you still have to check on your loans from time to time.  This seems like it would be be a fun mental exercise.

I say it SEEMS like fun, because I will not be able to see if it is really fun.  Here’s the notice I received when I tried to sign up for an account at Lending Club:

lending club deniedYes, because I live in the state of Maryland, I can’t participate in direct P2P lending as a borrower or as an investor.  As a medical professional, I’m used to the zany differences from one state to another, but this was just a little annoying.  Some states allow you to use Lending Club only.  Some states allow Prosper only.  There are only 3 states that don’t allow any type of P2P activity (Kansas, Ohio and Maryland), and I happen to live in one of them.  This would firmly fall into the category of a first world problem, but it’s still a problem.  (Here is an interactive map that diagrams all the craziness between states).

So what is an aspiring P2P’er from Maryland to do?  My plan is to do some more research on P2P lending until I know it front to back.  In the meantime I’m still working on getting rid of a 6% student loan, so paying that off would be a pretty good use of my money.  And then I’ll just wait until the curmudgeons in charge of Maryland join the P2P bandwagon.

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