Alternative to Credit Cards

auto-loan

What is your credit score? The question many young people dread when applying for a loan. The idea of building credit can make someone from any background begin to sweat. Hardly any of us have been taught what credit really means let alone how to build good credit. A common way is by getting a credit card and using it like a debit card. Buying groceries and gas with it only when you already have the money, and paying it off as soon as you get the bill. I want to show you briefly a few alternatives (yes alternatives) to building your credit through the use of a credit card.


Bill Payment

By paying a bill as simple as your rent on an apartment you are actually improving your credit score (As will other recurring payments such as a home loan or student loan, but let’s concentrate on getting those loans before we pay them off). Making consistent and on-time payments using these methods will build your credit; but on the down-side they are slow ways of doing it. They often take years to build up any sort of credit difference. It’s better than nothing, but its going to take you a while to build enough credit to qualify a of substantial loan.

Borrowing For A Car Loan

The best and quickest way that you can build your credit is through a car loan. Once you have built a little bit a credit, or if you have a relative who would be willing to co-sign a loan with you, buying a car and paying your loan off quickly (But not too quickly) is the most effective way to build your credit. (As an aside, paying off the entire amount of the car loan within a few months may seem like a good idea but for one it builds no credit as you are creating no payment history, and also it can actually look negative on you credit report as it may be construed as you totaling the car and receiving an insurance payout to pay off the loan.) A car loan increases your credit by showing payment history and the capacity to pay off a loan. Making these payments on time will give you good credit, making payments early and making extra payments will greatly increase your credit. It will pay off the loan faster, and prove that you are responsible and want to be debt free.

Early Payments

Obviously, as I brought up earlier, a mortgage can be a great source of credit. For example if you had a 30-year mortgage, and each year you made one extra payment, you would have that loan paid off in 20 years. This technique shows creditors that you will honor their loans, and will make your credit score sky-rocket. If you need someone to co-sign an auto loan for you, then after 1 year of using this technique your credit will be good enough that you will qualify for the loan on your own.


Loans In General

I work at an insurance company that has its own bank and we often deal with getting people different kinds of loans. I have heard from lenders and customers countless times that the best way to improve your credit it to get an auto loan, and pay it off quick. Using a credit card or paying rent may build your credit, but building it through an auto loan is the most efficient and therefore makes the most sense.

First Time Auto Loans

Importantly, first time auto loans (Meaning this is your first time borrowing money for the purchase of a car) have certain extra stipulations regarding who can borrow and how much you can borrow. Obviously they check your credit but generally amounts over around $5,000 require a co-signer to even receive a loan at all. This applies even if you have perfect credit and is the way of the bank protecting its own interests. On top of this most auto loans in general require that the car be in decent condition (As determined by the teller generally, haha) and sometimes go through a brief “check-up.” During this check-up the teller pretty much makes sure that the car has an engine and runs. They may check such things as safety mechanisms and functionality depending on the bank as well.

Wrapping Up

To finalize this information I want to lay out a brief disclaimer. I work in the finance & insurance industry and even I do not entirely understand what goes on when it comes to credit. No one really does. The best you can do as far as building your credit is diversify. By that I mean try it all. Do everything you can to show that you know how to handle your money correctly. Pay bills on time, pay back your loans, avoid late or missed payments. When it comes to this there is not much “more” to it. If you handle your money well and smart then it will eventually show in your credit score. Don’t feel that a credit card is the only way to improve your credit just because of the name, but don’t discount it as a tool to get you where you want when used properly as well.

Author: This article was authored in part by Tara of Colt Sampson’s State Farm Insurance Agency and edited by myself, Jeff Kingston. You can learn more by contacting Tara or Colt Sampson.


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Worn Out Credit Card? Fix it Now!

credit-card-reader
Ok, so this is a bit off the regular topics, but you know that person who is in front of you at the grocery store swiping their card 5-6 times , then trying another one  then another? Ya, that’s me; and not because I keep getting denied. In my mind the most annoying part of being a credit (or debit for that matter) card owner is that my cards only last about 3 months before they get demagnetized…

So what have I done to fix this problem?


Get a new card

Yes, this is the most obvious solution. I generally plan on a 6-month schedule of new cards. A bit bothersome, but definitely the easiest considering any bank I’ve aver been with will replace my card for free.

The plastic bag trick

A lot of you may know this one. Simply wrap the card up in receipt paper or a plastic bag and the reader suddenly works like a charm. So, why does this work? A technical explanation is that the magnetic reader actually reads your card’s strip better from a bit of a distance. Putting that plastic between the card and the reader helps ensure a more accurate read. Interestingly enough, I’ve found that Scotch Tape has the exact same effect! Simply wrap your card’s strip in tape and you’re good. No more plastic bags or receipt paper!

Why does it happen in the first place?

I’ve heard a lot about card strips’ magnetic charges being lost as they rub together and what not. I think it’s a bunch of bull. The reason my cards don;t work for long is that being inn my wallet physically wears the strip off. I can see that much. So why does the bag/paper/tape method work so well? Why is it so hard for you to read a book that is a quarter inch from your face? Ya, same reason.

Hope you enjoyed this quick tip. I do prefer having that nice clean card, but tape usually ends up cover all my cards eventually. Good luck with your card reading ventures!

Author: Jeff Kingston


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Is It a Good Idea to Use a Credit Card to Buy a Car?

newcar
Using a credit card to buy a car may seem to go against conventional financial wisdom, but it is possible to do. As with any financial transaction, there are benefits to doing so as well as reasons not to do it. Being aware of the conditions is important before deciding if this is the right move to make.

Pros of using a credit card to buy a car

While there are many warnings against abusing credit cards, there can be some advantages to using one to buy a car. It might be more helpful to use one of the checks supplied by the creditor instead of trying to use an actual card.

Possible savings – Many cards have an introductory offer of zero percent interest on purchases for a certain time period. If that card is used, the money that would have been used to buy the car can be invested in a bank certificate of deposit and then applied toward the car later, almost certainly turning a profit.

Type of loan – A credit card loan is a type that is called unsecured. Though this may sound negative, in fact it means the car is owned outright and if payments cannot be made, there is no bank to show up and repossess it.

Flexible payments – When using long-term financing to pay for a car, the monthly installments are fixed and non-negotiable later. While there will be a minimum monthly amount due on the credit card, it is not necessary to pay more than that amount. If funds become short one month, a smaller amount can be paid toward the car.

Instant approval – As long as the credit card’s limit has not be exceeded, there is no need to wait for a loan approval. This also means there are no loan forms to fill out prior to the deal.

Cons of using a credit card to buy a car

Using a credit card to purchase a vehicle does have some risks that certainly should be considered.

Longer payments – While using a credit card to finance a vehicle purchase can make the monthly payments more flexible, this often will also extend the time period for which the money will be owed. If the card is not zero, or at least low, percent, this will result in more money being paid than if a traditional loan was used.

Credit rating – Making such a large purchase on a credit card, especially a first one, can wreak havoc on a consumer’s credit rating. Agencies that determine credit scores look at how much is owed compared to the credit limit. Having too much debt can lower scores.

A credit card may be a little-used option for buying a car, but under the right circumstances it can work. For those wanting instant approval or flexible payments, using a credit card may outweigh the risks of paying more money for the car or lowering a credit score.

Melanie Lewis writes for a site that provides tips on financing a car and has a useful tool to calculate monthly repayments.


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A Guide to the New Credit Card Surcharge Fee

Many consumers have heard thatcreditcardsample retailers in 40 states can now charge their credit card customers up to a 4% surcharge, or “swipe fee” for the privilege of using plastic instead of cash and wonder how that will affect them. The reality is merchants have already been charging customers for this privilege; it is built into the fee for the merchandise. But this fee is different because it will not be reflected on the price tag and will only show up at the register.

Who Is Charging the Fees?

Discover, Visa and MasterCard are the three companies that are now allowed to charge a fee to recover the cost of the transaction. American Express did not participate in the United States District Court lawsuit filed by the other companies and will not be adding the charges. Ten states have already passed laws prohibiting these surcharges from being added to customers’ bills: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. Because these fees must be charged at all corporate locations or none at all, retailers with businesses located in the ten states outlawing the charges will not be able to charge them in their location in the other 40 states.

It is likely that small, mom-and-pop businesses and online companies that deal exclusively with credit card customers will be the ones most likely to implement the fees. An expert in the field of marketing, Bret Smith, Ph.D., acknowledges that customers’ tendency to spend more when using plastic and “the cost-benefit analysis may encourage retailers to opt out of the surcharge.”

Additionally, J. Craig Shearman, National Retail Federation VP calls these warnings “propaganda” and states that “(m)erchants have no desire to surcharge and no plans to surcharge.”

How to Dodge the Swipe Fees

The most obvious answer is to avoid paying with plastic. However, many times paying with cash is just not a practical option. There are benefits to whipping out your credit card for a purchase, and paying that way provides consumer protection in some instances. Since debit cards are excepted from the fee, you can always pay that way instead. Merchants imposing the fees must post a sign of their intentions on the door –but don’t have to disclose the fee amount until the transaction is initiated — so consumers can boycott these businesses if they choose.

Consumers can turn the tide of corporate policy against these new fees, as they did in 2011 when they took to the blogosphere and announced their plans to switch banks. JD Power & Associates Director of Banking Services Michael Beird states that two-thirds of people who say they will switch banks follow through. A recent study shows that 65% of Americans won’t pay a surcharge even if it is small. This could indicate a potential blacklist against merchants who decide to pass on this extra charge to customers, and could possibly cause them to rethink their position on these fees. Mitch Goldstone, a lead plaintiff in the antitrust case that spawned these fees now isn’t going to pass the costs on to his customers. Instead, he plans to use it as “leverage against the credit card companies.”

Pay to Play or Say Nay?

Ultimately, the power rests with the consumer. Each individual can decide for himself whether the convenience of using plastic online and at smaller merchants outweighs the imposition of paying a surcharge for the privilege. Retailers without customers won’t stay open long, so if you feel strongly about the issue, voice your concerns directly to the merchant to let him know why his customer is headed out the door.

Chase Sagum is a blogger covering Financial topics specifically Credit Repair, around the web.


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The Love-Hate Relationship Between Credit Cards and Credit Scores

chococard

It has almost become a legend but with the soaring house prices and the need for
everyone to carry a mortgage, credit ratings are of great importance. Credit cards are
the most convenient financial tools that can help a person purchase things without cash
but when they’re misused, they can soon become nasty little debt generators that will
straightaway affect your credit score.


According to recent reports, it has been found out
that there is a sizable amount of the entire population that don’t carry credit cards and
about 10% of the American households don’t have even one credit card. As credit cards
have become a part of our everyday life, there are some who feel left behind as they don’t
carry credit cards. But this is not the fact.

Deciphering the credit rating model

The credit rating model is the most important model that you have to take into account,
especially when you are in the market to take out a new line of credit. Credit cards and
credit score can be a potential indicator about whether or not the lender can be lent
money with an affordable interest rate. Credit cards play an important role in framing
your credit score but your credit score is just a part of your entire report. If your credit
cards are a significant part of your credit history, you have to make sure that you improve
your score in order to help yourself grab a loan within your means.

You need to keep your credit-debt ratio as low as possible on all your cards.
The ideal ratio would be about 30%. The cards that show the longest history of regular
payments will help in boosting your credit score. Pay off the amounts that you owe
and then cancel your credit cards that have been giving you trouble. In case you carry
a balance of more than 50% on one card, it might be a better option to split the balance
among two different cards. By putting the debt in a bigger box, you can make the
debt look smaller.

Your credit rating is something that is checked by your mortgage lender, your auto
lender and your credit card companies. Therefore, unless you maintain a
pristine credit rating, you won’t be able to help yourself with a better line of credit at an
affordable rate. When you take out a credit consolidation loan and your lender asks for
your credit report, the inquiries hurt your credit score. Therefore, you should try to avoid
too many hard inquiries while taking out new lines of credit so that they don’t hurt your
score.

Summing it all up, you need to make sure that you’re using your cards in the best way possible. Well-ordered finances will always
help you get back on track and also build your trust among lenders.


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