1. Shopping for a Credit Card

2. Shopping for A Credit Card
Comparison shop credit cards
Don’t take the first offer that comes to you:
Pre-approval
Means nothing
No special rates
Choosing a credit card is an important decision. Consider it a major purchase, and take the time to comparison shop for the card, just like you would for a big-ticket item. Banks will send you multiple offers in the mail, and it may be convenient to fill out the first application that you receive, but it may not be the best credit card for you.
Pre-approved: Have passed a preliminary credit-information screening to qualify for a credit card.
What if you're pre-approved? Pre-approved means little. It simply means the card company is aware of your credit history and standing. It doesn't automatically give you any special rates or breaks when it comes to the terms and costs of the deal. And the small print will generally give your card company the opportunity to change the deal you were pre-approved for.
Source: “Credit Card Basics,” Bankrate.com, February 2006.

3. Card Holder Agreement
Written statement that gives the terms and conditions of a credit card account.
Look here for all info before signing up
Required by Federal Reserve
Card issuers can change terms at any time with 15 days notice
Card Holder Agreement: The written statement that gives the terms and conditions of a credit card account.
The cardholder agreement is required by Federal Reserve regulations. It must include the Annual Percentage Rate, the monthly minimum payment formula, annual fee if applicable, and the cardholder's rights in billing disputes. Changes in the cardholder agreement may be made, with written advance notice, at any time by the issuer. Rules for imposing changes vary from state to state, but the rules that apply are those of the home state of the issuing bank, not the home state of the cardholder.

4. Billing Statement
The monthly bill sent by a credit card issuer to the customer.
It gives a summary of activity on an account.
Important changes to a credit card account are included in small-print fliers that are sent with the statement.
Schumer box: Important to look here once you’ve selected a card.
Billing Statement: The monthly bill sent by a credit card issuer to the customer.
It gives a summary of activity on an account, including balance, purchases, payments, credits and finance charges. Important changes to a credit card account are often included in small-print fliers that are sent with the statement.
Pay attention to notices you receive from your card issuer. If you use your card after receiving them, you may be tacitly agreeing to new terms, even if you claim you never saw the notice.
Scope out the offer. Scan the Schumer box, named for Sen. Charles Schumer, D-N.Y., who sponsored a law mandating disclosure of all rates in a type size that customers can read.
Source: “How to win at credit cards,” Consumer Reports, November 2005.

5. Annual Percentage Rate (APR)
Interest
F (Fixed) rate
V (variable) rate
Prime + ___
Libor + ___
Won’t go below floor
Introductory rate
How long?
What will the rate
“go to” afterwards?
APR: Annual Percentage Rate. A yearly rate of interest that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average compound interest rate over the term of the loan, so borrowers can compare loans.
Interest: Money paid for the use of money. Financial institutions pay consumers interest on their savings, and consumers pay interest on their loans.
If you pay your credit card off every month, the APR does not matter.
F (Fixed) interest rate: If the letter ""F"" appears after the annual percentage rate (APR) the interest rate is fixed and not subject to change.
A fixed rate means the credit card company has to give you 15 days notice before raising your rate. You can call and ask them to lower it, but they don't have to do it.
V (variable) interest rate: If the letter V appears after the annual percentage rate (APR) the interest rate is variable and subject to change.
Floor: The minimum rate possible on a variable-rate loan or line of credit, after any initial introductory rate period.
For example, on a credit card with the Prime rate as its index, no matter how low the Prime rate drops, the rate on the line may never decrease below the stated rate floor.
Indexed Rate: A variable interest rate that is the sum of the published index plus the margin. For example, if the index is 9 percent and the margin 2.75 percent, the indexed rate is percent.
Some of the most common indices are:
The one-year Treasury Constant Maturity Yield
The Federal Home Loan Bank (FHLB) 11th District Cost of Funds
Prime rate as listed in the Wall Street Journal
The Prime Rate used in the APR calculations associated with your Account is determined on the last day of each month by taking the highest Prime Rate published in the Money Rates section of The Wall Street Journal in effect within the prior three months (the "Index Date(s)"). All Prime Rate changes will take effect on the first day of your billing cycle that ends in the calendar month following the Index Date.
Introductory interest rate: The low rate charged by a lender for an initial period to entice borrowers to accept the credit terms. After the introductory period is over, the rate charged increases to the indexed rate or the stated interest rate. Often called a teaser rate.
The initial interest rate is often one of the large print items stated on the front of the offer, but what the rate will eventually “’go to” is listed on the back, and is just as - if not more - important. When a credit card has an introductory rate, the rate after the introductory rate expires is sometimes called the “go-to” APR.
According to John Waskin, executive director of the national nonprofit debt counseling service Bill Free - American Credit Counselors, 53 percent of Americans continue to carry the majority of their balances at the end of the promotional rate period. But even if you're paying off your bill, a slip or two can change your rate. "If you miss two payments or are late twice, they could automatically raise your rate," warns Ray Hooper, Education Manager for the Consumer Credit Counseling Service of Dallas.
Source: “Credit Card Basics,” Bankrate.com, February 2006.

6. Grace Period Interest-free time between: Usually 20 – 30 days
Transaction date
Billing date
Usually 20 – 30 days
No grace period if:
Carry a balance
No stated grace period
Grace Period: The interest-free time a lender allows between the transaction date and the billing date.
The standard grace period is usually between 20 and 30 days. If there is no grace period, finance charges will accrue the moment a purchase is made with the credit card. People who carry a balance on their credit cards have no grace period.
Generally, you want to choose a credit card with a longer grace period rather than a shorter grace period.
But the fine print probably will warn you that the company can change the grace period. Card issuers can change the grace period from 28 days to 20 days, let's say, and as long as it was in the fine print, it's legal.
Source: “Credit Card Basics,” Bankrate.com, February 2006.

7. Billing Methods: Average Daily Balance
Determined by:
Adding each day’s balance
Dividing by total number of days in the billing cycle.
Multiplying by monthly periodic rate (APR/12)
Example
Day 1: Charge $100
Day 2: Charge $200
Avg. Daily Bal $150
30 days in billing cycle =
$5 average daily balance
Card with 15% APR has a 1.25% monthly periodic rate (15% / 12 months)
$5 daily balance =
$6.25 finance charge
This is the method by which most credit cards calculate your payment due.
Average daily balance: Billing method that is determined by adding each day's balance and then dividing that total by the number of days in a billing cycle. The average daily balance is then multiplied by a card's monthly periodic rate, which is calculated by dividing the APR by 12.
Billing cycle: The number of days between the last statement date and the current statement date.
Monthly periodic rate: The interest rate factor used to calculate the interest charges on a monthly basis. The factor equals the annual APR divided by 12.

8. Billing Methods: Two-cycle Billing
If you don’t pay your balance off it:
Charges you interest based off of the current and previous month
Interest starts the day you make the purchase.
Two-cycle billing: Billing method that charges you interest from the day you make a purchase for the current and the previous month when you don’t pay off the balance.
Here's how it works: Say you start your month with a zero balance and charge an amount that you don't pay off in full at the end of the month. If your card uses the average daily balance method to calculate interest, you are charged nothing for the month you made the purchase, and interest only for subsequent months in which payment is outstanding.
With two-cycle billing, interest charges begin with the day you make the purchase.
Banks defend two-cycle billing as correcting the true interest charges for credit card purchases. Ron Brooks, senior vice president in charge of card services for National City Corp., says it's a way to make sure card users pay interest should they suddenly go from being "transactors" (those who pay off every month) to "revolvers" (those who carry a balance).
Relieved to find your card uses average daily balance? Don't be. Your card provider can switch to two-cycle billing with 15 days' notice.
Source: Derringer, Nancy Nall, “10 Things Your Credit Card Company Won't Tell You,” Smartmoney.com, January 3, 2006.

9. Credit Limit The maximum amount you can charge on a credit account.
You're approved up to $25,000!
“Up to” is the key phrase
Enticement offer
Actual credit limit based on credit score
Recommended limit
20% of net income
Credit Limit: The maximum amount you can charge on a credit account.
You're approved up to $25,000! This one's not actually in the fine print, it's right there on the front, but people misunderstand it. The words "up to" are there for a reason. Someone will apply for a card because they think they'll have $25,000 in credit, only to find a substantially lower limit once they're approved. Credit card companies will set your limit based on your credit history, and the large number on the offer is an enticement that probably will not be your ultimate credit amount.
The Consumer Federation of America suggests people carry credit lines no greater than 20 percent of their net household income. For example, people with a gross income of $50,000 would cap credit lines at $10,000.

10. Default and Universal Default
A designation that indicates a person has not paid a debt that was owed.
Universal default
If you are more than 30 days late on a payment to anyone, your credit card company can raise your interest rate.
Default: A designation that indicates a person has not paid a debt that was owed.
Accounts usually are listed as being in default after several reports of delinquency. Defaults are a serious negative item on a credit report.
Universal default: If you are more than 30 days late on a payment to anyone, your credit card company can raise your interest rate.
It doesn't necessarily take being late on big-ticket items such as a car or a mortgage payment to trigger the default clause. It could be for something as innocuous as an overlooked $30 phone bill or a forgotten $20 book club subscription.
Gerri Detweiler, author of The Ultimate Credit Handbook, says, "These default clauses are getting scarier by the minute. If a credit card offer includes a universal default clause, you need to know what you're being set up for. If you're one day late on any payment to any creditor, you could be subject to a default rate as high as percent on many others."
It's one of those new ironclad rules that does not allow much leeway for talking or negotiation. They periodically check your credit file and if you're late paying any other bills, not just theirs, they slam you. Low interest rates enjoyed at the beginning of a credit relationship could, in many cases, double or triple.
Some card companies review your credit report monthly, some quarterly and some yearly and some never do. Customers who have made late payments in the past get reviewed more often than those who always pay on time.
"More than one-third of major credit card issuers now say they act on these clauses regularly."
Source: Burt, Bill, “Universal default: Lenders gang up on late payment,” Bankrate.com, April 2006.

11. Payment Allocation
How your payments will be applied when you have differing rates
Matters when you:
Use card during and after promotional period
Purchases and cash advances
Payments will pay off lower rate first
Costs you money. Makes the bank money.
Payment Allocation: How your payment will applied when you have differing rates.
Payment allocation
If you use your card for both purchases and cash advances, or use your card both during and after a promotional period, then chances are you'll carry charges with two different rates. But if you assume that your payments will pay off your highest rate first, you're probably in for a disappointment.
Payment allocation tells how they allocate your payment in the event of differing rates, including how they may be allocating all payments to the lower rate before paying off the high one. Make sure you're aware of how payments are allocated, and whether you have the right to request how they should be allocated.
Source: “Credit Card Basics,” Bankrate.com, February 2006.

12. Annual Fees on Reward Cards
Paying for the privilege of using a credit card
Many cards offer rewards without an annual fee
Weigh cost of annual fee to value of reward
Mileage
Avoid annual fees
Annual Fee: A bank charge for use of a credit card each year, which can range from $0 to $300.
"Our 'freebie' rewards are anything but." In the hypercompetitive credit card marketplace, rewards are a way for banks to target big-spending niche audiences — frequent fliers, for instance. But these programs often come with hidden catches, such as exorbitant interest rates and high annual fees, so it's important to do your homework. "[A rewards card] doesn't make financial sense for just anyone," says Manning, of the Rochester Institute of Technology.
Before signing on, figure out how much you'll have to spend to earn the incentives from a given card. If the math works out to anything less than one penny earned per dollar spent (or a mile per dollar in the case of mileage cards), then you could do better.
Also, be sure to look for the rewards that best suit your needs. For example, if you want an abundance of options, from retail goods and services to charitable donations, American Express's Membership Rewards cards let you accumulate points at the rate of a penny per dollar spent, double that at gas stations and drugstores. Or if it's air miles you're after, the United Mileage Plus Signature Visa is one card that stands out from the pack, with its 1-mile-per-dollar ratio and host of travel benefits, including upgrades.
Source: Derringer, Nancy Nall, “10 Things Your Credit Card Company Won't Tell You,” Smartmoney.com, January 3, 2006.

13. Late-Payment Fee Charge imposed for not paying on time
Know your payment due date & time
9 a.m.
12 noon
5 p.m.
11:59 p.m.?
Pay via U.S. mail, phone, online, automatic bill pay, etc.
Late-payment Fee: Charge imposed for not paying on time.
Card statements are crystal clear about what day your payment is due, but are not so forthcoming about what time on that due date. Some banks have triggered consumer complaints by setting a 9 a.m. deadline on the posted payment date — essentially, before the mail arrives.
Chi Chi Wu, an attorney with the National Consumer law Center, says that a number of class-action lawsuits have succeeded in getting most banks to push back their payment deadline to 2 p.m., the traditional banker's closing hour, a time by which most mail delivery is complete.
Even so, Tracey Mills, spokesperson for the American Bankers association, is unsympathetic: "The bill is due upon receipt. Banks have put a lot of money into giving consumers lots of options — they can pay by phone, pay online, automatic bill pay. I just don't understand why late payment is still an issue for people. Pay your bill on time. It's easy."
Source: Derringer, Nancy Nall, “10 Things Your Credit Card Company Won't Tell You,” Smartmoney.com, January 3, 2006.

14. Over-the-Credit-Limit Fee
You can exceed your credit limit but it will cost you
Fee
Higher interest rate
Over-the-Credit-Limit Fee: A fee charged for exceeding the credit limit on the card.
Contrary to popular belief, a purchase that puts you over your credit limit won't necessarily be declined. But you might wish it had been, since it could bump your interest rate into the stratosphere.
Adding insult to injury, banks often levy a so-called over-the-limit fee against maxed-out cardholders — roughly a $30 penalty every month your balance remains above the credit limit. The ABA's Mills says that "consumers would rather deal with the fee than the embarrassment of being declined."
But consumer advocate Travis Plunkett, of the Consumer Federation of America, is having none of it. Over-the-credit-limit fees, he contends, are simply another way for banks to make money at the expense of the unwary. "If [banks are] willing to accept charges [over their cardholders' limits]," Plunkett says, "then they should accept the profit that comes from the increased interest charges" and leave it at that.
Source: Derringer, Nancy Nall, “10 Things Your Credit Card Company Won't Tell You,” Smartmoney.com, January 3, 2006.

15. Currency-Exchange Fee
Credit Cards have replaced traveler's checks.
Fee will be
Flat amount
Percentage of withdrawal
Important only if you travel internationally frequently
Currency-Exchange Fee: Amount charged for the convenience of using your credit card to convert US dollars to foreign currency.
"We're accepted anywhere on the globe, but our exchange rates are from Planet Ripoff." In recent years plastic has all but replaced the traveler's check as the preferred method for making purchases abroad. Credit cards are widely accepted overseas, and they can be used in ATMs all over the world to dispense cash in the currency of whatever country you're visiting.
But beware of hidden charges. Some banks have recently raised the rates on currency conversion from 1 percent to 3 percent. On top of that, ATM usage has its own fees attached.
Consumers union recommends studying your cards' policies on foreign-currency purchases before you leave home, then adjusting your spending accordingly. Cards issued by smaller banks, for example, may have lower fees, as do certain brand-name cards. American Express, which has long positioned itself as a card for travelers, charges a flat 2 percent.
Source: Derringer, Nancy Nall, “10 Things Your Credit Card Company Won't Tell You,” Smartmoney.com, January 3, 2006.

16. Cash-Advance Fee & Interest
Don’t take cash advances
Fee
Flat amount
Percentage of withdrawal
Cash advance interest rate is always higher and has no grace period
Payments are applied to lower-interest balance first
Cash-Advance Fee: A charge by the bank for using credit cards to obtain cash.
Don't take cash out of your credit card. Read the fine print on your statement and you'll see it's a very bad idea. Your card might have a really low rate for purchases, but if you take out a cash advance, get ready for a shock. The rate for cash advances is much higher. And there is no grace period -- you start paying interest right away.
Aside from paying a high rate on the cash you take out, you're going to pay a fee, usually 2 percent to 4 percent of the amount advanced. And your payments will be applied to the lower-interest balance before they are applied to your cash advance.
Fleitas, Amy, “20 sneaky credit card tricks,” Bankrate.com, April 2006.

17. Balance-Transfer Fee Balance Transfer
The process of moving an unpaid credit card debt from one issuer to another
Cards charge to transfer balance to or from one card to another.
Balance-Transfer Fee: Fee charged for transferring an outstanding balance from one card to another.
Balance Transfer: The process of moving an unpaid credit card debt from one issuer to another.
One card might offer a 2.99% rate on balance transfers, another may boast 0-percent introductory rates on transferred balances for eight or even 12 months. You'll need to be an ideal card customer to enjoy these kinds of low promotional rates. One slip-up is all it takes for an issuer to jack up interest rates. Pay late once on some of these cards, and that no-interest deal gets replaced with a 19.99% rate.
Several issuers offering low rates on balance transfers charge fees of 3% to 5% when you accept their offer. A 4% fee on a $1,000 balance would cost $40. Some issuers cap fees at $35 to $50. Most issuers charge these fees as soon as a balance is transferred onto a card.
Source: “Tricky balance transfers can trip you up,” Bankrate.com, April 2006.

18. Returned-Check Fee Your check “bounces” at the bank because:
Not enough money in your account
You don’t have a cash-advance line at the bank to cover the check
Returned-check Fee: Fee charged when your check bounces at the bank.
Also referred to as a non-sufficient funds (NSF) fee. The amount of money charged to an account holder whose account has insufficient funds available to pay the check, which is returned to the party who cashed it unpaid. (The bank did not advance the funds to cover check.)

19. Minimum Finance Charge
Also called “No Balance Fee”
Fee charged for using the credit card even when you pay off the balance in full every month.
Don’t select this card
$1.50 * 12 = $18
Similar to an annual fee
Finance Charge: The charge for using a credit card, comprised of interest costs and other fees.
Minimum-finance charge: Fee charged for using the credit card even when you pay off the balance in full every month.
Similar to charging you an annual fee because you are paying to use the credit card. If you make $0 in purchases for the month, they won’t charge you a no-balance fee.
Some cards, such as the Wells Fargo Prime Rate Card, levy a $2 minimum monthly finance charge if you pay off the balance in full.
Bankers say they must impose charges to cover their costs. Those costs, however, seem to be amply covered by the other $31 billion a year in annual fees, cash-advance fees, balance-transfer fees, and merchant fees. Plus, of course, $80 billion in interest charges.
Source: “Outrageous credit-card fees,” Consumer Reports, May 2004.

20. What You Don’t Need in a Credit Card Offer

21. No on Credit Card Insurance
Life and disability insurance policies will cover credit cards.
Any type of credit card insurance is not as flexible as traditional policies.
You will have to take a policy out on each credit card.
Credit Card Insurance: Policies that are categorized under life, disability, unemployment, and property and have varying benefits from paying the minimum monthly payment to covering in-full the the debt that existed at the last billing cycle.
Beware of "debt suspension" offers.
Banks can offer it without having to use insurance companies. It is commonly offered as an extra with your card, and is generally sold as a way to keep your head above water if you can't make monthly payments because of a job loss or disability. But this sort of insurance does nothing to pay your bills while you can't -- it simply puts them on hold. While you are out of work you can't use your card, and while interest is not being applied, the total balance is lurking in wait for the minute you get back to work.
Source: “Credit Card Basics,” Bankrate.com, February 2006.
Considering your current and future financial needs is the first step in determining if you might benefit from credit insurance.
If you already have substantial life and disability insurance policies, it may be possible that you will have enough coverage in those policies to cover your credit accounts due to your death or disability.
But, on the other hand, if you don't have any type of life and disability policies that does not necessarily mean credit insurance is the best choice for you. Credit insurance may not be as cost effective and is certainly not as flexible as traditional life and disability policies.
For example, if you have a lot of credit cards you would have to take out a policy on each of those accounts. With all those monthly policies, you may be able to purchase a traditional life and/or disability policy for less and get more coverage, not to mention after your credit balance is paid with a traditional policy your dependants would receive the remaining amount.
With disability and unemployment insurance only the minimum payment is covered and only for a specified amount of time. It is possible that after interest is accumulated from only minimum payments being made that the balance could be larger after the specified time allowed in the policy for payments.
Source: Sage, Bobbie, “The 5 Step Guide to Considering Insurance Offered by Credit Card Companies” About.com, April 2006.

22. Theft Insurance If your card is stolen
Federal law limits your liability to $50
Don’t need theft insurance because you’re already protected
Report missing cards within 24 hours or ASAP
Odds are if someone steals your credit cards and goes on a buying spree it won't cost you anything. Federal law limits your liability to $50.
Many card companies now offer some form of fraud protection, but be sure it is a genuine guarantee before you accept it. There are a lot of phony companies making phony offers of "insurance" against someone else using your card, when in fact you are already protected.
You are supposed to report stolen or missing cards as soon as possible, or at least within 24 hours, for that zero-liability luxury. Once again most, card companies admit that they rarely enforce this requirement. However, it is the wisest practice to do just that and get on the phone as soon as you see the card is gone or the minute you see a bill with charges you never ran up.
Follow that call with a letter confirming the facts of the loss or the phantom charges on your statement, and also include the details of your call (who you spoke to, when, etc.). It's a simple "better-safe-than-sorry" policy.
Fleitas, Amy, “20 sneaky credit card tricks,” Bankrate.com, April 2006.

23. Life & Disability Insurance
Credit life insurance
pays off the debt you owe if you die.
Credit disability insurance
Pays minimum monthly payments, but not for new purchases
I.Credit life insurance pays off the debt you owe if you die. The beneficiary of the policy has to be the company that the debt is owed to.
II.Credit disability insurance protects your credit rating by making your monthly minimum payment if you become medically disabled. Usually there is a set time period that payments will be made and additional purchases after the disability will not be included.
Source: Sage, Bobbie, “The 5 Step Guide to Considering Insurance Offered by Credit Card Companies” About.com, April 2006.
Credit card disability insurance is a really bad idea. Even though you don't have to make payments, the debt piles up all along. And you can't use the card during that time either.
Fleitas, Amy, “20 sneaky credit card tricks,” Bankrate.com, April 2006.

24. Unemployment & Property Insurance
Involuntary unemployment credit insurance
Pays minimum monthly payments, but not for new purchases
Credit property insurance
Cancel debt on items that are destroyed by specific incidents not covered in other policies.
III.Involuntary unemployment credit insurance will make your minimum monthly payment if you are laid-off or downsized, and again, purchases after the involuntary unemployment would not be covered.
IV.Credit property insurance usually will completely cancel debt on items you purchased with the credit if the items are completely destroyed by specific incidents listed in the policy and a deductible would not apply for the damages to be paid.
Source: Sage, Bobbie, “The 5 Step Guide to Considering Insurance Offered by Credit Card Companies” About.com, April 2006.

25. Find a Consumer-Friendly Card
Consumer Reports Top 10 cards have
No universal default
No two-cycle billing
No balance transfer fees
Grace period of at least 25 days
No annual Fees
Based on Cardweb’s analysis of 10,200 card offers in August, 2005.
The 10 most consumer-friendly credit cards
CardWeb.com, a leading source of data on the credit-card industry, analyzed 10,200 card offers to identify those with the lowest cost in a group that provided the best terms based on CR’s criteria. None of the 10 cards has a universal default clause, two-cycle billing, or balance transfer fees, all of which can jack up finance charges. All cards have a grace period of at least 25 days and have no annual fees. The information is current as of Aug. 1, 2005.
Source: “How to win at credit cards,” Consumer Reports, November 2005.

26. Top 10 Consumer-Friendly Cards
Issuing bank
Intro APR
Go-to APR
Cash advance fee
Late-payment fee
Over-limit fee
Currency-exchange fee
Platinum MasterCard
Town North
none
v 7.99% 2%
$15
Visa Platinum
First Tennessee
f 3.90%
v 8.40 $3
$35 3%
Visa Gold
Pulaski
f 0.00
f 8.50
$29
Visa Platinum Rewards
Simmons First National
f 8.95 $2
Target Visa
Target National
f 9.90 $1
BB&T
f 1.90
Franklin Templeton Bank & Trust
v 9.99
RBC Centura
f 2.90 $4
Commerce
f 2.99
v 10.49
Zions
v 11.50
An “f” indicates that the card has a fixed rate; “v,” a variable rate. Rates are the lowest offered to customers who meet issuers’ credit-score standards. The “go-to APR” takes effect at the end of the promotional period.
Source: “How to win at credit cards,” Consumer Reports, November 2005.

30. Why Credit is Important
FICO or credit score:
Credit Card Issuers & Lenders
Determine APR
Auto Insurers
Determine Premium
Employers
Are you a worthy hire?
Landlords
Are you a reliable tenant?
But these days auto insurers are using credit-based scores to calculate premiums. Employers are using credit checks to determine whether you’re a worthy hire. And landlords are using them to figure out whether you’ll be a reliable tenant. Some utility companies are linking credit scores to the size of the deposit you must pay to have your power turned on.
Source: Consumer Reports, “Credit scores: What you don’t know can be held against you ,” August 2005.
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Insurers to set rates. Auto and home insurers often use credit-scoring formulas to help determine premiums. Insurers and independent researchers have found a strong, although still unexplained, correlation between how well people handle their credit and how likely they are to cost the insurer money. Folks with the highest credit scores tend to file the fewest claims; as credit scores deteriorate, the propensity to file claims rises. The practice is controversial (for details, read "Is your insurer discriminating against you?") but widespread; only a few states, including California and Massachusetts, prohibit insurers from using credit information.
Source: Pulliam-Weston, Liz, “Demand Your FICO Score Now!,” MSN Money, October 9, 2006.

31. Credit / FICO Score Fair Isaac Company Range between 300 & 850
U.S. Median: 723
< 620 = sub prime
> 760 = best rates
Credit Score: A number, roughly between 300 and 850, that reflects the credit history detailed by a person's credit report.
The Fair Isaac Company is the organization that computes credit scores for the three credit bureaus: TransUnion, Experian, and Equifax.
_____________________________________________________________________________________________________________________
Credit scores change constantly, so one peek won't do much good. Scores are built on the information in your credit reports, which does indeed change all the time. Pay down a credit card balance and your score goes up; apply for a new account and your score goes down. But most peoples' FICO scores are relatively stable, changing less than 20 points in any three-month period, so an annual look would at least help people understand their credit ballpark.
Source: Pulliam-Weston, Liz, “Demand Your FICO Score Now!,” MSN Money, October 9, 2006.

32. The Cost of Borrowing Your Credit score: Your interest rate:
Your monthly payment:
6.13%
$1,313
6.35%
$1,344
6.53%
$1,369
6.74%
$1,400
7.17%
$1,462
7.72%
$1,543
The example is for a $216, year, fixed rate mortgage.
These ranges show how the interest rate and monthly payment increases as your credit score decreases

34. 35% Payment History Late payments have the greatest negative impact.
Recency & frequency are important too.
Payment history (35%) -Aside from extreme events, like bankruptcy or tax liens, late payments have the greatest negative impact on your score. Recency and frequency of late payments count too. In other words, even though a 60-day late payment is not as risky as a 90-day late payment in and of itself, a 60-day late payment made just a month ago will count more than a 90-day late payment from five years ago.

35. 30% Outstanding Balances
Total balance vs. total available credit.
Are you overextended?
Outstanding balances (30%) - Evaluation of your total balances in relation to your total available credit on revolving accounts is one of the most important factors in the FICO score. Owing a great deal of money on many accounts or "maxing out" on various credit cards can indicate that a person is overextended, and is more likely to make some payments late or not at all.

36. 15% Length of Credit History
Number of years you’ve used credit.
How long since you’ve used certain accounts.
Length of credit history (15%) -Your score takes into account how long your credit accounts have been established in general, how long specific credit accounts have been established, and how long it has been since you used certain accounts.

37. 10% New Credit Number of new accounts.
Multiple requests reduce your score.
New Credit (10%) -Research shows that opening several credit accounts in a short period of time does represent greater risk-especially for people who do not have a long-established credit history. Multiple requests will reduce your score because it looks like you are either trying to get a high amount of credit (possibly because of a cash flow problem) or that you are being rejected by lenders and having to apply elsewhere.

38. 10% Types of Credit Mix of: Revolving Credit Installment Credit
Credit cards
Installment Credit
Car loan
Home loan
Types of credit (10%)-The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. Your score takes into account what kinds of credit accounts you have, and how many of each. The score also looks at the total number of accounts you have.
Revolving Credit: Creditor places a credit limit for a given period, and the consumer can add charges as long as the credit limit is not exceeded and the account remains in good standing. Another name for open credit.
Installment Credit: A loan that is paid in equal monthly installments with a fixed interest rate. Loan payments include principal and finance charges and are a form of closed credit.

39. How to Improve Your Score
Pay all bills on time.
Pay any delinquent bills.
Lower your total credit card debt.

40. How to Improve Your Score
Don’t close unused credit cards.
Don’t open up new credit cards to increase available credit.
No matter how many cards you carry, it's a good idea to keep the ratio of outstanding balance to total available credit as low as possible. Credit scores look at how much of your available credit you've used. When you're close to the limit, you look out of control. From a score-lowering perspective, debt reduction should start with the cards on which you're closest to your credit limit (though from the point of view of shrinking the overall amount of your debt, it's best to pay off your highest-interest-rate cards first; see ASK SUZE on DEBT, pages 78-85, or THE ROAD TO WEALTH, Pages ) Be aware, however, that paying off a collection account or a judgment will not remove it from your credit report. It will stay on your report for seven years.
Clean, active charge accounts, opened many years ago, will boost your score. Research shows that consumers with longer credit histories have a lower risk of default than those with shorter credit histories. However, even people who have not been using credit for a long time may get high scores, depending on how the rest of the credit report looks.
Don't close unused credit cards as a short-term strategy to raise your score. In fact, owing a fixed amount but having fewer open accounts may lower your score. Conversely, don't open a number of new credit cards that you don't need, just to increase your available credit. This approach could backfire and actually lower your score.
Every time someone requests your credit report from a credit bureau, an "inquiry" notation is made in your file. Too many inquiries on your credit report can signal looking for new credit and may lower your score. You should apply for credit only when you need it and wait before applying for more. FICO scores can usually identify "rate shopping" in the mortgage- and auto-lending environment, so that you are not penalized with multiple inquiries related to one credit transaction. To be safe, it is a good idea to do your rate shopping for a given loan within a short period of time. (Note that if you order your credit report from a credit reporting agency to check it for accuracy, it will not affect your score, as it is not an indication that you are seeking new credit.)
In general, having a variety of credit products (such as credit cards and installment loans) will raise your score. Someone with no credit cards tends to be a higher risk than someone who has managed credit cards responsibly. Still, it is not necessary to have one of every type of account, and it is not a good idea to open credit accounts you don't intend to use.
You don't improve your score by carrying balances forward from month to month (as opposed to paying each bill in full), but lenders may be more likely to offer credit to people who carry balances because they have a history of paying interest on their accounts.
If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. This won't improve your score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time. (To find a credit counselor near you, call the National Foundation for Credit Counseling at or look for them on the Web at

41. Maxed out