Category Archives: Credit Cards

How to Pay Your Bills on Time

Of the 5 major factors that affect your credit score, payment history usually makes up about 35% of your score. Payment history shows how responsible you have been with handling credit, such as whether you pay on time. When you make one late payment, it can hurt your credit score more negatively than you might expect. This is especially true when you have a high credit score to begin with. In fact, the higher your credit score is, the more damage a late payment does.

However, you can easily avoid making late payments with these tips:

1)      Keep track of what you owe and to whom you owe – Some people argue that they never received a bill for payment, thus causing them to not make a payment on time. Unfortunately, credit card companies aren’t required to give you a warning or notice before they report your late payment to the credit bureaus, even if you never received the bill. It is your responsibility to pay your bills whether you get a statement or not. Thus, you need to keep track of what you owe and to whom you owe. It is your job to make sure that all your creditors get paid, even if your statement gets lost in the mail.

Keeping track of these details can also help you detect identity theft, as some criminals may steal credit card statements out of your mailboxes.

Tip: Make a list of all the bills you pay, whether it’s monthly, quarterly, or annually, and the date it’s due. Mark these dates on a paper or electronic calendar in your phone or computer. Pick up the habit of checking your calendar weekly to see if there are upcoming bills that need to be paid. With electronic calendars, you can configure it so that it alerts and sends you a reminder prior to the bill due date. You can also sign up for free email or text reminders for many online credit card or other bill payment systems.

2)      Automatic Debit – This allows companies that you owe to take the amount you owe directly from your checking account each month without any action from you. The money gets deducted the same way as if you paid by check or by an electronic transfer.

3)      Set Up Automatic Payments –If you don’t want vendors to deduct from your checking account through automatic debit, you can enroll in automatic payments that will be charged to your credit card instead. Using a credit card can give you more protection, because if a mistake is made, you can dispute an erroneous change and not have to pay until the problem is resolved. However, make sure that when you are setting up to pay your bills on your credit card that it won’t bring your balance close to your credit limit. As discussed here, if you are carrying a high balance on your credit card relative to your limit, it can hurt your credit score, even if you play to pay in full.

Paying bills online can also leave excellent trails as it can show exactly when the bill was paid. Therefore, you never have to worry about your check getting lost in the mail and getting slapped with late payment fees.

4)      Pay Bills as They Come – If you pay each bill immediately when it arrives, it decreases the chances that you will lose the notice and forget to pay.

 

Prepaid Debit and Credit Cards

What is the difference between prepaid debit cards and prepaid credit cards?

Prepaid credit cards, also known as secured credit cards, allow you to use credit in exchange for a certain amount of money that you give to the credit card issuer to hold in a savings account. Unlike a prepaid debit card, a prepaid credit card makes purchases on credit, which must then be repaid using funds from another account. Every time you make a purchase, you promise to pay the credit card with funds not drawn from the savings account. The money held by the credit card issuer acts as collateral in case you are unable to pay off your balance.

A prepaid debit card functions similar to a bank debit card or gift card. There has to be enough funds attached to the card before you can make a purchase. Every time you make a purchase, the funds on the debit card is reduced by the amount of the purchase. Once all the money on your debit card is used up, you can no longer make purchases unless you recharge it.

With a prepaid debit card, the limits on your spending are directly based on the amount of money you add to the card. This is not the case with a prepaid credit card. Your prepaid credit card will usually have a credit limit and you can only make purchases each month up to your limit. Although some cards will allow you to go over your credit, fees will be charged.

Prepaid credit cards are often used as a way of building good credit, especially if you have a bad credit history. Prepaid credit cards report every month to the credit bureaus. Making regular small charges and paying them off every month will show that you are financially responsible, which can help increase your credit score. However, if you do not know how to handle credit, you can still end up in trouble, as it can charge interest rates anywhere from 15% to 23%. With prepaid debit cards, since you can only spend money you actually have, you won’t have to worry about being in debt.

A prepaid credit card offers protection if your credit card is stolen. The federal law limits your liability for any unauthorized transactions. When you lose your prepaid debit card, it’s like losing cash and you cannot get it back. However, a prepaid debit card is better than the standard debit card because since your prepaid debit card isn’t directly connected to your bank account, you do not have the risk of having your bank account drained.

One of the most important things to consider when deciding between a prepaid credit card and a prepaid debit card is that only a prepaid credit card has the ability to improve your credit score.  Prepaid debit cards do not show anything about your borrowing or repaying behavior, and thus have no impact to your credit score. Read more about factors that affect your credit rating.

Debit Cards and Prepaid Debit Cards

What is the difference between a debit card and a prepaid debit card?

Since both are called debit cards, many people tend to confuse these two types of cards. However, a prepaid debit card is very different from a bank debit card. A bank debit card is directly linked to your checking account, whereas a prepaid debit card is not. With a prepaid debit card, you pay in advance to add the funds to your card so that when you make a purchase, money gets deducted from the funds that were loaded onto the card. For example, if you deposit $400 onto your prepaid credit card and you spent $50, then you only have $350 left to spend. In this way, prepaid debit cards function similar to a gift card. In most cases, you cannot spend more money than what you put on your prepaid debit card. Once you use all the funds on your prepaid debit card, you are no longer able to make any purchases unless you reload the card with additional funds.

With bank debit cards, if you opt into your bank’s overdraft protection service, the bank covers the amount of a purchase that exceeds what you have in your checking account. Later, you will have to pay the bank the overdraft, along with a fee for not having enough funds in your account.

There is less consumer protection with prepaid debit cards in the event of loss or a disputed charge compared to bank debit cards. Losing your prepaid debit card is like losing cash. However, since prepaid debit cards are not linked to your bank checking account, you don’t have the risk of having your checking account drained when you lose your card. Your losses are only limited to the amount on your prepaid debit card.

Some people like to use prepaid debit cards because they find it as a way to control their spending. They decide how much they want to put on their prepaid debit card, thus putting a limit on how much they want to spend. However, keep in mind that prepaid debit cards can also have a lot of fees, including reload, account maintenance, and activation fees.

Read more to see if you should apply for prepaid debit cards.

Are Prepaid Debit Cards Good For You?

The popularity of prepaid debit cards has been rising in the last several years. You can qualify for a prepaid debit card regardless of your credit history. Since prepaid debit cards are co-branded with MasterCard or Visa, you can use these cards to pay bills almost anywhere regular credit card payments are accepted. Many people use these cards overseas for convenience.

Whether prepaid cards are good or bad for you really depend on how you use them and how responsible you are. Prepaid debit cards make sense for some people who are trying to control their spending because they can’t spend more money than what is loaded on their card. This way you wouldn’t carry a credit balance, have any overdraft fees to pay, or be in debt. Thus, if you think you have trouble handing credit, a prepaid debit card may be an option you want to consider.

Prepaid debit cards also have a plethora of fees, including reload, account maintenance, and activation fees. Despite these fees, some people still find it better to use a prepaid debit card as opposed to a regular credit card. This is because if you are bad in handling credit, these fees may be lower than the amount of interest you would have to pay with a credit card if you carry a balance at the end of the month. However, in recent years, some card companies started offering prepaid debit cards with significantly fewer and lower fees. Some cards will even waive certain fees if you set up direct deposit. Make sure you understand what all the fees are before signing for any card. As with any financial product, it is important to shop around before you make any decision. Compare the fees and features of different prepaid cards to ensure that you get the card that is best suited for you.

Do prepaid debit cards build credit?

Using prepaid debit cards will have no impact on your credit score and you will not be able to build a credit history. This is because when you use a prepaid debit card, you are not borrowing or repaying money, and thus, the major credit bureaus often do not look at your prepaid debit card behavior when determining your credit score. For someone who is trying to increase their credit score, consider applying to a prepaid credit card as opposed to a prepaid debit card.

Who uses prepaid debit cards?

You might sign up for a prepaid debit card if your bank doesn’t carry MasterCard or Visa branded cards. Parents can also load money onto the card for their children to teach them good money management skills. College students may also find that using prepaid debit cards is convenient in terms of helping them easily pay for books, food, and other expenses.

Do Prepaid Cards Build Credit?

One of the differences between prepaid debit cards and prepaid credit cards is their impact on your credit. While many prepaid cards do not help you build your credit, there are some that do.

You can qualify for a prepaid debit card regardless of your credit history. However, its activity has no impact on your credit history because, with a prepaid debit card, you are spending your own money that you have added to the card. This shows nothing about your borrowing or repaying behavior, and thus has no effect on your credit.

If you are trying to rebuild your credit, you may want to consider a prepaid credit card, also known as a secured credit card. Secured cards function like traditional credit cards. You use the card similar to any other credit card up to your credit limit. At the end of each monthly cycle, you will receive a statement with the total amount you owe, the minimum payment, and the due date. Similar to traditional credit cards, the rules on building good credit applies. For example, making your payments on time will help your credit and likewise, late payments will hurt your credit.

Secured credit cards are similar to prepaid debit cards in that you have to make a deposit first in order to use the card. Some cards will require you to make a cash deposit from between $200 to $5000 before you can use the card. However, unlike a prepaid debit card where the funds get automatically deducted whenever you make a purchase, with a secured card, you have to pay off your balance from a separate account with funds that were not part of your initial deposit. Your initial deposit only acts as collateral in the event that you fail to pay off your credit card bill.

Since secured cards require a security deposit, many people can qualify for a secured credit card even if they do not qualify for a traditional credit card. If you have bad credit and are getting rejected for new credit, you might want to research and apply for secured credit cards to build your credit.

Why Apply for Prepaid Cards

It has become inconvenient to not have a credit card in certain situations. For example, car rentals, hotel reservations, and airline bookings require a credit card. One reason why people apply for prepaid cards is because they do not qualify for regular credit cards due to having bad credit. Prepaid cards are accepted wherever credit cards are accepted.

Typically you pay a fee to set up a prepaid card account and you deposit funds onto the card, similar to how you would fund a gift card. As you use your prepaid card, the amount of your purchases gets deducted from your card, reducing the balance. For example, if you deposit $500 onto your prepaid credit card and you spent $100, then you only have $400 left to spend. Once you spend the entire $400, you have to reload more money onto your prepaid card before you can use it again.

Managing your prepaid debit card is similar to managing a checking or savings account. You don’t have to worry about interest, finance charges, or late payments. You don’t have to remember any due dates, as your purchases get automatically deducted from your card balance.

These cards allow a person the convenience of a credit card without going into debt because you can never spend more money than you have loaded into the card. They are a nice alternative for people who have bad credit and can’t qualify for credit lines from credit card companies.

However, prepaid cards usually come with a lot of fees. Besides the activation fee, you may have to pay reload and account maintenance fees. Compare these fees to how much interest you’d have to pay with a regular credit card if you carry a balance at the end of the month. Despite their fees, some people still prefer to use a prepaid debit card over a traditional credit card. It’s important to read through all the prepaid card terms and know the fees you are paying before activating an account.

Read to see if prepaid cards are right for you.

Debit Cards, Credit Cards, and Prepaid Cards

What are the differences between a bank debit card, credit card, prepaid debit card and prepaid credit card?

Bank debit cards – A debit card is directly linked to your bank account, so whenever you make a purchase, the money gets automatically deducted from your checking account. They can provide a convenient alternative to cash. Unlike credit cards, you are less likely to overspend and go into debt with a bank debit card.

Credit Cards - Whenever you make a purchase with a credit card, you are borrowing money from a bank or business while agreeing to pay it back later. The benefit is that you get to use someone else’s money now and postpone your payment until the end of billing period. However, if you do not pay the entire balance by the end of the month, you will be charged interest on the amount you owe. Since credit cards allow you to spend more money than what you may actually have in your bank account, if you are not responsible with your credit card, you can go into debt. Read more about differences between debit cards and credit cards.

Prepaid cards

Prepaid debit cards – Instead of making purchases with borrowed money, you have to preload the card with money first. Once you spend all the money on your card, you cannot make any purchases unless you reload your card. In this way, these cards function similar to a gift card and are accepted wherever credit cards are accepted.

A prepaid debit card acts similar to a bank debit card since there has to be money attached to the card before you can make purchases. However prepaid cards are not directly linked to your checking account. Read more about differences between a prepaid debit card vs. bank debit card.

Prepaid credit cards – Similar to a prepaid debit card, you have to put down a certain amount of money upfront as a security deposit before you can use the prepaid card. However, unlike a prepaid debit card where the funds get automatically deducted whenever you make a purchase, you have to pay off your balance from a separate account with funds that were not part of your initial deposit. Your initial deposit only acts as collateral in the event you are unable to pay off your card balance. Read more about differences between prepaid debit cards and prepaid credit cards.

4 Reasons Why People Close Their Credit Cards

Although it is true that closing your credit card account can hurt your credit score, sometimes it might make sense to close an account. Here are 4 reasons why people choose to close their accounts:

1) You don’t want to pay fees – If your credit card company is charging a hefty annual fee that you don’t want to pay, first ask to see if there is any way to have the fee waived. If your credit card issuer is not willing to waiving the fee, you may want to consider closing the account and start looking for credit cards with no annual fees.

2) You are splitting up – If you are separating or getting divorced from someone with whom you share a joint account, close your account.  Otherwise, if the account is still open, you are fully responsible for any charges your ex-spouse makes under the account.

3) You overspend – If you cannot resist the temptation of your credit card and tend to overspend, closing the account might control that habit. You can also learn how to manage your credit cards without having to close your accounts.

4) Reduce the risk of identity theft and fraudulent use – Do you worry about the safety of your information each time you hand out your card and make a purchase? With an increase in identity theft, some people believe that by closing a credit card, they can reduce the chances of getting their identity stolen. Using cash cuts down the risk of getting your credit card information stolen. You can learn how to avoid identity theft.

Decide whether these factors outweigh the reasons why you shouldn’t close your credit card account. For instance, if you are struggling with debt and you believe that cancelling your accounts will help you control your spending even at the cost of a lower credit score, then you might want to do so. However, if you need to take out a major loan in the upcoming months, such as an auto loan or a mortgage, then you may want to reconsider. Closing your credit card can negatively impact your credit score, which is the deciding factor for whether or not you get approved for your loan.

If you do decide to close your account, read here for tips on how to cancel a credit card the correct way.