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.