Information Center – News and Articles about Credit Cards
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Credit Debt Is Not an Enemy to Your Credit File
Most credit tips say that the sooner you pay off your credit card balance - the less money you will lose on interest. On-time payments will favorably bound back on your credit score and payment history. This kind of advice is what we all are used to hear and read on the Web, in financial magazines, in tips columns. But does this financial behavior model really have a positive effect on your FICO score and credit report?
How can it be questioned, you ask? A perfectly disciplined plastic owner that pays off his or her balance before a lender could say Jack Robinson. Is not it any creditor's dream? No, it is not always so. Let's find out why a lender would want a different behavior model from a borrower and when this kind of paying down debts can weigh heavily against a cardholder.
First of all, let's figure out the circumstances when a card issuer loses profit if you pay off your plastic fast.
Zero APR credit cards. Everybody loves this teaser rate, as well as grace period. Say, you apply for a plastic with 0% interest on purchases for 12 months and no annual fee. You actively use the card to pay for merchandise, and as a responsible or leery and wise credit consumer try to pay off your balance in full and by the time your introductory period is over, you carry no balance on the card. This way you make the most of the plastic and leave your lender back at the bottom of the ladder. Your credit provider earned nothing - you paid no fees, no interest.
The same with balance transfer cards and rewards credit cards with promotional period. You take advantage of interest-free period and make maximum profit. After the intro rates change into an ongoing APR, you just stop using the card, your balance is paid off and you did not lose a single cent on interest. This way you leave your lender without any revenue. And what commercial organization would want to keep such a client? So, this trick can play Old Harry with you. Think twice before sticking to this kind of payment plan.
Let's consider another situation. You are planning to buy a house. You need to qualify for a mortgage loan. What credit data matters for a lender when they make a credit decision?
The most important information for a credit issuer is what risk you are for a lender. In order to find it out they thoroughly check your credit file. What catches the creditor's eye besides your credit scores and payment records is your credit utilization ratio (the ratio between your total credit available and your current credit card debt amount). You see, if you do not carry any balance, your potential lender cannot calculate your credit utilization ratio. This automatically reduces your chances to get approved for a mortgage nearly to zero.
If you want to be in good standing with real estate lenders, you just have to carry a small balance on your cards. Carrying a balance will not prevent you from keeping your credit spending under control. Responsible financial behavior and credit card management, as well as your loyalty will grant you creditors' trust and the most appropriate and beneficial mortgage rate.
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The XXI century is the century of high-speed and nanotechnologies. It seems people strive to speed up all processes to make this already hectic and sometimes chaotic rhythm of life even crazier. They are ready to shrink everything they can lay hands on to make nanotechnologies work. In fact people just want to make their life more convenient.
Contactless credit cards are another product designed to upgrade our life quality through saving customers' time during the checkout process. These new-age credit products are gaining more and more popularity with customers. The so-called wave card makes the checkout process easier and faster. The recent opinion poll proves that contactless plastics won many hearts. According to the survey's result, over 90% of wave cards owners find them to be very convenient and user-friendly. Plus such plastics are accepted nearly everywhere regular credit products are accepted.
The financial economy crisis in the US has been admitted the largest financial shock for America since Great Depression. US banks incur billion-dollar losses. The number of delinquencies keeps rising. Associated Press has announced the results of data processing on 17 trusts dealing with securitization of credit cards.
The results leave much to be desired, to put it mildly. The volume of credit card debt with a delay of 30 or more days has gone up by 26% as compared to October, 2007. Now it makes up $17 billion. It stands for over 4% of credit card debts. The information on card holders debts for Associated Press was provided by the leading US companies.
We are used to see credit cards the way they look today, and it is hard to imagine that they looked different and served for another purpose than paying for goods and services. We call them plastics. In fact, a century ago credit cards had a different shape, size and were not made of plastic.
The appearance of credit cards dates back to the beginning of the XX century. Who were they created for? The target audience was wealthy people. The cards could be used as business certificates and licenses for the so-called "loyalty programs" at some restaurants, gas stations and merchants. Those cards, you can be surprised, were made of cardboard.
Rapidly growing credit card crime rate causes more and more concern of credit consumers and credit providers as well. Credit card fraud is a number one card holders complaint to Federal Trade Commission. According to the statistics, over 85% of credit card owners that fell victims to credit scam discover the fraud only after they get turned down by credit issuers, having applied for a new credit card or loan.
Credit bureaus cannot stay indifferent to the problem of credit fraud and identity theft, in particular. Equifax, one of the three US major credit bureaus has introduced a new ID theft protection service. "ID Patrol" is a multifunctional tool that allows protecting customers from identity theft.
