5 Big Mistakes People Make With Credit Cards

Have Your First Credit Card? Watch Out For These!

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This is something I’ve wanted to write about for a while. Learning to budget & save money is huge for people coming out of college, and people seem to understand that. However, they don’t seem to understand how to use a credit card. There’s more to it than just swiping it!

I’ve heard so many misconceptions about how credit works. If you are new to this, read my article on credit and come back! Click HERE.

Someone once told me they thought credit card companies would like them more if they didn’t pay their bills. They assumed their credit would go up because their credit card issuer would be happy to receive more interest money. My head popped off my body. It took a while to put it back on.

Now that’s an extreme, but there are plenty of pitfalls when it comes to using a credit card. Here are the top five.

(1) Only Making The Minimum Payment

You making the minimum payment is a credit issuers dream come true. The longer you delay paying off a balance, the more it accumulates and the more interest they can make off you. The interest rate on credit cards is extremely high. No matter what card you go with. An example of how much more you can pay in interest comes from CreditCards.com.

You have a $5,000 balance on a card with a 14 percent APR, and your card issuer’s minimum payment formula calls for you pay 1 percent of the principal plus interest charges monthly. If you pay only the minimum, you’ll end up paying another $5,000 in interest and take nearly 18 years to pay off the balance.

That is insane. Never make a minimum payment unless you absolutely have no other option. And if you do, stop charging things to your credit card immediately and come up with a plan to pay off your debts.

How To Avoid This: Only use your credit cards to pay for things you could afford in cash today. Someone told me this once and it changed the way I saw credit cards. Credit cards are useful for building up your credit, but should not be used to buy things you otherwise couldn’t afford. Then when it comes time to pay, you’ve got the money.

(2) Not Reading Your Statement

It’s important to make sure you can account for all the charges on your card. We unfortunately live in an age where hackers are able to get ahold of peoples information too easily. Somehow, someway, someone may have gotten your credit card number. This has happened to me a couple of times. I once got a $500 charge from the State Of Oregon DMV. Pretty weird.

Now a charge like that is easy to notice, but a lot of hackers don’t do this. Many will make small charges of $10 or less. They do this to make sure it is a working card number and see if they can get away with it. If it works the next time they charge a small amount, maybe the owner of the card is asleep at the wheel. Then they really go crazy.

Always read your statement (most are online now), just to be sure all the charges you see are yours. Many card companies will refuse to help you dispute a claim if you do not notify them of the error in a timely manner. If you let them know as soon as possible, they typically refund the charge and send their claims department after the party who made the charge.

How To Avoid This: Easy, always check your charges. I’ve heard stories from friends who let charges go unnoticed and it ends up costing them. Plus keeping on top of your charges is just good practice to understand how much you’re spending.

(3) Buying Things You Don’t Need

People seem to take credit cards as a blank check to buy whatever they want. Splurge on a night drinking in PB, buying a ton of new clothes, you name it. I can only reason people do this because using a credit card defers your personal payment and may feel to some like they’re not spending money. People also just buy impulsively. You have to remember that credit cards are micro loans. Every charge you put on there, you’re asking a lender to loan you the money to buy whatever it is you’re buying. You’re gunna have to pay them back. Don’t let it get out from under you to the point where you can’t pay them back.

How To Avoid This: Avoid impulse buying. If it’s a material item you want to buy, the rule is to wait 48 hours. If you still really want it, then get it. But not before figuring out how you’ll pay for it when the credit bill comes. 48 hours allows you to reconsider your need for the item. If you have issues putting dinner/drinks charges on your credit card, try switching to using a debit card or cash to pay for these expenses. Then when you run out, you’re out. Might teach you to rein in those expenses as well.

(4) Signing Up For A Credit Card For The Wrong Reasons

This is a huge one. Someone recently told me they opened up a credit card because the lender was offering them a $50 credit towards their first months bill to sign up. That’s crazy. You wouldn’t rush out to buy a new car just because the first months payment was free. It’s a gimmick they want you to fall for.

Lenders offer tons of different promotions and gear them to naïve college students because we fall for them more than anyone. Federal Regulations have reigned in the promotions they can offer, but it’s still the wild west out there. Look no further than the Wells Fargo scandal. At the end of the day, they want your interest money. Chances are if you fell for one of their sign up gimmicks, you’re more likely to not pay in full, pay late, or not pay at all. Then they get to jack up the interest charges.

How To Avoid This: ONLY sign up for a credit card because you need one. Shop around for the best cash back offers, rates, and balance limits to find the card right for you. But don’t do it just to get $50 or receive a t-shirt.

(5) Not Reading The Fine Print

Don’t skip doing this like you do with reading the User Agreement every time Apple puts out a new iOS update. That small text is where you’ll discover when the 0% or very low-interest rate expires. It’s also how you can find out about any balance transfer fees, as well as any offer limitations like your cash back. Many people skip doing this and don’t understand what they’re getting into. Although a cards introductory rate or offers may seem great today (like getting $50), will it be great in 6 months or a year when the intro rate expires?

How To Avoid This: It’s common sense. Just take the time to read through everything before you sign it. It’s worth it.


If you knew about all of these and actively avoid making these mistakes, you’re already well on your way. If this helped you out at all, leave a comment below to let me know what you think!

Sorry I missed last week guys! I was traveling last week and got caught up in some exams when I got back into town. I’ll work to prepare articles in advance on weeks I can’t write.

As always, thanks for reading and see you next week!

-Matt Dalton

Hack Your Credit – A YoungMoney101 Guide

After publishing an article a couple weeks ago on what makes up your credit score, I’ve gotten a lot of questions about how you can improve it. So here we go.

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5 Ways To Hack Your Credit:

1) Get A Credit Card (3 ways)

This may seem obvious, but it’s going to be hard to effect your credit if the only outstanding information on your report is your student loans. You can’t change those right now (besides paying them off) and they’re just sitting there on your report. A lot of people I’ve come into contact with seem to be afraid to open one up. I’ve heard things like, “I don’t want a bad score. So I just won’t open a credit card.”

Credit is a good thing! You definitely want to establish it. Read more about that in the article I wrote on it HERE.

But, “Yo, YoungMoney guy…my bank won’t let me open one.”

Open a college credit card

Okay, so I’ve heard this argument too. First things first, you probably can’t qualify for a normal credit card right off the bat if it’s your first one. But lots of banks have college student specific credit cards! They keep in mind you don’t have a ton of income and limit your balance to a sum much smaller than a normal credit card. If you’re looking to get into one of these, I’d recommend checking with whatever bank you’ve been with for years for a checking/savings account. They’ll be more likely to approve you for this. It’ll also help you if your grades are higher and if you have a part time job to prove some income.

Secured credit card

If you can’t get a college card, check out a secured credit card. I won’t go into too much depth about these, but you can read about them HERE. I’ve never had one, but I have friends who speak highly of their ability to establish your credit. Basically, it works by instead of having a bank lend you money, it involves you putting down a deposit. You lend to yourself. You put down $500 for example, and then can borrow against your money as credit.

Sign up with your parents

Shoutout out to mom and dad. You can be a cosigner on their cards and get the credit history as they pay their bills. Definitely a smart move if your parents are down.

2) Continuously Pay During Each Month (Micropayments)

This is more a way to trick yourself into always paying your bills. Some people complain that by the time their bill comes each month, it’s just too high for them to pay all at once. So they just make the minimum payment and get that interest charge. Instead, try paying each week or even every few days after you make a charge on the card. I personally do this. It just helps me budget better. There is no limit to how frequently you can pay down your balance. It might help you keep on top of your payments and never get the chance to only pay the minimum each month!

3) Keep That Utilization Low

The absolute biggest factor you can influence is your utilization. You can’t do much about the length of your established history and credit card companies know that. So influence the 1 big factor you can. How much of your available balance you’re using! Figure out when your billing period closes each month. It’s on your statement. Pay your bill down before the closing date and your monthly amount is recorded. You ideally want to keep your utilization between 2%-5% at bill closing. This doesn’t mean don’t pay your whole bill, but instead let the billing period close with a small balance of 2-5% of your total available credit. Then when the statement closes, pay the rest of it off.

4) Increase Your Limit! The Big Hack To Credit

This will instantly bump up your score and is really the biggest hack you can do. At anytime you are allowed to call your credit card company and ask for a limit increase. By doing this, you lower your total utilization we just talked about above. I just did this a couple months ago.

If my limit is $1,000 and I spent $100 this month, my utilization is 10%.

If I increase to a $2,000 limit, I’m instantly down to 5% utilization.

See how big of a difference that can make?

Now it is important to note, you shouldn’t ask for a limit increase if you haven’t been paying your bills (duh) or opened the card within the last year. Wait one year to ask for one to allow your bank to establish some history on you first.

5) Ask Your Landlord To Report Your Payments To Credit Bureaus

You can ask your landlord to tell credit companies you’ve been paying your rent. You can also ask utilities companies to do this. Like SDG&E or Cox. They send a report each month saying you’re paying your bills. You’d be surprised how much this can help establish your credit.

*BONUS*

Always check your credit. At least once a month. It’ll only take you 2 minutes on www.creditkarma.com! Being on top of what your score is keeps you thinking about how you can improve your spending habits.

Keep your credit in good standing will save you money for the rest of your life!

You’ll qualify for lower rates on loans and save thousands when getting new auto, home, or student loans.

Thanks for reading and please subscribe to my email list! I’ll send money tips right to your inbox. Comment below any thoughts you have!

Matt Dalton

 

Credit: What The Heck Is It?

3 Most Common Question I Get About Money:

  1. How do I start saving more money? And where do I save it?
  2. Should I invest in the stock market?
  3. I don’t know what my credit is like. How do I find out?

Today, I’m going to answer the third question. Now, most commonly when someone asks me this, they’re asking how their credit is effected based on how they use their credit cards. But your credit is decided by far more than that.

I’m going to explain how your credit gets decided and where you can check it.

Your parents or someone in your life has most likely told you that building good credit is critical.

And it is.

SO WHAT IS CREDIT?

Your credit is defined by a variety of factors. These factors are weighed differently so that some matter more than others. Based on the calculation of the various factors, credit reporting agencies give you a credit score. Different ratings agencies decide on their rating scales differently. But the most common scale is rated between 300-850. This is known as the FICO score.

In the Untied States, there are 3 big credit reporting agencies. ALL of them have your information. Even if you don’t have a credit card.

These 3 are…

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 (1) Equifax

 (2) Experian

 (3) TransUnion

 

WHAT DETERMINES MY SCORE?

  1. Credit Card Utilization (High Impact)
    • The amount of your total available credit that you’re using on your credit cards.
      • For example, lets say my credit limit is $1,000. I spend $100 this month. My utilization is 10%. Easy, right?
  2. Payment History (High Impact)
    • Hey, are you paying your bills on time? (This can include credit cards, auto loans, student loans, your rent, utilities)
  3. Derogatory Marks (High Impact)
    • The number of collection accounts, bankruptcies, foreclosures, civil judgments or tax liens on your report
      • Hopefully you have none!
  4. Age Of History (Medium Impact)
    • How long have you had credit accounts for?
  5. Total Accounts (Low Impact)
    • How many credit cards or loans do you have right now?
  6. Credit Inquires (Low Impact)
    • How many lenders, possible landlords, employers have asked about your credit?
      • There is a difference in credit inquires called Hard Pulls and Soft Pulls.

Learn more about these factors HERE.

There ya go! You now know how your credit is determined.

WHAT IS A GOOD SCORE?

Credit Score Range Definitions (Sourced from Experian.com)

  • 800 +: Indicates an exceptional FICO Score and is well above the average credit score. Consumers in this range may experience an easy approval process when applying for new credit. Approximately 1% of consumers with a credit score of 800+ are likely to become seriously delinquent in the future.
  • 740 to 799: Indicates a very good FICO Score and is above the average credit score. Consumers in this range may qualify for better interest rates from lenders. Approximately 2% of consumers with a credit score between 740 to 799 are likely to become seriously delinquent in the future.
  • 670 to 739: Indicates a good FICO Score and is in the median credit score range. Consumers in this range are considered an “acceptable” borrower. Approximately 8% of consumers with a credit score between 670 to 739 are likely to become seriously delinquent in the future.
  • 580 to 669: Indicates a fair FICO Score and is below the average credit score. Consumers in this range are considered subprime borrowers and getting credit may be difficult with interest rates that are likely to be much higher. Approximately 28% of consumers with a credit score between 580 to 669 are likely to become seriously delinquent in the future.
  • 579 and lower: Indicates a poor FICO Score and is considered to be poor credit. Consumers may be rejected for credit. Credit card applicants in this range may require a fee or a deposit. Utilities may also require a deposit. A credit score this low could be a result from bankruptcy or other major credit problems. Approximately 61% of consumers with a credit score under 579 are likely to become seriously delinquent in the future.

OK, SO WHY DO I NEED A GOOD SCORE?

This is why:

  • Having good credit shows your ability to pay back debts
    • Whether that be on a credit card, student loan, auto loan, mortgage, etc.
  • Building credit is also evaluated by your potential landlords or employers (to evaluate your ability to repay something)
    • Apartment companies or landlords will more often that not pull your credit when evaluating your potential as a renter
    • Employers frequently check your credit during their background checks on you
      • Companies say they primarily do this to prevent or reduce theft (More Info On that Here)
  • Building good credit will qualify you for lower interest rates over the course of your life saving you TONS of money.

Matt, I don’t have any credit cards, student loans, auto loans, rent payments, or utilities payments in my name. This is useless information to me, dude!

It’s not! Here is why you should still check your credit.

Fake accounts get created all the time. It’s called identity theft. Someone out there can easily be using your name to open accounts. Heck, your own bank could be opening accounts without telling you! If you haven’t heard, Wells Fargo opened millions of UNAUTHORIZED customer accounts without people knowing. They’ve been convicted and owe $185 Million in fines. That happened last week. (Sept 2016) Learn more about that HERE. I personally bank with Wells Fargo. I’m not leaving them. I’ll write a future post on it.

Don’t let someone mess up your credit without you knowing. Check it.

Also- If you’re an authorized user on one of your parents credit cards (even if it’s not in your name), it’s still on your credit report.

FINE, WHERE DO I CHECK IT?

Federally mandated law requires you have access to 3 free credit reports a year. One from all the big 3 companies I mentioned above.

CREDIT REPORTS HERE: https://www.annualcreditreport.com/index.action

You can report fraud, misinformation, and get a good idea of what’s out there for you. This website is 100% safe. I recommend checking one of them every 3-4 months so you have year round coverage of your credit report for free.

BUT WHERE IS MY SCORE?

Your credit report doesn’t give you a score. In the past you had to buy it from one of those 3. But this is 2016, my finance curious friends.

Many banks are beginning to offer the score for free on their websites when you log in. Not all do, but see if your bank does!

WHERE I GET MY SCORE: CREDIT KARMA  —   https://www.creditkarma.com/

You’ve seen a commercial for these guys. Have you thought it was a gimmick? It’s not. I promise you. I’ve been using them for years. They will give you your score AND your credit report from 2 of the 3 FOR FREE. Anytime you want, as much as you want.

(It doesn’t effect your credit because it is a soft pull)

It’s super user-friendly and I’ll go into detail about why I love CreditKarma so much in a future review. CreditKarma is not paying me to say this. I truly love their site.

You can see your credit score each month super easily. (Mine got a nice boost this month as you can see)

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Even break out possible scenarios!

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Super handy!

SO NOW GO CHECK YOURS!

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Thanks for reading!

-Matt