Cory Burell

While in conversation this morning a coworker of mine expressed his hatred of credit cards. He claimed that they were traps that were ruining America. Personally I think that atleast 50% of Americans should not have one but then again I think the same percentage should be castrated and put out to pasture. Needless to say for the savy spender credit cards are a tool that can be an investment.

You pay your bills every month, buy your groceries, and purchase your goodies with the same means every month. Those methods are with money. Where that money comes from is a channel that can build you further rewards. Another conversation earlier this week was on the rewards programs associated with credit cards. Some people like miles, some like points, and some like me take spending to an all new level of OCD. My wallet has come to resemble a mall map but I’m ok with all of this.

Some people instantly pull out their debit card to pay for all of these every day items for fear of fees, interest, and poor planning on their parts and I want to tell you guys to stop all of that nonsense. These companies make hundreds of millions of dollars a year off of stupidity but you can be the person taking that money back. Now while I do use a debit card 12 times a month it serves a purpose. Through my credit union I get 2.5% apr on my current balance if I use my card this number of times. To me I’ll buy 12 sticks of gum a month to get these rewards but overall spending is left to the other cards. By the way if anyone wants a high quality checking account I suggest Coastal Federal Credit Unions “go green checking”. Use that card 12x a month and your entire account gets 2.5%. That adds up fast people!

Now back to subject. You head into the grocery store. Well this month Discover is running 5% cash back on your first 400 in purchases at grocery stores and home improvement stores. While this changes monthly you can aim your spending based on their specials. To add that up if you spent $400 at the grocery store this month. Multiply this by the year and you have stacked up around 250 bucks in rewards just at the grocery store/etc. Obviously this isn’t going to cover your other purchases but just on that item you saved $250. Now lets take your rent, utilities, etc.

Common household (estimates obviously)

rent:$900

utilities:$100

cable:$100

insurance:$100

You’ve now pulled that precious checkbook or debit card for $1200 dollars this month with no payback! No one has given a portion of that back to you…….no one has said thank you for your dedication to our bank. Basically you threw that money away.

Now lets take an average 1%-2% rewards scenario!

rent:$900 @ 2% rewards= $18

utilities:$100 @2%=$2

cable:$100@2%=$2

insurance:$100@2%= $2

So so far you’ve accumulated 20 at the grocery store and 24 just paying your normal bills. Thats 44 dollars a month back into your pocket not including the 5% you could have saved at best buy, etc by just using their cards. Take a modest 50 dollars a month and multiply that out by 12. Now you are looking at $600 dollars saved this year by spending intelligently on top of the 2.5% you gained at the bank through green checking. Now you are taking that 600 dollars a year, putting it back into your checking account that you are making 2.5% on!

All of this may sound a little OCD. I mean now you have cards coming out the wazoo, thoughts about which to use, etc but believe me it is fairly easy to get used to.

So lets say at the beginning of the year you had $10k in the bank, you use these methods, and put the money in a “go green” account versus just having a checking account and using debit.

Using logic:

Starting balance:$10,000

Savings, $600

End balance: $10,600

Interest: $265

Total=$10,865.00!

Now I don’t know about everyone but I like having that extra money. Thats a vacation, a new sofa, or almost a free months rent. The key is to pay your credit cards before interest kicks in and to pay in full! Don’t leave a balance of your cards people! They are free to use……..but costly to abuse. While that might sound scary its no more frightening that writing a check. If you overspend on a checking account its $32 bucks a pop for every boo boo. At a 9.9%apr card you would have to rack a good little balance to add up to that.

Just think about it people and use strategy in your spending. It’s your money and you worked hard for it so why not work hard to keep it?

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So cruising CNN this morning I catch the blurb on the attack on “Free Credit Report” websites getting cracked down on by the government. Everyone has seen the guy singing on the roller coaster, singing at the parties, and my personal favorite was the guy singing about his girlfriends bad credit in the basement of his mothers house.

I’m so torn on these commercials for numerous reasons. For one I think it is fantastic that someone in this weird way has brought credit education out. People now hear the word credit and think of their reports and not just a card to swipe. There is a huge complexity within this economic climate when it comes to credit. Joe Scmoe 5 years ago could walk into a store and get a store credit card with a 540 score, numerous inquiries, and 85% utilization. This past climate has brought the credit world to its knees. Defaults, write0-offs, and collection companies are the norm these days. Now you can walk into your hardware or clothing store with a 700 score, 4 inq’s and 20% utilization and be denied. Last week I went on a little app spree since I had an itchy trigger finger after going kona (no apps) for 6 months because of the mortgage process. I have B*’d all my inqs off tu/eq, frozen ex, and my utilization was a 1%. With my scores an app spree should be approval, approval, approval. Now in this climate I reached my 5th app and popped some denials. After getting the notifications I had exceeded allowable inq’s (4 on tu LOL).

Anyways……back to the subject. These companies are an obvious rip off and finally someone has done something about it. If you are intelligent you realize when someone asks you for a credit card number its just not free, but some people just aren’t that smart. You have these poor folks caught in poor economic times being told they can’t get a job, credit, or rent an apartment without great credit. While most of these statements could be considered true they are very well aimed and are probably catching the defenseless left and right.

Basically the scam is you sign up, get your free reports which don’t even present you with an accurate Fico score (fako as its called) which could be 100 pts off either direction, show lil to no accurate information about your credit, and then charge them monthly afterwards for “credit monitoring” for more inaccurate information.

Well the gov’t has stepped in and for once I’m actually in shock of a well aimed gov’t intervention. I mean its always blown my mind that you can’t advertise cigarettes on TV but getting some poor sucker to hand over 100′s of dollars to these scams is ok.

Heres the kicker though. Just like the credit act that went into effect recently these companies are getting a huge buffer to “adjust”. These requirements won’t kick in until 9/10 so you can still check this lies out for another 6 months. Great job on that one. You can scam for another 6 months but after that you’ll have to put a disclaimer up that its not really free lol. I would have thought after the backlash of the credit act the people in DC would be slightly more aware of how people get screwed harder and harder. You think people were expecting rate jacking/closures because of an act that was meant to protect the consumer? Nope, but when you give months to devise ways around laws you should.

Right now my prediction is that the companies boost monthly rates from 19.99+ to 39.99+ to “monitor” your credit. AWESOME for those poor people who need protection now.

On a side note people if you want to check your reports hit me up. I’ve got codes for 30% off of www.myfico.com. This is one of the few sites that will give you more accurate info on your credit+real tu/eq fico scores. You can no longer buy a EX fico score so if someone says you can they are full of crap and you need to run. Also fyi the actual free reporting site is www.annualcreditreport.com . You receive a free report every year thanks to uncle sam or you can send a request to ex/tu/eq based on categories like credit denial and receive a free paper copy.

And on that note everyone have a happy safe Easter holiday weekend.

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So normally I’d go on an explosion about how some woman cut me off in line at the Piggly Wiggly but I thought I’d write a few posts about something useful for once. Credit is a basic that everyone should know about but seems to be lost amongst the youth of America. I constantly run into those who can’t manage their money, run the credit cards, and fall into a trap of high interest cards, rate jackings, limit choppage, and terrible scores effecting their overall lives.

I plan on breaking into the basics and then posting on some issues such as current laws such as the new consumer protection acts, fha changes, and how to protect yourself in a tightening economic climate such as ours.

If anyone feels a particular subject is important to them please feel free to send me a message/email and I will address these problems especially if you have a specific problem. Don’t feel shy and I will never leak who/why/when/ or specifics of who the problem is for/about.

YOUR SCORE:

Your credit is worthiness is generally based off of your FICO scoring. This is not to be confused with those silly numbers you get from the 100 free sites you see on the tv. These are FAKO scores. They can be off 100 points in either direction and are a poor judgment of your credit worth.

Here is the basic calculations of a fico score. These differ between the 3 bureaus Experian, Equifax, and Transunion

Payment history – 35% (of Score)

Amounts owed – 30%

Length of credit history – 15%

New credit – 10%

Types of credit used – 10%

This may all seem like jiberesh but is a method to improve your score.

Your payment history is the most important. Think paying that credit cards 30 days late won’t hurt you? WRONG! A single 30 day late can drop your score 20+ points easy. The later the payment the worse off you look. After a certain time frame the account just goes to collections which I will discuss later.

Utilization is next at around 30%. What is utilization? It basically shows the percentage of credit being used. If you have $1500 of usable credit and have 1000 charged you are using 66% of your credit which is bad! Optimal scores are achieved by 10% or less utilization. The higher your limits the lower a base amount will hurt you. I always PIF (pay in full) to keep my scores high. Its not about how much you use but how much is reported. If you use 100% of your limits but pay them off in full before your cc company reports it you still have a 0% utilization. If they report before you pay it off you see 100% and your score drops like a rock!

Length of credit history is important more now more than ever! AA A or average age of accounts determines alot. Lets say you have 4 cards. One has been open for 4 years, 1 for 3 years, and 2 are 6 months old. That leaves you with an average account age of 2 years! New accounts will drop your score until they age. I’ve seen losses of 10+ points for opening a new account. This will depend based on how much your utilization changes also. Again it is a complex formula.

New credit – 10%- See above as they closely relate in explanation.

Types of credit used – 10%- What is your credit comprised of? Do you have a car loan (installment), credit cards (revolving), or a mortgage (installment)? These account types mix and that will help improve your score! Having installment loans actually can help your score with solid payments/completions and also help you get higher limits/more loans. 

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