Topics:Credit Advice Establishing Credit Credit Builder Loans Secured Credit Cards Retail Credit Cards Credit Cards Credit Cards 101 Debt Payoff Tips Credit and Debt
January 22nd, 2021
Guest Post by Orlando Rodriguez With so many options for credit cards floating around these days, how do you find the one that works best for your needs? If this is your first time getting a credit card, it can be a huge decision that’ll certainly have an effect on your finances. There are a lot of terms and conditions you need to understand before moving forward. And figuring these out is a daunting task in itself. But that shouldn’t turn you away from the benefits of getting a credit card. Once you’ve narrowed down your top choice for a credit card, now comes filling out an application. While it may seem a little overwhelming, it’s not as complex as you may think. First, you should consider a few factors about your personal finances that impact whether you should apply. Here are the top four things to know before applying for a credit card: Start small Make sure you can pay on time Know the risks Learn from rejection 1. Start small If you’re new to credit, it might be difficult to qualify for cards with lower interest rates and big rewards programs. Your search should start with cards available for people with little to no credit history. However, that doesn’t mean you won’t reap certain benefits. Everyone needs to start somewhere when building up your creditworthiness. So, it’s a good first step to take. Try looking into card offers that help those with no credit or bad credit and find the options that work best for you. Often, secured credit cards have refundable deposits and don’t require a minimum credit score or history to qualify. This makes it easier to get the card and lets you choose your credit limit, making it useful in your budgeting. Even cards you prequalify for could be a good option, as well. These usually have a good idea of what’s in your credit report. And while you’re not guaranteed approval, you may be more likely to qualify for these than other cards. 2. Make sure you can pay on time Missing a credit card payment is one of the worst credit card mistakes you can make. Before applying, consider your finances. If you’re already struggling with other debt, including credit card debt or collections, the last thing you should do is attempt to open another credit card. If you need to open another card, one option is to look into getting a balance transfer credit card. This means you can transfer existing debt to the new card, potentially saving you money on interest repayments. Keep in mind, though, that the new card might have different rates and minimum payments. There can also be certain limits on how much time you have before paying off a balance without interest. Make sure you pay your bills on time to avoid additional fees. 3. Know the risks Fees and penalties differ between credit card issuers. Study these carefully and refer back to your financial standing before continuing. While some cards with high fees or no credit limit offer valuable rewards programs, having to pay so much in interest might not sit well with your budget. Some of the main factors you should look at include the following: Annual Fees Balance Transfer Fees Interest Rates Foreign Transaction fees Annual Percentage Rate (APR) Apart from these, look at what the credit card issuer offers just for opening a new card. Some might offer one-time cash bonuses or immediate cash back on purchases. However, read the fine print to determine how these work and whether you have to spend a certain amount for the reward to activate. The last thing to consider are penalties for missed payments. You’ll end up paying more interest on what you owe, but there are other factors that do a lot of damage as well. For one, missing payments will bring your credit score down. This, of course, has a negative effect on your financial future. It can lead to a reduced score, which means you won’t qualify for other credit cards or even mortgages. 4. Learn from rejection Getting denied for a credit card can be a huge letdown. For those with no established credit, the hurdle gets even bigger. But once you receive an official denial letter, it should lay out the reasons why you were denied, and you can use that as a learning opportunity. Sometimes, the rejection can be as simple as you don’t earn enough income, you don’t have a credit history, or you have other debts damaging your creditworthiness. This feedback from the credit card issuer is helpful for many reasons. First, it lets you know what’s preventing you from getting a certain card. This, in turn, allows you to divert your efforts into other cards for which you’re most likely to qualify. And it also helps you know which areas of your credit profile you need to focus on to improve your score. With this information, you can then change your approach and aim to apply for cards you can realistically qualify for. The bottom line While a credit card offers a convenient and benefit-rich alternative to spending cash, it can also be an easy way to accumulate debt. For that reason, before applying for a credit card, understand your current needs and whether having a credit card aligns with your long-term financial goals. Gather as much information as possible and determine if the benefits outweigh the costs. Credit cards offer a lot of incentives that draw you in, like cash back or travel rewards. But you need to know how to manage your credit properly or it could hurt your finances for years to come. Make sure you know your options and address any questions and concerns first. As long as you stay informed, you’re more likely to make the right decision and get rewarded. Orlando Rodriguez is a writer and content specialist for Credit.com dedicated to creating timely, factual, and eye-catching content. He completed his undergraduate work at the University of Utah focusing on Film and Media Arts. And he’s used his knowledge base in filmmaking and screenwriting to craft stories that enrich and inform. He’s written blogs and journalistic content for many different industries, and narrowed down his niche to the financial industry for the past two years. In his off time, Orlando enjoys reading and writing more about the arts.
How many credit cards should I have? Maybe you already have one or two credit cards and are wondering if you should get one more. Or maybe you already have a handful of credit cards and wonder if you have one too many. If this is a question you’ve asked yourself time and time again, the truth is that there isn’t a perfect answer. According to the Experian 2020 Consumer Credit Review, the average American has four credit cards. Whether that seems like too little or too many, it is important to ask yourself some key questions to determine how many credit cards you should have. What types of credit cards are available? How often can I apply for a credit card? Will applying for multiple credit cards affect my credit score? What are the pros of having multiple credit cards? What are the cons of having multiple credit cards? How many credit cards should I have? To answer these questions, I’ve turned to experts and consumers alike, allowing you to make a more educated decision about whether you should add another credit card to your wallet. What types of credit cards are available? When it comes to credit cards, there are a lot of options available to you. You’ve got your rewards cards, retail cards, business cards, student cards, balance transfer cards, and cards specifically designed for building/rebuilding your credit, to name a few. Knowing what types of credit cards are available is key to strategizing how you would use specific cards in order to build your credit and/or maximize rewards. Based on reviews left by credit card consumers on BestCompany.com*, the following types of credit cards were mentioned most often, suggesting that they are a popular choice among consumers: Cash back reward cards Travel reward cards Retail cards Student cards These findings are consistent with other surveys and statistics, reporting that 60 percent of Americans have a cash back card. Retail credit cards are also a popular choice, with 40 percent of Americans owning one; according to customer reviews, the most popular retail cards include those for Costco, Amazon, Best Buy, and Walmart. In reviews, 8 percent of customers also mentioned how they liked that their credit card was accepted everywhere, even internationally. The majority of these reviews were speaking about Visa credit cards, but this suggests that having a widely accepted card is important to consumers, particularly when traveling. search Based on combined data, we would recommend you have these credit cards in your wallet: A cash back rewards card A retail card A card with wide acceptance (for example, Visa) Of course, the types of cards that you should carry will depend on your specific needs. If you aren’t faithful to a particular retailer, then a retail card would not make sense for you, and if you don’t travel frequently then you may not have to worry so much about your cards’ acceptance in foreign places. *Review data is taken from a sample of 400 credit card customer reviews. How often can I apply for a credit card? Technically, you can apply for a credit card as frequently as you’d like. But, it is important to keep in mind that this could be a red flag to credit card issuers if they see that you have recently applied for multiple credit cards. Expanding on this point, Andrew Schrage, CEO and cofounder of Money Crashers says, “[Credit card issuers] see a high application rate as a sign the consumer is overextended or could be soon.” Will applying for multiple credit cards affect my credit score? Yes, your credit score will likely be affected by applying for multiple credit cards, especially if done all at one time or in close succession to one another. “This is one of several factors that can affect your FICO and VantageScore credit scores, although it’s not as influential as your payment history or credit utilization,” says Schrage. “The effect also doesn’t last as long as some other adverse credit events, such as delinquencies — a year or two, compared with seven or more. But this is one more reason not to apply for every credit card that catches your eye.” It is important to note that when you apply for a credit card, generally your credit score may temporarily drop. This isn’t necessarily something to worry about, but it may make it more difficult to be approved for another credit card at that time, or for any other type of loan. While there are many factors to consider when applying for additional credit cards, one important thing to consider is whether the cards you are applying for have an annual fee. Many cards do not, but if you are planning on opening multiple credit accounts, it would be wise to weigh this fee, especially if more than one of your cards has one. What are the pros of having multiple credit cards? If you are committed to being responsible with your cards and keeping track of what each is used for, having multiple credit cards can be a great way to maximize rewards, save more money, and improve your credit score. Here are some specific benefits of having multiple credit cards: Greater convenience and flexibility Increase your credit score Increase your credit limit Maximize rewards Greater convenience and flexibility Multiple credit cards can ensure that you’ll never be left awkwardly standing at the till when your card isn’t accepted. Although the majority of credit cards are accepted at most retail locations, it can be helpful to have a mix of credit cards in case one is declined. In addition, multiple cards can help when you run into large or unexpected expenses as you’ll be able to split costs across multiple cards, saving you from eating up or exceeding your credit limit on just one card. This allows you to keep your credit utilization rate low, which can have a more positive impact on your credit overall. However, you should be careful in how you're splitting costs on multiple cards. It is not advised to max out one card and then out the overflow on another, as this could still increase your overall credit utilization. So, you might want to try to split costs in a way that will keep your balance low on each card, of possible. Increase your credit score Generally, your credit score is calculated on a handful of important factors. Your FICO score, perhaps the most common credit score used and referenced in the industry, is calculated based on these factors: New credit (10%) Credit mix (10%) Length of credit history (15%) Amounts owed (30%) Payment history (35%) Amounts owed is a broad category that includes your credit utilization ratio, which is an important factor that can speak to the benefit of having multiple credit cards. Nathan Grant, Senior Credit Industry Analyst at Credit Card Insider explains: “When used responsibly, a new credit card can help you improve your credit scores over time. More credit cards means more available credit, which makes it easier to keep your credit utilization low.” It is important to be mindful of your credit card utilization, since a lower rate shows lenders that you’re using less of your available credit, which can be an indicator to lenders that you aren’t overspending and are doing a good job of managing your credit. This can be harder to do if you have just one credit card, as it is much easier to spend up to your credit limit on one card. Instead, splitting spending across multiple cards keeps your utilization rate low on all cards, which lenders will see as responsible use on multiple credit cards. Increase your credit limit Similar to monitoring your credit utilization ratio, having multiple credit cards increases your available credit. This can be helpful if you feel you may need a higher credit limit than what you get with one credit card while also helping you manage your credit utilization. Maximize on rewards Credit cards often come with some sort of rewards or points that can make it more worthwhile to use. Based on your lifestyle and needs this can be beneficial, as it can help you save more money on travel or earn more in cash back, for example. It is important to assess your spending habits and see where a specific rewards card could prove to be most worthwhile. What are the cons of having multiple credit cards? Multiple credit cards means that you have multiple credit lines to keep track of, which can be challenging and potentially lead to missed payments, which will only hurt you in the long run. Here are some specific drawbacks of having multiple credit cards: Easy to lose track of cards Easy to carry multiple balances Increased risk of spending more than you can repay Applying for more credit could affect your credit score Easy to lose track of cards This may seem self-explanatory but the more cards that you have, the more difficult it could be to keep track of them all. “If you have too many cards, you could lose track of which ones should be used for which types of spending and struggle making your payments,” Grant says. “ If used irresponsibly, you could not only get caught up in a quicksand of debt, but can severely damage your credit scores. Even a single late payment can remain on your credit reports for up to seven years.” Easy to carry multiple balances Just like how having more cards could make it difficult to keep track of them all, more credit means it would be much easier to carry multiple balances, which could be more costly to you in the long run. Carrying a balance may not only increase your credit utilization ratio, but it could also result in you getting hit with interest. Increased risk of spending more than you can repay It is encouraged to pay off each credit card balance in full each month. If this seems like something that you may not be able to manage easily, or if you run the risk of using more credit than you can pay back, then it would be wise to carefully assess whether or not you should get another credit card. If you spend up to your credit limit on one or multiple cards, or even spend more than you can reasonably afford, you run the risk of falling into high-interest credit card debt, as you will be charged daily accruing interest each month, for what you aren’t able to pay off. Don’t let this scare you if having multiple credit cards makes sense according to your circumstances, but always seek to be mindful and responsible in your spending to avoid debt later on. Applying for more credit could affect your credit score “Every time you apply for a new credit card a hard inquiry will lower your credit score a bit, so don’t apply for many cards in a short period of time, especially if you don’t know whether you have good odds of approval,” says Grant. If you are applying for multiple cards all at once, this is important to keep in mind, as your credit score could take a hit, making it more difficult to be approved for other credit cards. Thus, it would be advisable to plan out which cards you wish to apply for and when, accounting for a dip in your credit score upon applying for a new card. How many credit cards should I have? After all that, here we are, back where we began, attempting to answer the big question of how many credit cards you should have. Even after considering rewards, credit utilization ratios, and FICO scores, it all comes down to your needs and how you’ll use your credit cards versus the number of cards you can fit in your wallet. Carefully consider your financial situation, needs, and spending habits before jumping into applying for more cards.
As of November 2019, there were 374 million open credit card accounts in the United States, with approximately 70 percent of the population carrying at least one card. That’s a lot of credit cards. How do millions of consumers know which card to choose? It’s not like there’s a “one-size-fits-all” when it comes to credit cards. In fact, there are so many options out there that there might be multiple options that could work for you. So how do you narrow it down? Have no fear. To help you choose a credit card, we took a look at what consumers want in a credit card and card issuers in particular, in addition to consulting industry experts and a credit card company, to get a bigger picture of how to narrow down the search and pick the best credit card. Let’s dive in! What consumers say What the experts say What a credit card company has to say We wanted to know what consumers felt was most important when looking for a credit card; so we took a look at some reviews to see what consumers mentioned most often. The top five factors mentioned by consumers include customer service, rewards, interest rates, wide acceptance of cards, and card security and protection. Other factors mentioned include fees, company trustworthiness, and credit limits. Customer service Rewards Interest rates Wide acceptance Security and protection *This data, and all subsequent findings, are from a sample of 600 credit card company reviews on BestCompany.com. Customer service Approximately 35 percent of consumers mentioned customer service in their review. On BestCompany.com, we specifically ask consumers to rank their experience with customer service; but it is interesting that consumers consistently commented on their customer service experiences - good or bad - in their written review. This suggests that consumers are concerned about the company that they will be working with, and not just rates, rewards, and fees - very important factors to consider when looking for a credit card. From our sample of reviews, the top mentioned companies for great customer service are Capital One, American Express, and Chase. Rewards After customer service, consumers mention rewards more than other factors. A rewards credit card is a great perk, allowing consumers to generate cash back, points, or miles the more they use their card. Many consumers mention cash back rewards, suggesting that this is the most popular reward option to look into as it is a great option for most everyday purchases. If you travel often, a travel rewards card or a hotel rewards card could be a great option for you, although a cash back card could still be used if you don't want to deal with travel rewards programs. But the best option for your wallet depends on your preferences and lifestyle. "I always get right through to a real person when I call in. Their vacation protection, price drop protection, and extended warranties have all saved me money and been pretty painless experiences. Ultimate rewards is also a really seamless experience that provides tremendous value when transferring to travel partners." — Andrew, Chase credit card review, July 8, 2020 From our sample of reviews, the top mentioned companies for rewards are Chase, Discover, and American Express. Interest rates Consumer reviews mention interest rates more than not, which is indicative that this is an important factor to consumers. With any type of borrowed money, it is a common practice to try to get the lowest rates possible as this can save you more money in the long run, although it isn't necessarily common to get the lowest rate available. It is important to keep in mind that your credit history, income, debts and history with the company are often deciding factors in the interest rate you will receive. "Discover card has excellent customer service, competitive interest rates and no annual fee. I have had my Discover card for many years and have never had any problems with it." — Beverly, Discover credit card review, February 5, 2020 It is important to note that most reviews comment on how interest rates are high, no matter which credit card issuer they are using (although most lenders offer a variety of cards with varying rates, so this may not be an accurate representation), as credit card interest is generally higher than other borrowing methods. But, from our sample of reviews the top mentioned companies for competitive interest rates are Discover, Visa, and Capital One*. *Interest rates are contingent upon your credit score and financial background. Thus, if you have a low credit score, you will likely receive higher interest rates on your credit card. Wide acceptance Another important credit card factor for consumers is where the card is accepted. For the majority of consumers, it is important to them that their card is accepted anywhere, even globally. "Love that Visa is accepted pretty much anywhere. Trustworthy company, very convenient, and like the perks." — Lacey, Visa credit card review, February 22, 2020 From our sample of reviews, the top mentioned company for wide credit card acceptance is Visa. Security and protection Another factor frequently mentioned by consumers in their credit card reviews is security and protection. Consumers want to ensure that their information is safe and that there are protections in place against credit card fraud. It is important to research what security credit card companies have in place to protect against credit card fraud, as it has risen 161 percent since 2015, with 45,120 cases reported in the first quarter of 2020. From our sample of reviews, the top mentioned companies for positive card security and protection experiences are Capital One, Visa, and American Express. Top Credit Card Companies on BestCompany.com Learn more about the top ranked credit card companies on BestCompany.com to see if there is a good fit for you. Learn More Choosing a credit card can be a challenging and time consuming process. Especially for first-time borrowers, it can be difficult to know what's important when looking for a credit card and how different cards compare to others. We asked some experts what they suggested when looking for a credit card, outlining some helpful tips and insights to make the process easier. Look at your lifestyle Pay off existing credit card debt Consider fees, rates, and credit limits Choose Your Rewards Look at your lifestyle Before you even begin to look at different credit card options, it is important to take some time to first consider your lifestyle and what you'd be using your credit card for. This will not only help narrow down your search, but it can also help you determine what kind of rewards would be best suited for you. John Davis, founder of ScoreSense, expands on this point: “The first step to choosing the right reward card for you is to look at your lifestyle, or more specifically, your spending habits. Categorize your monthly spending over a year, then compare to the rewards or rotating rewards according to your monthly spending forecast.” Another important aspect of reflecting on your lifestyle is considering your credit score and finances, two factors that pull heavy weight on what interest rate and credit limit you could receive on a credit card. For example, if you have bad credit and want to build your credit, you could look into getting a secured credit card, or if you are in college you could look into getting a student credit card. Choosing the right card based on your needs and financial background is important because it could save you money on interest, and save you from greater stress in the future. Pay off existing credit card debt If you're looking for your first credit card, this won't be a relevant step for you. But, if you are a consumer looking for a new or additional rewards credit card to add to your wallet, it could be in your best interest to take a look at your existing credit cards and to see if you have any outstanding debt to payoff. “Pay off any credit card debt before you worry about rewards. If you are carrying a balance on any credit cards, you should pay those off first or focus on low interest-rate credit cards,” says Erik Budde, founder of GigaPoints, a data-driven credit card comparison tool. “Any rewards you earn will pale in comparison to the interest that you may be paying.” Consider fees, rates, and credit limits An important step in choosing a credit card is to consider and compare fees and rates various credit cards. Take the time to assess your lifestyle and how you'd use a credit card as these factors affect your decision, especially in terms of interest rates. Nishank Khanna, CFO of Clarify Capital speaks to this point: “If you’re apt to carry a balance, interest rates might be important. If you’re likely to use your card as a substitute for debit and you plan to pay your balance off regularly — interest should be a moot point. Instead, focus on high-value rewards that can subsidize your interests and offer benefits that make sense for your lifestyle.” In addition to interest rates, it's important to consider the fees applied to some credit cards: annual fees, late payment fees, cash advance fees, balance transfer fees, foreign transaction fees, etc. You may find a great rate with a certain type of card, but could then get hit with large fees, so do your homework. The credit limit you receive on a credit card is dependent upon your credit score and finances, as well as the card issuer, but some cards offer much higher limits than others. If you know what you'll be using the card for, it will be much easier to gauge the credit limit you'll need. It is important to note that you won't likely be able to determine and/or compare credit limits upfront. Choose your rewards In general, there are two types of credit card rewards programs: a card issuer programs, offering cash back or points, and travel rewards programs, offering miles or points. Cash back rewards earn you a certain cash amount on eligible purchases, which can save you some money in the long run. Point rewards, on the other hand, give you a certain number of points per dollar spent. These points are most often redeemed for travel costs, such as airline tickets or hotels, which can also be redeemed through travel miles. We connected with Meera Sridharan, vice president of rewards and product strategy at Discover, to ask some questions about how to choose a credit card, especially for first-time borrowers. Q. What things are important for consumers to consider when looking for a credit card? What should they be looking for in a credit card? A. Consumers should consider looking for credit cards that offer flexible rewards that fit their lifestyle and spending habits. All Discover credit cards offer the ability to earn cash back rewards on every purchase, and for first-year card members we automatically match all the cash back you’ve earned at the end of your first year. Beyond rewards, consumers should also consider whether there is an annual fee and if the credit card offers complimentary benefits. For example, Discover provides a robust suite of free benefits, all at no annual fee on any card, including Credit Scorecard, which shows your FICO credit score, Freeze it, an account on/off switch to prevent new purchases in seconds, and Social Security number, Inquiry and New Account Alerts, which can help you protect yourself from identity fraud. Q. For first-time borrowers, what are the best rewards to consider? A. First-time credit card holders should look for cards that offer rewards that fit their lifestyle and spending habits. Q. When should a consumer start looking into getting a credit card — in college, after college, etc.? A. Getting a credit card while in college can aid in establishing a credit history. Building good credit while in school can help you down the road when you’re looking to buy a car, house, or qualify for other credit products. Q. What is the best Discover credit card for first-time borrowers? A. We have several different cards for first-time credit card holders and each provides the ability to earn cash back rewards on every purchase while building your credit history. Q. What is the process to apply for a Discover credit card? A. When applying for a Discover credit card, you’ll need to be at least 18 years of age, have a Social Security number, U.S. address and U.S. bank account, and provide all the required information in the online application. Applications are taken 24/7 on Discover.com. Learn more about Discover's credit card options. The final word Choosing a credit card can feel daunting, but it doesn't have to be. Hopefully these insights can help ease some stress. Good luck in your journey to choosing the right credit card for you! Top Credit Card Companies on BestCompany.com Learn more about the top ranked credit card companies on BestCompany.com to see if there is a good fit for you. Learn More
Guest Post by Kelan Kline You may feel as though you are alone with being in debt, but you aren’t. The average American has $5,700 in credit card debt. With the average credit card debt being so high per person, it’s likely that you are paying hundreds (or more!) per month towards your debt. But don’t stress, here are five ways that you can get out of credit card debt fast. Let’s take a look: 1. Make a plan for your money with a simple budget We often think of a budget as a constraint, but in reality a budget can provide so much freedom, and making one is generally a lot easier than it sounds. When you are creating a budget, it’s important to always look at the bigger picture. Ask yourself, what is my main goal? It’s safe to say that one of your goals will be paying off your debt, so make sure that your budget reflects that. First, you need to find out where you currently stand with your finances. Grab your bank statements, from at least the last three months, and go through them. Next, go through your spending, adding it up and taking note on the areas in which you are spending. You can use a simple budget template to do so, which is a great way to visually see where your money is going. In your budget there will be bills that are the same each month, such as: Mortgage or rent Utilities Debt (minimum payments) Then there will be payments that you make each month that can vary, such as: Groceries Gas Kids' clubs An important aspect of making your budget is using real numbers. Write down your exact expenses, don’t just put down “ball park” figures. This may take some additional time, but ensuring that your budget is realistic and true of your spending habits will help you more efficiently pay down your debt. 2. Cut your expenses to the bare minimum temporarily When you’ve created your budget you may be surprised at how much you have been spending without realizing it. It’s tempting to declare that you are going to dramatically cut all of your expenses so that you can pay more towards debt — but this isn’t always the best idea. When you make drastic changes, you can find yourself wishing that things were back the way they were before and rebelling against the changes. Therefore, it isn’t a bad idea to cut your living expenses to the bare minimum temporarily. Go through your spending and see what you can cut out for now. This may mean cancelling some subscriptions, eating out less, and cooking cheap meals at home. 3. Pick a debt payoff strategy There are various debt payoff strategies that you can choose from, with the most popular being the debt snowball method or the debt avalanche method. The debt snowball method includes paying off your smallest debts first and then moving on to your bigger ones. The reason that the debt snowball method works is because you get the psychological benefit of getting rid of some debt — you can celebrate paying off small debts, and feel a sense of accomplishment which can keep you motivated on chipping away at your overall debt. There is one caveat with this method that may not work for everyone: paying off your small debts first means that you aren’t prioritizing your high-interest debt, which would save you more money overall. However, the satisfaction of paying off some debt sooner than later may be a bigger win for some. If you would rather focus on paying off your debt with the highest interest rate first, the debt avalanche method could be a good option for you. With this strategy you still make minimum payments on all your debts, but you pay a little extra towards your high interest rate debt until it’s completely paid off. You may not experience the satisfaction of paying off smaller debts first as you would with the debt snowball method, but the debt avalanche method is good because you can save more money over time by paying less interest. There isn’t necessarily a right or wrong method — it’s all about finding out which one works best for you personally. You may even find that a mixture of the two works for you. 4. Consider debt consolidation Ideally you will pay off debt without debt consolidation, but there’s no denying that this is something that you may have to consider at some point. Debt consolidation is where you consolidate (combine) your debts together, and there are pros and cons to doing so. The pros are generally that you can negotiate better interest rates and therefore pay less towards your debt. The con is that in order to consolidate your debt you could receive an extended repayment term, which could result in lower monthly payments, but would also mean that you will be in debt for even longer. The most common ways to consolidate debt are by switching to zero percent balance transfer deals by opening a new credit card with a lower interest rate, or taking out a personal loan. 5. Attack your debt by picking up a side hustle Although cutting your expenses to pay debt is a great idea, you can help speed up the process by earning some more money. Side hustles have become increasingly popular, as many people have started earning extra money in addition to their main job. There are so many different side hustles out there, and we recommend looking at the skills that you have and taking some time to think through your options before picking one. The types of online side hustles that we love include things like: Freelance writing Answering surveys Dog walking Using money-making apps Starting your own business Blogging Teaching English online Lead generation You can use the money that you get from the side hustle to put towards your credit card debt and get it paid off much faster. Final thoughts These are a few ways to get out of credit card debt fast. Getting into debt is much easier than getting out of it, but that doesn’t mean that it needs to be all doom and gloom. Make things fun and get your family and friends on board as well; that way you can work together and cheer each other on. The more people paying off debt, the better! Kelan Kline is a personal finance expert and co-founder behind the family finance blog, The Savvy Couple. Since starting their blog in 2016 Kelan and his wife Brittany were able to pay off $25,000 worth of student loan debt in under five months and both quit their jobs to blog full-time. With his bachelor's degree in Business and Finance, The Savvy Couple is on a mission to help families organize and simplify their finances to live a life of freedom.
It is an undeniable paradox. You’re supposed to get a credit card to build credit, but a credit card issuer may require a minimum credit score to qualify, and those required credit scores can sometimes be pretty high. So what do you do if you don’t qualify? How do you build credit without a credit card? How credit works First, it’s important to understand what credit is, how it works, and why it matters. When a creditor extends you credit, there's an agreement that you'll repay the loan (or be allowed to borrow and repay money). Many creditors report your payment, and non-payment, activity to one, or all three, of the major credit bureaus: Equifax, Experian, and TransUnion. These credit bureaus store this information, collect additional information about you from public records, and sell the resulting credit reports to creditors. Credit scores can help creditors quickly evaluate applicants and customers, as they attempt to predict the likelihood that a person will fall behind on a bill during the next 24 months. A higher score is better, as it indicates that the person is more likely to pay all their bills on time. A good credit score is often required if you ever want to borrow money to make big purchases like a car or a house. Credit scores are based on the information reported to one or all credit bureaus, and they're created when someone requests your credit report. If the bureau doesn't have enough information, you'll be "unscorable". But, if you are scorable, most credit-scoring models have a score range of 300 to 850. Key Takeaway: Building credit is essential Building your credit can be important for making large purchases, such as a house. Based on your credit history, Lenders may assess their risk in doing business with you. The higher your credit score, the less of a risk you may pose. Credit cards are an effective way to build credit quickly, but they are not your only option. Credit building without a credit card Credit cards are one of the fastest and most effective ways to build credit, and various credit card lenders offer cards for those with little to no credit, but that option may not be available to you. Fortunately, other credit building options can boost your credit score. They may not seem as simple as using a credit card, and some are a better fit for specific life circumstances, but they are viable options nonetheless. Alternative credit building options include: Credit builder loans Become an authorized user Personal loans Auto loans Peer-to-peer loans Student loans Mortgage payments Rent payments Report other payments Various credit card companies offer cards for first-time credit builders, such as college students, as well as for individuals who are seeking to rebuild their credit, but these other options can also help boost your credit score. 1. Credit builder loans "Credit builder loans make the most sense when you either can't get access to credit cards or don't trust yourself with one. They're best for anyone that wants to boost their credit score and does not want to risk getting into debt," says Jeff Zhou, founder of Fig Loans, a company that offers a payday loan alternative for credit building. The purpose of a credit builder loan is to help those with no credit history build credit, or those with poor credit rebuild. A good credit score may not be required to qualify, but you must prove an income, ensuring the lender that you can afford to make your payments. Credit builder loans are generally offered by credit unions, and are not widely advertised. If you are approved, your loan will be kept in a separate bank account and you'll make monthly payments until you pay off the loan. Only after you’ve completed your payments will that money be made available to you. Throughout your loan term, your payments can be reported to one or more of the major credit bureaus, which can help improve your credit scores. If this seems like a good fit for you, Zhou adds that "the two biggest things to think about when choosing to use a credit builder loan are cost and control. A secured [credit] card is potentially a better option if you have the cash upfront and know you will never accrue interest on the card." For those who are just starting out in building their credit, credit builder loans are a great option, also providing “training” in managing your money and making monthly payments. 2. Become an authorized user An authorized user means that you are using someone else’s credit card, but are not responsible for payments. Even if you never use the card, that card’s activity can be reported to the credit bureaus under you name and positively impact your credit score. This method may sound like a dream come true — use someone else’s credit card and not being responsible for making card payments. But it comes with risks. Make sure that you and the cardholder are committed to responsible use and payment on the card. Even if you never use the card, if the cardholder misses payments, this can be reflected poorly in your own credit score. The authorized user method is a great option for parents helping a child build credit. Parents can place a child as an authorized user on the card, helping them build credit over time. 3. Personal loans Personal loans can be a good option for building credit, but there are some caveats. Many personal loan lenders have a minimum credit score to be considered for loan approval, but some lenders provide loans to individuals with low or bad credit scores. This is good news, but it’s a double-edged sword. The lower your credit score, the higher your interest rate will be, increasing the total amount to be paid back over time. Making on-time payments can be a great way to positively impact your credit score, but the prospect of having much higher interest rates may not be the best option for you. 4. Auto loans If you are in the market for a car, an auto loan can be an excellent way to finance your vehicle and build your credit. However, be mindful of subprime auto loans, which may appear to be a good option for borrowers with poor credit, but may have very high interest rates and unflexible terms. To qualify for an auto loan, you may not be required to have an excellent credit score, as the loan is secured by the vehicle itself, creating less of a risk for the lender. In the long run, auto loans can have a positive impact on your credit score as you make on-time payments, which are reported to the major credit bureaus. 5. Peer-to-peer loans Peer-to-peer (P2P) loans are akin to borrowing money from your cousin or aunt. However, to avoid potential family drama, P2P lending involves websites that connect borrowers directly to investors. Generally, individuals with low credit scores are accepted; however, there is a credit check involved with these services, pairing you with specific interest rates based on your credit worthiness. It is important to note that if you have a low credit score you will likely receive a high origination fee, in addition to at least 30 percent APR. It is important to note that if you choose this method to build your credit, you must confirm that your lender reports payments to credit bureaus, so that you can have your timely payments reflected in your credit score. 6. Student loans If you have outstanding student debt, or recently took out student loans to pay for college, making on-time monthly payments can increase your credit score. This can be a great way for students to build their credit. Both federal and private student loans can appear on your credit report, so no matter which type of loan you have, your on-time payments can reflect positively in your credit history. Speaking to this point, Anna Serio, certified loans expert for Finder.com, shares her own experience building credit with student loans: “Credit cards are only one way to build your credit history. Before you take on a debt to build your credit, look at the debt you have — or might have in the near future. If you have student loans, that might be enough to get you started. Personally, I built my credit history on student loan repayments from a graduate degree and gave it a boost by adding a credit card in the mix about three years later.” 7. Mortgage payments Making on-time mortgage payments is one of the best ways to build credit. However, depending on your circumstances it could be difficult to qualify for a mortgage in the first place if you have a low or damaged credit score. It is possible to get a mortgage without a credit score, but everything is in the hands of the lender to determine your eligibility based on their requirements. Other factors that they might look at, instead of your credit score, might be past rent payments and money in savings. If you are able to get a mortgage without a credit score, it is a great way to build credit, but qualifying might be very difficult for some individuals, and therefore may not be an available option. 8. Rent payments Recording your rent payments can positively impact your credit score. However, many landlords don’t report payments, and so you must ask if they will report that information. If your landlord agrees to submit your rent payment history, credit bureaus can include it in your credit report. 9. Report other payments Generally, credit scoring is only based on your borrowing activity, either through loans and/or credit cards. However, some additional payments can be included in your credit report, such as cable, internet, or your monthly phone bill. Although this method doesn’t necessarily offer credit building certainty, Brandon Neth, credit card and travel rewards expert at FinanceBuzz says that it’s still a good option, and offers some practical advice in making it work: “If you pay utility bills, your cell phone bill, and other similar bills, you can take advantage of the new Experian Boost feature that can help you establish credit as well. Be sure your social security number is attached to these bills.” Through services like Experian Boost, you can submit alternative payment data to boost your credit score. From your utility bill to your monthly Netflix bill, you can use these payments as a means to boost your score, by connecting your bank account(s) to Experian Boost. After doing so, you could see an increase in your credit score. It may not be a large increase, and it will only help you if a creditor checks your Experian credit report with the Boost data and agrees to use that score. Credit card options for poor credit If you would like to build your credit with a credit card there are options available to you in secured credit cards or student credit cards. Secured credit cards are a great option for those with damaged or very poor credit. Secured credit cards vary from unsecured credit cards (the credit cards that we all know and love, at least most of the time) in the fact that the applicant must make a security deposit, which is held as collateral until the account is closed. This security deposit also becomes your line of credit, providing the lender with security if you were to miss or fail to make payments. Various credit card issuers offer credit cards to those with no credit, or those who are looking to rebuild their credit. Here are the top three credit card companies on BestCompany.com that have services for building or rebuilding credit through secured or student credit cards. It is important to note that not all companies offer secured or student credit cards. Capital One With the Secured Mastercard® from Capital One®, borrowers can build or rebuild credit for a $0 annual fee and a 26.99 percent variable APR. A security deposit of $49, $99, or $200 is required, providing an initial line of credit of $200. These deposit requirements are low compared to the industry average. Capital One also offers the Journey® Student Credit Card, allowing students to build credit while receiving rewards and 1 percent cash back with a $0 annual fee. Capital One offers additional credit cards for fair credit. Capital One Customer Review: Jim Fannon "Rebuilt my credit using [a Capital One] card. Started with a very low limit and now it has grown to more than I will ever use." Read pros and cons, and more customer reviews, about credit cards through Capital One. Discover The Discover it® Secured Credit Card is another great option for building or rebuilding your credit with a $0 annual fee, and a 22.99 percent variable APR. You choose your own refundable deposit amount, which must be at least $200 and becomes your credit line on the card, if approved. Discover also offers two cards for college students looking to build their credit. Both cards offer cash back on certain purchases. Discover Customer Review: Ariana Key from Tallahassee, Florida "I recently opened a Discover card to start building credit. I am a college student and having good credit is very important. Discover has made it incredibly easy to track spending, use my card anywhere, and build my credit." Read pros and cons, and more customer reviews, about credit cards through Discover. Citi The Citi® Secured Mastercard has a $0 annual fee and a 22.49 percent variable APR, and is ideal for customers with little to no credit history. A security deposit of at least $200, which becomes the card’s credit limit (available credit limits are between $200 and $2,500). Citi also offers the Rewards+ Student Credit Card, which allows students to collect points on small purchases. Citi Customer Review: Ashley from Pleasant Grove, Utah "Citi credit card was my first credit card. They had an unbelievable beginning APR rate. It was a great way to establish my credit history and put me on my way from college. The student card even gives great rewards! It is a very reliable and trusted company which is important to me." Read pros and cons, and more customer reviews, about credit cards through Citi. Best for you There are so many options for credit building without a credit card, make sure you take a look at your personal circumstances to choose the best option for you. If you decide to look into credit card companies for credit building credit cards, the other outlined options can help you increase your credit faster, setting you up for greater financial success in the future.
While there are legitimate reasons for not opening a credit card account, some of these reasons are due to myths or misconceptions surrounding credit cards. Many people are afraid of accumulating debt, don’t qualify for a card, or prefer to stick with their current debit or cash use. Knowing the difference between credit card facts and fiction can help you make more informed decisions about credit and your overall financial lifestyle. Here are five credit card myths that can be harmful to both your credit score and your wallet: Myth #1: Closing an old credit card account will help your credit score People may close old credit cards because they think that keeping old credit card, especially if it is unused, in their wallet will hurt their score. In fact, closing a credit card account has the potential to harm your score. According to time.com, there are two different ways that closing an old credit card account could lower your score. First, closing a credit card will lower the amount of credit that you can use. If you have the same or higher balances on your other cards, your credit utilization rate will be higher, which can hurt your score. Second, closing a credit card will ultimately decrease the age of your credit accounts as approximately 15 percent of your overall credit score is based on factors related to your credit history length. If you do have an old credit account open, simply charge a small amount (or possibly recurring payment) monthly and pay it off in full each month. This will ensure that your card is still active and that it will help you instead of harm you. Myth #2: Checking your credit score will definitely hurt your credit score This myth discourages people from checking their score and leaves them in the dark about their own financial well-being. But before you go into a panic, it’s important to note the difference between a “hard inquiry” and a “soft inquiry”: Checking your credit score entails a soft inquiry which will not harm your score. Therefore, you can check your score as often as you want without hurting it. A hard inquiry is conducted when someone else pulls your credit report to make a lending decision. This generally happens when you try to take out a loan, apply for a credit card, or try to use credit in a different way. Hard inquiries often have a small, negative impact on your score, but making on-time payments on a new credit card can quickly offset it. Myth #3: Carrying a balance on your card will help raise your credit score This myth has the potential to hurt your credit score and your wallet. Magnifymoney.com warns that if you do not pay your credit card bill on time, then you will be hurting your credit score. You will also pay more than you may have bargained for in interest and other fees. Carrying a large balance on your card can hurt your credit because you present yourself as a greater risk to lenders. Overall, pay off your balance monthly to save yourself money and maintain your credit score. Myth #4: Credit cards are meant to pay for things you cannot afford Credit cards are meant to make purchases that you can afford, although that doesn't mean that you should always make those purchases. The way credit cards differ from debit cards is that you receive a bill for your credit card purchases and you can participate in rewards, points, and credit building programs. Making large purchases that you cannot afford will result in losing money due to the relatively high interest rates that accompany most credit cards. Myth #5: Credit cards are worse for you than debit cards Making purchases with credit cards is better than debit cards, if they are used correctly. That is why it is important to understand the do's and don’ts of credit card accounts. Simply having a credit card will not put you in debt, rather it can help you build your credit history and improve your scores. With credit cards, you also have the opportunity to receive various rewards such as airline miles or cash back. Overall, credit card myths should not deter you from opening a credit card account. There are numerous credit cards and credit companies each with different annual fees, rewards programs, and credit limits. A ranked and reviewed list of credit card services and companies can be found on bestcompany.com to aid you in your search for a credit card company by providing the in-depth research you need to make a clear decision.
When you see a credit card commercial on TV or receive an offer in the mail, chances are the first thing that grabs your attention isn’t the interest rate, but the amazing rewards you could receive for making purchases. Rewards may include airline miles, cash back, hotel points, and more. But with so many rewards programs, how do you know which one is right for you? And how do you get the most out of the rewards you have chosen? Choose Rewards You Will Use The variety of rewards may seem overwhelming at first, so the first thing you should consider is rewards you will truly use—the perks that you truly value. What card best fits your spending and living habits? For example, if you like to fly or travel frequently, then cards that advertise airline miles would be a smart choice for rewards. Credit card rewards come in two main categories: Travel redemption reward cards Each time you use a travel redemption award card, you earn points or miles that you can put toward your next trip. Common types of travel credit cards include: Capital One® Venture® Rewards Credit Card: This card claims to have reward flexibility, simple earning and redemption processes, and foreign travel. Chase Sapphire Preferred Card: This card includes reward flexibility as well, foreign travel, and a sign-up bonus. Cash back rewards Instead of collecting points, cash back credit cards give you real cash that you can spend on anything you'd like. When you use the card on certain purchases, you'll earn cash rewards on each transaction, generally ranging from 1%-6% of the total amount. Common types of cash back credit cards include: Chase Freedom Card: Includes rotating bonus categories, sign-up bonus, and no annual fee. Blue Cash Preferred Card From American Express: Provides everyday rewards, has a relatively simple redemption process, and a welcome offer. Citi Double Cash Card Reward: This card is designed for flat-rate cash back and gives simple rewards, provides a free FICO score, claims to a high rewards rate, and allows balance transfers. Discover it Card: This card is designed for online shoppers, provides a free FICO score, a bonus to new cardholders, no annual fee, and rotating bonus categories. Keep an Eye Out for Annual Fees Rewards are important, but so are annual fees. If you choose a card for the rewards, you want to make sure that the annual fees are not going to negatively affect you. According to Next Advisor, credit cards with rewards are more likely to have high annual fees than non-reward cards. These annual fees are charged each year to keep your card active no matter how frequently you use the card. If you choose to close your card, be aware that your credit could be impacted if it leads to a higher utilization rate (total credit debt versus total credit card limits). Although annual fees are never fun to pay, The Simple Dollar claims that the benefits and rewards can outweigh whatever you pay toward an annual fee, depending on your spending habits. Before you apply for a card, examine the annual fee closely, and make sure you’re prepared to earn enough rewards to offset that fee. Do Your Research Your research shouldn't stop with just the rewards offered and the annual fees. Anyone looking for a rewards card should look into reward rates, overall perks, sign-up bonuses, annual percentage rate (APR), additional bonus rewards, balance transfer rates, and rewards redemption options. You should also avoid carrying a balance on your card when you are using a rewards credit card. Carrying a balance on your rewards card will cost you more money and stress, and could ruin your overall points balance. No balance also means that you will not have to worry so much about APR rates. If you do carry a balance, remember: the lower the APR, the better! Thesimpledollar.com suggests that you use at least two reward cards to double up on points. If you choose to use two rewards cards, have a plan for accumulating points. Overall, consider credit cards that offer reward programs when looking to open either a first or additional credit card account. If you think you’re ready to start making your purchases work for you, then take a look at our ranked and reviewed credit card companies to help you find the best card to fit your spending and reward goals.