Top Ten Credit Tips

1. Use disclosure box to shop for the best deals

Inundated with credit card offers? Well, the best way to sort through to find the best deal for yourself is to go strait to the "disclosure" box. It is required by law to tell you everything. If the interest rate seems too low, go find out what the interest rate really is in the disclosure box.

2. Get your FREE credit report with no strings attached (unlike Consumer Info

You can get a copy of your credit report FREE. We tell you how in section 2 of Credit Strategies Seminars. A quick hint is to avoid any site that advertises free. Free in the ad is almost always a bait and switch.

3. Use a recorder to track expenditures

Spring Break is again upon us! When you're finished with midterms, it'll be time to work on your Spring Break tan. The key problem that you want to avoid is to not overspend on your credit card. The best way to do so is to track your purchases. Some students have used a checkbook recorder. In recording how much you spend, your credit card bill won't be as big of a surprise.

4. Keep your card active!

Instead of leaving your card inactive charge at least a very small amount. What you want to do is manipulate your credit report to look like you pay on time every month. Your credit bureau does not record how much you pay. Therefore, if you charge only $15 and pay it all off on time, you get credited for a "1". Do this if you have zero for a balance. Do not do this if you already have a balance. Most students use their card sporadically. This strategy of charging a small amount will make your credit report look better.

5. Be careful of credit scams

Credit scams are all around. Be extremely careful in giving out your credit card number. A scam that has been reported recently goes like this. A telemarketer calls to notify you that you have won a prize if you have a visa card number that starts with a "four". The scamee runs to get his card and realizes HE'S A WINNER. His visa credit card number starts a "four". In his elation, he gives the rest of the number to verify his winnings. What the scamee does not realize is that all visa cards start with a "four", all mastercards start with a "five" and all American Express cards start with a "three". Be careful out there!

6. Work with the retention department as opposed to the customer service personnel

Have you ever seen a $10 late fee appear on your statement? When you call they will tell you that they received your payment a little late (sometimes they charge the $10 fee just after three days). The person in customer service says that it is policy to levy this fee. At this point, you should politely ask as a "courtesy" that they waive the fee. There may be real, legitimate reasons why they received the payment late (post office delays, system backlogs...). Regardless, ask this person in customer service to waive the fee. 

If they do not agree to waive the fee and you feel as if you have a concrete gripe, then you should state that you would like to cancel the account and take your credit card business elsewhere (you do see one or two banks on campus begging for your business, don't you?). At this point, they will know who the boss is. They will then either:

  1. waive the late charge or
  2. transfer you to an "account closing specialist".

This "specialist" is really going to be smooth and his/her job is to keep your account. Please note: if you perpetually pay late don't expect preferential treatment. Working with the "account closing specialist" in the retention department is your best bet when it comes to getting results. Aren't we sneaky?

7. Rebate Cards

Do you notice some credit card companies on campus trying to sell you a credit card? Yeah, pretty sickening how they're on every corner you turn. Well, we're here to talk about REBATE cards. Among the different "bait and switch" schemes, credit card companies are the most guilty.

8. Reduce your balance

We've all heard horror stories... There's always some friend of a friend of a friend who is just completely out of control with their credit card. Interest can really add up quickly. Here are some tips that are really helpful in reducing your balance (if you have one):

  1. Watch what you charge! Small purchases (movie, food, CDs) can really rack up your debt. Recording transactions is a great way to keep track of what you'll be owing at the end of the month.
  2. Keep your balance manageable. Don't charge huge amounts in the hopes of paying them off with future income. Sale items that appear to be "too good to pass up" can be costly. A good rule of thumb is to never have a balance that is three times the amount that you can pay off in one month.
  3. It's O.K. to have a "0" balance! Some students are so used to a balance that they feel the need to charge something big when they don't owe anything.
  4. If you do have a balance you're trying to whittle down, use not only the above strategies, but also LOWER YOUR INTEREST RATE. The benefits are obvious--you'll owe less money. How do you lower your rate? There are two ways: negotiate the interest rate with your bank or shop for a lower rate offer.

9. Bad credit can raise your insurance premiums!

In a Wall Street Journal article (Nov. 6), insurance companies were cited using credit reports to predict the likelihood of future claims. The most glaring example is Allstate which has "on the basis of statistical analysis" concluded that people with bad credit are more risky to insure. 

Is this fair? Hardly. This can potentially have a big negative impact for you. Car insurance premiums are high enough for us. Having to pay additional for the same coverage isn't very appealing. The article goes on to elaborate State Farm policies for evaluating. State Farm concentrates on, "bankruptcies, foreclosures, repossessions, judgments, and multiple large charge-offs". They imply that they don't care if you are a few days late paying on a Sears card...or do they?...

What I wonder is that if bad credit can raise your premiums, will good credit lower them?

10. Rip up incoming credit card solicitations

Be really careful when you're throwing away those credit card solicitations--someone may be digging through your trash. Why? Most credit card solicitations contain a lot of very personal information. Some even come in the form of a certificate that is very easy to forge. Here's potentially what can happen:

  1. a thief finds your credit card offer that you do not rip up,
  2. that person fills out the application and
  3. gets the card sent to some other address.

Credit card companies do take precautions to ensure that this doesn't occur but why trust them? Your best protection is to be safe with our personal information.

Bonus - Your credit card interest rate can be negotiated!

Last month, we talked about "reducing your balance". One of the best ways to owe less money and save money overall is to NEGOTIATE DOWN your interest rate. Here are some specific strategies for doing so. 

Negotiating strategy number 1:
Call your bank. Ask for them to lower the rate. Most banks have multiple rates that range from 5.9% (a teaser rate) to 19.9%. Use the principal we outlined in an earlier "Tip of the Month" (October 1995 - Work with the retention department...). Remember, your bank values your business and will do a lot of things to keep your business.

Negotiating strategy number 2:
Shop for a better rate. Look around for offers that are really aggressive. Going from a 17% rate to a 13% rate saves you quite a lot.

Negotiating strategy number 3:
Make your credit report look stronger. This will reward you in the long run. Remember, loan officers use a scorecard. When you make a conscious decision to improve your score, that will make you more qualified for better offers in the future. People with good credit are inundated with low interest rate offers.

Here's an example of how you can work these "negotiating strategies" into a real life situation. Let's say you owe about $750. Your current bank charges you 16.95%. Here's exactly what you do. Call your bank's customer service department and have them tell you what your current interest rate is. Then, tell them that you are considering a much lower rate offer. An offer you recently received in the mail that is much cheaper, 5.9%. Listen to what they then say. It will probably go something like this, "Oh, that's just a teaser rate to get you to switch... " and then they'll say, "we provide outstanding service and we're #1". Your reply should be, "Can you as my current bank match this new bank's offer?" Say nothing and wait for their response. Be ready to walk away from your bank. If they say "yes" you are happy as a clam and we're glad that we could help. On the other hand, if you meet up with some resistance...

Ask to cancel the account and go through the retention department (do this with confidence if you have good credit and know it). The conversation with the retention department should go along the lines of, "Hello, my name's Mike and I can handle the details of closing your account. I am sorry that you are closing your account... we very much value your business. Before I start the process of closing your account, can I ask you why...Is it something that we did?... " This "Mike" will be super smooth but you'll be ready. Tell him, "Look, it's not that I don't like the wonderful service because it's terrific. I might even miss you guys...but what it comes down to is money. It's important to me. I want a lower interest rate." Be very nice but also very firm. Either he lowers your rate or you're taking your business elsewhere. This "Mike" has the authority to review your account and will most likely help you out.

Some notes we want to make clear. Make sure you have good credit before you start exercising these negotiating gambits. There is no clearer example of the benefits of good credit than when your bank values your account to the point that they feel they can't afford to lose you. That is the position that you want to be in.