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Credit Cards, News

Deeper Into Credit Card Debt With No Regrets This Holiday Season

Deeper Into Credit Card Debt With No Regrets This Holiday Season

This holiday season, spending increased 7.9 percent from a year ago (according to the MasterCard Spending Pulse report). People spent more money on gifts, making many retailers happy and helping the overall economy.

Although the increased spending will be applauded by retailers, many American households are left with a precarious post-holiday financial situation. The euphoria of giving gifts will undoubtedly be replaced by a predictable debt hangover in January. MagnifyMoney conducted a national survey, and found that:

  • American consumers spent without a plan. 50.7% of people set no holiday budget at all. A further 15.1% of people set a budget, but ignored it and spent more than planned. That means 65.8% of people had no control over their holiday spending.
  • After spending money on holiday gifts, a majority of Americans are “broke.” 56.3% of people surveyed have less than $1,000 combined in their checking and savings account.
  • Credit cards will be used to fund a big portion of holiday purchases. 38.3% of the people surveyed will not be able to pay off their credit card in full this month. High interest rate credit cards were used to fund holiday debt.
  • Despite the debt, there was “no regret.” Despite borrowing money at high interest rates to fund holiday purchases, 85.7% of Americans have no regrets about their holiday spending.

During the 2015 holiday season, American consumers have demonstrated their willingness, and apparent happiness, to spend money they don’t have on gifts they can’t afford.

But in just a few days, people will start making New Year’s Resolutions. And if 2016 is like any other year, two themes will dominate the resolutions made across the country. People will promise to become physically fit and financially fit in the New Year.

One of the top resolutions made in January 2015, according to Nielsen, was to “spend less and save more.” This is a recurring theme, and we can expect similar resolutions in 2016, as the credit card statements start to arrive and the debt hangover begins.

However, Nick Clements, Co-Founder of MagnifyMoney, has two messages for people who have found themselves deeper in debt after the holidays:

First, we need to learn valuable lessons from our grandparents and great-grandparents about how to manage money. Before credit cards ever existed, people would only spend money if they had it. Most of our grandparents would have never even considered borrowing money to buy people gifts during the holidays. If we don’t develop that same type of mentality, any New Year’s Resolution will fail. I don’t want to sound like a belated Grinch, but borrowing money to buy gifts should have left more people feeling regret.   

Second, people need to be wise about how they try to fulfill their New Year’s Resolution to become financially fit. Skipping a few lattes isn’t going to do the trick. I recommend taking a day off, and spending as much time and effort building a financial plan for 2016 as you did organizing your presents and your holiday parties in 2015. 

Survey Results in More Detail

There was no spending plan or budget in place

  • 50.7% set no budget. Instead, they “just spent.”
  • 34.2% set a budget and followed the budget.
  • 15.1% set a budget, but ignored the budget and spent more.

A majority of Americans are “broke”

  • 24.8% have less than $100 in their accounts.
  • 23.8% have between $101 and $500 in their accounts.
  • 7.7% have between $501 and $1,000 in their accounts.
  • 16.4% have between $1,001 and $5,000 in their accounts.
  • 27.3% have more than $5,000 in their accounts.

Most financial planners recommend having an emergency fund with at least $1,000. Ideally, the fund should cover three to six months of living expenses. 56.3% do not have even the minimum of $1,000.

A significant minority will be paying off their credit cards for a long time

  • 61.7% of people will be able to pay their balance in full.
  • 27% will take some time, but pay more than the minimum due.
  • 11.3% can only afford to pay the minimum due.

For the 11.3% paying the minimum due, they can expect to stay in debt for more than 25 years and will end up paying more interest than the original amount borrowed.

Despite the spending, we felt no regrets.

  • 85.7% do not regret the amount of money they spent.
  • 14.3% do regret the amount they spent.
  • Of those with no regrets, 13.3% felt they could have spent more.

Tips for A Successful New Year’s Resolution

When the credit card bills start to arrive in January, many people will start to feel the annual debt hangover. As an antidote, people will start making resolutions to spend less, save more and get their finances in order.

MagnifyMoney believes that people should spend as much time in January building a financial plan for 2016 as they did shopping in December for the holidays.

For people in credit card debt, MagnifyMoney has a free 45 page Debt Guide available for download. This guide helps people prepare a customized action plan to lower interest rates, build a budget, negotiate hard with creditors and become debt-free.

In addition, MagnifyMoney recommends that all people spend time in January 2016 doing the following:

  1. Understand where your money actually went. When people create forward-looking budgets, those budgets almost always balance. Yet, when people look back in time, they have usually spent more than they planned. The best way to diagnose your spending problem is to understand where the money has actually gone. And there are great apps, like LevelMoney or Mint, which can help you understand where your money has gone. We particularly like LevelMoney, because it splits your expenditure into fixed, recurring expenses and variable expenses.
  2. Review your credit report from all three reporting agencies. You need to know what is on your credit report in order to build a good credit score. You can download your report for free at AnnualCreditReport.com.
  3. Understand your credit score and put together a plan to improve your score during 2016. People with the best scores never charge more than 10% of their available credit and pay their bills on time every month. Not only is that good for your score, but it is good for your wallet. And you can now get your official FICO for free in a number of places. Otherwise, you can get your VantageScore at sites like CreditKarma.
  4. If you have a good credit score, all debt can probably be refinanced. Mortgages, student loans, auto loans and credit cards (with a balance transfer or personal loan) can all be refinanced. Although the Federal Reserve increased interest rates in December, the rates are still very low. Find ways to lock in much lower interest rates now to help you pay off your debt faster.
  5. There are two big warnings with refinancing. First, try to avoid extending the term to get a lower payment. The biggest trap people fall into with refinancing is that they lower their rate and extend their term. By doing this, you might end up paying more money in the long run. Second, be careful before you refinance federal student loans, because you give up valuable protection.
  6. Automate all of your decisions, including savings and making credit card payments. Data has consistently shown that automating decisions greatly increases the likelihood of achieving your goals. To build that emergency fund, set up automatic transfers from your checking to your savings account. (Even better, get a higher interest rate online account and keep it completely separate from your checking account). To build your retirement savings, automate your 401(k) or IRA contributions. And to pay your credit card bill, automate your monthly payments.
  7. “Net worth” is not just a concept for the rich, and you need to focus on your net worth now. Net worth is a simple concept: it is what you own minus what you owe. Building wealth and being financially responsible means you are building your net worth. It doesn’t mean you make your payments on time and have a fancy car. Focus on the right number: building your net worth.

holiday-spending-trends

Survey Methodology

The survey was conducted by Google Consumer Surveys for MagnifyMoney between December 24 – 26, 2015. 532 people responded to the questions in a nationwide, online survey. All respondents were 18 or older.

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Credit Cards

New Costco Credit Card Not Working? Here’s What to Do:

New Costco Credit Card
Flickr/Mujitra

Costco found itself in hot water with customers this week over issues with its new Citibank-backed rewards credit card. 

Even for one of the largest retailers in the country, breakups can be messy. After successfully divorcing itself from longtime credit card partner American Express, Costco was prepared to start fresh with Citibank this week. As of Monday, Costco officially stopped accepting all Amex cards, which meant replacing its Costco True Earnings Card from American Express with a new Costco Anywhere Visa credit card from Citibank.

Some 11 million shoppers who previously owned Costco’s Amex credit card should have received the new Citi card sometime in May or June and could use them beginning June 20. Folks were probably eager to use the new card, which boasted better cashback rewards than Amex’s previous offering.

That’s not exactly how things went down. By mid-week, complaints had flooded Costco’s social media pages, with customers airing one of two main grievances: they either didn’t receive their new Citi card or their new card wasn’t working. The company’s customer service lines were overwhelmed by the number of calls, resulting in frustrating delays, although a spokesperson said Thursday that call volume was slowly returning back to normal.

Bill Bauman of Phoenix, Ariz. was among hundreds of customers who took to Costco’s Facebook page to complain Thursday when he was unable to use his Citi card. A Costco agent told him to call American Express, he said, but the American Express agent he spoke with gave him conflicting information about when he would have full access to his new Citi account.

“I have been told it should be fixed by today, be fixed by Friday or be fixed in early August,” Beauman said in his post. “I was also told by an AMEX supervisor my account would never be transferred but another one insists my account is in transition and will process by August.”

It’s unclear what exactly went wrong. MagnifyMoney has reached out to Citi, Costco and Visa and has not received a response yet. American Express spokesperson Elizabeth Crosta told MagnifyMoney in an email that the problems are not related to any work on their end.

“Given the change in card issuer, we successfully migrated all of the customer data to Citibank to meet the June 20 conversion date,” she said. “Any conversion related issues are not American Express issues.”

What to do if you’re unable to use your new Costco Citi card:

Use any other Visa-backed credit card in your wallet. Costco now accepts any Visa card, so save yourself a headache and don’t touch your new Citi card until these issues are squared away. We’ve done the hard work for you and found out which rewards card is best to use at Costco.

Email is better than phone. Costco recommends emailing them at costcocare@costco.com with your 12-digit membership number, your phone number and an brief explanation of the issues you’re having.

Use social media. If all else fails, companies are quite good about responding to complaints on Twitter and Facebook. @AskCiti @AskAmex @AskVisa You’ll have to go to Costco’s Facebook page and leave a comment, as they have no active Twitter account.

What to do about your old Amex account:

For starters, take a look at the FAQ page for Costco users on American Express’ website.

Any rewards you earned should be transferred over to your new Citi account. Your remaining balances should be transferred over as well. If you have received a bill statement from American Express, then you should pay that bill directly to American Express. If there are any charges on your old Amex card that you wanted to dispute, you’ll have to call the number on the back of your new Citi card.

Have a question for us? E-mail us at info@magnifymoney.com 

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Credit Cards

Chase Freedom Unlimited Review: 1.5% Cash Back

Chase Freedom Unlimited Review

The cash back credit card market continues to heat up with the introduction of the Chase Freedom UnlimitedSM credit card. In the race to acquire new customers, banks are introducing increasingly lucrative products. Cash back credit cards can be an excellent way to put some extra money in your pocket, so long as you don’t give into temptation and spend more than you should.

With Freedom Unlimited, you can earn unlimited 1.5% cash back on every purchase. The card does not charge an annual fee and there is no minimum redemption amount for the cash back: you can redeem at any time and for any amount. We like the simplicity of this product. There are no caps, opt-in requirements or minimum redemption rules. If you want a good return and little hassle, this could be a good addition to your wallet.

There are opportunities to get even more from this new credit card if you can use it in combination with your existing Chase Freedom or Chase Sapphire Preferred credit cards. Just beware, the card charges a 3% foreign transaction fee (for foreign transactions in U.S. dollars). In this review, we will explain:

  • The key features
  • The best ways to use the card
  • How the card stacks up versus the competition
  • Our Final Verdict

Key Features

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Here are the key features of the Chase Freedom Unlimited card:

  • New! Unlimited 1.5% cash back on every purchase – it’s automatic
  • Earn a $150 Bonus after you spend $500 on purchases in your first 3 months from account opening
  • 0% Intro APR for 15 months on purchases and balance transfers. After the intro period, a variable APR of 14.24-23.24%. Balance transfer fee is 5% of the amount transferred, $5 minimum
  • Redeem for cash – any amount, anytime
  • Cash Back rewards do not expire as long as your account is open
  • No annual fee

Here is an example of how the cash back can add up. If you are able to spend $1,000 a month on your credit card ($12,000 a year), you could earn:

  • During the first year: A $150 bonus offer (for spending $500 in the first three months) and $180 of cash back (1.5% of your annual spend). That is $330 of cash back in the first year.  
  • Thereafter: After the first year, you would continue to earn $180 of cash back every year.

Best Ways to Use The Card

The best part of Chase Freedom Unlimited is its simplicity. Some people are willing to work hard for a deal. They will carry multiple credit cards to maximize the cash back that they earn. They eagerly opt-in to bonus offers and even create spreadsheets to keep track of their rewards. If that sounds exhausting, Chase Freedom Unlimited could be a better option for you. There are no rotating categories, no caps and no requirements on your end. You will earn a solid 1.5% cash back on all of your spending all of the time. And you don’t have to do anything other than carry this card in your wallet and use it for all of your purchases.

But there are some ways to get even more from this credit card with a little extra work. If you already have a Chase Sapphire Preferred credit card, you will have more redemption opportunities with the Freedom Unlimited card. Why? If you have a Sapphire Preferred card, it means that the 1.5% you earn will turn into 1.5 Ultimate Rewards points for every $1 you spend on your credit card. Those points can be combined with the points that you earn on your Sapphire Preferred credit card. Even better, you can use those points in the following additional ways:

  • Redeem for travel: Chase offers 20% off travel when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards. Imagine you want to buy a $300 airplane ticket. That would require 24,000 Ultimate Reward Points. With a Chase Freedom Unlimited credit card, it would take $16,000 of spend to earn enough points for the ticket. By using your Ultimate Rewards points for travel, you are actually earning 1.9%.
  • Transfer to an Airline or Hotel Partner: With Ultimate Rewards, you have great flexibility. You can transfer points to your frequent flier account with airlines (including United Airlines and Southwest Airlines) and hotels (including Marriott and Hyatt). If you do a lot of business travel already, this is a nice way to top up your account.

If you already have and use the Sapphire Preferred card, Freedom Unlimited could be a great addition. With Sapphire Preferred, you earn 2x points for every $1 spent on dining and travel, and you earn 1x point for $1 spent in all other categories. You can boost all other categories to 1.5 points per $1 with Chase Freedom Unlimited.

If you already have the original Chase Freedom credit card, you do not have to give it up. You are allowed to keep both. You can continue to earn 5% in the bonus categories on your original card and have access to the unlimited 1.5% offered on the new card.

Freedom Unlimited versus the Competition

The best part of Chase Freedom Unlimited is its simplicity. But here are a few places where the card loses out to competition.

If you want to avoid foreign transaction fees: Chase Freedom Unlimited charges foreign transaction fees. If you plan on traveling abroad, you might want to consider the Capital One Quicksilver card. You can also earn 1.5% cash back, but there are no foreign transaction fees.

If you spend a lot in one category: you might find a better deal with a different credit card. For example, Fort Knox Credit Union offers a credit card that pays 5% on gas. PenFed offers a credit card that pays 4.25% on airfare. You can find the cards that pay the highest bonus rates here.

If you want to earn 2%: Freedom Unlimited offers 1.5% cash back. Citi Double Cash currently offers 1% + 1%. You earn 1% when you spend and 1% when you make a payment. If you take the redemption as a deposit into your checking account and pay the balance in full and on time every month, you would be earning 2%. The downside is that Citi Double Cash has a higher minimum redemption requirement of $25 and no sign-on bonus. Chase Freedom Unlimited has a healthy $150 sign-on bonus (after the required spend), which means you will most likely earn more in the first year. In our earlier example (with the person spending $1,000 a month), you would earn $330 on Chase Freedom Unlimited in Year 1 compared to only $240 on the Citi Double Cash credit card.

Our Final Verdict

Chase Freedom Unlimited is simple, transparent and easy to use. You will earn 1.5% on all of your spend, with no caps, hassles or categories. If you already have a Sapphire Preferred or the original Freedom credit card, adding this no fee card to your wallet is a no brainer.

If you want a solid credit card to earn good returns, this is a good option. Its biggest competition is Citi Double Cash, which can generate 2% cash back when used properly. However, Citi offers no sign-on bonus and has a higher minimum redemption requirement. In the first year, you will likely be better off with Chase Freedom Unlimited. And we have doubts about the ability of Citi to continue to pay 2% cash back. Given the first year sign-on bonus, long-term sustainability of the product and ability to leverage Ultimate Rewards, we believe Chase Freedom Unlimited could be a solid choice.

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Consumer Watchdog, Credit Cards

Warning: Even the Best Small Business Credit Cards Do This

Best Small Business Credit Cards

If you have a small business, you might be tempted to open a small business credit card. When used properly, small business credit cards can provide you with free working capital, rewards and the ability to manage the expenses of you and your employees more easily. However, there are real risks that you need to consider.

  • You are personally liable: when you apply for a small business credit card, you are signing a credit application that makes you personally liable for any spending that happens on that card. If your company fails to reimburse you or goes bankrupt, you will still be held responsible for making payments and should expect collection activity from your credit card issuer.
  • Your personal credit report and credit score can be impacted: with most cards, the balance will not appear on your credit report so long as you are current. However, if you miss payments, many major credit card issuers will report the balance and delinquency to your credit report. And if the credit card issuer ever sells your debt to a collection agency, you can expect a collection item to hit your personal report as well.
  • Your interest rate can be increased on your existing balance: In 2009, the CARD Act was passed. The legislation made it very difficult for credit card issuers to increase rates on existing balances. However, the law only applied to consumer cards: the interest rate on your small business account can increase at any time. If you want to use your small business credit card to borrow, you will not have certainty regarding the interest rate.
  • If you give cards to your employees, you are likely personally liable. Many small business credit cards give you the option of adding credit cards for your employees. Usually that means you are adding an “authorized user” who will have the same charging privileges as you. It is like adding your husband or wife as an authorized user to your personal credit card. If your employee goes crazy at the local bar or books a flight to Tahiti, you are personally liable for the charges.
  • CARD Act protections do not extend to small business credit cards. In addition to the limitations on price increases mentioned above, none of the other CARD Act protections apply to small business credit cards. I will explain all of those protections in more detail later.

Small business credit cards can still be a great tool (I use one). Just make sure you understand the risks and the alternatives. In general, a small business card can be an excellent deal if you earn points and pay your balance in full and on time, accruing no interest. In addition, the cards can be a useful way to fund very short-term borrowing needs. However, if you need to borrow a larger amount over a longer period of time, an installment loan with a fixed interest rate from a marketplace lender or local bank would likely be a better option.

If you are shopping for a loan, you can read more about the best small business loans

I will now explain each of the potential risks in more detail below:

Personal Liability

If you have a small business and need to borrow money, you will likely need to take provide a personal guarantee, which means you would be held personally liable for repayment of the debt. This risk is not unique to small business credit cards. If you take an SBA loan, borrow from a marketplace lender or go to your local bank, you will likely need to provide a personal guarantee.  You really need to think twice before borrowing. If your business needs working capital to fund orders, make sure you pay close attention to the credit-worthiness of your customers before taking on too much debt to fund their orders. And you also need to be very honest with yourself if your business is in financial difficulty. It might be surprisingly easy to borrow money, even when your business is struggling. But if your business ultimately fails, you don’t want to create unnecessary debt that will follow you even after your business is closed.

Personal Credit Report

Most small business credit cards will not report to consumer credit reporting agencies so long as your account is current. This is important, because you do not want the balance on your small business credit card to appear as personal debt. However, if you stop paying your small business credit card (and default), you can expect the negative information to end up on your personal credit report.

Many major credit card issuers will start reporting to your personal credit report as soon as you are seriously delinquent. In general, once you are 60 days past due you can expect the negative information to hit your report. The reporting will have a big negative impact on your score. Delinquencies of 60 days or more can easily take 100 points or more from a credit score.

Even if your small business credit card does not report to the credit bureau, a default can still appear on your report. Typically, credit card companies will write off the debt at 180 days past due and sell the debt to collection agencies. At that point, the collection agency registers a collection item on your credit report. And, along the way, you could also have a legal judgment.

In a best case scenario, the debt does not appear on your report. But if you miss your payments, you can expect big derogatory marks to hit your score, in addition to the collections activity.

Your Interest Rate Can Increase

If you miss a payment, even by just one day, you should expect a big increase in the interest rate on your existing balance. Even worse, your rate could be increased even while you are current. For example, if you max out your credit card you could appear riskier to the bank. Because you appear risky, the bank could increase your interest rate.

This could have a big impact. Imagine you have a $15,000 balance at a 15% interest rate. If the rate increases to 25%, you could see an increased monthly interest charge of $125. Your debt could cost you an extra $1,500 a year with no warning and no possibility to avoid the interest rate increase.

If you need to borrow money, you should consider a term loan from a marketplace lender or your community bank. With a term loan, you can get a fixed interest rate. For example, Funding Circle offers loans with an APR as low as 5.49% and LendingClub offers an APR as low as 7.77%. When you take a term loan, you are at least locking in the cost of your borrowing.

Before the CARD Act, the credit card industry was guilty of outrageous interest rate increases, especially using the vague language of “universal default.” That is why the CARD Act made such interest rate increases impossible. Unfortunately, small businesses never received that same protection and need to proceed with caution.

Note: you can use a personal credit card for business expenses. Because you are personally liable for the debt regardless, this could be a good option. The benefit is that the interest rate cannot be increased on your debt so long as you are current. (Remember that most interest rates are variable – so the rate could increase as the Prime rate increases, but you would not see an increase for punitive reasons). The risk is that you would be putting that balance on your personal credit report, which could impact your credit score and your ability to qualify for products like mortgages, because the underwriters would treat that debt as personal debt. If you want to find a consumer credit card, you can read our Best Credit Card Guide.

Employee Cards Can Make You Liable

Often you might want to give credit cards to employees so that they can make business purchases. Most credit card issuers will allow you to give supplementary credit cards to employees. There are two big benefits to this service. First, you can earn points or miles on purchases made by your employees. Second, you have complete visibility of the money being spent by your employees.

But there is a big risk. By giving a card to your employee, you are giving them access to your credit limit. It is just like a supplementary card that you give to your husband or wife. If your employee decides to have a big night out at a bar or a flight to Tahiti, you will be personally liable for the charges. Just be very careful before you agree to an arrangement like this.

Other CARD Act Protections

There were a number of consumer protections provided by the CARD Act that do not apply to small business cards. These include:

  • Penalty Fee Restrictions: penalty fees have to be “reasonable and proportional” to the relevant violation of account terms. In general, penalty fees for consumers should be restricted to $25 for a first late payment and $35 for each subsequent late payment.
  • Overlimit Fee Opt-In: issuers can only charge an overlimit fee if the customer opts in to overdraft protection.
  • Payment timing: Payments must be due on the same day of every month, reducing the risk of confusion.
  • Payment Allocation: When the payment amount exceeds the minimum due, issuers generally need to apply the amount above the minimum due to the balances with the highest interest rates first.
  • Monthly Statements: The statement needs to show how long it would take, and how much it would cost, to pay off the debt if only the minimum due is made. In addition, the statement needs to show the payment required in order to pay off the balance in three years.
  • Ability to pay: Card issuers cannot open a credit card or increase a credit line unless the ability of the consumer to repay is taken into account.

All of the protections listed above are required for consumer credit cards, but are not required for small business cards.

In many cases, credit card issuers have decided voluntarily to provide some of these protections to consumers. However, it is important to understand that these protections, when provided, are at the discretion of the bank and can be removed.

Small Business Credit Cards Can Still Provide A Valuable Service

When used properly, a small business credit card can still provide excellent value. Here are some of the benefits:

  • Small business credit cards can be a great way to manage discretionary expenses, particularly when combined with services like Expensify and integrated with QuickBooks. T&E, travel and other expenses can quickly get out of hand, and creating electronic records of every transaction can help the budgeting and management process.
  • A small business credit card is a free line of credit if you pay the balance in full and on time every month. In effect, you are being given a free working capital line of credit. For example, if you use Google AdWords to acquire customers, you can get 20 – 25 days (depending upon the length of the grace period) before you have to pay the bill. This can be very helpful for cash management purposes.
  • For short-term borrowing needs (for example, 30 days), a small business credit card could be the least bad option. Imagine you need to borrow $15,000 for 2 months until you get paid for a job. At an 18% interest rate, it would cost you about $450 of interest to borrow the money for two months. That is a lot cheaper than most merchant advance businesses, which have interest rates well above 40%.
  • You have the potential to earn rewards. It is easy to earn at least 2% on your spending, which can be serious money depending upon the spending needs of your business.
  • The debt associated with your small business will not appear on your personal credit report so long as you remain current, which can help keep your credit score up.
  • One of the greatest accounting risks faced by small businesses is that they co-mingle their personal and business accounts. By using a separate card, you can ensure you don’t mix up your personal and business expenses.

Just remember – if you have a longer term borrowing need, it is better to go through the process of applying for a term loan. Although the process will take a bit longer, you should be able to get a much lower, fixed interest rate.

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Building Credit, Credit Cards, Earning Cashback

The new Discover it Secured Credit Card wins: No fee, Free FICO and up to 2% cash back

Discover it Secured Credit Card Review

Discover has just launched a new product, the Discover it® Secured Credit Card – No Annual Fee . Secured credit cards are an excellent way to build or rebuild your credit history. With this product launch, Discover has created one of the best secured cards on the market. You do need to make a deposit of at least $200 to open the account. If you are unable to afford the $200 deposit, you should consider the Capital One Secured MasterCard, which only requires a $49 deposit. But if you can afford the $200 deposit, this new card is clearly one of the best no fee secured credit cards available.

Discover Secured Card

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Key Product Features

Here are the key product features:

  • No annual fee. No late fee on your first late payment. Paying late won’t raise your APR.
  • Earn 2% cash back at restaurants & gas stations on up to $1,000 in combined purchases each quarter. Earn 1% cash back on all other purchases.
  • Discover matches all the cash back you’ve earned at the end of your first year – automatically. New cardmembers only.
  • Your minimum security deposit amount of $200 or more will establish your credit line (up to the amount we can approve).
  • Monthly reviews start at 12 months to see if you qualify to get your security deposit back while you continue to enjoy your Discover card benefits.
  • Reports to 3 major credit bureaus so you can build or rebuild credit with responsible use.
  • FICO® Credit Score for free on monthly statements & online.
  • Click “Apply Now” to see rates, rewards, FICO® Credit Score terms, Cashback Match™ details & other information.

How to Use a Secured Credit Card

A secured credit card is an excellent way to build or rebuild your credit history. In order to gain the most number of points in the shortest amount of time, you need to have a strategy. We recommend the following strategy (and describe how it helped someone build an excellent score in one year here):

  1. Avoid spending more than 10% – 15% of your available credit limit. Yes, that means if your credit limit is only $200, you should not spend more than $20 – $30 a month. Utilization is a very important part of your credit score. To calculate utilization, divide your statement balance by your available credit. People with the best credit scores have utilization well below 20%. Because you want to build an excellent credit score, you should keep your utilization low.
  2. Pay your statement balance on time and in full every month. To ensure your payments are made on time every month, you should consider automating the monthly payments. At the Discover website, you can sign up to have your monthly payment debited automatically from your checking account.
  3. Just continue to repeat Step #1 and Step #2. Your credit score should improve over time, which will help you qualify for a standard credit card.

If you have less than perfect credit and need to borrow money, you should consider shopping for a personal loan.

Who is Eligible to Apply?

According to disclosures on the Discover website, you are eligible to apply if:

  • You are at least 18 years old.
  • You have a Social Security Number.
  • You have an address in the United States.
  • You have a bank account in the United States. Note: You will need to provide your routing number and account number when you apply. If your account is overdrawn, it is highly unlikely that you will be approved.

Your credit history will be reviewed, and not all applications will be approved.

The Application Process

You can apply online and Discover usually provides a decision instantly. You will need to make your security deposit as part of the application, which is why Discover asks for the routing number and account number of your bank.

Please remember that when you apply for the secured credit card, you will have an inquiry on your credit report just like an application for a normal credit card.

The Fine Print

There are some additional fees and terms that you should understand.

  • If you take out a cash advance, you would be charged a fee of 5% or $10, whichever is greater. The APR for cash advances is 25.24%, and there is no grace period.
  • The card offers balance transfers. If you transfer a balance by May 10, 2016 you will be charged a 6 month intro APR of 10.99%. After the intro expires, and for any transfer completed after May 10, 2016, the balance transfer rate is 23.24%. A balance transfer fee of 3% will always be charged.
  • The first late payment fee is waived. But, afterwards, you would be charged $35. Returned payments also cost $35.

Alternate Secured Credit Cards

Discover it has one of the strongest offerings in the market. However, it might not be right for everyone. Here are some other good options.

If you cannot afford the $200 minimum deposit, you should consider the Capital One Secured MasterCard. There is no annual fee and a minimum deposit of $49. You will also be able to receive your FICO score for free. Capital One is known for accepting people with more adverse credit histories. So, if you are rejected by Discover, you might want to consider trying Capital One instead.

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You should also consider a secured credit card from your local credit union. MagnifyMoney has a list of some of the best no fee secured credit cards offered by credit unions here.

Build Your Score, Not Your Balance

Secured credit cards are a great way to build your credit score. And, with this product launch, Discover has created an excellent tool. Just make sure you don’t use your credit card to build a balance and borrow money. Keep your balance well below 20% of your available credit, and pay your statement balance on time and in full every month. If you do that, you should start to see real improvement in your score.

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Credit Cards, Identity Theft Protection

When Banks Can Refuse to Refund Fraudulent Debit Card Charges

ATM

Typically, debit cards that are used as “credit” are offered the same protections as credit cards. This means that if you use your debit card in a store and choose “credit” instead of entering your PIN number, you should receive the same protections as if you used an actual credit card. However, we do encourage you to double check the fine print your bank provides on this matter before assuming your debit card will receive those protections.

But here’s a scenario where your debit card is riskier than your credit card. If you withdrawal money at an ATM (or any store doing cash back) using your PIN number, you have additional risk. If someone steals your pin number with a skimming device at an ATM, then he has direct access to your money. This isn’t like credit card fraud with obnoxious charges you need to dispute. This is your hard-earned cash being taken directly out of your checking account. And if you aren’t careful, you might not be able to recoup your losses.

So, what can you expect if you are a victim of debit card fraud?

Timeline for Being Able to Get Your Money Back

If you are a victim of debit card fraud, you are responsible for the following:

  • $0 if you report the loss or fraud immediately and the card has not been used,
  • Up to $50 if you notify your bank within 48 hours of your lost or stolen card,
  • Up to $500 if you notify the bank with 48 hours and 60 days of your lost or stolen card, and
  • All of the fraudulent charges if you don’t notify the bank until after 60 days.

It’s important you don’t delay in reporting the fraud to your bank if you want to be able to get all of your money back. If you were the victim of theft because the crook skimmed your info and used your PIN, then you may be on the hook for the $50 because you couldn’t report to the bank before the card was used. You didn’t know it had happened until the strange transaction showed up!

It may seem unfair to be responsible for charges that you did not actually charge yourself, but to avoid that scenario and protect yourself, consider taking the following precautionary actions.

What You Can Do To Protect Yourself

To protect yourself against debit card fraud, you should do the following:

  • Only use an ATM inside a bank (this will lesson the likelihood that a scanner is on an ATM)
  • Cover your hand when you type your pin into an ATM (to protect yourself against any devices attached to the ATM from getting your PIN)
  • Set up text alerts for each transaction over $0.01 on your card. This way you’ll be immediately alerted if a bogus charge is made
  • Monitor your bank on a regular basis (so you can give notice of fraud immediately)
  • Report stolen funds immediately (so you’re not responsible for the charges)
  • Check-in annually with your bank as to the policies regarding debit card theft (know whether your debit card is specifically protected and to what extent)

While you can notify the bank by phone, it is best to get everything in writing. For purposes of the time requirement, notice is considered given when you put the letter in the mail. It’s even better if you send the mail certified. You can, of course, send notice by mail and call. Whatever you do, keep a record of your communications you have with the bank. This will put you in the best position if you have to escalate your problem.

Remember that if you take the actions listed above, you will be more protected than you otherwise would. Even if you didn’t do anything wrong, like in the example above, you can still find yourself stuck with fraud charges that your bank won’t reverse. These specific steps will help you protect yourself, even when you’re not at fault. This is particularly important if you use your debit card frequently.

Don’t want to use a credit card? Learn how to survive with just debit cards here. 

Debit vs. Credit: How to Decide

Using a debit card forces you to keep your spending in check because you cannot spend more than you have in the bank. However, it may be riskier than using a credit card for the reasons described above. If you’re not sure which is best for you, ask yourself what do you value more – your spending being limited or the additional protections from fraud. If you can control your spending, then you may be better off with a credit card. If you are a spender, however, then take the additional steps listed above to make sure you fully understand your specific liability in the event of debit card fraud. If you feel your bank is behaving unethically and should be refunding you, then reach out to the Consumer Financial Protection Bureau to file a complaint.

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Best of, Credit Cards

Credit Cards: Find the Best Credit Card Offers & Deals (0% for 24 mos, 6% cash back)

Best Credit Cards of 2016

Updated March 9, 2016

The best credit cards can help you earn $2 or more for every $100 you spend – an easy way to make $100s or even $1,000s a year. When done properly, low rate credit cards are also the cheapest way to borrow. You can get 0% interest for up to 2 years. And credit cards are the best way to build, rebuild or maintain an excellent credit score, without paying fees.

But if you get it wrong, you can easily end up buried under a pile of expensive debt. This is a step-by-step guide that will help you find the best credit cards (updated daily) while avoiding expensive traps.

Should You Get a Credit Card?

Credit cards are like knives. Used well, they are great (even essential) tools. But if you start playing with them, you can get into trouble quickly.

There are two big risks associated with swiping plastic:

  • You spend more than you should, because it is just too easy
  • You pay higher interest rates than you should, adding years to your debt repayment

Before using a credit card, you need to answer the following question honestly:

Do I trust myself with plastic? Can I exhibit the necessary self-control to spend only what I can afford to pay in full every month?

If you have the discipline and self-control, keep reading and we will help you find the best credit card for your needs. But, if you don’t, it is possible to live a long and fulfilling life without plastic cards in your pocket.

The CFPB has a good guide on what to be aware of with your first credit card, as does the Federal Reserve.

Which type of card is best for you?

Why do you want a credit card ? The answer to that question will determine which type of card is best for you.

Just remember this critical rule when selecting a credit card:

You should have a Rewards Card for your spending. You should have a Low Rate Card for your borrowing. But you should avoid mixing the two. The best Rewards Cards tend to have higher interest rates. And the best Low Rate Cards often have no (or bad) rewards.

How to Choose and Use a Rewards Card

It is now easy to earn great rewards when you use a credit card for your spending. You should earn at least 2% cash back, and can earn even earn more with a bit of work. The money can add up quickly. If you spend $1,000 a month, you can earn $240 a year. It is not very often you can get something for nothing. But if you make the right choice and follow the rules, it is possible to get something for nothing.

How to Choose

Best Cash Back Credit Cards

These are the top cards offering a flat cash back rate.

1% When You Buy + 1% When You Pay

Citi Double Cash Card

The Citi Double Cash Card is the best overall cash back credit card. So long as you pay your statement balance in full and on time every month, you will earn 2% cash back. You earn 1% unlimited cash back on all of your purchases. You then earn an additional 1% on payments based on your purchases. The bonus cash back can take up to two billing cycles to post.

Transparency Score
  • No caps on how much cash back you can earn.
  • Cash back earning formula is easy to understand
  • There is a range of interest rates. You won’t know yours until after you apply

Key Information

Credit Score Required : Good or Excellent Credit

Purchase Interest Rate : 13.24% – 23.24%

Annual Fee : $0

Sign-on Bonus : None

Intro Purchase APR : 0% for 15 months

Intro Balance Transfer : 0% for 15 months with a 3% fee

Tip: Make sure you pay your statement balance in full and on time to maximize your cash back

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Unlimited 2% Cash Back on Every Purchase

Fidelity Rewards Visa Signature Card

The Fidelity Rewards Visa Signature Card offers Fidelity customers a generous 2% cash back on all purchases, with no limits or category restrictions. The cash back you earn must be deposited into a Fidelity account, but you don’t need to have a Fidelity account to apply for the card.

If you do not have a Fidelity account, they will open a Fidelity Cash Management Account to deposit your cash back. It works like a checking account with no minimum balance requirement and no monthly fees. In addition, all domestic ATM fees are reimbursed (unlimited).

Transparency Score
  • Simple cash back earning formula
  • No caps on how much cash back you can earn
  • You need to have a Fidelity account in order to redeem your cash back

Key Information

Credit Score Required : Excellent Credit

Purchase Interest Rate : 13.99%

Annual Fee : $0

Sign-on Bonus : None

Tip: You don’t need to keep your retirement or stock accounts with Fidelity to qualify for this card. Anyone can apply.

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1.575% Cash Back for People with Fair Credit

Barclaycard Cash Forward Credit Card

You don’t need perfect credit to get a good cash back credit card. Barclaycard has just launched this card, which offers a generous 1.5% cash back rate on all purchases. You can earn a 5% bonus when you redeem, which creates an effective 1.575%.

There is a $100 bonus if you spend $500 in the first 90 days. The card has no annual fee, and there is a special 0% interest rate on purchases for the first 12 months.

Transparency Score
  • Cash back earning formula is easy to understand
  • There is a range of interest rates. You won’t know yours until after you apply

Key Information

Credit Score Required : Fair Credit

Purchase Interest Rate : 14.99% – 24.99%

Annual Fee : $0

Sign-on Bonus : $100 after spending $500 in the first 90 days

Intro Purchase APR : 0% on purchases for the first 12 months

Tip: This card may be available if you have less than perfect credit.

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Best Category Bonuses (Gas, Grocery, Travel, Dining)

Here are the top cash back cards that pay much higher rates in certain bonus categories, which can be a great way to boost your returns.

Unlimited 5% Cash Back on Gas

Fort Knox Credit Union Platinum Visa

If you spend a lot of money on gas, there is no better card than this. You can earn unlimited 5% cash back on spending at gas stations. You will earn 1% on all other spend. You must be a member of the credit union, but anyone can join. Pay $5 to join the American Consumer Council of Kentucky (you can do that here) and you will be eligible to join.

Transparency Score
  • No limit to the cash back you can earn, even in the bonus category
  • You have to be a member of the credit union to get the card

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 9.25%

Annual Fee : $0

Tip: If you are not yet a member, you can use the non-member application process. Once approved, you can join with your $5 contribution to American Consumer Council.

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6% Cash Back on Groceries (Up to $6,000 of Spend)

Blue Cash Preferred Card from American Express

The unparalleled 6% cash back rate on groceries makes this one of the best cards on the market for heavy grocery consumers. Even with the $75 annual fee, most grocery shoppers will come out ahead.

You will also earn 3% cash back on all gas station purchases, 3% at select department stores and 1% on all other purchases. You will earn a bonus offer of $150 after you spend $1,000 in the first three months.

Transparency Score
  • Simple, easy to understand bonus offer
  • There is an Annual fee

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 13.24% – 22.24%

Annual Fee : $95 (no fee for additional cards)

Intro Purchase APR : 0% for 15 months

Tip: If you spend less than $200 a month on groceries, you will earn less than 2% cash back (after taking into account the fee) and would be better with Citi Double Cash or Fidelity American Express. But, if you spend more each year, this is a great option.

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4.25% Cash Back on Airfare Expenses

PenFed Premium Travel Rewards American Express

If you buy a lot of plane tickets every year, this card can be particularly lucrative. You will earn 5 points for every $1 spent on air travel. When you convert those points to a prepaid Visa card, those 5 points turn into a 4.25% earn rate. You earn 1 points per $1 on all other purchases.

There is no annual fee, no foreign transaction fees and 20,000 bonus points when you spend $2,500 within three months.

Transparency Score
  • No annual fee and no foreign transaction fees
  • The conversion from points to $ can be confusing
  • You must be a member of the credit union

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 9.99% – 17.99%

Annual Fee : $0

Intro Balance Transfer Offer : 0% for 12 months with a 3% fee

Tip: Keep an eye open on the redemption opportunities. You can sometimes find better deals than just prepaid Visa cards.

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3% Unlimited Cash Back on Restaurants

AARP Credit Card from Chase

You do not have to be over 55, or a member of the AARP, to apply for this credit card. When applying, you just need to keep the “AARP Membership Number” field blank. You can earn unlimited 3% cash back on your dining expenses. So, if you are a foodie, this is a great card. You also get a healthy 3% cash back on gas and 1% on all other purchases.

If you are interested in joining the AARP, you also don’t need to be older than 55. Anyone can join.

You can learn more about the offer by visiting AARP.org.

The information related to AARP Visa credit card has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card.

Transparency Score
  • No limit to the cash back you can earn
  • You do not need to be an AARP member to get the card

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 16.49%

Annual Fee : $0

Intro Purchase APR : 0% for 12 months

Intro Balance Transfer Offer : 0% for 12 months with a fee of 3% or $5 (whichever is greater)

Tip: Joining AARP at a younger age isn’t as crazy as it sounds. There are a lot of benefits and discounts available to members.

More Dining Credit Cards

Do you spend a lot of money in other categories? You can find the best cash back credit cards for every category here.

Best Travel Rewards Credit Cards

If you would like to earn free travel, there are a number of credit cards designed specifically to help you earn free flights quickly. Here are the best travel rewards credit cards.

Best No Annual Fee Travel Card – Miles Can Be Used Anywhere

BankAmericard Travel Rewards

You earn 1.5 points for every $1 you spend. There is no limit to the number of points you earn.

The points can be used on any purchase. There are no restrictions and no blackout dates. Every 100 points can buy $1 worth of travel. The rewards get even better if you have “Preferred Rewards” at Bank of America. You can earn a bonus of between 25% and 75% if you have significant balances at Bank of America or Merrill Lynch.

There is no annual fee and no foreign transaction fees. You can use your points for a wide range of travel options, including flights, hotels, vacation packages, cruises, rental cars and even pesky baggage fees.

Transparency Score
  • Simple introductory bonus
  • No limit to the points you can earn
  • There is a range of interest rates. You won’t know yours until after you apply

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 15.24% – 23.24%

Annual Fee : $0

Intro Purchase APR : 0% for 12 months

Tip: The Preferred Rewards program offers excellent rewards. If you rollover your old 401(k) or IRA to Merrill Edge, you can get up to a 75% credit card bonus and ATM fee reimbursement with a Bank of America checking account.

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Best No Annual Fee Travel Card – Earn Airline Miles & Hotel Points

Amex Everyday Credit Card

You can earn 2 points for every $1 spent at supermarkets, up to $6,000 per year. You will earn 1 point on all other purchases, including supermarket spend above $6,000. And there is an added bonus. If you use your credit card for 20 purchases per month, you will get a 20% bonus. That means you would get 2.4 points on grocery store spend (up to $6,000) and 1.2 points on everything else.

You will be earning Membership Rewards Points, which have a wide variety of redemption options. You can convert these points into frequent flier miles of airlines. Participating airlines include Delta, Virgin America, British Airways, Virgin Atlantic and more. You also have the option to convert points into hotel programs, including Hilton and Starwood.

Transparency Score
  • Simple introductory bonus
  • The 2-point bonus on grocery store spending is capped
  • You need 20 transactions each month to get the the 20% bonus

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : Prime + 9.74% – Prime + 18.74%

Annual Fee : $0

Tip: Make sure you use this card for all of your everyday spend. The 20% bonus is based upon the number of transactions made, not the value of those transactions. Even buying a package of gum in the grocery store counts.

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Best Credit Cards for Foreign Travel

These are the best credit cards for use when traveling outside of the country. None of these cards have foreign transaction fees. And some of them even have chip and pin, helping to increase acceptance.

No Annual or Foreign Transaction Fee + Chip and Pin Functionality

First Tech Credit Union Platinum Rewards MasterCard

This card is the perfect companion for overseas travel. There is no annual fee or costly foreign transaction fee. Even better, the card offers chip and pin functionality. Most major credit card issuers in America have rolled out chip and signature, which can be problematic overseas. If you try to use your card at a ticket machine or with a waiter’s portable payment device, you have a good chance of being rejected.

The card also offers low credit union interest rates, starting at just 9.99%. It is easy to join the credit union. Membership is free if you work for a sponsor technology company. If you work for the state of Oregon or live in Lane County, Oregon membership is also free. Otherwise, you just need to join the Financial Fitness Association. There is a one-time fee of $8, and you are member. That membership gives you the right to join the credit union and apply for this card.

You will earn 1 point for every $1 you spend. This is not the best rewards program on the market.

Transparency Score
  • No annual fee or foreign transaction fees
  • You have to be a member of the credit union

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : from 9.99%

Annual Fee : $0

Tip: First, join the Financial Fitness Association. Then join the credit union. Finally, apply for the credit card. This can all be done online, and it is an easy process.

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No Foreign Transaction Fee + Chip and Pin Functionality

Barclaycard Arrival Plus World Elite MasterCard

With this card, you earn 2 miles for every $1 you spend. When you redeem, you receive a 5% bonus, which gives you a 2.1% earn rate. Your miles can be used on any travel purchase with any airline, hotel or other travel expense. There is an annual fee of $89, which is waived during the first year. If you spend $1,000 a month, you would earn $252 of rewards during the year. After deducting the annual fee, you will have earned 1.4%.

There is a sign-on bonus of 40,000 miles after you spend $3,000 in the first 90 days. But the real strength of this card is for foreign travel. There are no foreign transaction fees and full chip and pin functionality is available.

Transparency Score
  • No limit on the bonus points you can earn
  • There is an annual fee

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 16.24% or 20.24%

Annual Fee : $89 (waived during the first year)

Intro Purchase APR : None

Intro Balance Transfer : 0% for 12 months with a 3% fee

Tip: Given the high annual fee, this card is only worthwhile if you expect to spend a lot on the card.

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Best Foreign Travel for Fair Credit

Capital One Quicksilver One Rewards MasterCard

This card is designed for people with Average/Fair credit. If you have defaulted on a loan in the past five years (but not more than one), or if you have had limited credit history (at least one account for less than three years), you would be considered “average/fair.”

With this card, you can earn 1.5% unlimited cash back. There is also no foreign transaction fee. That combination of no fee and rewards can make this card lucrative. There is an annual fee of $39.

This card can be useful to build your credit score. Just keep your utilization low (ideally below 20% of the available credit) and make your payments on time and in full every month. Capital One provides free access to your FICO score. So, you can track your score and see when you are eligible for an upgrade to a no-fee card.

Transparency Score
  • No limit to the cash back you can earn
  • No confusing categories or limits
  • No annual fee or foreign transaction fee

Key Information

Credit Score Required : Fair or Average

Purchase Interest Rate : 23.24%

Annual Fee : $39

Intro Purchase APR : 0% until September 2016

Tip: Use this credit card to build your score and avoid expensive foreign transaction fees.

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How to Use

In order to maximize your cash back, make sure you follow these suggestions:

  • Use your chosen cash back card for ALL of your spending. Your goal should be to replace cash, checks, automatic debits and debit cards completely. For example, you can automate bill payments (like your cell phone) to be debited from your credit card. This will make your life easier (only one payment to make each month) and it will make budgeting easier (you can set a target for spending and track it easily).
  • Set up automatic monthly payments for the statement balance, not the minimum due. If you set up automatic payments, you will ensure that your payment will be on time every month. And if you set up the automatic payment for the statement balance, you will ensure that you are never charged interest and only charge what you can afford to repay.
  • Avoid cash advances. If you use your credit card to take out cash, most companies will charge a cash advance fee that averages 3%. The interest rate on cash advances is usually above 20%. And there is no grace period, which means interest starts accruing right away.

Brian Karimzad, Co-Founder of MagnifyMoney, explains how to get the most out of cash back credit cards in this video:

How to Choose and Use a Low Rate Credit Card

When done properly, credit cards can be the cheapest way to borrow. Just make sure you choose the right credit card for your situation and automate a plan to pay off the debt as quickly as possible.

How to Choose

Best Balance Transfer Credit Cards

With a balance transfer credit card, you can transfer debt from a high interest rate credit card to a 0% introductory promotional rate. You can find no fee balance transfers for up to 15 months. If you are willing to pay a fee, you can find balance transfers for up to 24 months. The fee is usually worthwhile – if you want to do the calculation, you can use the calculator on our interactive tool.

Remember: you cannot transfer debt between two credit cards of the same bank.

Here are the best 0% balance transfer offers in the market today. All of these credit cards waive interest – which means there is no retroactive interest charge to worry about.

$0 introductory balance transfer fee, 0% introductory APR for 15 months on purchases and balance transfers, and $0 annual fee

Chase Slate®

With Chase Slate®, you can save with a $0 introductory balance transfer fee, 0% introductory APR for 15 months on purchases and balance transfers, and $0 annual fee. Plus, receive your Monthly FICO® Score for free. At MagnifyMoney, this is our favorite balance transfer offer.

You cannot transfer debt from other Chase credit cards, including their co-brand cards. Chase operates credit cards for companies like United Airlines, Southwest Airlines and Marriott.

Transparency Score
  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is a range of interest rates. You won’t know yours until you apply.

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 13.24% to 23.24% variable

Annual Fee : $0

Intro Purchase APR : 0% for 15 months

Tip: Make sure you complete the balance transfer within 60 days of opening the account.

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No Fee – 0% for 12 Months

Alliant Platinum Visa

With the Alliant Platinum Visa, there is no balance transfer fee and you pay no interest for 12 months. You can apply for the credit card even if you are not a member of the credit union. If you are approved for the credit card, you can then join

Anyone can join the credit union. You just have to make a contribution of $10 to Foster Care for Success and then you can become a member of the credit union. That is what we love about credit unions: joining requires a donation to a worthy charity.

There is one catch (that we don’t like). Even if you are approved for the credit card, you might not get the 0% offer. Depending upon your credit score, you might be given a much higher introductory interest rate.

Transparency Score
  • Interest is not deferred during the introductory promotional period. It is waived.
  • You might not get the 0% offer, depending upon your credit score
  • You have to join the credit union

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 9.49% – 21.49%

Annual Fee : $0

Intro Purchase APR : 0% for 12 months

Tip: If your credit score is not excellent, you might find it difficult to get the 0% offer. Pay close attention to the offer details once approved.

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0% for 2 Years – 4% Balance Transfer Fee

Santander Sphere Visa

This is the longest 0% offer in the MagnifyMoney database. The only catch: it comes with a hefty 4% balance transfer fee. The fee could still be worthwhile, depending upon how long it takes for you to pay off the debt. You cannot transfer debt from other Santander credit cards.

The card also offers a rewards program, with 1 point for every $1 spent. And if you spend $1,000 in the first 90 days, you earn 10,000 bonus points.

You have 90 days from account opening to complete the balance transfer, otherwise you lose the promotional rate.

Transparency Score
  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is a range of interest rates. You won’t know yours until you apply.

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 13.24% – 25.24%

Annual Fee : $0

Tip: This card is a good option if you think it will take a long time to pay off your debt in full.

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0% for 21 Months; 3% Fee

Citi Simplicity

Citibank has a strong balance transfer offer, with a long 21 months and a 3% fee. In addition, Simplicity has some added perks. There are no late fees, no penalty rate and no annual fee. Although you should always try to pay on time, it is nice that this card will not punish you for the occasional mistake.

In addition to the balance transfer offer, you pay no interest on purchases for 21 months.

Transparency Score
  • No late fee, no penalty APR and no annual fee
  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is a range of interest rates. You won’t know yours until you apply.

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 13.24% – 23.24%

Annual Fee : $0

Tip: Make sure you transfer your balance within 4 months of opening the card, otherwise you lose the promotional offer.

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Good Balance Transfer for People with Fair Credit

Capital One Quicksilver One

Capital One has created a credit card specifically for people with fair or average credit. If you have defaulted on a loan (but not more than one) in the last five years, or you have limited credit history (at least one account for less than three years), you would meet the definition of fair credit.

The balance transfer has a 3% fee. You will have 0% interest until September 2016. Depending upon when you get the transfer complete, that is about 8 months at 0%. There is a $39 annual fee.

If you decide to use the card for spending, you will earn 1.5% cash back, unlimited. There is also 0% interest on purchases until September 2016 as well.

Transparency Score
  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is an annual fee

Key Information

Credit Score Required : Fair or Average

Purchase Interest Rate : 23.34%

Annual Fee : $39


Tip: Watch your credit score closely. As you pay down your debt, your score will improve. Once your score is above 700, you can find a lot of choices for credit cards with better rewards or no annual fee.

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Paying off credit card debt sometimes requires more than one balance transfer credit card. If you want even more choices, check out our full guide to the best balance transfer cards, or use our balance transfer calculator to see which cards will save you most.

Best 0% Purchase Credit Cards

With a 0% introductory purchase offer, you will not be charged interest for purchases made on the credit card during the promotional period. This is a great way to finance a purchase. Even better, none of these top cards charge retroactive interest if you don’t pay off the balance during the promotional period. (A lot of store credit cards offer 0%, but then hit you with a big penalty. But don’t worry – these recommendations don’t do that).

0% on Purchases for 21 Months

Citi Simplicity

If you are looking to finance a purchase, Citibank offers the longest 0% purchase promotion of any credit card in the MagnifyMoney database. The APR on purchases will be 0% for the first 21 months after opening the credit card.

Additionally, Citi Simplicity charges no annual fee, no late fee and has no penalty APR.

Transparency Score
  • No late fee, no penalty APR and no annual fee
  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is a range of interest rates. You won’t know yours until you apply.

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 13.24% – 23.24%

Annual Fee : $0

Tip: The 21 months starts from when you open the credit card, not when you make the purchase. So make sure you time your application with your planned purchase.

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0% on Purchases for 18 Months – Credit Union Membership Required

TruWest Visa Signature

TruWest is a credit union with restricted membership. Unfortunately, you need to live in certain regions of Texas or Arizona, or work for a few select employers (like Motorola) to join. You can learn about membership eligibility here.

If you are able to join, you will find a long 0% promotional period. Even better, the credit card has reasonable credit union interest rates after the promotional period ends. There is no annual fee on the card.

Transparency Score
  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is a range of interest rates. You won’t know yours until you apply.

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 8.15% – 9.15%

Annual Fee : $0

Tip: Make sure you check your membership eligibility before you apply.

Best Low Interest (not 0%) Credit Cards

Having a credit card with a rate that stays low is a good idea. In case of an emergency, you will always have access to a low cost way to borrow. Here are some great low interest rate options:

8.25% Interest Rate – With Profit-sharing (Maybe)

Barclaycard Ring

Barclaycard Ring was launched as a new type of credit card. Barclaycard has created a “community” that is supposed to provide feedback on product features and share in the profits. Unfortunately, there aren’t many profits to share with community members. According to a recent post, losses are higher than expected and only 2,599 new accounts were booked in a month.

Although you shouldn’t expect any profits to come, you can still enjoy a low interest rate. Barclaycard charges a flat 8% interest rate. That is a nice card to have in your back pocket in case of an emergency.

There are no rewards offered on this card.

Transparency Score
  • One flat interest rate
  • No annual fee

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 8.25%

Annual Fee : $0

Tip: This is a good card to keep in your back pocket in case of an emergency

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As Low as 7.25% from a Credit Union Anyone Can Join

Langley Select Visa Platinum Card

Anyone can join Langley Federal Credit Union by joining an association during the signup process for $5.

If you have excellent credit and just want a place for emergency spending with no rewards, consider keeping this card on hand. Although the rates start as low as 7.25%, not everyone will get a rate that low.

It’s more of a hassle than a regular bank card, but if you insist on the very lowest rate consider this.

Transparency Score
  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is a range of interest rates. You won’t know yours until you apply.
  • You have to join the credit union

Key Information

Credit Score Required : Excellent

Purchase Interest Rate : from 7.25%

Annual Fee : $0

Tip: You need to have an excellent credit score in order to qualify for the lowest interest rate. And unfortunately the online banking is not as good as some of the bigger banks.

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You might get a lower rate from a credit union or bank near you that doesn’t accept nationwide applications, and you can check our full list of low interest credit cards to see if there is one that works for you.

How to Use

If you need to borrow money, credit cards can be an incredibly low cost way of borrowing. Just make sure you pay attention to the following tips:

  • Get that balance transfer done quickly! If you are transferring a balance, make sure you complete the transfer as soon as possible. The introductory offer starts from when you open the card, not when the transfer is completed. And you can lose the offer with most issuers if you wait more than 60 days to complete the transfer.
  • Automate your monthly payments. If you pay late, you can be charged a costly late fee. And, if your payment is 60 days late, you can lose the introductory offer entirely.
  • You cannot transfer debt between two cards of the same bank. For example, if you open a Citibank account you will only be able to transfer debt from credit cards other than Citibank.

Nick Clements is the Co-Founder of MagnifyMoney. He also used to run a large credit card company and explains how to use balance transfers in this video.

How to Choose and Use a Credit Card to Build or Rebuild Your Score

If you are looking to build or rebuild your credit score, a credit card can be the perfect tool.

How to Choose

If you have no credit, or your credit score is below 620, you should consider a secured credit card.

If you have limited credit history (less than three years) or you have only defaulted once on a credit card or loan (not multiple times), you should consider a credit card for fair credit.

Best Secured Credit Cards for People with Bad or No Credit

Secured credit cards are the best option if you need to build or rebuild your credit score. The best secured credit cards have no annual fees. If you’re going to use a secured credit card, it will help you grow your score if you pay your balance on time every month, keep your credit utilization low, and you apply for an unsecured credit card after 12-18 months of regular use.

Need to know more? These are ways that you can build your credit without paying interest and spending just $10 a month, and these are tips for improving your credit score.

No Fee Secured Card with Free FICO Score; Deposit Between $49 – $200 Required

Capital One Secured MasterCard

This is our favorite secured credit card. There is no annual fee. And Capital One will give you free access to your FICO credit score. You can watch your good behavior being rewarded, and you will know when it is time to convert to a fully unsecured credit card.

In order to open the card, you will need to deposit between $49 and $200, depending upon your creditworthiness. Capital One will assign a credit limit up to $3,000.

Capital One also give you access to the “Capital One Credit Tracker” which has a what-if simulator to help you understand how your credit score will evolve over time.

Transparency Score
  • No annual fee
  • Free FICO credit score

Key Information

Credit Score Required : Anyone can apply

Purchase Interest Rate : 24.99%

Annual Fee : $0

Tip: This product reports to all three credit bureaus. It is a great tool to build your score. But, if you miss payments, you can do damage to your score.

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No Fee Secured Card; Credit Union Membership and $100 Deposit Required

Community Secured Visa from Coastal Credit Union

This card has no annual fee, and you only need to deposit $100 in a Collateral Savings Account to get started. If you’re not a member of Coastal Credit Union, you can join an organization for $18, which is deducted from your initial deposit, and become a member. So you’ll need $118 to get started.

While the initial deposit is a bit higher than the Capital One card, you get the peace of mind that your interest rate will be more reasonable in case you get into trouble. This one takes more work to open than the Capital One card, since it involves joining a credit union, but you deal with less fine print once you have the card.

Transparency Score
  • A single interest rate that you know up front, before you apply
  • You have to join a credit union

Key Information

Credit Score Required : Anyone can apply

Purchase Interest Rate : 13.50%

Annual Fee : $0

Tip: It is easy to join the credit union. Join an organization for $18 and you will become eligible.

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We also have a list of several other no annual fee secured credit cards from both banks and credit unions anyone can join. Or browse our list of hundreds of secured cards to compare rates, fees, and deposit requirements.

Best Credit Cards for People with Fair Credit

If you have fair or average credit, you might be able to qualify for an unsecured credit card. If you have more than one default in the last five years, you will find it difficult to get approved. In addition, if you are currently delinquent on any of your accounts it will also be hard to get approved, and you should try a secured card instead.

Here are some good cards for people with fair credit:

1.575% Cash Back for People with Fair Credit

Barclaycard Cash Forward Credit Card

You don’t need perfect credit to get a good cash back credit card. Barclaycard has just launched this card, which offers a generous 1.5% cash back rate on all purchases. You can earn a 5% bonus when you redeem, which creates an effective 1.575%.

There is a $100 bonus if you spend $500 in the first 90 days. The card has no annual fee, and there is a special 0% interest rate on purchases for the first 12 months.

Transparency Score
  • Cash back earning formula is easy to understand, with no caps
  • There is a range of interest rates. You won’t know yours until after you apply

Key Information

Credit Score Required : Fair Credit

Purchase Interest Rate : 14.99% – 24.99%

Annual Fee : $0

Sign-on Bonus : $100 after spending $500 in the first 90 days

Intro Purchase APR : 0% on purchases for the first 12 months

Tip: Don’t use more than 20% of your available credit to help improve your score over time.

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1.5% Cash Back for People with Fair Credit – with $39 Annual Fee

Capital One Quicksilver One

Capital One has created a credit card specifically for people with fair or average credit. If you have defaulted on a loan (but not more than one) in the last five years, or you have limited credit history (at least one account for less than three years), you would meet the definition of fair credit.

You will earn 1.5% cash back, unlimited. There is also 0% interest on purchases until September 2016 as well.

Transparency Score
  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is an annual fee

Key Information

Credit Score Required : Fair or Average

Purchase Interest Rate : 23.34%

Annual Fee : $39

Tip: Watch your credit score closely. As you pay down your debt, your score will improve. Once your score is above 700, you can find a lot of choices for credit cards with better rewards or no annual fee.

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You may also want to try and see if you are pre-qualified for a credit card before applying. Banks can perform a ‘soft’ pull on your credit file to give you a sense of whether you might qualify for one of their products. It leaves no mark on your credit score, and you can see a full list of ways to check if you’re pre-qualified here.

A Special Note: Beware Predatory Companies

Many lenders target consumers with FICO credit scores of less than 650. If you have searched for “credit cards for bad credit,” you will probably find offers from companies like First Premier. In addition to high interest rates, these lenders often require application processing fees, maintenance fees and more. You could be given a $300 credit limit and see a big portion of it eaten up with fees.

Stay away from these specialist subprime lenders. Instead, consider the following:

  • If you need to borrow, consider a personal loan instead. You can find much better deals. Search for options here
  • If you want to build your credit score, use a secured credit card instead.
How to Use It

In order to build your credit score with one of these cards, you should follow our tips. By doing this, you should see real improvement in your score.

  • Don’t use more than 10% – 20% of your available credit. For example, if you have a $500 credit limit, never spend more than $50. That keeps your utilization low.
  • Use your card every single month. You should make sure you have a transaction every month, so that positive data is reported to the credit bureaus.
  • Automate and pay your statement balance in full and on time every month. Even just one late payment could crush your score. And by paying the balance in full, you will avoid any interest expense.
  • Watch your score closely. Keep an eye on your credit score. After 12 months, you should really start to see a big improvement. Once your score is above 650, you should try to get your secured card converted or apply for an unsecured credit card.

Other Benefits of Using a Credit Card

Not only can you use a credit card to earn rewards, borrow at low rates or build your credit score for free – but there are many other benefits available. Here are some of the benefits that you can find:

Available on Most Credit Cards

$0 Liability on Fraudulent Activity: Credit cards are the best way to protect yourself from fraud. So long as you report the fraud to your credit card company, you will not be liable for any losses on any major credit card.

Car Rental Collision Insurance: If you waive collision coverage when renting a car, your credit card may provide secondary coverage of $50K or more.

Available on Some Credit Cards

Retail Purchase Protection: Protects you from loss, theft, fire or accidental damage for a limited period of time after your purchase has been made. Not all cards protect you from loss, so look it up in the Purchase Protection Coverage Description Document.

Price Protection: If you buy something in stores and you see an advertised price, you will receive the difference between the two prices.

Extended Warranties: Duplicates both manufacturers and store warranties for a limited length of time and for limited dollar values (varies by card).

Travel Accident Coverage: If you are injured during travel, and you purchased the tickets via credit card, your company fully insures you.

Lost Luggage Coverage: You can receive compensation for lost, stolen or damaged luggage if you purchased flight or travel tickets using your credit card.

Trip Interruption Cancellation Coverage: If travel delays keep you from completing a trip, and you purchased the tickets on your credit card, the full value of the tickets will be refunded

Concierge Services: Certain cards offer free access to local concierge services that can help you make dinner reservations, purchase event tickets, and locate items while you are abroad.

FAQ

The minimum payment calculation differs by credit card issuer. The most common is 1% of the principal balance plus any interest or fees that accrued in the month (or a set amount, like $25, if the minimum due is very low).

If you use your credit card at an ATM to take out cash, a few things will happen. First, you would be charged a cash advance fee, which is usually about 3%. Second, interest would start accruing immediately, because most issuers do not have a cash advance grace period. And the cash advance interest rate is usually much higher than the purchase rate. Don’t be surprised to see interest rates as high as 24% (or higher).

While there is no over-limit fee, having a credit card with a balance that is greater than the credit limit can have a very negative impact on your credit score. In general, you want to keep your credit card balance below 20% (ideally below 10%) of your credit limit.

We do not recommend closing credit cards, because it can reduce your credit score. Closing unused credit cards does two things. First, it reduces your total available credit. That increases your utilization, which is bad for your score. Second, the age of your open credit cards helps your score. If you close old accounts, you can hurt your score over time.

The law requires that any payment amount beyond the minimum due must be applied to the highest APR balance first. The minimum due is at the discretion of the credit card companies. However, it is usually applied to the balance with the lowest APR first. Your goal is to eliminate high APR debt – so don’t be afraid to make much bigger payments on credit cards. The extra amount will always go to the most expensive debt first.

Each application for new credit can take 5-10 points off your credit score. If you are planning on applying for a mortgage or auto loan in the near future, you have to be very careful. Even just 5 points can be painful. However, if you are not going to be applying for a mortgage or auto loan in the next 6-12 months, you should not worry too much about your credit score. Instead, focus on getting out of debt quickly.

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Review: Capital One QuicksilverOne Cash Back

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For people with average or fair credit, Capital One offers the QuicksilverOne cash back card with an introductory special. The promo is 0% APR for new purchases and balance transfers (with no balance transfer fee) until September 2016. After the intro period ends, standard interest kicks in at 23.24% APR. If your credit score is in the mid-600’s, this is a deal you may want to consider, but there are some drawbacks we’ll discuss in this post.

QuicksilverOne Cash Back Program

The QuicksilverOne cash back program is low-maintenance. Unlike other programs with preset categories, opt-ins, and spending limits, this card gives you 1.5% cash back on all purchases, no restrictions. Cardholders can redeem cash back at any time through check, account credit or gift card. The cash back you earn never expires.

Are you an urban dweller? There’s an opportunity to earn even more cash back if you ride with Uber. Although it’s a short-term deal, you’ll get a 20% statement credit for each Uber trip when you pay with the QuicksilverOne card. Offer ends April 30, 2016.

QuicksilverOne Card Details

Cash back program aside, the QuicksilverOne card comes with TransUnion credit score tracking, alerts, and a score simulator. The score simulator allows you to see how spending money (or paying off debt) will impact your score.

Your QuicksilverOne credit line is determined based on creditworthiness. The lowest credit line is $300. However, your credit line will increase after you make the first five on-time payments.

As for other card perks, QuicksilverOne has fraud coverage and Platinum MasterCard benefits including extended warranty. It also comes with rental car insurance along with 24/7 travel and roadside assistance.

Fees and Gotchas

This card has a transparent fee structure. It costs $39 per year (the standard Quicksilver card is fee free). There’s no foreign transaction fee. If you transfer a balance before September 2016, there’s no balance transfer fee either. The cash advance fee is $10 or 3% whichever one is greater. The late fee can be up to $35.

Pros and Cons

Now, let’s weigh the good and bad of the QuicksilverOne.

Pros 

On the pro side, the cash back program is uncomplicated because there are no preset bonus categories and you can redeem cash back at any time. You don’t have to wait until your balance reaches a specific threshold.

In addition, you can transfer balances to the card with no interest or fees until September 2016, which sets the QuicksilverOne card apart. Often, cards that offer 0% APR balance transfer deals tack on a 3% to 4% processing fee for each transfer.

Lastly, QuicksilverOne is a good option for rebuilding credit. Your credit line will increase when you use the card responsibility. And there’s no need to sign up for another monthly credit score monitoring site since score tracking is conveniently included in the credit card product.

Cons

As for the disadvantages, you guessed it – the annual fee. But, the $39 fee per year in lieu of a balance transfer fee may work in your favor depending on how much debt you transfer to the card.

If you’re strictly looking to rebuild your credit score, then consider a no-fee secured card like the Capital One secured card or the Discover it secured card.

Another drawback is the standard interest rate of 23.24% APR; it’s pretty high. Don’t transfer a balance or spend more on this card than you can pay off before September 2016. That’s unless you have a plan to transfer the debt to another low-interest card after the promo ends. Otherwise, your debt will quickly grow with interest.

QuicksilverOne

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Alternatives to the QuicksilverOne

With Chase Freedom, you can earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate. You earn unlimited 1% cash back on all other purchases. Cash back rewards do not expire as long as your account is open. Earn a $150 bonus after you spend $500 on purchases in your first 3 months from account opening.

The Citi Double Cash is another great option for low-maintenance cash back rewards. It gives 2% cash back on all purchases. You earn 1% cash back when you spend on the card and another 1% cash back when you pay off the bill. The Citi Double Cash card is now offering 0% APR on new purchases and balance transfers for 15 months. Standard interest after the special is 13.24% to 23.24% APR. There’s no annual fee and the balance transfer fee is 3%.

citi-double-cash-credit-card

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Who Will Benefit Most from QuicksilverOne Cash Back Rewards?

The QuicksilverOne will benefit you most if you’re trying to rebuild credit because it gives you all the tools you need; free score monitoring, adjustable credit lines and 0% starting interest. The $39 annual fee is a drawback.

But, if you need to transfer a balance, it may be cost effective to pay the $39 and avoid the balance transfer fee that you find with other cash back cards like the Chase Freedom and Citi Double Cash. Shop around and do the math to find out which card will save you the most money before settling.

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How to Get Removed as an Authorized User on a Credit Card

Authorized User on a Credit Card

Becoming an authorized, or secondary user, on another person’s credit card can be a good way to build or rebuild credit. The account’s information is often added to your credit file, which can help establish a credit history. The increased credit available to you may decrease your overall utilization rate, which can also boost your credit score.

However, being an authorized user can have a negative effect as well. If the primary cardholder doesn’t pay a bill on time, or owes a lot on an account, your credit could be hurt as a result. Even when that’s not the situation, authorized users may want to get taken off an account if their relationship with the primary cardholder changes.

Requesting The Removal

To request your removal as an authorized user on a credit card account, you’ll usually need to call the card issuers. Only Bank of America and BarclayCard allows authorized cardholders to request a removal online.

You’ll need to verify the account’s information, which often involves answering a security question or knowing personal information about the primary cardholder. Once you do so, almost all the card issuers allow authorized cardholders to remove themselves from an account. Only at Citi might a secondary cardholder not have the clearance to request the removal.

In general, you can’t make other changes to an account or request the removal of other authorized cardholders.

Card Issuers’ Contact Information

If you’re a secondary cardholder at one of the following financial intuitions, you can call the number listed below to request your removal from an account. Expect to answer several identification and verification questions, although the specific questions vary by issuer.

American Express: Authorized users can remove themselves from an account by calling the customer service line at 1-800-528-2122. You need to provide your name, card number, and answer a security question or have the account’s security pin. 

Bank of America: Authorized users can remove themselves from an account online or by calling the customer service line at 1-800-732-9194. You will need to answer security questions that were created by the primary account holder, such as the city they were born in, their first car, or their mother’s maiden name.

BarclayCard: Authorized users can remove themselves from an account online or by calling the customer service line at 1-888-232-0780. You will need to provide the account number and two of the following: the primary cardholder’s date of birth, Social Security number, mother’s maiden name, or home phone number.

Capital One: Authorized users can remove themselves from an account by calling the customer service line at 1-800-227-4825. You need to provide the card’s number and the primary cardholder’s name and date of birth. 

Chase: Authorized users can remove themselves from an account by calling the customer service line at 1-800-432-3117. You need the card number and primary account holder’s mother’s maiden name, or the account’s password. 

Citi: Authorized users can remove themselves from an account by calling the customer service line at 1-800-347-4934. You need to provide your name, the primary cardholder’s name, and the security word of the account. With Citi accounts, you may not have the clearance to make changes to the account even if you’re an authorized card user. If this is the case, the primary cardholder will need to request your removal. 

Discover: Authorized users can remove themselves from an account by calling the customer service line at 1-800-347-2683. You need the account number and zip code of where the bill is mailed, or the primary cardholder’s Social Security number.

Kohl’s: Authorized users can remove themselves from an account by calling the customer service line at 1-855-564-5748. You will need to verify the account by providing your card number, name, and date of birth.

Follow-Up with the Credit Bureaus and Card Issuers

Getting yourself taken off an account may only be the first step depending on your end goal. If you’re requesting a removal because the primary cardholder’s activity has hurt your credit, or you want the line of credit off your credit file for another reason, you may need to call the credit bureaus or follow-up with the card issuer.

After getting removed from the account, new activity shouldn’t be added to your credit file. Depending on the issuer and bureau, the entire credit line might automatically be taken off your credit report or the credit line remains with a marker that your relationship with the account was terminated. If the account remains, previous positive and negative marks will remain on your credit file and may affect your score.

Even when the process is automatic, it may take 30 to 60 days for your authorized user account to get taken off your credit report. Wait a month or two and then request a free copy of each of your three credit reports from AnnualCreditReport.com. If the credit line is still there, you can then follow-up with the credit bureau and file a dispute asking them to take the account off your file.

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Holiday 2015 Store Credit Card & Deferred Interest Study

This holiday season, the offer of free 0% financing is once again being aggressively pushed by retailers and credit card companies across the country, with MagnifyMoney finding over 50% of store credit cards offering promotional financing this holiday season. According to the CFPB, deferred interest purchases increased 21% from 2010 until 2013.

MagnifyMoney conducted a study of the offers being promoted in December by store credit cards of the top 100 American retailers as defined by the National Retail Federation. The results show widespread use of these potentially confusing and expensive offers.

Study of Holiday 2015 store credit card offers finds predatory tactics

  • 38% of the top 100 American retailers offer store credit cards, with some offering several via multiple brands.
  • 52% of store credit cards this holiday are offering promotional financing to new customers. Others periodically offer financing to existing customers, hoping to snag those with balances in a payment hierarchy trap, making the prevalence even higher.
  • 87% of store cards with promotional offers use deferred interest. The average interest rate on these cards, 24.8%, is nearly 2x the average credit card interest rate.
  • 72% of retailers with cards charge all consumers a high interest rate, regardless of their credit score. The average interest rate for these credit cards is a shocking 25.07%.
  • Dell and Zales have the worst rates for customers hit by deferred interest – up to 29.99% for Dell’s personal credit line, and 28.99% for Zales’ credit card.

The deals remain common because:

  • They work well. Consumers respond to 0% marketing offers, regardless of the potential traps or the true cost.
  • They are highly profitable. It is hard to lose money with interest rates this high.
  • They remain perfectly legal. However, the Consumer Financial Protection Bureau has called deferred interest offers “the most glaring exception to the general post-CARD Act trend toward upfront credit card pricing.”

There is nothing more powerful than “free.” Behavioral economists and credit card executives agree that marketing a product as “free” or “0% interest” is the best way to get consumers to buy. But very few things in life are truly free, especially when they are given to you by a company whose objective is to make a profit.

While the 0% financing can be a good deal for many, it can turn out to be an incredibly expensive debt trap for people who use a deferred interest offer and do not pay their balance in full before the end of the promotional period. These consumers will be hit with a retroactive interest charge at some of the highest interest rates on the market. And with most traditional 0% credit cards avoiding deferred interest, consumers may incorrectly think store cards have the same favorable terms.

Behavioral Economics Insight:

  • Dan Ariely conducted a fascinating experiment demonstrating the power of “free.” He offered two chocolates to people: a Lindt Truffle and a Hershey Kiss. Lindt cost 26 cents, and Hershey cost 1 cent. 40 percent of the people bought the Hershey Kiss. Then he reduced the cost of both items by 1 cent. Lindt became 25 cents, and Hershey became free. 90 percent of people took Hershey, even though the relative price difference remained the same. People overwhelmingly gravitate towards “free” offers!

Credit Card Management Insight

  • Nick Clements marketed credit cards to consumers for nearly 15 years. He once conducted a direct mail test. One group of customers was offered 0% for 6 months. In the fine print, you would see that there was a 4% fee and a go-to interest rate of 18.99%. The other customers were offered a flat interest rate of 6% for the life of the balance. The vast majority of people took the 0% offer, even though it was more expensive than the 6% offer. As Nick commented, “if you put 0% in front of something, people take it. They think it is free and just grab it. But, unlike Ariely’s Hershey Kiss, credit card companies expect something in return. And they will get it.”

Deferred Interest Explained

It is common for credit card issuers to offer a promotional rate (usually 0%) to encourage people to apply for a credit card or transfer a balance to it. Customers who apply for these products will be charged the promotional rate during the promotional term. At the end of the promotional period, any remaining balance will be assessed interest at the standard rate. In other words, the credit card companies are waiving interest during the promotional period.

Deferred interest offers are very different, and are very common with private label store cards. A typical deferred interest offer would be “0% interest for x months.” During the deferred interest period specified in the offer, the consumer is not required to make interest payments. If he or she pays off the balance in full during the promotional period, no interest will ever be charged. However, if the balance is not paid in full during the promotional period, interest will be retroactively charged at the standard purchase rate. It will be like the customer never had a promotional offer at all. What makes these offers even worse is that the interest rates charged on store credit cards are exceptionally high.

  • According to the Federal Reserve, the average interest rate on revolving credit in the United States is 13.93%.
  • According to MagnifyMoney’s analysis of the Top 100 American Retailers, the average Purchase Interest Rate on a store card with a deferred interest offer is 24.8%. That is 1.8 times the average interest rate.

Here is a simple mathematical example to show the impact of a deferred interest charge. Imagine a customer borrows $2,000 on a deferred interest offer. The standard purchase rate is 24.8%. He makes the minimum monthly payment during the promotional period. During the first 12 months, he will have “avoided” $469.61 of interest charges. In month 13, the full $469.61 would be added to his balance. At the end of his promotional period:

  • His balance will have increased from the original $2,000 borrowed to $2,174 – despite making payments of $227.
  • His monthly payment will increase from $17.91 in month 12 to $68.77 in month 13. This is a 2.8x increase in his payment, and has the risk of creating a payment shock.

Stores Offering Deferred Interest During the 2015 Holidays

According to a study of the top 100 American retailers conducted by MagnifyMoney, 42% of store credit cards are currently marketing deferred interest offers to new customers. Below are the details of these offers, ranked from the highest APR (worst) to the lowest:

2015-Deferred-Interest-Study-Graphic-updated

Note: Dell does not offer a store credit card, but does offer a revolving line of credit that functions like store credit cards.

Payment Hierarchy And Existing Customers

When you make a payment to your credit card company, the allocation of that payment is not straight-forward. Typically, the total customer balance is grouped into categories. For example, there is a purchase balance, which includes all purchases made. There is a cash advance balance, which includes all cash advance transactions made. And there would be a promotional balance, which would include any promotional offer. Each balance is subject to a different interest rate (the purchase rate, the cash advance rate, etc.)

The CARD Act required credit card companies to apply payments in excess of the minimum due to balances with the highest interest rate first. (There is an exemption: credit card companies can waive this requirement for deferred interest products. But they are not required to do so.) This rule is usually customer friendly, because it attacks high interest rate debt first and saves the borrower money. However, for a deferred interest offer, the payment hierarchy can become a debt trap.

Here is a simple example. A customer has:

  • A $2,000 balance
  • $1,500 of that balance is from purchases, at a 25% interest rate
  • $500 is on a deferred interest promotional offer at 0%
  • The minimum payment is $51.25, of which $31.25 is interest on the $1,500 purchase balance

When the customer makes a $51.25 payment:

  • $31.25 goes towards interest
  • The remaining $20 will go towards the balance with the highest interest rate. That is the purchase balance of $1,500.
  • If the borrower makes a bigger payment, the increased amount would continue to go towards the purchase balance. The 0% deferred interest balance will not decrease.

In other words, the borrower would have to pay off the full $1,500 of purchase balances before he would even be able to begin paying down the $500 promotional balance. Credit card executives would call this a “shielded balance,” and it is highly likely the customer would get hit with a retroactive interest charge.

When Using Deferred Interest Makes Sense

A deferred interest offer can be a good deal when used properly. It only makes sense if you can afford to pay off the entire balance (including any previous purchases) during the promotional period. If you pay off the entire balance during the promotional period, you will have been able to borrow for free.

Just remember that applying for a new store credit card will hit your credit score. A single credit inquiry will not be particularly meaningful (usually about five points). However, if you plan on applying for a mortgage or car loan in the next few months, you should avoid applying for a store card.

Tips For Consumers: Alternatives To Deferred Interest Offers

If you need to borrow money to make a purchase, there are significantly cheaper alternatives.

  • Consider opening a new credit card with a 0% introductory purchase interest rate. In particular, you should ensure that the interest is waived, not deferred. You can find credit cards that waive interest for up to 21 months here.
  • If you have already made a purchase and are worried about the expiration of the deferred interest offer, consider a balance transfer. You can find the best balance transfer offers here.
  • Alternatively, you might want to consider a personal loan from a new marketplace lender. You can shop around for the best interest rate without harming your credit score here.  

Thoughts From Our Founder: “This Practice Needs To Stop.”

Nick Clements, the Co-Founder of MagnifyMoney, spent nearly 15 years in consumer banking and credit cards. Most recently, he ran the largest credit card issuer in the UK. Here are his thoughts on the practice:

Deferred interest represents one of the worst practices of the credit card industry today. I can’t believe I still see these offers in 2015. While savvy consumers are able to obtain an incredible deal, people who lack the knowledge are tricked into a complicated product that isn’t as “free” as it seems. The product advertises 0% interest. But a person can make the minimum payment and see their balance go up. Because of complicated minimum payment rules, a borrower can easily get trapped in debt without realizing how the trap has even been designed. These offers prey on people who understand them the least.

Any time you find a product or practice that makes all of its money from a very small percentage ill-informed customers, you know you have a problem. Negative amortization, balance shielding and retroactive interest charges at sky-high rates regardless of credit score are practices that belong in the 90s. Issuers who make these offers are racing against time. Either the CFPB will make rules to stop it, or the Silicon Valley marketplace lenders will create a transparent alternatives. In the short term, this deception will continue to generate big earnings. But in the long term, I expect deferred interest offers will eventually disappear. As they should.

Shame on big brands like Apple that continue to profit from this deceptive product.

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