It seems like you can’t turn on the television or the radio without hearing a catchy jingle about your credit score. And if you listen to some of the personal finance gurus like Dave Ramsey or Clark Howard you will hear frequent references to checking your credit reports for accuracy. While these two items both deal with your credit, they are quite different, and quite important.

The difference between credit reports and credit scores

Your credit score is a numeric value based on a weighted formula and your credit history is just that – a list of your credit accounts, payment history and more. These two items are often used to determine your credit worthiness and the likelihood you will repay your loan.

What you need to know about your credit report

Your credit report, sometimes called credit history, tracks your credit reliability based on your history of making payments on your loans and other debts. Your credit report usually goes back 7 years, or up to 10 years in the case of a bankruptcy. Your credit history is tracked by the Credit Reporting Agencies such as Equifax, Experian, and TransUnion, which maintain records of your current and past lines of credit, payment history, age of your credit accounts, collections or settlements on your loans, credit utilization, bankruptcies, and other information. Your credit report will also list credit pulls, or inquiries made against your credit (what is the difference between a soft and hard credit pull?).

Why is your credit report important? Your credit report is considered the definitive record for your credit history and is used to judge your credit worthiness. Your credit score is based from the information contained within your credit report. You should check your credit report at least once a year to ensure accuracy, or before applying for a loan. You can get a copy of your free annual credit report at www.annualcreditreport.com.

Note: Your credit score is not contained within your credit report. You usually need to pay to receive your credit score.

What you need to know about your credit score

There are several credit scoring systems out there, but the most widely used is the FICO credit score, which is a proprietary formula from the Fair Isaac Company (FICO). (find more information at the MyFICO website). You credit score is a numeric value used to rate your credit risk at the time the score is reported. The FICO credit score system ranges from 300 to 850, with a higher score representing a lower perceived credit risk.

This graphic shows the factors used to determine your credit score.

Credit score uses. Your credit score is used to judge your credit risk and is referenced by lenders when you apply for a loan, landlords, and some employers when you apply for a job. The lower your score, the higher your perceived credit risk, which will result in a higher interest rate or the inability to secure a loan. Low scores may also prevent you from being able to rent property, apply for some jobs, or get a security clearance.

How can you improve your credit score? The best way to improve your credit score is through on time payments and maintaining a clean credit history. Here is more information about how your credit score is determined and how to improve your credit score.

Ensuring accuracy in your credit report is important

Your credit score is based upon your credit report so you should check your credit report for accuracy at least once a year to ensure everything is as it should be. You should contact the 3 major credit reporting bureaus if you find information that appears erroneous. Another benefit to checking your credit report is to verify you have not become a victim of identity theft, as any new lines of credit will show up on you credit score. You should file a police report and contact the credit bureaus if you discover you have become a victim of identity theft.

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Related Articles:

1. How to Improve Your Credit Score
2. Hard Credit Check vs. Soft Credit Check
3. How is Your Credit Score Determined?

If you have high interest credit card debt, balance transfers can be a great way to save some money and pay off your credit cards more quickly. Basically, a balance transfer is a way to consolidate your debt on a credit card at a lower interest rate than what you are currently paying. Instead of paying interest rates of 20% or higher, you may be able to transfer your credit card debt to a credit card with a lower fixed interest rate than what you are currently paying; possibly as low as 0% if you qualify for a 0% balance transfer credit card.

Determine how much you can save with a balance transfer

The first thing you will need to do is gather all your credit card bills and add up how much you owe and the interest rates on each card. If you haven’t done this before you may be shocked at how much interest you are paying! You may get angry once you see how much of your payment reduces your debt and how much goes straight to the lender. Use that as motivation to get out of debt more quickly!

After you determine how much you owe and the interest rates, you need to look at various balance transfer options and try to determine what your interest rates would be if you complete a balance transfer. Keep in mind that some credit card companies charge a balance transfer fee, so don’t forget to add that in your calculations. Then use to an amortization calculator and put in your new interest rate and the loan duration to calculate how much interest you will pay after you make the balance transfer. The difference is your savings.

For example, you can transfer a credit card balance from 20% to 0%, and pay a 5% balance transfer fee. You can either add the balance transfer fee to your balance or pay it when you do the balance transfer. Either way, your new interest rate would be 0% and all payments would go toward reducing the principal of the loan. If you direct the interest savings toward your monthly payments you will reduce your credit card debt much more quickly than you otherwise would have. They key is not to add new debt as you go.

Comparing balance transfer credit cards

There are a couple different balance transfer options – a 0% balance transfer if you qualify, or a low interest rate credit card, which may be easier to qualify for. Some examples of each are listed below.

The most popular 0% balance transfer credit cards

0% balance transfer cards often seem like the best way to go, but there are usually fees attached to them. To determine how much you will actually save on a balance transfer you need to consider the balance transfer fees in your calculation. Take a look at the top three 0% balance transfer cards:

• Discover More American Flag Card: 0% balance transfer for 12 months, 5% transfer fee.
• Discover® More(SM) Card: 0% balance transfer for 6 months, 3% balance transfer fee.
• Citi® Platinum Select® MasterCard®: 0% balance transfer for 6 months, 3% balance transfer fee.

Based on these three cards, it is easy to see that you will save the most money if you can pay the card off within 6 months. That may not be realistic for everyone, so the 12 month option is a better deal for many people, even though the transfer fee is 5%. That still beats most credit card interest rates which hover in the 20%+ range.

Comparing low interest balance transfer credit cards

Low interest cards offer another solution to paying outrageous interest rates. Some low interest balance transfer credit cards don’t come with a balance transfer fee. Their interest rates may not be quite as good as a 0% balance transfer card, but the difference often isn’t very far off when you consider the fees that often come with a 0% balance transfer card. Check out these low interest balance transfer options:

• Simmons First Visa® Platinum. 7.25% interest rate, no balance transfer fee.
• IberiaBank Visa Classic. 12-month balance transfer at 8.75%. After that, the interest rate adjusts to the prime rate + 5.5%. No balance transfer fee.

These two cards are great options for those looking for a good low interest credit card to reduce their current interest rates, or for people who are searching for a credit card with low interest rates for making new purchases.

Other balance transfer options or debt consolidation options

You may be able to find a quality balance transfer credit card with your local credit union or bank, or through a job or organization to which you belong. Other options to help consolidate your debt at a lower interest rate are a Home Equity Line of Credit (HELOC), or by getting a peer to peer loan from a company like Lending Club or Prosper. P2P loans allow you to borrow money from individuals instead of a bank. If you have good credit you can often consolidate your loans at a much lower interest rate than many credit card interest rates, though not as good as a 0% balance transfer offer.

Which balance transfer option is best?

It depends on your situation – specifically how much debt you currently have, how quickly you can repay your debt, whether or not you can qualify for balance transfer credit cards, etc. But in most cases, it is well worth consolidating your credit card debt at a lower interest rate as long as you make the commitment to changing your spending habits and paying off your debt.

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Related Articles:

1. How to do a 0% Balance Transfer
2. Best Zero Percent Balance Transfer Credit Card Offers
3. What Should I do About Increased Credit Card Interest Rates?

Are you ready to be shocked? Then gather your most recent statement for each loan you have and walk through a short exercise with me. Somewhere on the loan will be a breakdown of how much you borrowed, the amount of your monthly payment, how much of your monthly payment goes toward the principal, and how much interest you are paying on your loan. With this information in hand I want you to make a 4-column chart to record your data (you can use a spreadsheet or paper and pencil; both work great for this exercise).

How much interest are you paying?

It’s one thing to know the interest rate you are paying on your loan, but it takes on an entirely different meaning when you see how much money you are actually paying toward interest each month. In many cases, the final number is shocking! I created an example debt chart to represent loans that a young couple may face shortly after starting their life together. Details about the hypothetical loans follow the chart.

Example debt chart:

Almost HALF the loan payments are for interest!

When you look at the numbers it almost doesn’t seem real, but it is – 46% of these payments go straight to the lender in the form of interest. It is amazing to see how much interest is charged on loans, and many people don’t realize how much interest they are paying until they write it down. These numbers are even more difficult to swallow when you realize they are monthly numbers and the annual interest would run over $13,000, which is a substantial percentage of many people’s take home pay.

Of course, each situation is different. For example, the mortgage interest makes up the vast majority of the interest in this chart, but even if you remove it, you would be paying $392 interest on $1477, or roughly 27%.

Hypothetical, but realistic numbers. The loans in this example represent common loans that many young couples face shortly after graduating college, getting married, and starting a family. The numbers used in this example were arrived at by using an amortization schedule calculator for reasonable loans at various stages of repayment to simulate a real world situation.

Loans and interest rates used in this example:

• Mortgage – 30 years, $150,000 loan @ 6.0% interest after 5 years. Mortgage payment does not include property taxes, insurance or PMI.
• HELOC – $20,000 @ 5.0% for 5 years after 3 years.
• Student Loans – $20,000 @ 2.0% for 10 years, after 5 years.
• Auto Loan 1 - $20,000 @ 4.0% for 60 months; after 1 year.
• Auto loan  2 – $15,000 loan @ 6.0% interest for 48 months; after 2 years.
• Credit card 1 – $7,500 @ 20% interest, paying $150 each month with no new charges.
• Credit Card 2 – $5,000 @ 10% interest, paying $150 each month with no new charges.

How long will it take to pay off your credit card? The example in this article uses a credit card with a $7,500 balance at 20% interest. If you pay $150 per month and don’t make any new charges, it will take you 108 months to pay off your card. That is 9 years! The second credit card bill will take 40 months to repay.

How to reduce the amount of interest you pay

As you can see, paying interest will get you nowhere fast. There are several ways you can reduce the amount of interest you pay each month – and you have already done the first step, which is recognizing how much you are paying. The next step is to stop adding new debt, which means no more credit cards or additional loans.

Following that, you will want to try and negotiate  lower interest rates. You may not be able to do that for fixed rate loans without refinancing the loan (which may cost money or be subjected to other conditions). But you may be able to negotiate lower interest rates on your credit cards or other non-fixed rate loans.

Other options include creating your own do it yourself debt consolidation plan, which may include using a 0% balance transfer credit card to consolidate you credit card debt at 0%, using your HELOC to consolidate your higher interest loans, or consolidating your loans through a peer to peer lending company such as Lending Club or Prosper. These loans allow borrowers to take an unsecured loan to use as they wish. In this case, consolidating debt may be a good way to pay less interest and simplify the repayment process by making fewer payments.

The importance of paying more than the minimum payment

As you can see by this example, paying the minimum on your loans means you are sending a lot of money to the lender each month instead of reducing the principal you are paying. When you make extra payments that money goes straight to the principal, which reduces the amount of money you owe, the interest you owe, and the time it will take to pay off your loan. It’s a win-win situation for you.

Read more on this topic:

• Do You Know How Much You Pay in Interest?
• How much Interest am I Paying? Hint… it’s Less..

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Related Articles:

1. How Much Can You Save By Doing a Balance Transfer?
2. Pay Off Your Credit Cards in Half the Time
3. DIY Debt Consolidation Options

The quickest way to get out of debt is to never get into debt in the first place. The next quickest way to get out of debt is to throw as much money as possible at your loans until they are gone. Unfortunately, that may not be quick enough. If you have high interest loans and can only just cover the principal and maybe a little extra, then it may take you years to pay off your debt.

As crazy as it sounds, borrowing more money can actually help you get out of debt more quickly. But there is one big caveat – if you borrow more money it should be as a last resort and you need to do it with a plan and under controlled circumstances. That means you need to make the commitment to get out of debt, borrow money only if you can get it at a lower interest rate or more favorable terms than your current debt, and only borrow enough money to consolidate your loans to make it easier and less expensive to repay your debt.

When to consider Debt Consolidation

If you find yourself struggling to make your payments, the first step you should take is to contact your creditors and ask for more favorable terms such as a lower interest rate or more time to make a payment. Sometimes the lenders will work with you and the crisis is averted. Other times you may need to get more creative. That is when a debt consolidation loan can come in handy. Again, this should only be used with the commitment to get out of debt as soon as you are able, and not as an excuse to increase spending and rack up more debt.

Do it Yourself Debt Consolidation Options

If you can commit to a repayment schedule and stop using credit cards, then a debt consolidation loan may be a good option to help you get back on pace with your loan payments. A debt consolidation loan only makes sense if you will be saving money, will be able to pay your debt more quickly, or if you have other more favorable terms. The best part is, you can create your own debt consolidation loan.

Why not get a debt consolidation loan from a debt consolidation company? Because many (not all) debt consolidation companies offer expensive services that you can do yourself. The key is knowing where to look and what to do. The following tips give some options that may be less expensive than many traditional debt consolidation loans, and they are available to almost anyone with good credit.

1. Transfer your credit card debt to a 0% balance transfer credit card

If you currently have a lot of high interest credit card debt, you may be able to transfer some or all of it to a 0% balance transfer credit card, which will significantly reduce the amount of interest you are paying and make it faster and easier to repay your debt. Keep in mind that most balance transfer cards charge a fee to transfer the balance to the card. Even so, a 3-5% fee is substantially lower than the interest rates on many credit cards, which often exceed 20%. Here are a few of the top options if you want to do a 0% balance transfer:

• Discover More American Flag Card: 0% balance transfer for 12 months, 5% transfer fee.
• Discover® More(SM) Card: 0% balance transfer for 6 months, 3% balance transfer fee.
• Citi® Platinum Select® MasterCard®: 0% balance transfer for 6 months, 3% balance transfer fee.

2. Debt Consolidation with a Home Equity Line of Credit

A Home Equity Line of Credit (HELOC) is a flexible line of against the value of your home – you use your home’s equity as collateral. HELOCs should be used with caution because you are using your home as collateral. But you can save a lot of money on interest when you use a HELOC as a tool to consolidate debt and not enable spending. The interest rate you can get on a HELOC depends on many factors including current interest rates, your credit history and score, and other factors. With a strong credit score you can currently find HELOCs in the low 5% range, and they go up from there.

3. Lending Club and other peer to peer lending companies

Lending Club is currently the leader in the peer to peer lending company, which allows regular folks such as you and I to request a loan which is funded by other regular folks. Lending Club just acts as the middle man and facilitates the loans. P2P loans are a good way to obtain a personal loan for whatever you need it for, including bill consolidation loans, home improvements, major purchases, etc. Lending Club also offers people a way to do online investing in a secure manner.

Other debt consolidation options

There are other debt consolidation options, but the three options listed above are the best for many people. Other options include refinancing your home and withdrawing equity, making a withdrawal from your 401k or other retirement account, or getting a home equity loan (similar to a HELOC, but it is a one time loan and is not as flexible). These options present more drawbacks than the options listed above and can prove to be more expensive than they are worth.

Debt consolidation is a chance to start over – don’t blow it

Debt is expensive, and if you are considering a debt consolidation loan, you recognize that you need to eliminate your debt once and for all. If you are able to secure a debt consolidation loan at a lower interest rate, then take advantage of it. Stop borrowing new money, cut up your credit cards, and repay your debt as quickly as possible.

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Related Articles:

1. How Much Can You Save By Doing a Balance Transfer?
2. What is a HELOC?
3. Do You Know How Much Interest You Are Paying Each Month?

The Credit CARD Act of 2009 is only a few months away and credit card companies are already raising rates and changing credit card terms in anticipation of more strict credit card regulations. You may have already seen changes to your credit card terms even though the Credit CARD Act won’t officially go into effect until February, or possibly as soon as December. I know I have already received new terms for the majority of my credit cards. The changes won’t affect me very much since I pay my cards in full each month, but if you carry credit card debt, then raised interest rates or other changes to your credit card terms may have a big affect on your bottom line.

Here is a reader question concerning new credit card terms and raised interest rates:

We currently have roughly $10,000 on a Citibank Driver’s Edge card, which is the oldest card on my credit history – it’s the one I’ve had since I was a freshman in college. We have an additional $10,000 spread evenly across a Discover Card (15.24%) and Chase Flexible Rewards Card (19.8%). We’re in the process of furiously debt snowballing / snowflaking to get rid of the Chase balance first, followed by the Discover, and then the Citi balance. We’ve taken the step of facing our consumer debt and are meeting the challenge head on.

Unfortunately, I just received a notice that my Citibank card is going from a fixed 6.18% rate to a VARIABLE one where it’s going to be prime + 14.99%. I can opt out and close the card; my expiration date is April 2011. I have already tried transferring some of the balance from the Discover / Chase cards to the Citibak card, but Citibank tells me that there are no available balance transfer offers for that account. I’m sure it’s tied to the super low fixed interest rate.

My husband and I currently own our home and may be looking for a used car in the next year to two years. We have a slight emergency fund built (less than $2,000) but I’m hesitant to tap into it in case we need to repair our older model cars or we have a medical emergency since we maxed out our FSA when our child was born.

My question is this: Should I opt out of the Citibank card and continue to pay it off at the 6.18% (estimated to pay it off completely in July 2013 at the current interest rate after paying the Chase/Discover down first) -OR- should we keep that card because I’ve had it the longest so as not to impact our credit score?

What to do about increased credit card interest rates

Thanks for the question. I think you are doing the right thing by snowballing your credit card debt – the sooner you eliminate one card, the easier it is to make big progress on your other cards. The psychological advantages of eliminating one credit card from your debt is also a big victory and can provide a motivating factor to eliminate the rest of your debt.

Here is some information that may be helpful. As always, check with a financial planner before making any major financial decisions.

Stop using your credit cards. Any new charges you make on your credit cards adds additional time to your debt repayment schedule and makes it more difficult to repay your credit card debt. Work on a cash only system and use your emergency fund for unexpected expenses.

Emergency fund. A $2,000 emergency fund is a great start, and it is better utilized for emergencies than for paying down your debt. As you mentioned, there is a possibility your emergency fund may be needed in the near future. Using your emergency fund to eliminate a small amount of credit card debt increases the likelihood that you will need to use your credit cards for any unexpected expenses.

0% Balance Transfer Credit Cards. Some credit card companies offer a 0% introductory rate for new customers. It sounds like the issue you ran into came when you tried to transfer a balance to your current cards, but that wouldn’t apply to you if you open a new credit card. Even if you do not qualify for a 0% balance transfer on a new credit card, you may be able to transfer your balance to a card with a lower fixed rate. Here is more information about how to do a 0% balance transfer and a list of the best balance transfer cards.

Negotiate with your other credit card companies. Credit card companies are a little less likely to budge on their interest rates compared to a year ago, but it never hurts to try. You may be able to negotiate a lower rate, or get your variable rate card moved to a fixed rate credit card.

Closing credit card accounts can affect your credit score. Another option is one that you brought up in your question. Closing your credit card will lock in your current fixed rate, but it could have an affect on your credit score. Your credit score is made up of several factors, two of which are available credit and age of credit. Closing your Citibank card would affect you on both accounts because it is your oldest card and because it has your highest balance. Your score would probably drop, though I can’t venture to say by how much. Here is more information about how canceling credit cards can affect your credit score.

Should you opt out of the Citibank Card?

This is a difficult decision to make, and one that I can’t make for you. If you think you may need a loan in the near future, then maintaining a higher credit score will be important. If that is the case, then applying for a new credit card with a 0% balance transfer offer could save you money, allow you to keep your old card, and help maintain your credit score. If you don’t think you will need a loan in the near future or maintaining your credit score is not a major concern in the near term, then canceling your card and keeping the low interest rate may be a good option.

I wish you luck with whichever decision you make, and I hope you will continue using the debt snowball to eliminate your credit card debt.

~$~

Related Articles:

1. How Much Can You Save By Doing a Balance Transfer?
2. Credit CARD Act Changes Coming Sooner?
3. Best Zero Percent Balance Transfer Credit Card Offers

Credit card companies want you to be in debt. Interest rates and fees are how they make money, so it is in the best interest of the credit card company to require you to only pay a few dollars each month toward your credit card bill. Credit card companies charge you a small percentage of your total debt as your monthly minimum payment and most people go along with their plan.

And why not? It’s a nice feeling to only have to pay $20 a month… at least until you look at the bill and see that of your $20 payment, only $2 or $3 is actually going toward the debt. Not so Fun Fact: If you make minimum payments on your credit card debt, it will take you years to pay them off.

How to pay your credit cards off in half the time

With a little planning and work you can eliminate your credit card debt in much less time than you probably think you can. Use these tips and you will dramatically reduce the time it takes to pay off your credit cards.

Make the commitment – stop using your credit cards.

The absolute first thing you need to do is dedicate yourself to getting out of debt. This means you need to stop using your credit cards. Cut them up, put them in the blender, freeze them in a block of ice… Do whatever it takes to keep them out of reach and remove the temptation once and for all.

Transfer your credit card debt to a 0% interest credit card.

Some credit card companies offer credit cards with a 0% interest rate as an introductory offer to bring in new customers. I know the last thing you want to do when you are trying to get out of debt is open a new credit card, but this is one time where it is in your favor to do so. It is much easier to pay off debt at 0% interest than it is at 20% or more. Just don’t use the credit card after you open it and transfer the balance, or you will accrue interest on your new debt.

Here is a list of the best 0% balance transfer credit cards, including a 12 month 0% balance transfer offer.

Get organized.

The next step is to make a full assessment of your financial situation. Start by gathering all your bills and list them on a sheet of paper. Be sure to include your credit card bills, rent or mortgage payment, car bills, any recurring bills like cable, internet, cell phones, etc, and any expected bills that may come due in the near future such as annual car insurance, new tires, etc. Next, list all sources of income.

Set a Budget.

Once you have your list of income and expenses, you should create a budget. It may take you a couple months to refine it, but that’s OK. The idea is to get to the point that you know and understand where your money is coming from and where it is going. Give each dollar a plan, and make sure it goes what you want it to do, instead of the other way around. Here is a list of the best budgeting tools to help you get started.

Pay Early, Pay Often.

Here is a little known fact about paying credit card debt: credit card companies are required to apply your payment to your debt the day they receive it. That means paying your debt early reduces the principal, the amount on which you are paying interest. Sending in your payments even a few days early reduces the principal enough to make a small difference. If you get paid twice a month, then send in half of your payment on your first paycheck and the other half on your second paycheck. You can even send in payments more often than that if you come across a little extra money during the month. *Note: Some credit card companies limit the number of monthly payments you can send per month, so check before sending more than a few payments in a month.

Use a debt snowball.

A debt snowball is an efficient way to get out of debt. To start a debt snowball you pay the minimum on each card and you apply any additional money to the card with the lowest balance. When you pay that card off, apply the money you were paying on that card to the card with the next lowest balance. Repeat the process until you have paid off all your credit cards.

Continue your commitment to stay out of debt.

Once you have eliminated your credit card debt it is up to you to stay out of debt. Stick with your budget, and remember not to purchase anything you can’t pay cash for.

~$~

Related Articles:

1. How Much Can You Save By Doing a Balance Transfer?
2. How to do a 0% Balance Transfer
3. Killer Credit Card Fees and How to Avoid Them

Welcome to the Labor Day Edition of the Carnival of Debt Reduction, the 208th time this carnival has been published. The idea of a blog carnival is to publish a selection of articles on one topic and present them to readers in one place – so you don’t have to go searching through the internet for relevant articles. The Carnival of Debt Reduction wants to help you get out of debt, so I hope you enjoy these debt reduction tips!

Debt Reduction Tips:

Pay off low-balance debt first for a big mental boost. David from My Two Dollars suggests paying off your lowest balance debt first for the psychological effects of clearing out debt.

Use 0% Balance Transfer credit cards effectively. PT Money recommends using 0% Balance Transfer cards effectively to more quickly reduce your debt. Here is a list of top 0% Balance Transfer credit cards to help you take advantage of these offers.

Use low interest credit cards. Instead of paying high interest rates, use low interest rate credit cards to lower your debt. You can save money in the long run. Better yet, don’t carry a balance!

Examine your lines of credit. Which is safer today, hanging onto a line of credit at prime or locking into a 3.85% five year fixed rate? Examine your lines of credit to determine if you can improve your current interest rates.

Check out Dave Ramsey’s methods. Jim reviews Dave Ramsey’s Total Money Makeover. Here is a little more information if you don’t know who Dave Ramsey is.

Don’t blame anyone for your debt. Matt from Financial Methods asks What happens when you run out of people to blame? It’s an important question to ask.

Avoid bankruptcy. The Smarter Wallet shares a post to help you stay afloat and avoid bankruptcy. Bankruptcy can stay on your record for years and should be avoided if at all possible!

Once you get out of debt, it’s time to start looking for high interest rate savings accounts to stash your savings, and then start looking toward investing for your future.

Please visit the Carnival of Debt Reduction website for more information about this carnival. If you would like to submit an article for a future edition, please read the Submission rules carefully before submitting an article. If you are a blogger who submitted an article that was not included in this edition, it probably did not meet the submission requirements.

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Related Articles:

1. How Much Can You Save By Doing a Balance Transfer?
2. Which Debt to Slay First? – Reader Question
3. Carnival of Debt Reduction #112 – Making Progress Edition

Lending Club recently announced they are giving away a $2500 cash prize to their 25,000th registered investor. The folks at Lending Club expect to get their 25,000th registered investor during the month of September, so all you need to do is sign up for a free Lending Club account for your chance to win.

Lending Club $2,500 Giveaway

The 25,000th registered Lending Club  investor will receive $2,500 cash! How to enter:

• Open a free Lending Club Account before midnight Oct 1, 2009.
• Complete all three steps in the registration process (create a password, verify your ID, and link a bank account).
• No purchase necessary to enter or win (terms).
• Winner will be announced after October 1st, 2009.

About Lending Club

Lending Club is a peer to peer lending company that offers individuals to “be the bank” and make loans to their peers. Just about anyone can apply for a loan through Lending Club and registered investors can purchase a note, which funds a portion of the loan. The borrowers then repay the loans and the investors receive interest on their investments. Lending Club notes average 9.64% net annualized returns and are offered by prospectus filed with the SEC.

I have several loans through Lending Club, which so far have averaged about 9%, with no defaults or late payments. You can read more about Lending Club in my Lending Club review, or sign up for a Lending Club account for your chance to win $2,500 and invest in your peers. Good luck!

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Related Articles:

1. Lending Club Review – Shopping For Loans at Lending Club
2. $25 Sign-up Bonus from Lending Club
3. Lending Club is Back; Prosper Goes Quiet

Many people debate whether or not students should get credit cards. I don’t believe every student should get a credit card, but I believe that they should consider one if they can use it responsibly. I opened my first credit card while I was in college and used it to help build a strong credit score. I believe that when used properly, credit cards are a great tool and can help teach financial responsibility. However, when not used properly, credit cards can become a financial burden. That is why I put together this list of tips to help students learn how to properly use credit cards and begin building a solid foundation for their credit score.

*Note: The window for opening a credit card is closing for many college students because the Credit CARD Act of 2009 is bringing in age limits for who can open a credit card – which is another reason why I think students should open a credit card if they can use them responsibly.

Why students should consider opening a credit card

Credit cards have many benefits, such as helping you build your credit score, extended warranties on purchases made with your credit card, cash rewards, integration with budgeting tools, ability to dispute charges, limits on liability against fraudulent activities on your card, and other consumer protections. Credit cards can also be used as an emergency source of funds – which is much better than being stranded or getting a payday loan from the local loan shark.

Opening a credit card may be a good idea if:

• You have the ability and conviction to pay the balance in full each month.
• You have the discipline to use it only for specific purchases (shop with a plan, not because you can).
• You need a safe source of emergency funds.
• You want to build a strong credit score through responsible credit card use.

Who should not get a student credit card

Credit cards aren’t for everyone. If you don’t have money in the bank or a source of income, then stay away! Here are some other reasons not to get a student credit card:

• Because you want to live the “high life.”
• Because you get a free t-shirt or other giveaway.
• If you have a shopping addiction or are a compulsive spender or gambler.
• If you don’t plan on paying the balance in full every month.

Tips for using student credit cards

The following tips will help students use credit cards wisely and begin creating a strong credit history.

• Begin with a low limit such as $500.
• Set limitations on what the card can be used for (books and lab fees, yes; pizza & beer, no).
• Only buy items you can pay cash for.
• Never carry a balance.
• Understand the fine print – fees, interest rates, etc.
• Additional tips to avoid credit card fees.

Best Student Credit Cards

The best student credit cards don’t have any annual fees, offer a rewards program such as points or cash back, and come with a 0% introductory offer or 0% balance transfer offer. The following student credit cards from Citi and Discover meet the above requirements and are among the best options available to students. Click on the links for more details, and remember, only apply for a credit card if you will use it responsibly.

Top student credit card: Discover Student Card. The Discover Student Card has no annual fees, 0% interest on purchases for 6 months, and a generous rewards program – up to a 5% rebate for purchases made in popular categories that change four times a year like travel, gas, restaurants, movies, and more. You can also earn up to 1% for general purchases. The Discover Student card offers multiple design choices and features the standard fraud protection benefits found on all Discover credit cards. Apply for the Discover Student Credit Card.

Runner-up: Citi® mtvU™ Platinum Select® Visa® Card for College Students. The Citi® mtvU™ Platinum Select® Visa® Card for College Students features a 0% APR on purchases and balance transfers for 6 months, if you qualify (based on application and credit history). 0% balance transfers are rare in student credit cards. Earn ThankYou® Points for every dollar you spend at restaurants, bookstores, record stores, movie theaters, and video rental stores. Earn additional ThankYou points for making on time payments and not going over your credit limit. Apply for the Citi mtvU Student Credit Card.

Runner-up: Citi Forward(SM) Card for College Students. The Citi Forward(SM) Card for College Students rewards students for responsible credit card use by offering incentives such as lowering the interest rates and giving rewards points. Apply for the Citi Forward(SM) Card for College Students.

Here is more info for the Citi Forward(SM) Credit Card:

Remember, credit cards are like any other tool – in the right hands they serve a great purpose. In the wrong hands they can bring disaster!

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“Student” and “credit cards” are words many people don’t like to hear mentioned in the same sentence. It is easy to point out how many students have racked up thousands of dollars in credit card debt and make a blanket statement that students should stay as far away from credit cards as possible. But I disagree.

Proper credit card use is a great way to increase your credit score. Credit cards are also one of the easiest ways for most people to begin their credit history. It is easier to obtain a credit card with little to no credit history than it is to open a different line of credit without any credit history. Just try getting a car loan or a mortgage without any credit history. It’s not happening.

Why students should open a credit card now

Building credit history is the main reason students should consider opening a student credit card. Unfortunately, the window for many students to open a credit card is closing. The Credit CARD Act of 2009 will go into effect in February 2010 and it will bring major changes to the credit card industry, including enacting age limits on who can open a credit card account.

Under 21 will need co-signer or proof of income. Currently, anyone over the age of 18 is eligible to open a credit card. However, once the Credit CARD Act kicks in, people under the age of 21 will no longer be able to get a credit card in their name unless they are able to prove they can prepay the debt or they have a parent willing to co-sign on their application. This puts many responsible individuals at a big disadvantage because of their age.

Check out a debate on the Credit CARD Act of 2009 for more opinions on the topic.

Credit options for students under the Credit CARD Act

Students and others who don’t meet the age requirements to open a line of credit will have a few options from which to choose.

• Qualify for credit based on income. I have yet to see the requirements for this, so this may be determined by lenders.
• Open a secured credit card or prepaid credit card.
• Open a line of credit with a co-signer.
• Wait until age 21.

There may be students who don’t qualify for credit cards based on income even though they have the ability to responsibly pay their bill each month. Examples would be students who have money in the bank from previous jobs or gifts, or who receive an allowance. This could make it more difficult for some students to establish credit.

Secured credit cards are an option to help establish credit history, but prepaid credit cards have no affect on your credit score. Here is more information about using credit cards to establish or improve credit.

Students should use credit cards responsibly

I don’t think every student should get a credit card. But if they can use credit cards responsibly, then I think they should consider opening a credit card account before this new legislation kicks in. Otherwise they could face a difficult time establishing credit – and many college graduates discover they need a good credit history to rent their first apartment, buy a car, get a cell phone, or other important tasks. Here are some tips to help college students manage credit cards.

Everyone needs a strong credit score – including students

Your credit score is a financial asset. No, it doesn’t produce income, but it can directly affect the interest rates lenders are willing to give you on a loan. The higher your credit score, the lower your perceived risk and the lower your interest rates will be on loans. The lower your credit score, the higher the interest rates. Your credit history can also be used as a screening tool for insurance rates, employment, renting property, signing up for a cell phone plan, security clearances, and more. Many utility companies also require deposits from people with poor credit scores.

A strong credit score will continue to be an important part of most people’s financial planning. Building a strong credit score early in your adult life can make things much easier in the long run. If you take the approach of using credit cards responsibly and to build credit history, then opening a credit card at a young age can be an advantage, not a problem.

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Related Articles:

1. Pros and Cons of Secured Credit Cards
2. Student Credit Card Tips and Best Student Credit Cards
3. Credit CARD Act Changes Coming Sooner?