Savvy Consumer Tips

Financial institutions have tightened their lending criteria, which makes having a good credit score more important than ever. The higher your score, the more likely your credit request will be approved. Also, consumers with higher credit scores typically pay lower interest rates. Here are some tips for increasing your score:

Pay your bills on time and make up any past-due payments. Keep the outstanding balance on any credit account at less than 50 percent of your available credit line. Don’t open a lot of new credit accounts in a short period of time, and don’t close older, unused accounts—your credit history will appear shorter and your outstanding debt will increase relative to your available credit. Though there are many different credit scoring systems, the most widely used is the FICO score, named for the company that developed it. Learn more about credit scores and how to improve yours at www.myfico.com.

The changes are some of the most important new consumer protections we’ve seen in recent years. Joe Ridout, spokesman for Consumer Action, says starting in late February, credit card issuers have to play by different rules when it comes to interest rates, payment due dates, over-the-limit fees, and disclosure.


One of the biggest consumer benefits is that banks cannot increase interest rates on old unpaid balances. Old rates apply to old balances. If you make a payment late, the issuer has to wait 60 days before raising your rate for being delinquent. When payments are due on a holiday, you will have until the next business day to pay and still be considered on time. And consumers will have to agree to all a credit card company to charge fees for exceeding the credit limit. (Who’s going to do that?) Mr. Ridout says we can expect more changes in gift cards rule later this year.

Financial institutions have tightened their lending criteria, which makes having a good credit score more important than ever. The higher your score, the more likely your request for credit will be approved. And consumers with higher credit scores typically pay lower interest rates.

Here are some tips for increasing your score:
• Pay your bills on time
• Make up any past-due payments
• Keep the outstanding balance on any credit account at less than 50% of your available credit line.
• Don’t open a lot of new credit accounts in a short period
• Don’t close older, unused accounts—your credit history will appear shorter and your outstanding debt will increase relative to your available credit

Though there are many different credit-scoring systems; the most widely used is the FICO score, named for the company that developed it. Learn more about credit scores and how to improve yours at www.myFICO.com.

Buying a new home and selling the old one at the same time can be exhilarating and extremely stressful. Both properties may not close concurrently, even with the best of intentions. Homeowners can mitigate the problem by employing the following strategies.

As a seller, give preference to pre-approved prospective buyers and get pre-approved yourself. It helps to know early how much house you can afford.  Allow extra time for the full transaction when buying and selling at the same time and look for flexibility on closing dates. Sometimes you’re better off selling to a first-time homebuyer rather than a high bidder who has to sell his or her house first. If you have to buy a new house before selling your current home first, add a clause saying your offer is contingent upon the successful sale of your property.

If you’re burdened with overwhelming financial obligations, you may be looking to a debt settlement company for relief. Unfortunately, according to Erica Sandberg, spokeswoman for Consumer Credit Counseling Services-SF, this may only lead to greater problems. A debt settlement company requires that you stop making payments to your creditors, and deposit money into a specially designated account instead. Once you have built-up a certain amount of cash, the company will offer a lump-sum payment to one of your creditors. After one account is settled, they will do the same with the next.

Most debt settlement companies over-promise what they can do for you. They may claim you will be out of financial trouble quickly (not true), and minimize negative credit reports or possible lawsuits. If you need help digging out of debt, choose a non-profit credit counseling agency that can help you develop a realistic and achievable debt repayment plan.

The offer for a "free" credit report blasted from the radio. A young woman, wondering whether her credit was any good, dialed the toll-free number. The report was going to be e-mailed for free. The catch was to get the freebie, she had to agree to try out a credit monitoring service, but everything was "guaranteed." Her next credit card bill showed a charge for an $80 membership, which entitled her to unlimited credit reports and notices when someone checks her credit. It's foolish to buy a package like that when all you really need is the credit report. A single copy costs about $10, and by law, you are entitled to a free copy if you've been turned down for credit within the last 60 days.

You're bombarded with letters for pre-approved credit cards and you've never missed a credit card payment. You assume you have perfect credit. Erica Sanberg, Chief Financial Writer for Consumer Credit Counseling Service of San Francisco, says don't be so sure. Making payments on time is only part of what creditors look at in determining your credit score. They also look at what is owed, your available credit limits, and how long you've had credit. If you want to know your real credit status before applying for a car loan or mortgage, go to www.myfico.com. For $12.95, you will get your credit report and FICO score, along with detailed explanations.

Most of us know that dealers mark-up prices of new cars. But did you know that the interest rate for a car loan might be marked up too? Rosemary Shahan, President of Consumers for Auto Safety and Reliability, a non-profit advocacy group, says this is a common practice among car dealers nationwide. The interest you qualify for, based on your credit rating, is called the "buy rate." The dealer might add a couple of percentage points to that for arranging the loan. The income from the extra interest you accept over the "buy rate" is split between the dealer and the lender. This could amount to hundreds of dollars on a new car.

To protect yourself, you can check your own credit score for less than $50 by going to myfico.com. And you can find out the going interest rates for car loans at bankrate.com or eloan.com. Compare rates at your local bank or credit union before signing any new car-financing contract.

Did you know that your credit card company can monitor your credit history to find out if you're making payments late to ANY creditor? With some card companies this late payment to another vendor can trigger an interest rate hike up to 29.99% on your card, according to Gerri Detweiler, author of The Ultimate Credit Handbook and co-founder of credittraps.com.

The enclosure with your bill has to disclose that a "universal default clause" allows them to apply a default rate, which generally ranges from about 20% to almost 30%, to your existing credit card balance. If you are carrying a large amount of debt, it may not be easy to switch to another low rate credit card and this sudden interest rate hike will be costly. Check out whether your credit card has a universal default clause, and if you don't like the sound of the terms, shop around for another card. About 30% of the issuers do hike rates automatically when you're late on paying another creditor.

If you want your older teenagers to have a credit card for emergencies, but you don't want them to go crazy with it, you have a number of options. Linda Sherry from the non-profit group Consumer Action says the key is to maintain some control, and at the same time, help them establish credit. One option is to add your child as an authorized user on an account you control. It's a separate card number, but the charges show up on your bill.

Another way is to be a co-signer on a credit card. Your child gets the bill, and you can monitor activity on-line by setting up a joint password. Some parents have their kids apply for credit cards with a $300 credit limit for starters to see how they handle it. You might also check out pre-paid credit cards, a good option for young teens, where you pay in advance and they charge against a set amount of money.

When purchasing or refinancing a home, everyone wants the best rates. But how do you even begin to shop around? You can’t only look at interest rates when comparing lenders. You have to compare the lender/investor fees in connection with the rate.

Lenders prepare what is called a “good faith estimate” of the closing costs.  They are required to mail it to you within 3 business days of receiving your application. You may want to shop rates by comparing the following: processing fees, administrative fees, underwriting fee, application fee, credit report fee, rate lock fee, etc. and points charged in connection to the loan. Prices can and do vary widely. With this information you can make a more informed choice, and don’t forget, some fees are negotiable.

Most consumers shopping for a mortgage are trying to find the best rate possible. However, some lenders do not fully explain or disclose the rates and fees. Diamond Certified mortgage brokers are encouraging borrowers to protect themselves by asking lenders to guarantee all fees in writing, up-front.

Borrowers need to understand what they are given by the lender. They should ask if things “just don’t add up.”  Fees that are bracketed [like this], are often not included in the total shown on the Good Faith Estimate. Also, if you’re getting a 1st and a 2nd mortgage, ask for 2 separate estimates. Each loan usually has different rates and fees. Also ask if all third party fees (broker, lender, title, escrow, appraisal etc.) are disclosed. Rates are generally not guaranteed until they are “locked-in” and material changes in credit, income, and/or appraised values can also impact the rate and fees.

With banks getting more cautious about lending money and home values declining in some areas, homeowners are wondering what could happen to their lines of credit. Bob Cappa, co-owner of California Real Estate Loans, a Diamond Certified company, says some people are having their home equity loans cut by 50%, while others are being told they cannot borrow any more money.

If your lender tries to freeze your line of credit claiming your home has lost too much in equity, Mr. Cappa says a good strategy is to prove your property has retained its value with a professional appraisal. This has worked for some of his clients. Another suggestion is to pull out all the cash in your line of credit. Even though you’ll pay interest on the full amount, it will be there when you need it, and as long as you make your payments on time, the lender can’t take it away from you.

Although many of us call any piece of plastic that allows us to spend now and pay later a “credit card,” there are important differences between an actual “credit” card and a “charge” card.

A credit card allows you to borrow money up to a pre-determined limit. You can choose to pay your entire bill when it arrives, and avoid finance charges, or pay just a portion of it and pay interest on the remaining balance. The major credit cards are Visa, Mastercard and Discover.

Like credit cards, charge cards allow you to make purchases now and postpone payment. But a charge card requires you to pay the entire balance each month. American Express is the most widely used charge card.

So, which card should you use? That depends on what’s most important to you.

If you want the option to finance your purchases over time, then a credit card is the way to go. Many also offer rewards programs that enable you to earn things like airline miles or cash back. (Detractors warn that rewards cards encourage overspending and can cost more in fees and finance charges than the value of the rewards themselves.)

Choose a charge card if you want to avoid the risk of racking up a lot of high-interest debt and you’re sure you won’t charge more than you can pay off each month. Charge cards typically have an annual fee, but you may be able to offset that through better rewards programs and freebies such as roadside assistance, hotel upgrades and rental car insurance.