Credit Cards

“Authorized user” info may not be enough

June 18, 2012 By Liz Weston

Dear Liz: You recently answered a question about a young man who was turned down for a car loan because he graduated from college debt free and had no credit history. This is the same scenario my daughter encountered this past year.

Despite having a solid job for three years at a good salary, plenty of money in the bank (more than $10,000) and no expenses to speak of, she was turned down repeatedly for credit cards because of “no credit history.” She had been an “authorized user” of our cards for several years. (We have excellent credit scores.) She was told that she needed to be a responsible party on the cards for them to be counted in her application.

I would tell parents to have their child obtain a credit card through the bank or credit union that has her college checking account. That’s what we did with our youngest, who is just completing college and now has a credit history.

Answer: You bring up an excellent point. Although authorized user information can enhance someone’s credit scores, lenders usually have additional criteria they want applicants to meet, such as minimum income levels, job stability and a certain “thickness” to their credit files (which might include other types of credit accounts besides authorized-user accounts).

New credit regulations make it somewhat more difficult than it used to be to qualify for a credit card while in college, but it still can be easier to get a card while in school than afterward.

Don’t count on plastic to cover big expenses

May 21, 2012 By Liz Weston

Dear Liz: I’m 27 and have no consumer debt, a decent salary and a boatload of student loans. I use my credit cards for most of my expenses to earn rewards points and generally pay off my cards each month. I also take advantage of the 0% introductory rate offered by many credit card companies. This grace period gives me a security blanket so that I can spread large expenses such as insurance or car repairs over several months without derailing my saving plans. Can I apply for these offers without wrecking my excellent scores?

Answer: Occasionally applying for a new card won’t affect your scores much. Typically such applications ding your scores by five points or less.

You should be budgeting and saving for large expenses, however, rather than leaning on your cards. (Car repairs, in particular, aren’t really “emergency” costs — if you have a car, you know they’re coming, and calculators like Edmunds.com’s “True Cost to Own” feature can give you a good idea of what they’re likely to be.) Those 0% offers often come with balance transfer fees or other charges that make the deals a lot less attractive than they seem at first glance.

Also, you should be in the habit of always paying your cards in full — always. “Generally” isn’t good enough, since you could easily be enticed into spending beyond your means, especially as you chase rewards points. Rewards cards are a good deal only if you don’t carry a balance. Otherwise, you can pay frighteningly high interest rates that offset any benefit you may earn.

How to find the right rewards card

March 26, 2012 By Liz Weston

Dear Liz: Should we get a rewards card? We have excellent credit scores. I’m a stay-at-home mom and my husband has a good, steady job. We spend about $6,000 a month with our debit card or automatic drafts from our checking account. I think our family should have a rewards card. My husband disagrees and says that for the amount we spend each month, we wouldn’t rack up any points. Is he right? If we should get a card, how do we pick the right one?

Answer: If you’re positive you’ll pay your credit card bill in full every month, you would be great candidates for a rewards card.

Right now, you’re passing up at least $720 in rewards annually. That assumes you’d be getting a card that rebates 1% of your purchases. With excellent credit scores, you could qualify for even richer rewards cards, since those are reserved for people with the best credit.

The simplest rewards cards are the cash-back cards, which rebate a portion of the purchases you make. Card comparison site NerdWallet recently named the Chase Freedom card as the best cash-back card with no annual fee. The card gives you a $200 sign-up bonus if you spend $500 in the first three months. All your purchases earn 1%, and you can earn a 5% rebate on certain categories of spending that change every three months.

NerdWallet also recommends American Express Blue Cash Preferred, which offers a $100 bonus if you spend $500 in the first two months. Supermarket purchases earn 6% cash back, and spending at gas stations and department stores earn 3%. Everything else earns 1%. “There is an annual fee of $75,” NerdWallet.com notes, “but your rewards easily offset the cost. In fact, $25 in groceries every week is enough to make up the difference.”

There are other types of rewards cards that earn points or miles for travel, or discounts on gas. You can learn more about these cards and shop for offers at NerdWallet or one of the other card comparison sites, including CardRatings.com, CreditCards.com and LowCards.com.

It’s important, once you get the card, to keep track of your spending so you never accumulate a balance you can’t pay in full. Always pay your account on time, since a single skipped payment can knock up to 110 points off those excellent scores.