Ask Liz Weston

Get smart with your money

Credit Cards

My book is out! Get it for free.

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DWYD cover2013“Deal with Your Debt” is now available, and I’m giving away five copies this week.

To enter to win, leave a comment here on my blog (not my Facebook page).

Click on the tab above the post that says “comments.” Make sure to include your email address, which won’t show up with your comment, but I’ll be able to see it.

If you haven’t commented before, it may take a little while for your comment to show up since comments are moderated.

The winners will be chosen at random Friday night. Over the weekend, please check your email (including your spam filter). If I don’t hear from a winner by noon Pacific time on Monday, his or her prize will be forfeited and I’ll pick another winner.

Also, check back here often for other giveaways.

The deadline to enter is midnight Pacific time on Friday. So–comment away!

Roommate may be not be telling the truth about his credit

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Dear Liz: I have a roommate who has truly bad credit. He has been turned down from getting a checking account at banks because his mom bounced checks on his account when he was 18 (he is now 31). What is the best way to rehab his credit? He can’t get a secured credit card because he doesn’t have a checking account. Is there a way around this?

Answer: You may not be getting the full story from your roommate. If his mom misused his checking account when he was 18, it shouldn’t still be affecting his ability to establish a bank account. Reports to Chexsystems, the bureau that tells banks about people who have mishandled their bank accounts, typically remain on file for only five years.

Your roommate should first request a free annual report from Chexsystems at http://www.consumerdebit.com and dispute any errors or old information. Even if he’s still listed in Chexsystems, he could get a so-called “second chance” checking account from several major banks, including Wells Fargo, Chase and PNC Bank. Responsible use of those accounts should allow him to graduate to a regular checking account. Then he can start the process of rehabilitating his credit.

The death knell for hotel rewards cards?

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credit card detailed 1Rewards card ninjas have long loved hotel rewards cards because the associated loyalty programs tend to be a lot more generous and easy to use than airline cards.

That may be changing.

Brian Kelly at The Points Guy has an excellent series of posts on the coming changes in hotel rewards programs, and there’s not much good news. (You can start with his post “The State of Hotel Loyalty Programs: A Devaluation Story.”) Starwood and Marriott are diluting their programs, but some of the most dramatic changes are in the Hilton HHonors program, which will not only require more points for most stays but will upgrade a bunch of properties to higher, more expensive categories. Hotels like the Conrad Tokyo will go from 50,000 points per night to 80,000 to 95,000 points.

In a warning to hotel loyalty programs, Kelly says these changes could come back to haunt them:

As you hack away more and more of the value proposition, I think you’ll realize that consumers are actually pretty smart and will start shifting their spend towards chains that actually reward loyalty and not punish it. This may not come in the form of traditional points, but many boutique hotels offer far more enriching experiences with more amenities and at cheaper prices. This Hilton devaluation was so brazen that I do think it will hurt them dearly in the end when Amex and Citi cardholders reduce their spend or cancel their cards. In fact, if the impact is so negative, I could see those issuers coming after Hilton since there are likely clauses in the contracts that state that Hilton can’t materially change the program (since the credit card companies are buying millions of dollars worth of points that their cardholders can use at a later time and date). I’ll be complaining to both American Express and Citi about the Hilton changes and hope everyone else considers doing so as well if you don’t like the changes.

Even if you plan to stay loyal to your card, the program devaluations underscore what has always been true: you don’t want to hoard rewards. Earn ’em and burn ’em to make sure you get the most value.

Don’t close accounts; pay off debt instead

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Dear Liz: I’m 22 and a graduate student with only one year left before I enter the “real world.” I have four credit cards — one store card, two Visa cards and one MasterCard — only one of which carries a balance. I want to make the best decisions regarding my financial health. Which would be better for my credit: closing the account that’s the oldest (opened when I was 18) but that will no longer be used because of its small credit limit and high interest rate, or leaving the line open?

Answer: Closing accounts can’t help your credit scores and may hurt them. If you had a long credit history and many accounts, the impact of closing a low-limit account shouldn’t be that great. With such a short history and relatively few accounts, though, you could be doing unnecessary damage to your scores.

The best thing you can do for your financial health, now and in the future, is to pay off your credit card balance. Credit cards should be used as a convenience, not as a way to live beyond your means. Resolve to charge no more than you can pay off in full each and every month. You’ll save yourself a fortune in interest and help protect yourself against bankruptcy.

You don’t have to be in debt to have good scores

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Dear Liz: How deep in debt must a person get before he or she is able to get a mortgage on a home? My grandson, age 26, has been steadily employed by the same company for nearly six years. He rents a place he can afford, buys used cars for cash, has a nice savings account and basically avoids debt by not buying things he can’t afford with cash. Now he would like to begin investing in a home. When applying, however, all he hears is that because he doesn’t have a credit rating, he can’t get a loan. Does he really have to create debt in order to get a loan?

Answer: The idea that you have to be in debt to have a good credit score is a persistent and destructive myth. It’s just as wrong as the idea that all you have to do to have good scores is manage your finances responsibly.

To have good credit scores, you must have and use credit accounts. This does not mean you have to be in debt or carry credit card balances. Simply using a couple of credit cards lightly but regularly and paying them off in full is enough to build good scores over time.

Your grandson may need to start by getting a secured card, which offers a line of credit equal to the amount of cash the applicant deposits at the issuing bank. Websites such as NerdWallet, CreditCards.com, CardRatings.com and LowCards.com highlight current secured card deals.

He also could consider “piggybacking” onto someone else’s good credit by being added as an authorized user to that person’s credit card. In some cases, the other person’s history with the card can be imported to your grandson’s credit bureau files. The person considering adding your grandson should check with the issuer to see whether such an import is possible.