Thursday, November 22, 2012

Why Every Responsible Adult Needs a Credit Card

In the modern world, paper money is not just an ever disappearing aspect of the economy, it is a very limited monetary unit. You can't use cash to make online purchases. Checks are only secure enough to use to pay bills to trusted companies. The same is true of most bank bill-pay programs. Cash is easy to steal and rarely traceable. Credit cards, on the other hand, offer the ability to carry high amounts of purchasing power with you wherever you go with very limited personal risk. Just as importantly, cards are the primary online and international purchasing medium in the global economy.

Cash Pitfalls

While many people take security in owning cash, it has many limitations in the modern world. For one, inflation and currency fluctuations can quickly impact the value of the cash you carry. A greater concern is that cash makes you a target because it is easy to steal and a liquid asset for quick disposal by definition. For this reason, you should only carry cash in limited quantities. Yet, large purchases must be made from time to time.

Another problem with cash is that in its pure form it can only be used for local purchases. Local purchases are still preferable for many types of items, but most people are finding the savings and and wide product selection offered online often make online purchases preferable to local purchases. Without a credit card, you are essentially squeezed out of the global market place.

Other Payment Options

Checks can in rare situations be used for online purchases, and can be used to pay for most items with a later billing date. More and more local stores are phasing out the acceptance of checks because it is so easy to write fraudulent checks. What's bad for consumers is that the routing numbers included on every check can be used to drain a bank account. In this sense, using checks can be more dangerous than cash, in that cash liability is limited only to what you carry.

To a large extent, you can use debit cards in place of credit cards and checks. However, debit cards carry similar, but even greater risk than checks. There are few regulations protecting funds withdrawn using stolen debit card information. Further, few banks have extensive debit card protection policies. Debit cards may be the riskiest of all purchasing mediums.

Credit Card Liability Limitation

Credit cards avoid nearly all of the financial risks associated with carrying cash. They also avoid the risks involved with using either paper or electronic bank drafts, more commonly referred to as checks and electronic checks and debit cards. Federal laws restrict liability for most types of card theft to only $50, while states may provide further liability restrictions and creditors often waive any of the liability remaining. In other words, if someone uses your card or card information without your authorization, the worst case scenario is that you lose $50.

Credit cards often offer far more extensive fraud protection than just credit card theft. If a seller doesn't provide you with exactly what you ordered or charges more to your card than what was quoted, you can challenge the charge with your finance company. If you have kept your receipts and can provide some proof of what has happened, you'll usually get your money back.

Many credit cards now come with varying degrees of product quality protection. For example, some cards will cover booking costs when airlines don't fly the route as purchased, or even insure your belongings should they be lost by an airline. Varying substitutes and insurances are available. The same is true for product purchases, with many cards providing various product quality guarantees that often exceed manufacturer and store guarantees.

Increased Purchasing Power: A Blessing or Curse of Credit Card Ownership

Credit cards do something for you that cash currencies and most forms of bank draft don't do: automatic currency conversions. You don't have to find an exchange and buy a currency before making a foreign purchase, so global purchases are greatly simplified. Most credit cards now carry a 3% foreign currency conversion fee, but this is generally at least as reasonable of a rate as you'll get doing a currency exchange at a bank.

Credit cards also offer purchasing power that may be in excess of your assets. In an emergency this can ensure you get what you need. However, this is the most common danger of card use. If you tend to be a compulsive spender, or otherwise financially irresponsible, a card can be a quick means of getting yourself in debt. This is the one reason why credit cards are not the best monetary purchasing medium for all people. If you are one of these people, you should never own a regular card.

There is good news for those who are not responsible credit consumers. Instead of a credit card, you can get what is known as a secured credit card. This type of card limits your purchasing power to the amount of funds you deposit in an account to secure it. You get all of the fraud liability limits of a regular card, while also limiting your liability for bad decisions to the amount of money you have deposited.

Get a Credit Card If You Can

Credit cards are the most secure and convenient monetary purchase medium in wide use today. Whether you make most of your purchases online or locally, you will benefit from the extra security and options provided by using credit cards. If you're not able to be responsible with a line of credit, a secured card provides all of these same benefits. If you are a financially responsible person, you can get all of these benefits provided by the card, plus have extra purchasing power in an emergency situation.

Are Credit Cards Better Than Cash for Fast Food?

Just a few years ago, fast food chains were not too keen on accepting credit cards. Times have changed, however. Many quick-service restaurants have seen that the trend is inevitable, compelling them to let customers charge their purchases on their plastics. Still, in a world where cash is king, the question remains: should you use your card instead of cash for fast food purchases?

In the past, restaurants accepted only cash, mainly because credit cards required a lengthy processing time, contradicting the fast food concept. Soon enough, technology evolved and card transactions could already be done within a few seconds. According to industry experts, accepting cards instead of cash promotes consumer loyalty. One reason for this is that most people today carry their plastics whenever they intend to spend. Another is the reality that a great number of individuals from other countries use their cards since they do not have cash in local currency with them.

Fast food operators may have also decided to accept the cards because they increase sales. Based on statistics, customers pay more when they utilize credit instead of the good old cash. In addition, there is a prediction that this mode of payment can ultimately reduce the number of staff members needed to take customers' orders.

Three Reasons to Use Cards Instead of Cash

If you are planning to treat your friends or your family for a meal at any fast food chain, your credit card can be a better method of payment than cash. Here are three reasons why:

Safer. How many times have you heard about someone losing their cash? You may have already experienced the same in the past where you may have felt helpless. This does not happen when you lose your card. Whether it is stolen or you misplaced it somewhere, you only need to call your creditor and cancel the card. What's more, if you buy an item and lose it, your card company may even grant you a refund.

Credit History. This is one of the main reasons why people have a credit card. With your card, you can establish a good credit history. As a matter of fact, cards are considered to be the best and most effective way to build credit.

Easy Tracking. Eating in fastfoods can take a big chunk out of your budget. When you use cash, it can be hard to control your spending, especially when you are not able to keep track of it. With credit cards, though, you can keep track of the expenses incurred on fastfoods. This allows you to create a viable budget and stick with it.
Cash still reigns supreme even in today's time. However, no one can deny that credit cards offer numerous benefits. If you have a rewards card, you can even use your credits to pay for your meals and eventually gain rewards. This is something that you can never obtain when you choose cash.

Saturday, November 10, 2012

The Impacts of Closing a Credit Card to Your Credit Score

Making a decision about closing a credit card is part of card debt management. It is true that the more cards you have, the greater the possibility that you will incur debt. However, you should not rush into cancelling your card. There is a principal element that you should never forget: your credit score. Closing an account can negatively affect your credit rating.

Your credit score is what lenders use to determine your interest rates among others. It is comprised of a three digit number and is formally called the FICO score.

The Truth Behind the Myths About Card Cancelation and Credit Scores

There are two popular misconceptions about closing an account. First is that cardholders will be penalized when they have high credit available; thus, it is better to close an unused account. Second is that when a consumer closes an account, everything that's associated with that account will be erased. These two are definitely not true since FICO does not view having too much available credit as a negative attribute. This only becomes a problem if you resort to problematic tactics, such as opening numerous cards to gain high credit limit.

With regard to the elimination of the account history, this is impossible. You can close all the accounts you don't use or they can remain inactive for ten years. All of these pieces of information will remain in your credit report.

Can You Raise Your Score by Closing Your Old Accounts?

The short answer to this question is no. This may seem a little counter-intuitive for you; after all, you are cleaning up your profile by eliminating inactive or old cards. Experts often advise people against canceling accounts, most especially old ones. Fifteen percent of your credit score depends on the length of your credit history. In other words, the longer your account exists, the higher your score can get.

Another thing that you may want to know about is the credit utilization ratio. This is another aspect that the FICO score takes into consideration. Basically, this uses your total available credit versus the total amount you have utilized. Unlike your credit age, the higher the utilization ratio, the lower your score gets. When you close your old or unused card, you are, in essence, wiping out a part of your available credit, thereby, increasing your utilization ratio.

The people at FICO say that there is actually no good reason why you should close an account. The situation may vary, but you will always end up hurting your credit score. However, if you think about it, there are two main benefits that you will get when you close your account. First is that it is beneficial when you have too many cards, such as about half a dozen or more. You get to simplify your life, since it is almost impossible to keep track of your expenses and bills. Second, you reduce the risk of having your old card stolen or utilized by another person without your knowledge.