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For a
culture that runs on credit, this has been a year in
which millions of vehicles have been stranded on the
side of the road.
Sparked
by a mortgage crisis caused by the housing bust, lenders
are sorting out the “haves” and “have-nots” as the
industry retrenches. So now is the time to tune up your
record so that you have ample access to credit for the
holiday season.
Like any
competition, it’s all about the score. The highest
rankings merit the lowest rate and make the difference
between getting a card, line of credit or loan—and being
denied.
Banks
and other lenders have long since tightened the screws
on mortgage borrowers. The squeeze is far from over in
the credit-card arena as issuers trigger a new wave of
restrictions.
As a
result, Brian Shniderman, director of payments for
Deloitte Consulting Llp. in New York, says the industry
is getting more selective.
“It’s
not just about the credit score,” Shniderman says, “it’s
about balances, velocity of payments and what’s being
bought. You have to be extremely good in doing your
homework in selecting a card issuer.”
The days
of easy credit may be over for now. Deals that allowed
you to transfer balances from a high-rate card to a low-
rate provider are few and far between.
Lower
credit limits
Gerri
Detweiler, an adviser for the consumer web site http://www.credit.com,
is seeing fewer zero-percentage balance transfers,
credit limits dropping and more increases in finance
rates—sometimes for no apparent reason.
“The
industry is repricing parts of their portfolios for risk
and profits,” Detweiler says, “and even cardholders who
pay on time will see some changes.”
If you
are looking for new lines of credit, search the Internet
for the best offers. Terms can get confusing, though, so
keep it simple: choose the lowest-rate card if you
maintain monthly balances and pick a no-annual-fee
program if you can find one that matches your needs.
No-fee offers can be best for those who pay within grace
periods.
No
matter what kind of credit you are seeking, you need to
focus on your credit score. You may be able to improve
it by cleaning up your record.
Your
credit score is an amalgam of how much you have
borrowed, your payment history and how long you have
maintained a record.
Pay on
time
According to Fair Isaac, the company that pioneered
credit scoring, 65 percent of your score is determined
by how much you have paid on time and the amount owed.
Surprisingly, neither income nor how many lines of
credit you have weighs the heaviest on your score.
Issuers want to know if you have been able to pay on a
steady basis and there are no serious “delinquencies”
such as bankruptcies, liens, collections, foreclosures
and repossessions.
Creditors also like “aged” credit records, meaning you
have been paying your debts over a long period of time.
It’s
essential that you not only check your credit record if
you are looking for more borrowing power, but clean up
any errors and pay off outstanding installment loans.
You can check your report from all three major US credit
bureaus at http://www.myfico.com.
Fair
Isaac says any score exceeding 700 on its scale is very
good and will probably qualify you for the lowest
financing rates. Say you were borrowing $300,000 for a
property. A top-tier score from 760 to 850 may get you a
5.79-percent, 30-year loan, translating into a $1,760
monthly payment. That also assumes a 20-percent down
payment and paying an additional percentage point,
according to myfico.com. A poor score in the 500 to 579
range boosts the rate to 10.44 percent, or $2,731
monthly.
Payback
time
My
philosophy of credit is to get it to pay you back
whenever you can. When buying a property, obtain a
mortgage that will create equity if you plan to own it
for more than a year.
Every
major airline, automaker, non-profit and retail chain
has a card that offers so-called rewards.
Not
wedded to one group, retailer or airline? Look for
flexibility. The Amex Blue card, for example, offers
points for merchandise or travel on several airlines.
There’s no annual fee and no introductory finance charge
for 15 months.
Capital
One just solicited me for a “No Hassle Miles Ultra
Mastercard” with no annual fee and 30,000 bonus points
good for travel on any airline. Miles earned can also be
redeemed for cash, merchandise or gift cards.
BabyMint,
Upromise
One of
my favorite rebate programs is through BabyMint and
Upromise. The cards allow you to channel from 1 percent
to 30 percent of purchase prices through selected
vendors into college-savings accounts.
I’ve
been using the Upromise card for the past three years to
set aside more than $1,000 in vendor contributions into
529 college plans managed by Vanguard Group for my two
daughters.
I’m not
specifically recommending any of these offers. You have
to pick the rewards program that matches what you want
with the terms you can afford.
There’s
a catch to all of these credit payback deals: you need
an above-average credit record to get one of these
cards, and they carry higher rates than nonrewards
programs.
Issuers
can demand additional fees if you are late and can raise
finance charges as much as they like in most states.
If you
need more credit, ask your issuer to increase your
credit line, but don’t spend close to your limit or max
it out, Detweiler says. That will hurt your credit
score.
As
credit standards constrict even more in coming months,
the best strategy is one that you will never hear from a
card issuer.
Pay off
your balances every month within their grace period. If
you are avoiding finance charges and don’t pay annual
fees, you will get the best possible deal on
credit—free. |
