Are Credit Companies Giving Out Too Much Credit?

We recently added another credit card to our household.  We’re heading down to Florida for a family Spring Break.  Since we’re flying Southwest Airlines for the first time, we get a big bonus by opening up a Southwest linked card operated by Chase.  When I opened up the envelope and saw the details, I had a bit of sticker shock.  How?  They had given me a credit limit of $26,000!  It made me wonder if companies are offering too much credit.

Card Limits Have Been Jumping

My wife and I have great credit scores, both well north of 800.  As such, we’re not surprised when we get approved for high limits.  Still, the $26,000 limit was way higher than I’d ever seen.  Still, I started thinking about how the limits have been steadily increasing each time we’ve opened a new card.  These are just in the past couple of years.

  • Costco American Express.  Our first AmEx card was the Costco branded card that came out a few years ago.  This was the first time we’d gone considerably over $10,000 for a limit.
  • Costco Visa + Blue Everyday American Express.  When Costco switched our card to their new Visa branded card, the limit stayed the same.  American Express also wanted to keep our business, and offered us a great deal on a Blue Everyday card.  They matched the credit limit on our old card, meaning we now had double the limit between the two cards.

Impact Of Credit Limits On Our Credit Score

When we got the Southwest card, I became uncomfortable.  There’s no way in the world we need that much TOTAL credit, let alone all on one card.  I started thinking about requesting lower limits.  Then I started to consider whether this would have implications on our credit score.  I thought of this in regards to two variables:

  • Available Credit.  When your credit is pulled, I’ve heard that one of the factors used is your available credit.  If you have $100,000 available, another lender might be reluctant to give you more.  This would mean you could get denied for a loan or be charged a higher rate due to the perceived risk.  Obviously this hasn’t been the case so far for us given the new limit, but still something to consider.
  • Used Credit.  One benefit of having a big pool is that, as long as your usage is consistent, you’re using less of a percentage of your available credit.  So, let’s say you max out at $5,000 on your cards.  If you have $20,000 in available credit, you’re using 25% of your credit. But if you have $50,000 in available credit, you’re using only 10%.  It’s my understanding that using a high percentage of your available credit is actually a flag.

We Requested Two Credit Line Decreases

I ended up reducing the Southwest card and our American Express card by a total of $30,000.  We’ll never use this amount of credit.  Even with the lower amount, we’re still using a very small percentage of our credit.  So, I think it was the right move.

Two of our credit cards allow us free access to our FICO scores.  I keep track of it about every month.  I’ll be interested to see what might happen when the dust settles, to see if my score goes up or down or stays in the upper range that we’re used to.

Readers, have you noticed credit limits offered by credit card companies to be on the rise?  Have you ever requested a credit line decrease?  Let me know what you think of our moves and such in the comments below.

Small Things that Can Ruin Your Credit Score

Your credit score is one of the most important numbers you have.  So, keeping it as high is possible is a goal for many.

Your Credit Score Is Made Of Many Things

You may have excellent credit now or wondering how to improve your score. There are many things you’ve heard of, such as bankruptcies ruining your credit or not paying your mortgage on time. However, there are other small and shocking things that can ruin your credit score.

Read moreSmall Things that Can Ruin Your Credit Score

7 Steps To Improve Your Credit Score

Few things are worse than finding out that you have a bad credit score.  Many people know that they have this hanging over their head, where others are taken completely by surprise when they go to take a loan or just do a check.

If you have a bad credit score, then don’t wait to start fixing it.  Every step you take can count and help improve your score, and the faster you get started, the faster you can see your score move in the right direction.

Check your credit report for accuracy.

The first thing you should do is check your credit report to make sure that everything is accurate.  A bad score can come about with inaccurate information or if you’ve been the victim of identity theft and there are items that you don’t even know are there.

Work through any late payments.

If you’re late on any payments, you need to get this taken care of in order to gain any sort of traction at all.

Reduce your available debt.

If you have a lot of credit lines open, you can often improve your score by selectively closing credit cards or calling credit companies and asking for a lower credit limit.  Less available credit is often seen as less risk of default, which can improve your score.

Reduce the number of open balances.

If you are carrying a lot of different credit cards with balances, you want to start reducing this number as fast as possible. If you owe $5,000, it’s more favorable to have two cards splitting that balance than it is to have six or seven.  You can start by paying off cards that have the lowest balances.  You may also look for an existing card that will offer a good rate on balance transfers and bring some or all of your credit balances together into one spot.

Pay off your loans faster.

If you’re only making the minimum payments, you need to start bumping this number up.  Sell some stuff.  Take on a side gig.  Make lifestyle changes.  Whatever it takes, you want to start lowering your balances, which will improve your score.

Stop applying for credit.

Newer lines of credit are seen as riskier than older ones.  Every ‘new’ credit card you take can potentially damage your score.  As a general rule, don’t apply for any additional credit.

Stop charging.

If you pay off $500 on your balances but then add $400 in the month, you’re not going to get very far at all.  Make your purchases for what you need today via cash, check or a debit card.  This way, any activity on your cards is only serving to lower it.  Knowing that goes a long way.

The bottom line is that bad credit scores are awful, but they don’t last forever.  You may not be able to change it overnight.  However, you can certainly do so with an organized and disciplined approach.

Readers, have you ever actively taken measures to improve your credit score? How did it go?

Have You Ever Had A Financial Freak Out Moment?

Have you ever had a moment where you just flipped out about something money related? That happened to me last week.  The worst part is that my financial freak out ended up being a total false alarm!

Costco Rewards Time Is Almost Near

Around the beginning part of the year, holders of the Costco American Express card receive a paper certificate, on the last page of which contains your certificate for the rewards you’ve earned by making purchases on the card throughout the year.

We use the American Express for a lot, so the 3% rewards on gas is usually a big driver, plus 1% on everyday purchases.  This year, we got a big boost because travel purchases receive 2%, and so we put the entirety of the trip to Disney World on the trip, earning a nice chunk of change.

All told, our reward for the year was over $350!

The Paper Statement Memory

We also have a couple of other cash back reward cards, both through Citi Master Card.  We use these cards as they often have rotating categories of up to 5%.  Both of the cards that my wife and I use had amounts over the $50 threshold for which you can request a redemption.

I decided to submit the claim for the rewards around the same time, so we would have the full amount of all of our rewards available around the same time.

Even though I logged into both of our accounts, my wife still got the e-mail verification about her card, and commented about it.  I told her the plan to get all three rewards piled together, at which point we could decide how to use the funds.

I remembered that a week or two prior, we’d gotten a statement from American Express. Since we do everything electronically, I imprinted a memory that it was probably the statement with the rewards certificate, as that’s the only time they ever send us a paper statement.

I casually mentioned to my wife that she just needed to take the certificate in next time she went to Costco, and get it redeemed for cash, which we could then deposit.

The Worst Two Words I Could Hear

My heart kind of sank when she said “What certificate?”

I mentioned that it was with the statement that we had received a couple of weeks ago.  Still calm, I reminded her that she had even pointed out that we had a statement.  I also pointed out (by this time, my voice probably raising a couple of octaves) that she always takes mail that I need to keep and sticks it in a little organizer that we use.

I went to the organizer and it wasn’t there.  She had no recollection of putting it there.

Financial Freak Out: Not A  Good Five Minutes

After that it was a pretty chaotic few minutes.  I was blaming her for not putting the piece of mail in the right spot where she usually puts all mail.  She claimed that she didn’t remember even seeing the statement.

It wasn’t a very fun conversation (if you could even call it that).

I looked online about what to do if you lose a certificate, and the answer was not good.  I found a few forums that said that they don’t re-issue the certificates if they’re lost.

Basically, you’re S.O.L.

This didn’t help the tone of the conversation.mb-2014-12stressed

Confusion On Multiple Ends

My wife decided to find out for herself if this was correct. By now, we were past the yelling stage and trying to figure out what to do.  I was even debating going out to the recycling bin and seeing if it was in there.  But, she called American Express and asked what would happen if it was lost or we didn’t receive it.

The agent on the end was a bit confused and said that it hadn’t been mailed out yet.  It was scheduled to be mailed out with our February 24th statement.

I got a bit confused.

But at least we calmed down.

Presenting….My Brian Williams Moment

Then, the next day it hit me.  It all came down to the paper statement.  See, I knew we’d received one.   We received a statement because we closed a different card, and apparently they send you a final statement in paper form.

So, I had my Brian Williams moment.   My financial freak out moment.  Luckily for me, my ‘conflation’ didn’t cost me my job or reputation, and it didn’t even cost me any money.

Though I did have to eat a bit of crow as I apologized to my wife…who was right all along!  As they usually are, of course!  A lesson I just need to remember….

🙂

Readers, what financial freak out moments have you had, and have you had one recently where it was all for nothing?

Keeping American Express In Light Of The Costco Switch

One of our favorite credit cards is our Costco American Express card.  We signed up for the card several years ago because it offered a lot of great rewards.  These included:

  • 1% cash back on all purchases.
  • 3% cash back on gas purchases.
  • 2% on restaurant and travel purchases.
  • AmEx is the only credit card accepted for purchase inside a Costco store.

It’s grown into one of our favorite cards, but within a short time, it will soon be history.  Costco has announced that they’ll be partnering with Visa, and while the specifics haven’t been announced, they will only accept Visa cards once the switch takes effect.

Costco American Express Will Soon Become Costco Visa

Presumably, there will be a ‘Costco Visa’ card that will likely offer the same or similar rewards.

mb-201402creditcard400However, this is a big loss for American Express.  I know that the stock price actually took a several percentage drop on the day the loss of Costco was announced last year.  They likely generate a lot of revenue from Costco, and I’m sure they don’t want to lose it.

My wife and I were talking about how much we like having an American Express card, and that we would need to potentially continue to use them in some fashion.  The reasons we wanted to keep an American Express card were:

  • It’s nice to have options.
  • They have special offers in the form of statement credits that pop up from time to time.  We’ve had a credit just for charging our Sprint bill, and shopping at Amazon, just in the last few months.
  • There are often special offers associated with using an AmEx card.  For example, we got the opportunity to buy advance tickets for a concert last year by making the charge on our American Express card.

We did have two American Express cards for a time, as we had opened one last year so that we could get a tremendous deal on Delta on our plane ticket purchase (it didn’t lower the cost of the tickets, but we got a ton of free miles and free luggage check-in), but we just cancelled that because after one year, an annual fee was about to kick in.

American Express Wants To Keep Costco Customers

Someone must have been reading my mind!  For not more than a couple of days after that conversation, an offer popped up right after I logged into our American Express card.

They noted that our current card will soon be ‘deactivated’ and that we’re pre-approved for a Blue Cash Everyday card.  They have a pretty tempting rewards structure:

  • 1% cash back on all purchases.
  • 3% on grocery store purchases.
  • 2% on gas and department store purchases.
  • On top of it, if we make $2,500 in purchases over the first three months after opening the card, we will get a $300 statement credit. Their standard offer, so far as I’ve been able to tell, is a $100 offer after charging $1,000, so while the spending amount goes up, the bonus reward is pretty awesome!

This sounds like a great fit.  Unfortunately, the offer only appeared for a day and by the time I spoke to my wife about it and we agreed it was a good offer, it was gone.  I’m thinking that they’ll be looking to retain current customer, especially as the end date of the agreement moves close, so I’m confident that the same or a better offer will appear.

I assume that the new Costco Visa card would offer an increased bonus on restaurant and travel purchases.  With this,we will have all categories that we do today.  Plus, we’ll have extra rewards for  grocery stores and department store purchases.

That’s not a bad combo!

Readers, have you started looking at your replacement alternatives for the Costco American Express card?  What have you found?

The Credit Card of Tomorrow: Which Trends Will Change the Way You Pay

Though other countries have used EMV technology for nearly a decade, chips in credit cards are brand-new to the United States. To many Americans, it is unbelievable that such a small change mb-2016-01-creditcardcould have such a monumental effect on financial security.   The truth is that EMV chips are leaps-and-bounds better than magnetic strips for fending off fraud. It certainly makes you wonder what other fantastic tech could make paying with credit faster, easier, and better than before.

Though it certainly seems like the future is now, most experts predict the humble credit card to undergo a number of changes in the coming years. Here’s a sneak peek at what tomorrow’s credit card might look like.

PINs, Not Signatures

Perhaps the easiest and most likely shift in credit card tech will be the adoption of personal identification numbers (PINs). Across Europe, chip-and-PIN cards have been the norm for about a decade, but American financial institutions only just started to integrate chips into credit cards last year. Unfortunately, instead of opting for identify authentication using a PIN, card companies selected signatures ― to the detriment of cardholders.

Signatures are not nearly secure as PINS; in the event you lose your card, a thief could easily scribble any name in the signature line without worry of the transaction being flagged. A PIN is harder to crack, adding an extra layer of protection to your credit. Knowledge of the superior safety of PINS is becoming widespread, and it is doubtless that Americans will be using PINS in a few years’ time.

Shifting CVV Codes

You might know the number on the front of your credit card forwards and backwards, but the short string of digits on the back of your card is just as important. This is called the card verification value (CVV), and it helps ensure you are in possession of your card when you make purchases. Thieves can easily skim credit card numbers, but CVV codes are harder to obtain ― and they could get even harder.

Some card providers are introducing cards with dynamic CVVs, which include algorithms that change the CVV with every use of the card. Only the tech within the card knows what new number will unlock the payments, which makes certain methods of stealing credit card information, particularly skimming, entirely ineffective.

Biometrics

Biometrics, or authentication through biological means, was the security buzzword of 2015. The possibility of unlocking tech with fingerprints or retina scans is thrillingly futuristic.  Initial uses of biometrics in smartphones has caused quite a stir. Plus, biometrics seem inherently secure, as no one else on Earth has the same biology as you.

That’s precisely why some credit card companies are beginning to experiment with biometric tech. The most promising developments have come from a Norway-based company named Zwipe, which has built fingerprint scanners directly into their cards. Zwipe is fast-tracking its tech, and you might start seeing signature-less, PIN-less payments in the next few months.

Higher-Interest Rates

Not all forecasted credit card developments are enticing; the credit card of the future just might come with astoundingly high rates. The Federal Reserve resisted increasing interest rates for more than seven years.  But, in the final weeks of 2015, it allowed a small rate hike of .25 percent. This small gain has convinced economists that rates will climb steadily higher in the coming years. Though smart credit users should be largely unaffected by the changes, elevated rates can be dangerous.  Everyone who takes out loans in the coming years should be prepared.

Plastic Alternatives

Few people consider the materials that make up credit cards.  As the world goes green, the plastics used in your favorite plastic payments are becoming more and more problematic. More than 17 billion credit cards are produced every year.  The majority are produced from polyvinyl chloride (PVC).  This variety of plastic is potentially harmful to the environment. Not only does PVC release dioxins when incinerated, but it takes thousands of years for it to degrade in landfills.  Most credit cards live long after their expiration.

A few credit card companies are already producing biodegradable credit cards that are eco-friendlier than most plastic payments.  The cost of these cards can be 20 percent higher than traditional plastic.  So, you might be waiting a bit longer for corn-based credit.