Thursday, October 30, 2008

10 Credit Questions and Answers at (October 30, 2008)

As I have said before, I can see how my readers find I don't collect any personal information, but I can see search terms that people use to find the site. This information is like the center of Lifesavers candies. Or doughnut holes. Rather than letting them fall by the wayside, I figure that I should put these search queries to good use.

Here are the game rules: I will edit search queries for syntax purposes. Otherwise, I will leave them alone. I'll also phrase queries in the form of a question whenever possible. By request, these Q&As will now be published whenever I have received 10 questions (through Google, Yahoo, and AOL searches).

Q: How to keep credit card companies from reducing limits on inactive cards?

A: That's not your biggest worry with inactive cards. What most people should worry about is having the account closed. While I am sure that inactive cards can see a reduction in limit, I would think that the more common result would be an account closure. If you don't want the account closed, be sure to use the card periodically.

Q: Keep getting denied for credit card -- serious delinquency.

A: In this credit environment, get used to it. Card companies are finally doing some real underwriting and risk management. During 2006, you could get a card with a serious delinquency. Now, though, it's a much different situation. Card companies are reining in credit limits and they're taking adverse action on those who have blemishes.

There is also a compound problem here. The serious delinquency is preventing you from getting a new card, but the new inquiries are now damaging your chances as well. Those new inquiries make it look as though you are seeking new credit. If you have enough new inquiries, it will make it look as though you're desperate, too.

Q: Should I call Nordstrom after applying for a credit card?

A: Nordstrom takes its sweet time with card approvals (and denials). Expect to hear something from Nordstrom within 7-10 days. However, if you are eager to find something out, feel free to call three to four days after you submit your application. Nordstrom may be able to give you the status of your application at that time. You can call using this phone number: 800-964-1800.

Q: My credit is shot.

A: Sorry to hear that. I wrote a story a few months ago regarding shot credit (link here). Some of my readers may find it useful.

Q: How to reduce credit limits without hurting credit score?

A: While I don't generally advise people to lower their credit limits, if you are intent on doing it here's what you do: You'll need to reduce your spending. The key is to keep your utilization down. You can only keep your utilization down when you spend less. When people reduce their limits, they're essentially making it more difficult on themselves. I wrote a story on reducing limits (link here) back in July. Give it a read.

Q: What interest rate is better -- .99% for a limited time or 5.99% until balance is paid off?

A: This is where the calculator comes in. If you can pay off your balance quickly, then the 0.99% interest rate will likely work best. However, if you KNOW that you won't be able to take advantage of the 0.99% rate -- because your repayment schedule is going to be drawn out -- it may be that your 5.99% rate will do the trick. Figure out what the 0.99% rate will go to when the promotion ends. Then figure out how long you think it will take to pay off the balance. If you estimate that you'll save more money with the 0.99% rate (plus the go to rate), then opt for that. If the 5.99% rate pencils out, then go for that.

Q: TrueEarnings American Express vs. USAA American Express?

A: I am finally starting to see more questions like this. People are getting more shy about American Express, so they are looking for cards that use the American Express payment network. USAA underwrites the American Express card that it issues. The True Earnings American Express is underwritten by American Express in New York. The American Express in New York is the one that loves to do credit limit decreases and financial reviews. USAA, on the other hand, doesn't roll like that.

Now, there are differences between the cards. And they're big differences. The TrueEarnings card is geared toward Costco shoppers. "The TrueEarnings Card serves as both your American Express Credit Card and your Costco membership Card," according to American Express. What's more, there is no annual fee on your TrueEarnings card if you have a paid Costco membership. Additionally, you get a rebate of 3% for gasoline, 3% for restaurants, 2% for travel, and 1% everywhere else, including Costco, with your TrueEarnings card.

The USAA American Express card, though, doesn't offer a lot of rewards. But it will allow you to shop where American Express is accepted, including Costco.

For people who don't want to do business with American Express in New York, but who still need an American Express card to shop at Costco, the USAA American Express will do the trick. Just don't expect a whole lot from the USAA card in terms of rewards and rebates.

Q: Should I request a credit line increase or get a second credit card?

A: I always prefer to get a credit-limit increase. If I get a second card instead, the new account will bring the overall age of my credit history down. I'll also get a hard inquiry for the trouble.

With a credit-limit increase, there is a chance that the card company won't pull a hard inquiry (check with your card company to see what its policy is). And I won't have to worry about a new account showing up on my credit report.

Therefore, my general rule is this: go for a credit limit increase first. If that doesn't satisfy your need for more credit, then perhaps you might go for a second card.

Q: Preselector HSBC?

A: Yes. HSBC has a card preselector that will point you to cards that HSBC thinks you would likely qualify for (be warned, though, that there are no guarantees of an approval). The HSBC preselector will ask you for some basic information and it will require a credit pull (though it will be a soft pull that won't hurt your credit score). You can find the preselector here (link here).

Q: Authorized user on maxed out account.

A: If you are an authorized user on a maxed-out credit card, your FICO score is likely being harmed. Rather than go into a long spiel about the perils of this situation, you should read my primer (link here) on authorized users.

READER ALERT: For more credit questions and answers, the entire 10 Credit Questions & Answers index can be found here (link).


Don Miguel said...

There's a nice, free spreadsheet I've used when considering balance transfer offers at -- I've no affiliation except that I've used the spreadsheet. said...

Thanks, DM. I will give it a look.

Bob Wang said...

When it comes time to go for your Costco Amex, choose the business version, 5% back on gas :-) said...

BW, I get 5% from my Penfed card. I can't imagine needed another 5% card. Penfed, which has no caps, is great.

But thanks for the heads up on the differences between the consumer version of TrueEarnings and the business version. The consumer version only gives 3% back. The biz version is 5%.

Post a Comment