Credit Cards: What to Look for Before You Sign

Chances are, you’ve received “pre-approved” credit card offers in the mail. Examine the fine print carefully before you accept any offer for a credit or charge card. Look for:

The Annual Percentage Rate (APR) – If the interest rate is variable, how is it determined, and when can it change?

The periodic rate – This is the interest rate used to figure the finance charge on your balance each billing period.

The annual fee – While some cards have no annual fee, others expect you to pay an amount each year for being a cardholder.

The grace period – This is the number of days you have to pay your bill before finance charges start. Without this period, you may have to pay interest from the date you use your card or the date the purchase is posted to your account.

The finance charges – Most lenders calculate finance charges using an average daily account balance, which is the average of what you owed each day in the billing cycle. Look for offers that use an adjusted balance, which subtracts your payment from your beginning balance. This method usually has the lowest finance charges. Check whether there is a minimum finance charge.

Other fees – Ask about fees when you get a cash advance, make a late payment, or go over your credit limit. Some credit card companies also charge a monthly fee.

What About You?

What's your experience with applying for a credit card? Was the application easy to understand?

Does History Matter?

I received an industry publication today. The theme, in anticipation of International Credit Union Day (celebrated this year on Thursday, October 18), was: does the history of credit unions matter?

The short answer is a resounding yes. People who are thinking of joining a credit union today should know that credit unions, while offering services that banks offer, operate differently. Those principles make a difference in the decisions that are made within credit union walls on a daily basis. And that "people helping people" idea that credit unions like to mention? It's more than just a principle; it's an action taken every day by members of the credit union community.

So, yes, history matters—but so does the future. And that's where you come in. This blog is, after all, sitting out here to provide some financial tips (or in the case of the ATM safety blog, tips related to things of a financial nature).

Your Financial History

Let's take that history lesson and apply it to you. Does your history matter? Again, the answer is YES.

How you did in high school is one of the pieces of your history that colleges and universities are interested in. How you performed at one job is considered when you're interviewing for a new job.

When it comes to your financial life, how well you manage your money has an impact on getting loans and credit cards. A strong credit history is something each person builds on his or her own. Each of us—by how we spend and pay off debt—earns a credit score. You want to make sure that your credit score is healthy.

Keeping a Healthy Credit Score

These tips from the Financial Planning Association can get you started in the right direction, so you can keep your credit score healthy. Do you need all of these tips now? Maybe not, but

Know your score. Request a free credit report from AnnualCreditReport.com. (1-877-322-8228). Review the report for inconsistencies and other issues that need addressing.

Know what it is and how it is calculated. Credit score is used by lenders to help determine whether a person qualifies for credit, based on an assessment of the individual’s ability to pay off their debts. The higher one’s credit score, the lower the credit risk they present to lenders. Credit scores are calculated from data in five categories. Payment history (on bills, loans, etc.) and amounts owed (credit balances) account for about two-thirds of the score; length of credit history, new credit and types of credit used comprise the rest. Credit scores range from 300 to 850. A score of 750 or higher is considered “excellent”; 720 to 749, “very good”; 660 to 719, “good”; 620 to 659, “fair”; and 619 or lower, “poor.”

Know why it matters. Credit score is not just a factor in determining whether you get a loan or a line of credit, it often determines how much you will pay for credit (the better your credit score, the lower your interest rate, for instance). So having a healthy score can save you money.

Pay bills on time. Nothing impacts a credit score more than your bill-paying history and habits. And no bill is too small to overlook. Even one skipped bill to the utility company can have a negative effect on your credit score.

Automate. If you struggle to pay bills on time, set up your online banking to make automatic bill payments or provide payment reminders.

Make a payment. Instead of skipping a payment altogether, make a late or short payment.

After a late or missed payment, get, and stay, current. Positive payment patterns going forward can overshadow a past payment problem.

Keep credit card balances low and avoid maxing out cards. Carrying a high level of debt likely will hurt your credit score. Maxing out your available credit surely will.

Pay down your debt over time.

Think twice before closing the accounts of credit cards you do not use. Closing credit accounts may actually lower your credit score. If you plan to close an account, start with one you opened recently, and for the sake of credit history, leave your oldest credit card account open.

What About You?

What steps are you taking to get and/or maintain a good credit history?

Financial Planning is for Everyone

Everyone can benefit from a financial plan.

Whether you're...

...making a modest income or just won the lottery
...single, engaged, married, living with someone, or divorced (did we cover all the options?)
...newly employed or close to retirement

...you need a financial plan.

What's in a Plan?

A financial plan is a comprehensive, objective blueprint that details every aspect of your financial life, including:

• Your income
• What you own (such as a home, investments, retirement plan assets, insurance policies)
• What you owe (debts, such as a mortgage, loans, etc.).

The plan also spells out your needs and goals for the short and long terms, from now through retirement, with steps and strategies for meeting those needs and fulfilling those goals. A financial plan isn't static; it's a living document that needs to be monitored and updated on regular basis to provide real benefits.

Who Can Help You Plan? 

You should work with a qualified financial planner, such as a professional who's earned the “Certified Financial Planner” designation from the Certified Financial Planner Board of Standards. You want to work with someone who has the skills and experience to effectively coordinate the various aspects of your financial life, from investments to insurance to retirement planning and beyond. Look for a financial planner:

• Who is objective
• Whose agenda is to help clients, not sell a specific product or service
• Who bases their recommendations and decisions on their clients’ best interests, not their own

Why Do You Need a Plan? 

If you have a true financial plan, you're more likely to stay on track financially than if you don't have a plan. Your plan will help you be better positioned to meet your needs and goals, even in the face of a personal financial crisis or difficult economic conditions.

What you need to consider is whether the choices that you're making about your financial life are steering you toward achieving your goals and fulfilling your dreams, or leading you down a dead-end road. If you want a say in shaping your future (or your family's future), then don't leave it to chance. Build a financial plan.

When Should You Put a Plan in Place?

The goal is to control your finances and your financial destiny, so the sooner you put a financial plan in place, the better equipped you (and your family) will be to gain that control. Once you have a plan in place, you should review it at least once a year and adjust it as changing circumstances dictate. (Getting married? Moving across the country for a new job? Getting ready to adopt or have a baby? Definitely review your plan!)

How Do You Get Started?

You can find a financial planner by searching the Financial Planning Association's site which includes a national database of financial experts. You can also ask friends, families, work colleagues and other contacts to recommend a financial planner they trust. Consider speaking with at least three financial planners before choosing one with whom to work. Make sure you're comfortable with the person; after all, you're going to be working closely with him or her.

Is There A Fee?

Financial planners typically charge a fee for their services, although free (pro bono) financial planning services may be available to people who lack the means to pay for them. Try searching Google using the keywords “pro bono financial planning” along with the name of your town or city.

Once you choose a financial planner, the process of assembling and implementing a financial plan begins. Your planner will develop a plan based on the information you provide in a meeting or series of meetings. For the far-reaching, lifelong benefits a financial plan can bring, it’s time (and money) well spent.

A Final Note

October 1 -7, 2012 is Financial Planning Week according to the Financial Planning Association. The goal of this week is to raise the public's awareness about the value of financial planning. We've done our part. Now you can do yours by getting your financial plan started.

What About You?

Do you have a financial plan?