The following is a guest post by Michael, a blogger for CreditCardForum.com. Michael has been writing credit card reviews and covering this industry for several years now. In this article, he will be discussing the controversial idea that credit card rewards are negatively impacting the lower class.

A couple of weeks ago, I came across a very interesting story in the Wall Street Journal about credit card reward programs. The article referenced a report that was recently issued by the Federal Reserve Bank of Boston, which in a nutshell, basically said that the reward programs offered by credit cards hurt the poor and help the rich. Here is a quote which pretty much summarizes this fifty-seven page report:

“On average, each cash-using household pays $151 to card-using households and each card-using household receives $1,482 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general.”

A “regressive transfer” of wealth? Wow… that’s quite a bold statement to make! Now I know there are plenty of valid reasons for people to hate credit cards, but in all fairness, I don’t think this is one of them. Here’s why:

Any citizen in this country eighteen years of age or older can obtain a rewards credit card. Yes, these cards do typically require a good credit score (and that’s something we all have to work at obtaining) but the bottom line is it’s something we all can achieve. So I’m not saying they are a right, but they are a privilege we are equally given access to (much like driving).

Tiers on reward programs actually hurt big spenders

As you know, there are many cards that give higher rebates on certain categories of spending. For example, the Discover More card gives 5% cash back in various categories. However, you only get 5% cash back on the first few hundred dollars spent each quarter in those categories. After that, it’s 0.25% to 1.00% cash back.

So let’s say there were two people with this card, we’ll call them Jane and John. Now Jane is a big spender and puts $10,000 per quarter on her card in these categories. Meanwhile, John is more cost-conscious and only spends $1,000 during the same period. Since the 5% is only given on the first few hundred dollars, it turns out that the average cash back percentage (on the total amount spent) would actually be higher on John’s card than it would for Jane’s.

Of course every cash back credit card is different, but almost all of them have some sort of cut-off point when it comes to the higher rebate categories. So it’s really not a stretch to say that even the best cash back credit cards actually benefit low spenders more than high spenders.

Credit cards do cost merchants, but they also earn more from them

According to Wikipedia, in the U.S. the average processing fee on credit cards is 1.79%. They also state that reward cards run an average of 0.30% higher. So that adds up to 2.09% total. So is it logical to argue that we pay a 2% premium because of credit card fees? Not necessarily…

First of all, the average person spends more with a credit card then they do with cash. Let’s say we sent one group of shoppers to Bloomingdales and told them to bring only cash. Then we sent another group and told them to only bring only a credit card. I guarantee you the credit card group would spend more on average, per person. Why? Because with credit cards the currency we’re spending isn’t tangible or visible, so psychologically, it makes it easier to part with our money.

Stores enjoy increased sales because of this. So the argument that credit card fees forces them to raise prices isn’t logical. The cost of the processing fees is far outweighed by the increase in sales. Furthermore, processing cash and coins does take a lot of work. It requires a lot of “manual” accounting. Now I’m not saying the cost of that accounting would equals the fees, but it’s still an added benefit of card payments nonetheless.

Conclusion?

Some people may think I’m being biased and siding with the credit card companies since I am, after all, a credit card blogger! But in all honesty, that’s not the case. Believe it or not, I’m usually the first person to talk negatively about this industry – it is definitely far from perfect. Furthermore, I used to be poor myself – for years – and guess what? That’s where I learned to squeeze every penny I could from credit card rewards. So from personal experience, I can truthfully say that these rewards can benefit everyone, rich or poor. But they’re just like coupons… you won’t benefit from them if you choose not to use them!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

photo credit: Stargazer95050

With all the financial turmoil that has been caused by the recent economic recession, it isn’t surprising that consumers are struggling with their debt in unprecedented numbers. The free-spending, easy-credit environment of the years preceding the recession has given way to high unemployment and underemployment, a floundering housing market, restrictive lending guidelines and millions looking to pay down their debt rather than spend. The loss of income and inability to qualify for new loans have left consumers buried with high interest credit card debt that in far too many cases will require decades to pay off, given their current repayment capacity and the seemingly dismal prospects looking forward.

The situation as it presents itself defies a tolerable solution, and droves of borrowers are now turning to the debt relief industry for answers. One of the debt solutions that seems to hold the most promise is commonly known as credit counseling. Aside from the actual financial counseling they provide, the credit counseling agencies also offer a debt management plan (DMP) that offers a potent mix of benefits that successfully deal with many of the most troublesome aspects of the unsecured debt problems so many are now facing. Here are some of the most frequently asked questions about credit counseling and DMP’s, and their answers:

1. Am I a good candidate for credit counseling?

Consumers can get a good idea whether or not they could benefit from consulting with a credit counseling agency by watching their finances for certain warning signs. Here are some of the most common:

• You are current with your payments now, but you are getting closer to being late as time passes
• You already had some late payments and things don’t seem to be changing for the better
• You need to take out cash advances at high interest rates to make ends meet
• You transfer balances from one credit card to another just to avoid having to make a scheduled payment
• Your finances have taken a downturn and you see the potential for future problems

2. What should I expect to happen in credit counseling?

The first thing that will happen is that you will be assigned to a credit counselor, who will collect all your relevant financial information. From doing this they can get a good idea of the state of your financial situation and can then suggest some possible remedies. Here is some of the information you will need to bring:

• The sources and amounts of all your monthly income
• Your detailed monthly expenses
• The balances you owe on all your accounts
• The interest rates you are being charged on your accounts
• The minimum payments and due dates on your accounts

3. How does credit counseling help with my debt problem?

Your credit counselor will be able to suggest some possible answers to your particular situation. If your counselor determines that your financial hardship requires it, he may recommend that you enroll in a debt management plan (DMP). Credit counseling agencies maintain close relationships with creditors and are able to get relief for their clients in a number of ways with a DMP:

• Your interest rates on your unsecured debt can be reduced
• Your accounts can be paid off in just 5 years or less
• You will no longer be charged over-limit and late fees
• You will get the benefits of a consolidated monthly payment
• You will get relief from collection phone calls
• You can avoid bankruptcy

4. How will a DMP affect my credit?

Most consumers are very concerned about the impact that a DMP will have on their credit. According to the Fair Isaac Corporation (FICO), the fact that a consumer is paying their accounts through a DMP will not have any effect on their credit score at all. The fact that some of the accounts are being paid through a DMP will be noted on the credt report, however, and this information can be viewed by any of your prospective creditors. Some of them may interpret it positively, as a sign that you don’t just walk away from your debts even when you are experiencing a financial hardship. Others may choose to interpret it less favorably as a sign that you may not be a good risk for acquiring more debt.

About the Author: Alan Winkler is a writer for RightStartllc.com. Right Start helps indebted consumers improve their financial situation through debt relief solutions, such as credit counseling and debt management. Their blog also serves as a resource for helpful debt advice and tips, offering educational articles on the debt relief industry and other financial topics.

photo credit: jacksteruk309

You’ve probably heard that applying for a loan can affect your credit score. Indeed, many realize that when a creditor looks into your credit in order to make a decision about a credit application, it can have a negative impact on your credit score. The fact that some inquiries into your credit can hurt your score has led to the myth that all credit inquiries can hurt your credit score. The truth is that there are two main types of credit inquiry: “Soft” and “hard.” Only the hard inquiry is damaging to your credit score.

Soft Credit Inquiry

It is important to realize that when you check your own credit report, it will not negatively affect your credit score. Your own inquiry is known as a “soft pull.” It’s made in order for you to keep track of your credit activity, and check for accuracy. Since you aren’t applying for credit when you are just checking your own report, the credit bureaus and credit scoring models won’t hold it against you.

Another type of soft inquiry is that made when companies check your credit history in order to send you “pre-approved” offers. These types of inquiries are known as “involuntary,” since you didn’t ask to have your credit checked. So, even though a company might have viewed your credit history and/or score to determine whether or not to send you an offer, these inquiries will not negatively affect your credit score.

Hard Credit Inquiry

On the other hand is the hard credit inquiry. Sometimes these are called “voluntary.” “Hard pulls” result when you are applying for credit or some services. Credit card issuers, mortgage brokers, and other lenders institute a credit request at your behest, and this is reported on your credit history, showing that you are looking to obtain new credit. Many cell phone providers, cable/satellite TV providers and others will perform a hard credit inquiry when you apply for these services.

A hard inquiry can hurt your credit score. However, the harm done is usually relatively small. While credit scoring formulas are kept mostly secret, it is estimated that credit inquiries make up no more than 10% of your credit score. The most important factors are your payment history and the amount of debt you have. However, some lenders become concerned when they look at your credit report and see several attempts to obtain new credit in a six-month period of time. (Although most understand if you have a cluster of inquiries over a few days as a result of shopping around for a low mortgage rate.)

Reading Soft and Hard Inquiries on Your Credit Report

The credit bureaus don’t label credit inquiries as “hard” or “soft” on your credit report. Different language is used:

• Experian: “Requests viewed by others” represents a hard pull. Creditors can see these when evaluating you for creditworthiness. “Requests viewed only by you” represents the soft inquiry. These are credit inquiries that are available for your information (so you can see which companies are checking your credit without your request), but aren’t visible to creditors evaluating your credit application.
• TransUnion: “Regular inquiries” are those that are equivalent to hard inquiries. They will remain on your TransUnion report for two years. “Account review inquiries” are the soft pulls made by you or by companies interested in sending you marketing materials.
• Equifax: “Inquiries in the last 12 months” are hard pulls that were performed at your request. “Inquiries that do not display to companies and do not impact your credit score” offers a pretty straightforward explanation of a soft pull. Equifax also has one more designation, unique to the credit bureau.: “Companies that requested your credit file.” This is a list of companies that asked for your file, so you can see who is interested in you. This information is also available to creditors looking to evaluate you, although its impact on your credit score is unknown.

For the most part, if you are responsible with your money and credit decisions, and make payments on time, and avoid applying for a great deal of debt, credit inquiries are unlikely to have a large impact on your credit score.

This is a guest post Miranda Marquit is a journalistically trained freelance writer and professional blogger working from home. She is a contributor for Mainstreet.com, Personal Dividends and several other sites. Miranda is not affiliated or endorsed by LPL Financial. The opinions voiced in this material are for general information and are not intended to provide specific advice and/or recommendations for any individual.

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

When you find yourself under a mountain of debt, there’s nothing more appealing than paying your credit cards off as fast as you can.  One of the most commonly used methods for paying off credit cards fast is The Debt Snowball, made popular by Dave Ramsey. The snowball gives you tangible results and helps motivate you to pay off your debts, but it is somewhat controversial in nature because it doesn’t have participants pay off their highest interest debts first.

How to Pay Off Credit Cards With a Debt Snowball

In order for any debt reduction method to be successful, you have to be 100% dedicated to getting out of debt.  Follow these steps for setting up and using a debt snowball to pay off credit cards:

1. Make a list of your credit card debts, putting them in order from lowest balance owed to highest balance owed.  Indicate the total balance owed and what the monthly minimum payment for each account is.  If you have more than one credit card that you owe about the same amount of money, put it on the list in order of highest interest rate.  This is the only time you consider interest rates in the debt snowball method of paying off debt.
2. When paying your bills each month, you will pay the minimum payment on all accounts on the list except for the account with the smallest balance.  For your account with the smallest balanced owed, you will send every available dollar you have each month until it’s paid off.
3. When the lowest balance account has been paid off, you then direct the money sent to that account to the next smallest balance on the list.  This is why the method is called a “snowball”.  Each time an account is paid off, your available money gets bigger, like a snowball rolling down a hill.
4. Repeat the process until all credit cards have been paid off.

The snowball method will work with all types of debts, not just credit cards.  It’s a good idea to figure out how much money you make each month and how much you pay in total living expenses when creating your snowball account list, as well.  That way, you’ll know how much money you have available to send each month to the first account on your list after all of your living expenses have been accounted for.

Controversy over the Debt Snowball

Many financial experts question the debt snowball because you aren’t paying off debts in order of the highest interest rate first, and therefore you could be paying more money than necessary to become debt free.

The reason the snowball method works is because you end up making progress right away when you pay off lowest balances first.  As you see your debts getting smaller and paid off, it helps motivate you into sticking with your plan.  Each account that is paid off gives you more money to apply to the next debt on the list. Psychologically, the snowball has the advantage of giving you quick progress.  It’s also an organized method for paying off credit cards, which is an easy to follow plan – you know exactly what to do with your income each month toward your goal for paying off debts.

Set Up A Debt Snowball Spreadsheet

photo credit: GrapeCity

There are a number of budgeting programs available with built-in debt snowball spreadsheets you can use.  Alternatively, you can simply open an Excel, Open Office, or Google spreadsheet and set up your snowball tracking document.  List each of your accounts down the left hand side in order of lowest to highest balance.  Keep track of how much you send each account each month in the cells to the right of the account list.  Using your spreadsheet, you’ll also be able to predict how long it will take to become debt free.

Another way is to compile a simple list and put it on your refrigerator.  That way you’re constantly reminded of your debt and you can track your progress as you mark off each paid card.  This may also give you the motivation you need to pay off your credit card debt even faster.

Consolidate or Balance Transfers While You Wait

One other thing that isn’t mentioned in the debt snowball process is to try and either consolidate your other debt or do a balance transfer on higher interest rate cards while you’re taking care of the initial surge.  That way you can potentially save on interest payments in the process.   If you’re looking for a good balance transfer card, be sure to check out NerdWallet.com.   I think that NerdWallet is one of the best sites for recommending the best credit card offers for your needs.

Nerdwallet.com is not affiliated or endorsed by LPL Financial.

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

There have been many changes with the recent Credit Card Act of 2009 that recently went into force.  Many card holders saw their credit limits drastically reduced or closed all together.  Many credit card holders that have high balances were hoping to be able to lower the rate that they have.  And that’s a common question that many have: Can you lower the interest rate on your credit card?

The simple answer is: Maybe.  Or put another way,  you’ll never know unless you ask, BUT it might not be a good idea (I”ll explain more in a bit).  A study conducted by the U.S. Public Interest Research Group found that more than half (57%) of those who called their credit card issuer and requested a lower interest rate were successful. On average, the rate was lowered by between 7 and 10 percentage points.  Now that is pretty compelling, but it doesn’t always work that way.

How to Get a “Yes” When Asking to Lower Your Rate

While the following don’t guarantee your chances, they will definitely give you a fighting chance.

• Keep a good credit score. A good rating applies both in terms of your payment history with the card issuer and your overall credit score. You are entitled to a free copy of your credit report every year from each of the three major credit-reporting agencies: Experian, Equifax and TransUnion. To save time, log on to www.annualcreditreport.com to access reports from all three. For a small fee, these agencies also provide personal credit scores.
• Don’t let your card balances get too high. You have a history of paying off the entire balance or paying more than the minimum required each month.
• How long have you had the card?. You have held the card for a year or two before requesting the rate change.
• Don’t be labeled “subprime.” The credit card is not marketed solely to consumers with bad credit.

Why You Should Not Always Ask to Lower Your Rate

While the notion of having a lower interest sounds enticing, it might not always be the best strategy.   If your credit history doesn’t have a stellar past, it may be best to keep quiet.   When you do call and inquire about a lower rate, it may trigger the credit card company to do an account review.  That could lead to the opposite effect desired.  Your card company could jack up your interest rate or even cut your limit.   If you are hard pressed to decrease your rate, it would be a good idea to have a backup card that you could transfer the balance to in case your plan backfires.

Tim Chen from NerdWallet adds, “If customer service does not agree to lower your APR, always threaten to cancel the card. You don’t have to go through with the cancellation, because you will be transferred to a customer retention department that has more latitude to give you concessions.”

The Law of Averages

To negotiate successfully with the credit card company, you will have to be prepared. Know what your current interest rate is and make sure that it is not a promotional rate that will expire within a matter of months. Also research what other banks and credit card companies are charging their customers. According to the Federal Reserve, the average interest rate on existing credit card balances is approximately 13.5%.

After you’ve done your research and you have concluded that your interest rate is way too high, it’s time to pick up the phone.  When you first make contact with the customer service rep, be sure to nice but assertive.  There’s no place to wishy washy here.  If you’re met with rejection, don’t give up yet.  There’s always a manager to speak to.  Ask for them and continue to plead your case.  Have all your facts ready: what you can get at the competitor.  Numbers don’t lie and they can’t contest it.  Mention you are going to the competition unless they oblige.  If they balk, then it’s time to make a switch.

Remember: the better your payment record with the card issuer and the higher your credit score, the better your bargaining position.

Doing Your Homework

One final word of advice: Be careful about getting overly zealous in your search for the lowest rate card. Applying for multiple new cards at the same time (three or more inquiries in one month) could cause your credit score to be lowered.

Recently on the blog we had a guest post and interview with Tim Chen from NerdWallet.   His site provides an excellent resource for consumers that are looking for credit cards to suit their needs including the best balance transfer cards.  Tim also advises, “”Always ask to extend your introductory APR period. Some of our users have gotten introductory APR offers repeated 2-3 times in a row.”

photo credit: TheTruthAbout…

This post is featured in Clear Choice Credit Card Carnival

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

Chances are you have a credit card. In fact, according to a survey by the Federal Reserve Bank of Boston, a credit card holder on average will have 3.5 cards. Credit cards are apart of our everyday lives and if not managed properly, could lead to financial ruin. When you are researching what is the best credit card to use, where do you go for information? If it’s the web, how do you know if the information is correct or unbiased?

Tim Chen, the founder of NerdWallet, created the site to be a resource for the everyday consumer that is looking to find a credit card that matches their needs. But how different is NerdWallet from other credit card sites? Simply put, they have around 5 times the number of listings than other credit card sites because they list ones that are not sponsored (no incentives for someone else to offer them).

Recently, Tim and his site were nominated as one of the Top 20 Money Sites by CNN Money. I asked Tim a few questions telling us more about NerdWallet and some credit card tips to help us out.

1 Tim, what inspired to create your site NerdWallet?

Last year I learned about Fidelity’s great 2% rewards card from a friend. I searched the Internet to see if there was a better offer out there, and was amazed to discover the Fidelity card didn’t show up on any credit card comparison sites! While a few had written a review about the card, none listed it on their rewards credit card page.

Thinking this was odd, I called up my sister, an internet entrepreneur. She explained to me that websites have an incentive to only list products that pay them referral fees, and therefore credit card comparison sites will omit good credit cards to steer you towards mediocre credit cards that pay commissions.

Turns out, 90%+ of credit cards are not sponsored. That’s why NerdWallet lists over 5 times as many cards as anyone else. We fill a huge content gap on the Internet – there is simply nowhere else where you can intelligently sort almost every credit card offered in the US.

Why can’t our big competitors do the same thing? Because their revenues would drop over 90%. Most of them are controlled by investors who are focused on short term profitability. NerdWallet has no costs or investors as it exists today. We’re just a couple of nerds with day jobs, some coding skills, and some free time.

2 What are some of the biggest mistakes that consumers make regarding credit cards? How do you feel NerdWallet can help with that?

We can’t help with the biggest mistake – spending more than you make. We can only help find the best rewards or lowest APRs, because it’s a mistake to leave money on the table when squaring off with credit card companies.

In terms of our blog, we focus on using facts to generate common sense recommendations on how to use your credit card. Typical themes are numbers driven recommendations like, “Don’t pay for rental car insurance” and “Don’t pay taxes with a credit card”.

Credit Card Myths

3 When it comes to reward/balance transfer cards, what are the top 3 myths that each consumer must know?

Myth 1 – Always pay with your credit card when possible, so you can collect rewards.

Most small restaurants, jewelry stores, and shops pay 3-4% merchant transaction fees to the credit card company. They also have to report credit card sales to the IRS. Therefore, you should always ask smaller merchants if there’s a discount for paying cash. It’s not very patriotic, but that’s a whole different story.

Also, many discount gas stations don’t accept credit cards, but are much cheaper. You’re usually better off paying cash than paying an extra 17 cents a gallon to pump at Shell with your rewards card.

Myth 2 – Credit card companies lose money if you pay your bills on time.

This is simply not true. Every merchant has to pay the credit card network an “interchange” fee. Mom & pop stores often shell out 3-4%+ of every dollar you spend to the credit card network. Costco gets away with paying almost nothing due to their size.

This tells you two things.

First, if you ever see a 5% rewards card advertised, like some offerings from Discover and Amex, realize that there’s always a catch. They expect your average rewards to be less than 2.4%, the highest average interchange any card issuer gets.

Second, be wary of rewards that are promised to you when you go to a wholesaler like Costco. Many rewards card have fine print to exclude warehouse clubs from bonus categories. For example, if you pump gas with American Express Blue Cash at Costco, you’re not eligible for 5% back.

Myth 3 – Your credit card covers you if you wreck a rental car.

If you get into an accident, only Diner’s club will act as your primary auto insurance. Primary insurance is great, because your auto insurance premiums won’t go up. However, other credit cards that cover rental insurance only act as secondary insurance, meaning you must file a claim with your auto insurance first, and the credit card will pay for some of the other stuff up to a certain point.

While this means you are usually covered for most huge costs, like vehicle damage, you usually get stuck with a “Loss of Use” charge that can easily add up to over $1,000. Generally speaking, Visa and Diner’s Club will cover this, while Discover explicitly does not cover this. American Express and MasterCard claim to cover this charge on most cards, but don’t expect them to pay! They demand that the rental company provide a fleet utilization form showing that every car was rented out during the time it takes to fix the damaged car. Rental car companies usually refuse to provide this documentation, so renters get stuck with the bill. There are also a few hundred dollars in administrative fees that you get stuck with in an accident no matter what credit card you use.

However, despite all this, we’d still never recommend buying the insurance. The cost of the insurance is simply too high compared to what you’ll likely owe.

Unbiased Credit Card Information

4 There are tons of information on web about credit cards. What would you advise a consumer to be on the lookout for?

If you are looking for a rewards card, be wary of anyone advising you to sign up for a credit card with 1% rewards. You can probably average 2-3% rewards if you have excellent credit – our site lists no less than 10 rewards cards with a 2% base rewards rate.

If you are looking for a low APR card, never get one from a national bank like Bank of America or Citibank. The lowest APR rates available are from your local credit union. Compare those rates to our low APR offerings, and you will have a pretty comprehensive understanding of what’s out there.

5 NerdWallet was just nominated by CNN Money as one of the Top 20 money websites. How does it feel to be in with some good company?

It feels great and we are incredibly excited! We were lucky to have such an established journalist recognize the value of our content. She really took a chance by recommending a lesser known website over more established ones. It’s great that word is spreading about our site and we hope traffic continues to increase. Some of the best feedback we’ve received has been from our users, keep the suggestions coming!

Credit Card Tips and Tricks

6 Any last tips to credit card users?

I believe that the solution to fixing your finances isn’t getting a better credit card, it’s swiping credit cards less often. For the necessities, find a good rewards card. Pay it off first, because reward cards tend to have a higher APR. If you absolutely must carry a balance, put your balance on a low APR card, and never miss the minimum payment.

If your goal is to build credit history, plan ahead by avoiding credit cards with annual fees. Why? If you ever plan on changing credit cards, it’s better to leave the old card active but unused, so that it shows up on your credit report as an untapped line of credit. It’d be a drag to end up with 5 unused credit cards, each with $50 annual fees, 20 years from now! This is why we don’t think you should go for one of the many airline cards with juicy signing bonuses and high annual fees.

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

Everyone has heard about how important a good credit score is. Without good credit, you may pay hundreds — or even thousands — more money in interest charges on loans from credit cards to mortgages. In fact, you might not even get that loan in the first place if you don’t have a good credit score. So it becomes a matter of some interest to improve your credit score and do so fast.

photo credit: Alistair Knock

Forget those credit repair places that will do it for you. By law, they can’t do anything for you that you can’t do yourself (for free). There are credit repair places that use “proprietary” methods to give you a boost, but these techniques can be shady at best, and often only short term. It’s not a true fix, since your credit score is likely to revert in a couple of months. If you want a permanent improvement to your credit score, you have to follow responsible credit behaviors, and reduce your debt.

Checking your credit report

The first thing you should do when attempting to improve your credit score is check your credit report from all three bureaus. You are entitled to one free report each year from each bureau. You can go to www.annualcreditreport.com to get a free report from each. If you have already used your free report for the year, you can buy your report for a fairly modest amount. The bureaus each have a 3-in-1 option for between $30 and $50 that allows you to buy all three at once (and maybe a credit score as well).

Look through each of your credit reports. Check for errors and duplicates. Sometimes your account is reported incorrectly, or it may be recorded twice. Contact the credit bureaus, and your creditors, in writing (send via registered mail so you get proof your correspondence was received) about the inaccuracies. Everything should be cleared up within 30 days. Check back to make sure the errors are taken care of. Just fixing some of the errors on your credit report can result in a higher score.

Making other improvements to your credit score

All the other improvements to your credit score need to be made through responsible credit practices. If you want to permanently improve your credit score, there are no shortcuts. One of the best things you can do is to make all of your payments on time, and in the full amount required. Payment history is a big part of your credit score. Even though your utility bills aren’t normally reported to credit bureaus, if you miss a payment, the company may decide to report. So that can negatively affect your credit score.

Paying debt down fast to improve your credit score

Another thing you can do to get a good credit score is to pay down debt. If you have the self-discipline to stop spending more than you can pay off each month on your credit cards, there is no need to cut them up. But you should try to get your debt load as low as possible. Best results are when you are using no more than 30% of the credit you have available on revolving accounts (your credit cards). How much debt you have, in relation to your available balances, is another major factor in your score. You want to keep your debt low.

Finally, consider the type of debt that you have. Get rid of the debt that is considered most detrimental first. Payday loans, car title loans and department store credit cards are considered somewhat second-rate when it comes to debt. Your score will be more negatively affected to some degree when you have these types of debt as opposed to debt from traditional banks and major credit cards.

In the end, it’s up to you to change your habits and build a good credit history. If you work at this, you should see some improvement in 60 to 90 days, and even more drastic changes after 120 days.  There’s no question that the faster you work towards improving your credit score, the faster you’ll see results.

This is a guest post Miranda Marquit is a journalistically trained freelance writer and professional blogger working from home. She is a contributor for Mainstreet.com, Personal Dividends and several other sites. Miranda is not affiliated or endorsed by LPL Financial. The opinions voiced in this material are for general information and are not intended to provide specific advice and/or recommendations for any individual.

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

Secured credit cards are a necessary evil for those wishing to re-build credit after a financial calamity, like bankruptcy, job loss, or marrying the wrong person. They represent some of the worst credit card deals we’ve ever seen, but they are often times a vital stepping stone on the way to rebuilding credit.

photo credit: roujo

Do not despair! We will walk you through (i) how secured credit cards work, (ii) whether a secured credit card is the right choice for you, (iii) choosing a secured credit card, and (iv) why the internet is a terrible place to look for the best secured credit card.

How does a secured credit card work?

Secured credit cards differ from regular credit cards and pre-paid debit cards, mainly because you have to “hand over the money” upfront, as collateral, before you’re allowed to spend any future money. Consider the money you’ve forked over as gone until you shut down the account – you will be charged interest on anything you don’t pay down each month, even if your balance is less than the upfront deposit!

A typical example: deposit $500 to receive a line of credit of $250 to $500. From there on out, your secured credit card behaves much like a normal credit card – if you spend $200, you owe the bank $200 that month, or else you will have to pay interest.

What’s the upside? Even the scummiest of secured credit card issuers typically report your line of credit and your balance to the big 3 credit agencies: Equifax, TransUnion, and Experian. This helps you rebuild your credit.

What’s the downside? Most secured cards have annual fees. Also, you can actually hurt your credit score by spending a big percentage of your credit line and not paying it off. The important number to watch is the ratio of your “balance” versus your “credit line”. It is good to keep this ratio under 30% to improve your credit score, even if it means keeping the balance less than $100 per month, with just a $300 credit line, and paying for everything else in cash.

Is a secured card right for me?

There are other options out there for people with bad credit. A pre-paid debit card gives you the benefits of direct deposit and check deposit for free, and does not require you to post a deposit upfront. However pre-paid debit cards do not report to credit agencies and can be loaded with all sorts of “screw you” transaction fees, monthly fees, and ATM fees (expect to pay at least $100 per year for regular use).

You should only sign up for a secured credit card if you are trying to rebuild your credit. If you cannot afford to post an amount equal to your desired credit line, or do not plan to pay off the card each month, you are probably better off with a pre-paid debit card or cash.

Choosing a secured card.

There are 2 major considerations when picking a secured card.

• Does the card issuer report to the 3 credit agencies?
• Does the card have low fees?

Make sure you get one that reports to the 3 major credit agencies. I’ve never come across one that does not, but make sure you ask nonetheless.

There are vast differences in fees. Some of the most egregious offers (generally internet banks you’ve never heard of) charge $10 per month in maintenance fees, with all sorts of other ATM & usage fees buried deep in the fine print. Generally speaking, avoid anything that ranks poorly on NerdWallet’s Pre-Approved Credit Cards page, which ranks cards by rewards minus fees.

There are two advantages to sticking with local credit unions or national banks you’ve heard of: (i) their fees are much lower, and (ii) you are more likely to get free ATM access, and (iii) you often get the option to switch to an un-secured credit card after 1-2 years of good behavior.

If you are lucky enough to be affiliated with the Department of Defense, or can easily marry or adopt someone who is, I recommend you  stop reading right now and get the Navy Federal Credit Union Rewards Secured card. It has no annual fee, and a 1% rewards rate!

Other consumer friendly options include Wells Fargo Secured Visa and Fifth Third Bank Secured MasterCard, which offer annual fees of $18 and $24 respectively. Basically, most of the major national banks involved with the financial meltdown can get you a secured card with an annual fee of less than $40.

The internet is a terrible place to look for the best secured card.

The worst card deals out there are the ones that pay websites big commissions to refer over traffic, so that the card issuer can gouge your eyes out with fees.

Secured card wall of shame (watch out for these “shockers” buried in the fine print):

1. New Millennium

• $49 processing fee to open the account
• $59 per year fee
• The shocker: There is no grace period so you have to pay interest even if you pay off your card in full each month.

2. RushCard

• $119.40 per year fee
• The shocker: RushCard charges you $0.50 to check your balance at an ATM machine!

3. First Premier Bank Secured Visa

• $95 application processing fee
• $75 annual fee
• The shocker: 23.9% APR!

Pre-paid card wall of shame (watch out for these “shockers” buried in the fine print):

1. Account Now

• $119.40 per year fee
• The shocker: $15.95 account closing fee.
• Mini-shockers: $2.50 ATM fee. $1 ATM balance inquiry fee. $0.40 ATM decline fee. $2.95 Monthly statement fee (free online). $9.95 monthly maintenance fee.

2. Silver

• $47.40 per year fee
• The shocker: $14.95 card cancellation fee.
• Mini-shockers: $9.95 activation fee. Additional $3.95 if card is inactive. $0.95 per use fee. $1.95 ATM fee. $0.95 ATM balance inquiry fee. $0.95 ATM balance inquiry decline fee. $2.95 per month paper statement fee. $4.95 card replacement fee. $1.95 per customer service call fee!

3. Vision

• $83.40 per year fee
• The shocker: You get charged an extra $4.95 per month for “inactivity”, which is triggered if you don’t spend $1000 in a month!
• Mini-shockers: $9.95 activation fee. $1.95 ATM fee. $0.50 ATM balance inquiry fee. $0.95 ATM balance inquiry decline fee. $2.95 per month paper statement fee. $4.95 card replacement fee. $14.95 cancellation fee. $15 per month Umbrella protection service fee. And no, there’s no plain English explanation as to what an “Umbrella protection service” is…

Get your life back on track!

Legally, a bankruptcy can remain on your credit report for up to 10 years. Living on a cash only diet is fine if you don’t need to loan money for a car or house in the future, or can’t handle credit. Otherwise, it’s smart to get yourself back on track with a good secured credit card. But please, for the love of your wallet, read the fine print.

This is a guest post by Tim Chen, founder of NerdWallet.  His passion is educating consumers on the ins and outs of credit cards and helping them make better decisions on what cards to use and which ones to avoid.  Tim is not endorsed or affiliated with LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

Guest Post by Miranda Marquit

Filing for bankruptcy is normally a very difficult decision. While there are those that file for bankruptcy in an attempt to avoid paying their obligations, many bankruptcy filings come after months of agonized consideration as a person attempts to gain relief from a debt situation that has become untenable. One of the main causes of a bankruptcy file is medical bills; these expensive obligations can often push someone over the edge. However, even if you feel that bankruptcy is the only way out for you, it is important to carefully consider your options, since a bankruptcy has far-reaching effects on your financial history.

photo credit: taberandrew

Discharging your debts

The point of bankruptcy protection is to discharge some of your debts to creditors. However, if you have secured debt (a home or a car), you have to reaffirm that you plan to pay this debt if you want to keep the item in questions. As long as you are current on your mortgage or car payments, and you reaffirm that you will continue to make payments on this debt, these possessions will remain with you. (Note: This is why it is so important to make payments on your secured debt before your unsecured debt.) For smaller items, such as computers or TVs from rent-to-own places, creditors have the right to ask for the item back — especially if you have been using credit cards to make your regular payments.

After you have reaffirmed your secured debt, you and your attorney will meet with a trustee who will review your other debts. It is important that you are honest with the trustee about your debts and your financial situation. Additionally, you should avoid applying for new credit, or using credit for purchases once you file for bankruptcy. The court wants to see that you are attempting to get back on your feet. Applying for a new credit card can scuttle your case. The trustee will make recommendations as to how much of your debt should be discharged. It is important to note that when you file for bankruptcy, it does not automatically mean that all of your debt will be forgiven. The court may order you to make smaller payments to repay part of your obligations to creditors, depending on your financial situation and what you can afford. Also, federal student loans are never discharged during bankruptcy. You remain responsible for those.

It is worth noting that when you file for bankruptcy, your creditors are no longer allowed to contact you. This is important. They can no longer call you, trying to collect on the debt. If they do call you, let your attorney know so that the offense can be dealt with properly.

Bankruptcy file and your credit score

Bankruptcy can have a devastating effect on your credit score, lowering it anywhere between 300 and 600 points. Additionally, a bankruptcy will remain on your credit report for up to 10 years. This can make it difficult to borrow money in the future. While you can usually buy a home two to four years after a bankruptcy (depending on whether your credit is improving), you will probably not be eligible for the best interest rate. You may also have difficulty getting auto loans at good rates, and your credit lines will be restricted when you open credit card accounts. You might need to use secured credit cards for a time to help build your financial reputation again.

If your bankruptcy was the result of a some sort of financial catastrophe (medical problems, job loss and a long period of unemployment, etc.), you can add that as a note in your credit history. This can be entered electronically at the web sites of the three major credit bureaus. You may also be required to provide a letter describing the events that led to your bankruptcy, as well as the steps you are taking now to build a more secure financial foundation.

Bankruptcy file is not the end

While a bankruptcy is not the end of the world, and while it may be the only option in some cases, it is important to understand the impact it can have long-term, as well as understand that it is far from a free pass.

This is a guest post Miranda Marquit is a journalistically trained freelance writer and professional blogger working from home. She is a contributor for Mainstreet.com, Personal Dividends and several other sites. Miranda is not affiliated or endorsed by LPL Financial. The opinions voiced in this material are for general information and are not intended to provide specific advice and/or recommendations for any individual.

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

This is a guest post by Carrie Davis who is a personal finance blogger at SpendOnLife.com.

Some cases of identity theft are pretty minor. Maybe you notice a couple transactions you didn’t make on your credit card statement, and a quick call to your bank about the fraud resolves the issue. But other forms of identity theft can be a nightmare to recover from, and can wreck your credit score in the process. Here’s how it happens.

Personal identifying information gets into the wrong hands

In today’s world, there are so many ways for identity thieves to get hold of our personal identifying information. Each time we buy something online, fill out paperwork at a doctor’s office, or even throw a financial document away in the trash, we are risking our identities. Fraudsters can do all kinds of things with one or more pieces of identifying information, such as our name, date of birth, Social Security number, or PIN number. They can open bank accounts, apply for credit cards and other loans, sign up for cell phone service or another utility, rack up medical costs, or, worst of all, sell our info on the black market which multiplies the potential for damage.

How an ID thief can wreck your credit score

When someone else takes out a loan in your name, what’s their incentive to pay back the debt? That’s right, pretty much nil. They rack up debt in our names, and leave us holding the bag. In fact, you may not even know an identity thief is working against you until you get a notice from a collection agency saying you owe money. By that point, you can bet that your credit score has already taken a nosedive.

Your credit score is the key to appearing like an upstanding, responsible citizen in the eyes of a lender. Your score is based on the information found in your credit report. An identity thief’s actions can add negative activity to your credit report, which in turn lowers your credit score, limiting your ability to qualify for new loans. Many a horror story exists in which an identity thief made it impossible for the victim to get a new, desperately needed loan.

Here are four ways an identity thief’s actions can show up on your credit report and lower your score:

• New credit inquiries: Each time an ID thief applies for credit in your name, the lender is likely to check your credit report. These credit checks (also called “inquiries”) appear on your credit report and typically ding your credit score by a few points.
• New loans or credit cards: New loans or credit card accounts taken out by an identity thief don’t necessarily hurt your credit by themselves. The problem starts when those accounts become delinquent because the ID thief isn’t paying the bill. Your credit score takes a hit each time a month of non-payment passes.
• Collections accounts: After a certain period of time (usually six months to a year), lenders turn unpaid debt over to a collection agency. When this happens, a collection account appears on your credit report, and that has a very damaging effect on your credit score. Medical identity theft often results in a collection account: Thieves use your information to receive medical services or treatment, and when those debts go unpaid, the medical provider sends the debt to a collection agency.
• Unpaid cell phones or utilities: When a thief opens a wireless plan or home utility using your personal information and doesn’t pay the bill, those providers are likely to report the default to the credit bureaus. This results in a negative account appearing on your credit report, which hurts your score.

What you should be doing

There are two very important things you should be doing to prevent and monitor for identity theft:

First, protect your identity as much as you can.

You don’t have to give every salesclerk or waitress the evil eye when you hand over your credit card to, but a healthy dose of caution can go a long way. Start by checking out these great tips for shopping safe online. Shield your PIN and Social Security number from lingering strangers. Shred your financial mail, and don’t leave bank statements, checks, or tax paperwork sitting in your mailbox. And don’t fall for phishing schemes! If someone calls or e-mails you asking for personal or account information, chances are they are trying to scam you.

Second, check your credit reports often.

Each major US credit bureau (Experian, Equifax, and TransUnion) maintains credit history for us. Under the Fair Credit Reporting Act, we are legally entitled to a credit report from each bureau once a year at absolutely no cost. Go to annualcreditreport.com, the government-run website, to get yours. Look for accounts and credit inquiries you don’t recognize as well as incorrect personal information. These could be signs of someone tampering with your credit.

If you don’t regularly check your credit, there’s no other way to know if someone is out there using your personal information to his advantage. If you do discover that you have fallen victim to fraud, you’ll need to file disputes with the credit bureaus, contact your bank(s) immediately, and possibly even file a police report. For more information on recovering from identity theft, download the free Identity Theft Recovery Guide from SpendOnLife.

This is a guest post by Carrie Davis who is a personal finance blogger at SpendOnLife.com, a site dedicated to giving readers true and accurate information about credit, debt, and identity theft. She is FCRA-certified and has a passion for educating others on how to achieve financial independence.

Jeff Rose is a registered represented and Securities offered through LPL Financial, Member FINRA/SIPC

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.