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Monday, February 9, 2009

Some card deals can damage your credit

There are some credit card related deals which take a severe toll on your credit instead of acting for it. These deals are totally enticing for cash-strapped users, who try to make it through the holidays. But these apparently loocrative deals would massively damage user’s credit profile in the long run. Sheryl Garrett, a certified financial planner said, "Consumers need to be aware that all credit isn't good credit and that some credit may get you into worse financial trouble than you're already in." This fact has also been supported by Gail Cunningham, the hon’ble spokesperson for the National Foundation of Credit Counseling (NFCC).
I would like to make you aware of such credit card offers that you should stay away from.

Store Credit Cards
Paying for that pricey cashmere sweater is a lot easier to stomach when you get 10% off just for opening a store credit-card account. Just be prepared to feel a little queasy when you see what that card does to your credit score.
We know well that when a consumer sends application for a credit card, an inquiry on his credit history and on his overall financial condition and capability is carried out. This may slightly lower his credit score, says Paperno. On other hand a consumer's credit utilization is increased by many store credit cards which carry low credit limits. But the biggest demerit of these cards: they charge dangerously high interest rates. For example, A Macy's (M: 10.30, -0.63, -5.76%) credit card bears 22.9% annual percentage rate (APR); in case of making 2 late payments (either consecutive or twice in a six-month period) APR increases upto 24.9%

Variable Interest Rates
Before applying for any variable interest rate card all customers should read the fine print to sense the highest extent the interest rate can increase upto. Each credit card bears a variable interest rate; based on card issuer’s decision, it may rise or fall at any time. A sudden spike in interest rates often makes the consumer unable to pay his full balance amount; this, often, severely acts upon their credit score and credit report. Of course, customers can also find and go for a fixed interest rate card, though this type of cards are not much available. Besides fixed-rate cards have their own drawbacks, like…the Pulaski Bank Visa (V: 55.62, -0.14, -0.25%), for example, offers a 6.50% fixed APR. In case of any missed payment the rate increases upto 22% .

Balance Transfer
We often receive the 0% card balance transfer checks in our mails which tempts us to use them; but be careful…… the credit card you are transferring the balance to MUST NOT carry a lower credit limit than the one you are transferring the balance from. Otherwise, that transaction would affect your credit utilization rate and thus, reduce your credit score. These kinds of balance transactions may increase your debt too, for these balance transfer deals usually charge fees upto 2% to 4% of the total amount being transferred. So you have to pay around $80 on a balance transfer of $2,000.

Overdraft Reserve Accounts
Most of the banks offer overdraft reserve accounts to the willing checking account customers. There is a positive point of reserve account: it cuts the pesky overdraft fees imposed by all banks. The negative point: account holder has to pay back the balance immediately in case he dips into that account. Otherwise, a blackmark of late payment comes in their credit history which affects their credit score. Your regularity and timeliness of payment making are two most important factors considered for building your FICO scores, a source confirmed. They account for 35% of your total FICO score.


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