For some drivers, the fear of scams, overcharging, and government surveillance still outweighs the benefits of E-ZPass. They pay cash because they like talking to toll takers, too.
That question was posted at a Yelp forum … in 2007. The puzzled, frustrated individual asking the question pointed out that E-ZPass is “free and it saves so much time. It also reduces traffic for everyone. Someone, please please please tell me why everyone doesn’t have it?”
And yet, here we are, seven years later, with one of the year’s busiest road trip weekends upon us, and there will still be drivers backed up in gigantic lines at toll booths to pay cash—clogging up traffic in general while they’re at it—because they don’t have E-ZPass accounts. If anything, it’s even more difficult now to get around by car without an E-ZPass or another toll-paying transponder from a corresponding program, what with the expansion of cashless toll roads across the country. So what gives?
The Boston Globe recently reached out and talked with some “conscientious objectors” who refused to get on board with E-ZPass. Their reasons for sticking with cash and enduring longer-than-necessary waits at toll booths include:
They are concerned about government surveillance. They are apprehensive about erroneous fees charged automatically to their credit cards. They disapprove of eliminating good jobs held by toll takers for decades. And they would miss the small social exchanges with toll takers, the face-to-face contact, as they pass over their fare.
Is there validity to these concerns? Well, sure, there’s some. One of the big reasons states are pushing for cashless tolls is because doing so allows them to cut costs by getting rid of toll taker salaries. And there’s certainly nothing wrong with wanting to take a stance to help protect these workers and human contact in general in an increasingly cold, impersonal, automated world.
As for privacy and mistakes that could cost account holders money, there’s some evidence that they too are of legitimate concern. Occasionally, credit card errors or payment mix-ups result in huge bills for account holders. In one notorious case in the Seattle area, a couple with a Good to Go pass—a program that’s similar to E-ZPass—got hit with a bill for $8,346.82 because when their bank merged, the pass account was never updated, and tolls went unpaid for months. (The fines for nonpayment far surpassed the actual tolls themselves.)
By far, though, the biggest thing motivating E-ZPass refuseniks is the privacy issue. Bloggers have raised alarm bells by spreading word that the police and other authorities track E-ZPass travels all over metropolitan areas, not just at spots where tolls are paid. This summer, states such as Pennsylvania warned that phishing scammers somehow got hold of the email addresses of E-ZPass holders and were trying to get more personal information via fraudulent messages. The FTC later issued a national warning about phishing scams related to E-ZPass.
“Do I really want the government to keep a paper record on my comings and goings? No,” one E-ZPass-refusing driver told the Boston Globe. “It’s a slippery slope. Where does it end? I don’t like the trend.”
Still, considering the recent history of NSA surveillance programs and the news that a billion passwords were stolen by Russian hackers, it’s not like dumping your E-ZPass account is suddenly going to protect you from all forms of identity theft and other scams. In fact, privacy and Internet security experts generally say that everyday transactions like credit card payments and logging into email and other online accounts should be of far higher concern than using an E-ZPass.
None of this negates the need to be vigilant about protecting one’s personal information, of course. All in all, most people understand the individual’s fear of hackers and discomfort with government surveillance. Most people respect the individual’s right to make a stand about protecting privacy and workers’ jobs. It’s just that the vast majority of drivers would prefer that people wouldn’t be making this stand during Labor Day Weekend, when doing so makes already crowded roads and annoying tolls even more of a pain.
Even if you have good credit
Even if you think you have good credit, even if you get a “preapproved” credit card offer in the mail, you can still be shot down when you apply for a credit card. What gives?
Credit experts say there are a few obvious reasons — like blowing off bills regularly or having a recent bankruptcy — that can get you denied. There are also some more surprising reasons why you might have trouble getting a credit card.
You don’t have enough credit. Some people pat themselves on the back for having only a single credit card, or none at all. No credit cards or other obligations like mortgages or car loans, may mean you’re just frugal and really good with your money. But it makes you a cipher to credit card companies. “Lenders prefer being able to review a track record of how a person has managed credit in the past,” the National Foundation for Credit Counseling says. Without that, there’s a good chance they might not gamble on the unknown.
You’re going too fast. “It’s a red flag if a person is attempting to obtain too much credit at one time,” the NFCC says. Yes, this might seem counter to the idea that you need to build up your credit to get more credit. The key, though, is to build that credit history slowly. If an issuer sees that you just got a few new credit cards, they might wonder if you’re going to be able to handle one more.
You fell for that “preapproval” pitch. All that junk mail you get that says you’re preapproved doesn’t mean a thing, says Gerri Detweiler, director of consumer education at Credit.com. “Those offers are prescreened, but when consumers respond, an actual, full screening will take place,” she says. That more extensive look at your finances could catch a red flag the system’s earlier, less in-depth review missed.
You follow the 30% rule. The conventional wisdom is that you should keep your credit utilization ratio — that is, how much credit you have outstanding as a percentage of your credit limit — to 30% or lower. In reality, even a reasonable-sounding 30% might be too high for some skittish lenders. “The lower the utilization ratio the better,” says Curtis Arnold, founder of CardRatings.com. The amount of debt you have makes up 30% of your FICO credit score, so too much outstanding debt compared to your limit (that’s both per card and in the aggregate, FYI) can turn off a lender.
You’re double-dipping. “If you are trying to take advantage of the same bonus offer you already nabbed, your application may be denied,” Detweiler says. On a related note, if you already have multiple cards from the same issuer, you may not be approved for another one, Arnold says, especially if you’re trying to hit up the same bank for a balance transfer deal.
Somebody else messed up. Mistakes happen, and one on your credit report can keep you from getting a card, says Odysseas Papadimitriou, CEO and founder of Evolution Finance. Go to annualcreditreport.com to see your credit report for free. Don’t fall for similar-sounding sites; they might be trying to sell you an expensive credit-monitoring subscription. Go through the report and, if you find a mistake, Papadimitriou says sites like CardHub.com (which his company owns) offer guides for how to dispute credit report errors.
Millennials prefer to pay with plastic over cash, a new CreditCards.com study finds—but all that swiping may be unravelling their budgets.
Millennials don’t shop like their parents—and increasingly, they don’t pay like their parents either. Studies have already shown that many of them have chucked the checkbook (if they’ve ever had one); and they’re more likely to forego cash as well, a poll released today by CreditCards.com found.
Asked how they typically pay for purchases under $5, 77% of people over 50 surveyed preferred cash to debit or credit, while just 48% of people between 18 and 29 use paper money. The fact that millennials are using cards to pay for even such small expenses suggests they’re probably using plastic for most purchases.
And when they’re swiping, this group also uses debit (37%) vs. credit (14%) by a larger margin than any other cardholder group.
What millennials may not realize is that choosing plastic—even if it’s debit—over paper could be costing them.
Research has suggested that we’re inclined to spend more when we swipe. A 2008 study published in the Journal of Experimental Psychology found that physically handing over bills triggers an emotional pain that actually helps to deter spending, while swiping doesn’t create the same aversion. As a result, the study found, cash discourages spending whereas plastic encourages it.
In addition, a 2012 study from The Journal of Consumer Research found that shoppers who pay with plastic focus more on the benefits of the purchase than the price, while those who pay with cash focus on price first. In other words, we’re more likely to make the decision to purchase an item when we know we’ll be charging it.
Further fueling our natural tendencies to spend more with plastic—a.k.a. “the credit card premium”—is the fact that many shops and bars mandate that you spend a minimum amount to use your card. So if you were planning to use the card anyway, you might pad your purchase to get to the minimum required.
All this spending on plastic also can cause you to rack up debt or overdraft fees, if you’re not swiping mindfully. And many members of Gen Y are not, it would seem.
For example, millennials are more likely than any other age group to overdraw their checking accounts, the Consumer Financial Protection Bureau found. About 11% of millennials overdraft more than 10 times a year, and these overdrafts were typically for small purchases under $24 and were paid back within three days. With the median overdraft fee equaling $34, borrowing $24 for three days is like taking out a loan with a 17,000% annual percentage rate, the study found.
Of course, we can avoid paying the credit card premium by just using cash. But if you won’t remember to go to the ATM, at least take a second to close your eyes the next time you’re about to buy something using plastic: Think about the price of the item and how it will impact your bank account. You might even give yourself a 24-hour cooling off period to think over any nonessential purchases.
Avoid overdrawing or getting in over your head in debt by reviewing your bank and/or credit card account online once per day, or by using an app like Mint.com, which lets you track all your accounts in one place. Also, consider setting alerts at your bank or credit card website to let you know when you’re approaching a certain balance—this can keep your spending in check.
Money 101: How Do I Figure Out My Financial Priorities?
Money 101: How Do I Create a Budget I Can Stick To?
More than half of students admit they keep financial secrets from Mom and Dad, a new survey finds. And one of the biggest may be how much debt they're racking up.
It is an American rite of passage. Little Johnny finally grows up, goes off to college, and starts handling money on his own. He probably spends a little too much, and racks up some debt.
Does Johnny tell mom and dad the truth—or keep it a secret?
More than half of college students (55%) admit they hide information from dear old mom and dad about all that money they are spending, according to the 2014 RBC Student Finances Poll. But only 33% of parents realize that’s the case.
Another disconnect: While 90% of parents claim to be on top of how much debt their kid owes, just 78% of students agree their parents are up-to-speed on their finances.
Welcome to a college course that is not really on the curriculum, but that every student is grappling with. Call it Secrets and Lies 101.
“It may be that a student doesn’t have as much money as their peers, and is trying to keep up with what their friends are doing,” says Christine Schelhas-Miller, a retired faculty member at Cornell University and co-author of Don’t Tell Me What To Do, Just Send Money: The Essential Parenting Guide to the College Years.
“Or they may be getting lots of credit card offers, and naively sign up,” Schelhas-Miller adds. “Then they’re not sharing this information with parents, because they’re afraid of getting into trouble.”
Of course, money disconnects between parents and kids are nothing new. In fact they are par for the parenting course, whether they revolve around tooth fairy money or allowance sizes.
The difference when kids reach college is that the sums involved are taken to the next level. Serious money, which can, in turn, have very serious consequences, like debt accumulation or poor spending habits that could dog families for years to come.
After all, the average Class of 2014 graduate with student-loan debt is in hock to the tune of $33,000, according to Mark Kantrowitz, publisher at Edvisors, a site about planning and paying for college. That’s the highest number ever.
The potential scenario, for a college student whose only financial-planning experience has been with Monopoly money? A couple of adviser Darla Kashian’s clients were gobsmacked to find out that their kid—unbeknownst to them—had blown through a significant inheritance in his last years of college, to the tune of tens of thousands of dollars.
“They didn’t know what he had done, and were astonished to find out,” says Kashian, who is an adviser with RBC in Minneapolis. “In their minds, he was using the inheritance to pay off his student loans, and now he was returning home with lots of debt. He was totally unprepared.”
Of course, students may suspect how badly they are screwing up financially. According to the RBC poll, 26% of college students admit they may be doing damage to their credit rating. Only 17% of parents think their little angels could possibly be doing such a thing.
Such blind loyalty to one’s offspring isn’t cute; it’s actively harmful. But when it comes to such a delicate and emotional topic, many parents just don’t know where to start.
“It’s like the sex conversation: Parents are worried about how to even bring it up,” says Schelhas-Miller. “But they need to get over that hurdle, and think of it as a big part of their parenting responsibilities.”
Her advice: Arrange a pre-emptive strike, and have The Talk over the summer, before your kid even heads off to campus. Then arrange for regular money conversations throughout the school year—maybe once every couple of weeks, or maybe once a semester, depending on how responsible they are—to ensure budgets stay on track.
If you just avoid the subject and table the conversation for later, an unprepared college kid could stack up debt very quickly indeed, and it could be too late.
Kashian is a fan of online budgeting tools like Mint.com, a unit of Intuit, which can be set up to allow access to both parents and their kids. That, of course, requires plenty of trust from both sides.
“That way you can have real transparency, and open up a dialogue about the spending that is happening—instead of just shaming and screaming.”
More on student debt:
Send your kid off with one of these options this fall, and you'll sleep better at night.
You’ve no doubt heard harrowing stories of college students applying for their first credit cards, then racking up thousands of dollars in debt. It’s the stuff of parents’ worst nightmares.
The CARD Act of 2009 lessened the potential trouble students could get themselves into. The law mandated that, in order to qualify for a card, applicants must be over 21, get an adult to co-sign or prove they earn enough money to make payments.
But it’s left many parents of underclassmen with a tricky decision. Do you sign on the dotted line for your kid—thus putting your own credit score on the hook if your kid doesn’t pay the bill?
Shielding Junior from having his own credit card may seem sensible, but it’s penny-wise and pound-foolish. Length of credit history accounts for 15% of one’s FICO score. So by protecting your son or daughter from plastic, you are inadvertently hurting his or her creditworthiness. You also miss out on the opportunity to handhold him or her through an important financial lesson.
Of course, striking a proper balance between the value of credit and the dangers of its excess is paramount. Revolving debt hurts a credit score, too, and can be very costly to a kid living on a ramen budget—with APRs averaging 15% and as high as 23%.
Three options for you to consider, depending upon how much risk you think your newly emancipated child can handle:
The Training Wheels: A secured card or a low-rate, low-limit unsecured card.
If you are worried that terms like “credit limit” and “due date” will be lost on your child, you might want to sign him up for a secured card, which uses cash as the credit limit collateral.
The benefit is that Junior won’t be able to spend beyond the cap, so it’s a good way to give him practice using a card of his own without doing a lot of damage to your finances or your credit score. The downsides: You’ll have to front the cash. And unless you set a large credit limit, he may use a high percentage of his available credit, which is bad for his credit score (ideally he should use no more than 20%).
Alternately, if you don’t want to put up your cash as collateral—or your kid has enough income to qualify on his own—you might start him off with an unsecured card that has a low rate and a low credit limit. This also pens him in until he demonstrates reliability.
Once he proves himself able to handle either of these cards, have him shift to one of the advanced cards in the next category.
The picks: MONEY’s Best Credit Cards winners Digital Credit Union Visa Platinum Secured or Northwest Federal Credit Union FirstCard Visa Platinum.
The APR on Digital Credit Union’s Visa starts at a low 11.5%. To apply for this secured card, you do have to be a member of the credit union, but that be accomplished with a $10 donation to Reach Out for Schools.
The FirstCard’s rate is even lower—a fixed 10% APR (most cards today are variable rate). This card, which has no annual fee, is designed for people who don’t have a credit history: It requires applicants to take a 10 question quiz on credit knowledge and has a credit limit of just $1,000.
The 10 Speed: A rewards card
Cards that offer rewards typically have higher APRs than those that don’t. So if you child revolves debt on one of these cards, he’ll likely erase the perks earned.
Thus, rewards cards are best reserved for those students who’ve already proven themselves capable of paying off a secured or low-limit card in full and on time for a year or so. These are also good choices for those students who are over 21.
The no-fee Journey gets your kid 1% cash back on everything, but the reward is bumped up by 25% every month he pays his bill on time. “This is a good card for incentivizing students to have the right behavior,” says NerdWallet.com’s Kevin Yuann. There’s no foreign transaction fee (a plus for those studying abroad), but a late payment fee of up to $35 and a steep 19.8% APR should scare away parents who aren’t sure about their child’s bill-paying vigilance.
The It, which also has no annual fee and no foreign transaction costs, gets your kid 2% cash back on the first $1,000 at gas stations and restaurants each quarter, and 1% for everything else. Because of the extra rewards for gas, the It is a good card for commuters, says Yuann. Cardholders also receive a free FICO score, derived from TransUnion data, on monthly statements.
While there is no fee on the first late payment, your child will pay up to $35 after that; and after a six-month no-interest window, the APR ranges from 13% to 22%.
Whichever card you end up co-signing for your child, definitely make sure you ask to get account access—and sign up for balance alerts so that you know when you need to swoop in for a teaching moment.
FICO is decreasing the impact of medical debt on credit scores, which should make it easier for consumers to get loans.
Unpaid medical bills will carry less weight on FICO scores -- and late bills that get paid off won't count at all.
A change in the way credit scores are calculated means consumers may soon have an easier time getting a loan and could begin paying lower interest rates on their credit cards.
Fair Isaac, the company behind the widely used FICO credit scores, announced Thursday that it will no longer reduce a consumer’s score for late bill payments if those bills have been paid off.
It will also reduce the impact of unpaid medical bills on FICO scores. Under the new model, which will become available this fall, consumers with a median credit score would generally see their score rise by 25 points if their only major late payment is an unpaid medical debt.
“The new ruling looks great,” says Credit.com’s Gerri Detweiler. “These are changes consumers and consumer advocates have been hoping for for a long time. The one big warning is that these changes won’t happen over night.”
The changes comes after May report from the Consumer Financial Protection Bureau found that consumer credit scores are “overly penalized” for medical debt, which it said often does not accurately reflect their credit worthiness.
“Getting sick or injured can put all sorts of burdens on a family, including unexpected medical costs. Those costs should not be compounded by overly penalizing a consumer’s credit score,” said CFPB director Richard Cordray in a statement at the time. “Given the role that credit scores play in consumers’ lives, it’s important that they predict the creditworthiness of a consumer as precisely as possible.”
That pushy salesperson won't tell you about a retail card's exorbitant interest rate or the potential damage to your credit score.
Look, we get it: When you’re living on a budget, every discount helps.
So it’s no wonder that you’re tempted when the salesperson at your favorite store asks, “Would you like to save an additional 15% by signing up for our credit card?” A study from earlier this year by CreditKarma found that one in five Americans said yes at least once over the previous two years.
Next time, though, think twice. A new analysis by CreditCards.com reveals just how much damage retail cards can do to your budget.
The average annual percentage rate on these cards, the study found, is a massive 23.23%, up from 21.22% in 2012. That compares to 15.03% on general-use cards today.
If you pay your bill off in full every month, you’ll never be affected by that subprime-like rate. But if you carry a balance, notes John Ulzheimer, a credit expert at CreditSesame.com, “whatever discount you got at the register will be eaten away really quickly, and you’ll end up paying more for the merchandise than you would have if you’d used a general-use card.”
CreditCards.com ran the math, and someone who charges a $1,000 TV and pays only the minimum would need 73 months to pay off the debt and incur $840 in interest charges over that time. With the average card, it’s 56 months and $396.
So much for that $150 discount. Instead of getting the TV for bargain rate of $850, you’d be paying $1,690.
The Really Long-Term Cost
There’s another downside to retail cards: They have the potential to cut down your credit score.
First off, a few points are shaved off every time you apply for new credit. Then there’s the fact that any new card will reduce the average length of your credit history, and this makes up 15% of your FICO score.
But the greatest impact these cards can have on your score is due to something called your utilization ratio, or how much of your available credit you’re using both on each card and across all your cards. A hefty 30% of your FICO score is based on your available credit. Problem is, store cards have very low limits, making it very easy to leverage these cards to the hilt.
If a store card is your only card, and it has a $750 credit limit and you’re using $500 of it, you’ve got a 66% utilization ratio, which could send your score south of the benchmark required to qualify for the best terms on loans. “And if you’ll end up with a higher interest rate on an auto loan and home loan, that $20 in savings [from the upfront discount] is not worth it” says Ulzheimer. You could end up paying thousands more over the life of a loan.
As an example, let’s say you were taking out a $200,000 on a 30-year fixed-rate mortgage. With a 760 FICO score (out of 850) you’d qualify for the lowest rate of 3.83%, according to FICO. If your score were 100 points lower, your rate would be 4.45%—and you’d pay an additional $25,662 over the life of the loan.
“Comparatively $500 on a total available credit limit of $20,000 is a 2.5% utilization, which is immaterial,” says Ulzheimer. It probably won’t affect your score.
Who Can Risk It
So if you’re someone who’s already got a stable of cards and is vigilant about paying them all off in full, adding a retail card is probably fine once in a while. But reserve it for those times when you’re making a really big purchase—like buying a mattress or closing out your wedding registry—when the discount will add up to real money.
Or, get a card from a retailer you really do purchase a lot from anyway, since you could benefit from ongoing perks. Of the 36 retailers that CreditCards.com surveyed, 22 offered low-rate introductory financing, instant rewards, or both. Several offered special deals available only to cardholders.
No matter what, definitely don’t open an account within a month of refinancing or applying for a mortgage.
Money 101: How do I improve my credit score?
Money 101: How do I pick a credit card?
Money 101: How do I get rid of credit card debt?
Federal Reserve meetings aren’t high on most people’s list of interesting things, but if you have a credit card and carry a balance, you should probably start paying attention to what America’s top money policymakers are talking about, because it’s going to affect your monthly bill.
During last week’s Federal Open Markets Committee meeting, analysts were listening closely to tease out a sense of when the central bank will raise interest rates — always an endeavor that’s one part math, one part reading tea leaves.
A rate hike might not come right away: CNN points out that Fed chair Janet Yellen wants to see higher wages along with lower unemployment. Although unemployment is ticking down, wages are stuck in a rut.
“There are no such signs evident yet, but we expect that to be the big story in the second half of this year,” Capital Economics chief U.S. economist Paul Ashworth tells CNN.
But a hike might come sooner than expected, CNBC argues, if either the labor market gets better faster or if Fed members get spooked about inflation. “I think pressure is really growing to do something in January,” Peter Boockvar, chief market analyst at the Lindsey Group, tells CNBC. .
Bottom line: It’ll probably happen sometime next year. This means you have, at maximum, maybe a year and a half before your credit card bills jump.
The reason why is because most of us these days have variable credit card interest rates, with our APRs tied to the prime rate. The prime rate is the Federal Funds rate plus 3%, and today, prime is a mere 3.25%. Then the card issuers tack on a percentage they determine, and we swipe away.
Banks dropped fixed interest rates en masse in advance of the CARD Act kicking in a few years ago because the law prohibits them from hiking fixed rates on existing balances except with a few exceptions. Banks wanted to be able to raise what they charge us when interest rates rise, so they switched over to variable rates.
After the Fed makes its move, rate increases will happen quickly. “Within a few months after the prime rate eventually starts going up, card holders will also likely see their APRs going up,” says John Ulzheimer, president of consumer education at CreditSesame.com.
Ulzheimer says it’s most likely issuers will adopt a straight pass-through of any hike in the prime rate; in other words, if the rate goes up by 0.5%, your APR will, too. And credit card companies aren’t required by law to give you a 45-day heads-up that a jump in your interest rate is coming.
Obviously, the bigger your balance, the more this will affect your monthly payment, so it’s a good idea to start chipping away at that debt now.