Card issuer rules vary, as do state laws.
From time to time we bring you posts from our partners that may not be new but contain advice that bears repeating. Look for these classics on the weekends.
“May I see your ID, please?”
You may never give a second thought to a store clerk’s request for identification when you pay with a credit card. But as long as you have signed your card, you may not be required to show that ID to make a purchase.
The question of whether it’s a good idea to present an ID sparks plenty of debate between those who see it as a deterrent against fraud and those who think it creates an unnecessary privacy risk.
Networks hold the cards
While some states have laws barring a cashier from writing down your ID information, the card networks — Visa, MasterCard and the like — have the most say in whether merchants can even ask for identification. The agreements merchants sign when they decide to accept cards from those networks include rules that govern card verification procedures.
All the networks allow a merchant to ask for identification. MasterCard and Visa, however, explicitly prohibit retailers from requiring an ID to accept a properly signed card. “They can ask for that ID, but you can refuse to show the ID and they still must accept the card,” says Paul Stephens, director of policy and advocacy at the Privacy Rights Clearinghouse, a nonprofit that advocates for consumer privacy rights.
On the other hand, Visa and MasterCard rules prohibit the acceptance of unsigned cards. If you present one, the merchant must ask you to sign the card and supply an ID. Visa guidelines specify that it must be an official government ID.
Discover’s policies are more intrusive. They state that a store employee who has doubts about the validity of a card should “request and review additional identification” from the customer. And for an unsigned card, the company requires two pieces of identification, including one government-issued photo ID.
American Express is more vague. It requires merchants to “verify that the customer is the card member,” but its rules make no direct mention of requiring an ID.
“American Express doesn’t really have a policy on it,” says Linda Sherry, director of national priorities for Consumer Action. “If the merchant wants to ask for an ID, that’s fine.”
Shop clerks don’t always comply
Stephens says many store owners aren’t aware of card issuer restrictions on requiring an ID, and set store policies that violate the rules. In other cases, employees may unwittingly break their own store’s own policy by requesting an ID, out of fear of having an unauthorized transaction slip by.
Retailer location can make a difference, too. Stephens recalls a personal experience when a store’s ID policy seemed to be applied in a discriminatory way. “It was a supermarket chain in the San Diego area, and when I shopped in a more affluent area I was never asked for an ID,” Stephens says. “One time I went to one of the chain stores in an area that was socioeconomically lower than the neighborhood that I typically shopped in — it was a rather small purchase — and I was asked to show ID.”
Intentions are good
The whole idea behind checking a cardholder’s identification is to prevent the use of stolen credit cards. Some payment processing consultants advise their clients to check IDs with that thought in mind.
Donna Broder, vice president and agent at Card Solutions International in Royal Palm Beach, Fla., says it behooves retailers to take extra steps to protect themselves against the financial risk of a fraudulent purchase and subsequent charge-back.
“Once it goes into a charge-back … the merchant’s going to lose, because they accepted a stolen card and didn’t do their due diligence,” Broder says.
Broder gives the example of a client with a chain of mall T-shirt shops who was getting hit with numerous charge-backs because of stolen credit cards and card numbers. After the employees became more consistent about checking IDs, along with signatures and holograms on customer credit cards, the number of charge-backs declined, she says.
“Some people are offended by [being asked for an ID]. I’m not,” Broder says. “They’re protecting you, the cardholder, as much as they’re protecting themselves.”
Protecting personal information
While many shoppers don’t mind showing their IDs, they may have concerns that their privacy will be at risk if the personal information on those IDs gets into the wrong hands.
“I think people are nervous that this information will be recorded and that an employee will find it and use it for fraud or ID theft,” Sherry says. “If you look at someone’s license, you’re going to know their date of birth, their address. Then you look at their credit card and you not only have the credit card number, but you have the secret code on the back, so you could steal their identity or actually buy something with the credit card.”
Stephens says customers paying with Visa or MasterCard who want to protect their personal information can reasonably push back if a store clerk asks for an ID. “There are various reasons why they may not want to give out that information, and certainly they are within their rights to refuse to do so,” Stephens says. “The only exception would be, after the card was run through the system, if there were some sort of flag that came back to indicate that the card had been reported stolen or there was something suspicious about the transaction.”
Though Broder strongly advocates checking IDs, she says there’s no need for store clerks to record the information. “If the employer wants to know that an employee is following their strict rules for accepting credit cards, all they have to ask them to do is put a symbol on the [receipt] indicating they verified ID,” she says.
Visa’s guidelines state that, when validating an unsigned card, merchants should write a customer’s ID serial number and expiration date on the sales receipt “where permissible by law,” while MasterCard rules say not to record information from the cardholder’s ID.
More than a dozen states have laws restricting the recording of personal information during credit card transactions. California led the way with the passage of the Song-Beverly Act of 1971.
In one test of the law, the Californa Supreme Court ruled that asking for a ZIP code is personally identifiable information, so merchants that do so as part of their marketing efforts risk fines under the state law.
That law and others like it don’t prohibit merchants from checking IDs. But “the minute you record that information, either by writing it down or entering it into an electronic system, at that point you most likely have broken the law,” Stephens says.
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Some Good Samaritan urges could make things worse for you.
From time to time we bring you posts from our partners that may not be new but contain advice that bears repeating.
Quiz: You’re in a restaurant or a retail store, or walking down the sidewalk. You spot a lost credit card on the ground. What should you do next?
- If you’re in a shop or restaurant, give the card to a cashier or a supervisor?
- Call the police?
- Try to track the owner down and return it in person?
- Call the toll-free number on the back of the card and report it as lost?
If you chose option 4, you’re not just a Good Samaritan, you’re a smart one. Though the other options seem reasonable, they’re not the best choices. These three “don’ts” and one “do” explain why calling the 800 number on the card and reporting it as lost is the best choice if you find a credit card.
Don’t: Give the card to a cashier or supervisor. This often feels like the first logical step: “Most of us would rather not handle someone else’s lost property, so our reaction is to turn it over immediately to someone who can be responsible for it,” says Greg Meyer, community relations manager for Meriwest Credit Union in San Jose, Calif. Unfortunately, however, you have no way of knowing how honest that employee is, warns Meyer.
Joseph Steinberg, CEO of Green Armor Solutions, a cybersecurity software firm based in Hackensack, N.J., agrees. He says the employee could easily write down the card number and try to use it themselves online, or sell the card number to a fraud ring. According to Steinberg, it takes only seconds for an experienced thief to use a small electronic reader to skim data off of a credit card’s magnetic stripe or simply photograph a card’s front and back, and voila! “They’ve now got all the information they need to reprogram a blank card like an electronic hotel key and create a new credit card. Using stolen credit card information online is even easier — no physical card is necessary,” he says.
Bottom line: Don’t trust retailers — even managers — with a lost credit card.
Don’t: Call the police. One caveat here: If you find an entire wallet, with a person’s ID, currency and credit cards, it is appropriate to call the authorities. But if you find just a single credit card, experts say there are more effective ways to help: “Most police forces run quite lean, and need to use their time to pursue serious crimes and criminals. They don’t have time to pick up a lost credit card from you, or to track down its owner,” says Meyer. “From a financial institution point of view, we’d prefer you just call the number on the back of the card, which will direct you to the bank that issued the card.”
Meyer says customer service representatives will most likely ask you to destroy the card after you share the person’s name and account number. They’ll also take care of notifying the owner.
Bottom line: Don’t bug the cops. They’ll just direct you to call the card’s 800 number anyway.
Don’t: Try to track down the owner. It may be tempting to jump onto the Internet and search for the card owner’s name or to see if you can message the owner on Facebook. After all, you’d love to do a good deed and put the card back in the owner’s hands. It may eliminate the hassle of getting a new card, and perhaps of having to update automatic bills (gym dues, utility bills, online shopping accounts) that were linked to card.
Don’t try it. For one thing, you can’t be sure you’re finding the right person — especially if the card owner has a common name. More importantly, “Someone else could have already fraudulently used the card before you found it. They may have dropped it to make it look like it was just innocently lost,” warns Steinberg. If the owner reports it and there’s any question of who stole or used it, you could be called in for questioning, and suddenly you’re the one being hassled.
Also, it’s relatively easy for the card owner to get a replacement card and switch automatic payments over to it. “Cardholders can request an emergency card replacement, which is delivered to them within one business day domestically and two days internationally, or the bank must provide the cardholder with access to cash,” says MasterCard spokeswoman Sarah Ely. Visa’s procedures are similar. American Express card owners can also arrange to pick up a replacement card in person at one of the company’s Travel Service Offices.
“As for automatic payments, they will transfer to the replacement account,” says Discover card spokeswoman Katie Allmaras. “However, automatic billing is an agreement between our card member and the merchant, and individual merchants may have specific requirements in this regard,” says Allmaras.
MasterCard’s Ely says the banks and credit unions that issue the company’s cards “may be set up with our Automatic Billing Updater that would manage this process seamlessly on the back end, updating the account details for auto-billed merchants.” American Express’s process is similar. Translation: Automatic payments will probably go through on the owner’s replacement card without much of a hitch.
Bottom line: You’re not a private detective. The card issuer can easily notify its own customer, and replacing cards is routine.
Do: Call the toll-free number on the back of the card and report it as lost.
This is your simplest, best move. And the sooner you do so, the better. The issuer will immediately lock down the account so it can’t be used — just in case a fraudster found the card before you did — notify the owner, and take care of issuing a replacement card. “Chances are good that the owner already realized it was lost and reported it anyway, but it’s a smart — and thoughtful — extra precaution,” says Meyer.
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Make sure you have these pieces of plastic in your wallet before you head out the door.
Travel season is upon us—time to hit the road!
Americans drive an average of almost 1,000 miles a month—roughly the distance from New York to Orlando—from July to September, per a recent AAA Foundation for Traffic Safety and Urban Institute study. We take to the air more often as the weather gets warmer too. All that wanderlust doesn’t come cheap: A gallon of gas will set you back about $2.80, while the average domestic flight costs around $400.
So if you plan to do any traveling over the next three months, consider signing up for one of the following three rewards credit cards. You’ll enjoy 5% back at the pump, lucrative signup bonuses, and the chance to earn free flights. Of course, rewards are never worthwhile if you don’t pay your balance in full each month or utilize more than 30% of your available credit. But if you’re financially ready for a rewards card, these offer a way to save real money.
The card to use at the pump this summer is the Chase Freedom. Throughout the year, this rewards card offers 5% cash back on rotating categories including department stores and restaurants. From July through September, though, cardholders will earn 5% back at gas stations, up to $1,500. You’ll also receive a $100 signup bonus after spending $500 within three months of opening your account.
If you spend $250 a month on gas, you’ll earn about $38. Toss in the signup bonus, plus the cash back from filling up a second car, and you’re looking at a little more than $175. There’s no annual fee, so you won’t be penalized for keeping the plastic in your wallet when the categories change in the fall.
Every frequent flyer should consider one of these: Chase Sapphire Preferred and Barclaycard Arrival Plus World Elite. Both are reward-rich products that offer significant signup bonuses. Determining which card is right for you depends, in part, on what you value in a travel rewards card.
The best way to think about the Arrival Plus World Elite is that it’s a cash-back card for travel purchases. Cardholders rack up “miles” in a number of ways. For example, you’ll receive 40,000 miles after spending $3,000 in the first 90 days; two miles per $1 spent; and a 10% rebate when you redeem miles for any kind of travel charges. A mile is worth a penny, so the signup bonus alone nets you $440 when used toward travel purchases (which include taxis, flights, and campgrounds.) You don’t have to deal with airline frequent flier programs or miles awards charts. Plus there’s no foreign transaction fee and you’ll receive your FICO score with every statement. The $89 annual fee is waived the first year.
The Chase Sapphire Preferred is a bit of a hybrid. You can apply your points as a credit on your card statement for travel at one point per penny, with a 20% discount for booking through Chase. That can boost the signup bonus—40,000 points after spending $4,000 in the first three months—to $500. But you can also transfer your points to frequent flier programs on partner airlines like Southwest and United at a one-to-one rate, so you can take advantage of a particular airline’s loyalty program. You earn two points per dollar spent on travel and dining and gain 5,000 bonus points after you add an authorized user who makes a purchase in the first three months. There is a $95 annual fee, waived the first year.
Check out the entire MONEY Best Credit Cards list here. Safe travels!
Drink your latte.
Whether you think of yourself as money-savvy or you’re acutely aware of where your personal-finance knowledge is lacking, it’s always good to make sure you aren’t managing your money on assumptions that are faulty to begin with.
Here are a few common money myths to kick to the curb.
Myth No. 1: Credit cards are evil
With the average credit card debt sitting at just over $15,000 per household, it’s easy to think that plastic is the irresponsible way to pay. Not so fast.
It’s not the method of payment that’s the problem; in fact, having credit cards can actually help your credit score. A full 10% of your credit score depends upon having a mix of credit types — installment credit, like a car loan, and revolving credit, like credit cards.
In addition, credit cards offer more security than any other form of payment, allowing you to dispute fraudulent activity without footing the bill.
Myth No. 2: Skipping your morning coffee will make you rich
Cutting back on small expenses might offer some breathing room in your budget over the long term, but money not spent doesn’t necessarily equal money saved. To grow that money, it would need to be put into a place where growth can occur — like an investment account or, at the bare minimum, a savings account.
You may think cutting out a daily expenditure is putting you on a path to financial independence, but that’s only step one.
Myth No. 3: It’s too risky to invest your money
The truth opposing this myth is simple — it’s too risky to not invest your money.
If you’re already diligent about socking away money each month, that’s a great start. But with interest rates sitting so low, money put into a savings account will likely lose more to inflation than it can make up in growth. That’s where investing comes in.
Through the power of compounding, a single $500 investment made at the age of 20 earning a conservative 5% return would be $4,492.50 at the age of 65. Imagine that scenario with ongoing contributions and larger returns. It would put any savings account to shame.
Myth No. 4: All debt should be paid before saving
Unfortunately, emergencies and unexpected expenses occur at all stages of life — even when you’re working to pay off student loans or crawl out from underneath credit card debt.
A study recently released by Bankrate found that 60% of Americans wouldn’t have the funds available to cover even small hiccups — like a $500 medical bill or car repair. Think about how many of those expenses you’ve run into in the last six to 12 months; probably at least one.
If you want to avoid incurring more debt as a result of life’s curveballs, work to save while paying off debt. This will give you a better chance of smooth sailing to the finish line.
Myth No. 5: You should borrow the most money offered to you
Wondering how much house you can afford? Don’t let the loan amount offered by the bank be your guiding light.
Those in the business of making loans are incentivized to offer the biggest loan possible that you’ll be approved for. So while they may be checking out your debt-to-income ratio, this simple equation doesn’t always offer an accurate snapshot of what you can actually manage to pay each month.
The same goes for credit card limits — having a $20,000 limit doesn’t mean your finances can easily handle paying back $20,000 worth of purchases.
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Greece-bound tourists could be in for some hassles—or worse.
The crisis in Greece has caused the closure of local banks and brought about the worst day of the year in the U.S. stock market. Concerns are also being raised that the situation could ruin the vacations of tourists dreaming of exploring the culture, history, and warmth of Greece during the height of the summer season.
Here’s what travelers should keep in mind if they’re heading for Greece anytime soon.
Arrive with ample cash. Starting on Monday, banks in Greece were closed, and ATM withdrawals were being limited to €60 (around $67) for cards issued by Greek banks. Withdrawal restrictions don’t apply to foreign cards, but many ATMs have reportedly already been emptied and have no cash to dispense.
“Automated-teller machines are running dry and many businesses are no longer accepting credit cards,” the Wall Street Journal reported.
The bottom line is that the situation is fairly chaotic and very much in flux. Greece-bound tourists from Germany, the UK, Canada, Australia, and elsewhere have officially been given some variation of the warning to arrive with “sufficient euros in cash to cover the duration of your stay, emergencies, unforeseen circumstances, and any unexpected delays.” Ideally, bring cash in lots of smaller denominations, as it may be difficult for taxi drivers, restaurants, and other local businesses to provide change for big bills.
The advice of the U.S. Embassy in Greece is that Americans should have plenty of cash, and should certainly not rely on any single form of payment: “U.S. citizens are encouraged to carry more than one means of payment (cash, debit cards, credit cards), and make sure to have enough cash on hand to cover emergencies and any unexpected delays.”
Be extra vigilant. “The State Department recommends you maintain a high level of security awareness and avoid political rallies and demonstrations as instances of unrest can occur,” the U.S. Embassy states. “Exercise caution and common sense: Avoid the areas of demonstrations, and if you find yourself too close to a demonstration, move in the opposite direction and seek shelter.”
What’s more, pickpockets and thieves will surely be aware that tourists have been advised of the necessity of having plentiful cash on hand. So there will be extra reason for tourists to be targeted for theft. It goes without saying you shouldn’t stroll around casually with all of your cash in your purse or back pocket. Stash the bulk of it in the hotel safe, and divide walking-around cash among your party—ideally, safely kept in a money belt or neck wallet—perhaps with some emergency bills in the sole of your shoe. Don’t make it easy for pickpockets to rip you off.
Expect long lines and possible delays. There have already been huge lines at ATMs and supermarkets, with worried shoppers stocking up on essentials in the same way that Americans hoard milk and bread when a big snowstorm is in the forecast. There has also been plenty of speculation that strikes, demonstrations, and a squeeze on fuel could cause travel disruptions within Greece. So far, this has only amounted to speculation, and ferries, gas stations, and such have not been affected.
Tour operators are reporting (mostly) business as usual. “We were in touch with our hotel and our tour director earlier today, and both report that daily life is going on normally,” Tim Armstrong, a spokesman for the Tauck tour company, which had a group on a cruise just finishing up a three-night stay in Athens, said on Monday, according to the (Canada) Globe and Mail.
Likewise, Greek tourism officials maintain that the current events will have no impact on foreign visitors. “The tourists who are already here and those who are planning to come, will not be affected in any way by the events and will continue to enjoy their holiday in Greece with absolutely no problem,” said Elena Kountoura, Greece’s minister for tourism, according to the Independent. “It should be also noted that there is ample availability of both fuel and all products and services that ensure a smooth and fun stay for the visitors in every city, region and the islands.”
At least some of this seems like overstatement, considering that tourists and locals alike have already been affected by long lines. Credit and debit cards are still being accepted by most hotels and other businesses, but the fact that some are only accepting cash as payment is obviously another way that travelers are being affected.
Travel insurance probably won’t cover you if you cancel. If you’ve booked a vacation to Greece and purchased travel insurance for the trip, it may be time to look at the fine print. Most policies will reimburse a cancelled trip if there’s been a death in the immediate family, or if there’s been a natural disaster, terrorist attack, or large-scale civil unrest. But nothing that’s happening in Greece right now qualifies as a standard reimbursable situation.
“If you do cancel your trip it will be subject to the terms of the deal, and you stand to lose money,” one UK travel agent explained to the Guardian. Unless you’ve paid extra for a “cancel for any reason” upgrade to the insurance policy, in all likelihood your travel insurance would not cover you if you decide to cancel a trip to Greece right now.
Fixing your credit doesn't need to be a Herculean task.
There are 168 hours in a week. By allocating a tiny fraction of them to improving your credit, you could potentially save hundreds or thousands in interest on future loans, get the best insurance rates and avoid utility deposits.
Here’s a Monday through Sunday credit-building schedule, but feel free to get started any day of the week. Check out the Nerds’ seven actionable steps you can take this week to improve your credit.
Monday: Pull and read your credit reports
You can do everything right credit-wise, but errors on your credit reports can unfairly hurt your score. In fact, according to a 2012 study by the Federal Trade Commission, more than a quarter of the participants discovered at least one potentially material error on one or more of their credit reports. As such, it’s important to pull your credit reports to check for discrepancies.
You can request your credit reports for free once a year. Go to annualcreditreport.com and read your credit reports to ensure they don’t contain errors.
Tuesday: Dispute any credit report errors
If you found any errors on your credit reports, now is the time to get them fixed. The Consumer Financial Protection Bureau last year added new rules to make reporting errors easier. Gather any evidence you have that your reports contain erroneous information and dispute them for a possible boost to your credit.
Wednesday: Create a debt payoff plan
If you’re carrying a lot of unsecured debt, your score may be suffering due to high credit utilization. Credit utilization is the amount of debt you have in relation to your credit limits. Experts recommend that this percentage doesn’t exceed 30% at any time to maintain a good credit score.
Create a debt payoff plan to get your utilization down as soon as possible. If you don’t have enough in your budget to make progress on your existing balances, check out our ideas on how to increase your income and decrease your expenses. And if high-interest debt is slicing into your budget each month, check out our favorite balance transfer credit cards.
Thursday: Consider increasing your credit card limit(s)
To further improve your credit utilization ratio, consider increasing your card limits. This may result in a small hit to your credit via a “hard” credit pull — although sometimes you can get a small limit increase without a credit pull. But credit utilization has more impact on your score than credit inquiries.
Friday: Set up a payment plan on large debts
If you have outstanding debts you can’t pay off, call your furnishers and set up payment plans. Whether it’s a medical bill, overdue taxes or an account in collections, communication with your creditor is key to keep a past due bill from further damaging your credit.
Your creditors will want to collect the entire balance you owe, but many will gladly take partial payments over nothing at all, so call them up and ask. Also, make sure the monthly amount realistically fits into your budget before agreeing to a payment plan.
Saturday: Set up automatic payments for other bills
Consider setting up automatic bill payments. Payment history is the No. 1 factor in your credit score, and it’s important to make all of your payments on time, 100% of the time. Missed payments can be reported to the credit bureaus and linger seven years on your credit reports.
Avoid late payments — and their corresponding fees — by setting up automatic payments for every account you can. If you have irregular income and can’t be certain that you’ll have the cash in place when your bills come due, set up email or text reminders to pay every bill before its due date.
Sunday: Take a break!
Whew! It’s been quite a week. Take Sunday to rest — after practicing good credit habits, the best thing you can do for your credit is be patient. Time lengthens your average age of accounts and allows negative items to eventually fall off your credit report. Kick back and relax knowing that you’ve spent the week improving your credit and enjoy reaping the rewards of your hard work.
Read next: How to Raise Your Credit Score by Labor Day
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Credit scores are complicated algorithms that weigh hundreds of pieces of information.
For years, the standard advice by many experts is that you don’t have to carry a balance on your credit cards (and pay interest) to get a good credit score. (I’ve certainly said that more than once.) But a flurry of readers on the Credit.com blog say their experiences show otherwise:
- I just paid the $39 balance on a credit card, with a limit of $2K. Score dropped 10 points..
- When I paid off the small balance it dropped to 627, 18 points. It told me “Your credit report shows no recent balances on your revolving account. Your FICO Score was hurt because you are not currently demonstrating active revolving credit management.”
- I’ve been repairing my credit and finally thought that I would have the score to purchase a home! I recently paid a credit card balance in full before the reporting date and my score dropped!
What’s going on? Is that advice wrong?
“Having a zero balance does not cause any negative impact to your score,” says Sarah Davies, senior vice president, Analytics, Product Management and Research with VantageScore.
In fact, when it comes to the VantageScore credit scoring model, “you get the maximum value for having your utilization at zero — for having all that credit available to you,” Davies says.
And while it’s possible that paying off a credit card will result in a lower FICO score, says Barry Paperno, a credit scoring expert who worked at FICO for many years and now writes for SpeakingofCredit.com, it’s unlikely. There’s only one scenario he can think of where this may occur. And that’s where someone goes from low utilization to no utilization.
In case you’re unfamiliar with the term “utilization,” credit scoring models will compare the balances reported by your card issuers on your revolving accounts with their credit limits. Consumers with the best credit scores tend to use 10% or less of their available credit. (Another term for this is the “debt usage ratio” and you can see yours with Credit.com’s free credit report summary.)
Dropping to zero utilization could cause a small drop, he says, because utilization “serves as a proxy for activity,” Paperno says “If you didn’t have any balance on any card, then the model just assumes you haven’t used credit recently.” But it won’t likely be a significant drop, he says.
Tom Quinn, vice president of myFICO.com observes that while consumers who carry higher levels of debt are generally riskier than those who don’t, “research findings show that people who have a small or low amount of revolving debt being reported relative to their available revolving credit are generally less risky compared to people with no revolving debt being reported. In essence, showing a responsible use of that revolving credit demonstrates a lower credit risk versus not showing any revolving debt use.”
So depending on which credit scoring model is being used, showing some kind of revolving balance may be helpful, but that still doesn’t mean you have to pay interest. More on that in a moment.
Cause … or Coincidence?
The expert consensus is that paying off a credit card shouldn’t tank a consumer’s credit scores. But the consumers sharing their stories are adamant. So what gives?
First, there is the tricky issue of credit score updates. If you subscribe to a credit monitoring service, you may receive a message alerting you that your balance has gone down, and you may at the same time receive a notice that your credit score has dropped. But even if they are delivered together, it doesn’t always mean the former caused the latter, or that the reason stated accounted entirely for the change. Paperno gives this example:
You deposited $500 yesterday, then wrote $600 worth of checks and your balance went down by $100. “It’s like saying I deposited $500 and my balance went down by $100. Your net deposit is the balance of several different things,” he says.
The fact is there are numerous factors that go into credit scores and it’s difficult to pinpoint a single one that fully explains why a score has changed. In fact, when you get into the category of consumers with high credit scores, it can be even more difficult to nail down specific reasons why their scores aren’t higher; after all, they are doing most things right.
In addition, some changes may not be apparent to the consumer. One commenter who saw his scores drop after he paid off a balance noted that he monitors his credit reports on a monthly basis and insisted “nothing else has changed, nothing added, nothing removed, only a zero balance.” But information may be changing behind the scenes.
Accounts age, and while that’s usually a good thing, it can sometimes result in a lower score. Balances change. And things you don’t even realize matter may impact your scores. For example: a negative item may become older, and reach a threshold where it has less impact on the score. An inquiry (for a mortgage or car loan, for example) that was previously ignored because it occurred in the past 30 days may now count because it is beyond that window.
Credit scores are complicated algorithms that weigh hundreds of pieces of information, and while consumers want to know exactly how much a particular action will affect their scores, a definitive answer isn’t always possible.
Going back to the issue of balances, it can be even more confusing. That’s because the balance reported isn’t necessarily your balance at that moment. Most card issuers report account information once a month, usually shortly after the statement closing date. (And it’s often the balance on the statement closing date that appears on your credit reports. )
Even if you pay your balance in full around the due date, your credit report won’t likely list a zero balance unless you time it like our reader did, above, so her payment was received before the balance was reported. And even then, to have an overall debt usage ratio of zero you would have to have a zero balance on all of your cards, which is certainly possible if you avoid using credit cards, but unlikely to happen if you have at least one credit card you use on a regular basis.
Another thing to consider is the differences among bureaus, which each collect their own information and may use one of dozens of different credit scoring models. “A credit score can also be different based on which CRC (credit reporting company) is used to provide the score and when. This happens because the information reported by the lenders to the CRCs may occur at different times each month,” said VantageScore President and CEO Barrett Burns in a Credit.com article describing why credit scores change.
Pay Off & Close?
Of course, if you pay off and close a credit card account (or close and then pay off a card), that’s another matter. Closing an account removes the credit limit on that card from the utilization calculation, which can potentially affect your scores by raising your overall debt usage ratio on your remaining open revolving accounts.
In a sense, monitoring your credit score can be a lot like monitoring your blood pressure. If it’s higher than usual, is that because of the last meal you ate, or the argument you had with your spouse, or because you took your last dose of blood pressure medicine earlier than usual? It may be a combination of all three, or maybe it’s something else you not on your radar. It’s the overall trend that’s important. Are you bringing it down overall?
The bottom line? Paying your credit cards in full can help you save money in interest and should not hurt your credit scores. But keeping accounts open and active can help your scores. As is often the case, you’ll get the best scores by using credit — as long as you use it wisely.
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There is light at the end of the tunnel.
It finally happened. After all the bad dates and heartbreak, at last you’ve met The One, and you’re ready to start down life’s road together. Except your new love is carrying one piece of baggage you hadn’t counted on: credit card debt.
You’re not alone. In a new NerdWallet/Harris Poll survey of more than 2,000 adults, 35% of those who combine at least some part of their finances with a partner brought credit card debt into the relationship. (Men are more likely to do so than women, by the way). Millennials are particularly likely to commingle I.O.U.s and romance, with 45% of those between the ages of 18 and 34 toting a revolving balance. In fact, millennials were more likely to have credit card debt than student loan or car payments.
On average, people entered relationships with $4,100 in credit card debt, and 25% of couples with at least one indebted parter reported experiencing negative consequences. One-sixth of respondents said debt kept them from doing something they planned on, such as buying a home or taking vacation.
The findings dovetail with MONEY’s research into couples and financial harmony. Our recent poll of 1,000 millennials and baby boomers found that two in 10 couples regularly fight about credit card debt. Millennials are more tolerant of debt than older generations, with 40% saying a lot of debt is a romantic turnoff, versus 60% of boomers who said the same.
If you—or someone you’ve fallen in love with—is struggling with debt, here’s how to keep it from ruining your relationship.
Don’t hide it. “Being open and transparent about your debt is very important,” says NerdWallet credit card expert Sean McQuay. “When you’re dating someone and you have the conversation about introducing them to your crazy parents, you also need have the talk about your debt.”
By opening up about debt early, you won’t cause a fissure down the line. And once you put your cards on the table, you and your partner can come up with a plan for getting out from under. One strategy suggested by Beverly Harzog, author of The Debt Escape Plan, is to start paying off the smallest balances first. The math may say to go after the card with the highest interest, but unless there’s a big difference in the two cards’ rates, it’s often more helpful to get the mental boost from clearing a debt so that you sustain your repayment plan.
Transfer your balance to a cheaper card. If you’ve squeezed every last penny from the budget and still can’t seem to make much headway, one powerful tool is a balance transfer card. MONEY recommends the no-annual-fee Chase Slate. Not only is there no interest on purchases and balance transfers for 15 months, there’s also no balance transfer fee if you move your debt within two months of opening the card.
More from the Love & Money series:
Poll: How Boomer and Millennial Couples Feel About Love and Money
Why Couples Need to Get Financially Naked
The Single Most Important Money Talk for Couples
How Money Can Improve Your Sex Life (It’s Not What You Think)
Just like your marital assets, debt gets divvied up too.
While you might have known that marital assets are separated during divorce, did you know that debts are as well? Yes, debt, just like any other possession, has to be divvied up and re-distributed during divorce. Unfortunately, this can make an already difficult process even more stressful. However, understanding how your debts might be split before entering your proceedings could help you better plan for your new life and give you peace of mind. Here is an easy-to-understand breakdown of what happens to your debt during a divorce.
Credit Card Debt
The responsibility of credit card debt during divorce tends to be decided by whether or not the credit card was under a joint or single account. While the rules on joint accounts vary from state to state, most cases consider marital debt to be any debt accumulated during the partnership, regardless of whose name appears on the account. This means you’ll most likely be considered partially responsible for debt on the account, whether or not you were the one to make the payment. Separate accounts, however, are just that — separate. Whomever’s name appears on the account will, more often than not, be awarded full responsibility.
Here’s where things get a little complicated. The division of a mortgage isn’t as straightforward as credit card debt during divorce. Because a mortgage is typically such a monumental expense, most states offer a variety of options for dealing with the situation. Ownership of the mortgage will typically be awarded to someone who makes significantly more than their former spouse or has been awarded full custody of the former couple’s children. In either of these situations, one party will be required to buy out the other’s equity in the house. Of course, the couple can decide to bypass all of these decisions and simply sell the home if they so choose.
Depending upon where you live, your state might have a different view on whether or not you and your former spouse share medical debts. “Community Property” states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) all debt will typically be divided amongst all parties. While this might greatly simplify the process, it leaves you open to taking on debt that you had no part in acquiring. In “equal division property” states however, the court will take a variety of factors into consideration when determining the responsibility of medical debt. This will usually include whether or not you and your spouse were living together at the time the debt was acquired, whether or not you were legally separated at the time, whether or not the debt falls under the umbrella of “necessary care,” and what impact that debt might have on any children you and your former spouse might have had.
While divorce is far from an easy process, knowing how it might affect your financial situation can really help you reduce the stress and handle other expenses it brings. Take the time to sit down and look through all your financial documents: bills, credit statements, loan papers, etc. Pull your free annual credit reports to see what accounts are reported in your name, and periodically revisit them to watch for important changes. Creating a financial snapshot can help your and your attorneys determine the best course of action for you and your family.