Monthly Archives: April 2013

Credit Cards for Different Credit Scores

Top Five Credit Cards for Small Business

When you’re managing a small business, you should choose credit cards that are useful and suitable to your needs. You can use credit cards to segregate your business expenses from your personal expenses. You may use a separate credit card for your business expenses like travel and other incidental expenses and use a another credit card for your personal expenses. Your small business usually spends sizable amounts for purchasing various items and also spends much for your travel to different business destinations. You should choose the credit card that offers rewards and bonuses for such transactions. Here are the top five credit cards that are suitable for small businesses:

Credit Cards for Different Credit Scores1. Chase Ink – There are two kinds of Chase Ink cards to choose from, the Ink Cash and the Ink Classic. Both cards entitle you to a two hundred dollar bonus when you spend $5,000 on your first 3 months of using the card. They offer bonus points that can reach up to 5% of your total purchases. The points awarded are convertible to gift certificates which you can use for purchasing items needed in your business.  They also offer 5% rebates for office supplies and telecommunication expenses, 2% for gas and hotel expenses, and 1% for all other expenses. This is among the top five credit cards especially for those who travel often.

2. Starwood American Express Business Card – If you do a lot of travel in your small business, this is an ideal credit card for you. They award bonuses by points and are very generous in awarding points when the card is used for hotel expenses. You get a rebate of 0.25$ for every dollar you spend and they waive the annual fee of 65$ on your first year. They also award a 500-dollar bonus signup making it one of the most suitable business cards for small businesses.

3. Capital One Spark Miles – This is another travel card that is right for small business. This card offer 2% rebate on all purchases and can be used for hotel, gas and airline expenses. They offer $100 dollar signup bonus if you spend $1,000 on your first 3 months of using the card. They also waive the 59$ annual fee.

4. The Plum Card by American Express – If your business requires you to purchase lots of sophisticated goodies, this card is most ideal. With this card, you can get a 1.5% discount for all your purchases if you pay early or you pay no interest if you pay within 60 days.  They charge customers with an annual fee of 200$ but it is waived on the first year.

5. TrueEarnings Business Card – This is a Costco membership card that entitles you to 4% rebates on gasoline expenses and 3% on restaurant bills payable by American Express.  You are also entitled to 25% discounts for purchases from selected sets of vendors like FedEx, Hertz, and JetBlue. This card does not charge any annual fee and have been cited by many as one of the top five credit cards for small business.

Credit Card Fees

Typical Hidden Fees with Credit Card

Credit cards can be quiet tempting and they provide flexibility to your purchasing and freedom on availing certain services you cannot readily afford. However, you should still be cautious on using them, especially if you’re not still savvy since purchases automatically represent certain charges and interest rates. There are typical hidden charges that must be examined such as the following:

  • Teaser fixed rates. Cards offering low or 0% interest rates are really tempting and are really designed to lure you. But these rates are not permanent and could only last for few months. After a certain period, you might be surprised of the charges that will be on your account.
  • Unessential insurance. Insurance relative to your credit card charges up to $50 but this will definitely not be useful in case your card is stolen. As a matter of fact, in the United States alone, there are federal laws at present prohibiting the issuance of this insurance to borrowers.
  • Interest rate and late fees.  Missed payment will incur interest rates which eventually may yield to an increase rate, especially for credit companies which raise them without even a warning.  Because of this, hidden costs are produced which add up to credit balances.
  • Credit Card FeesLate payment fees. There is a regular day and month for paying your credit cards, but there are companies not specifying their due dates and will just inform you right on that date or after. There are also those which are delayed on delivering bill statements. Late payments are charged from $25 to $50 thus it’s not really comforting at all.
  • Balance transfer charges. Companies are claiming that they are giving a low or 0% interest rate on balance transfer when in fact they are giving a fee of as much as 3% of the total amount of the balance you transmitted
  • Fees for maxing out. There are companies which approve transactions even if your card is already over its limit. In the end, you will be charged with penalty for maxing out. Another common instance is a customer who applied for a balance transfer without knowing that it will be transferred to a low rate card which has already reached its credit limit. The result? An additional penalty equivalent to late payment.
  • Fees for being inactive. Deciding to stop using your credit card might not be a good choice after all since some companies charge individuals who haven’t using their cards for 6 months or more. This is especially true for customers who do away with purchasing when on vacation abroad. Charges start with $15 so it will be safer to swipe your card on small purchase just to prevent additional charges.
  • Closure charges. Closing your account will still bear you up to $50 fees especially if you are still under contract with the card issuer. This may seem harsh but it’s one of the blatant practice being done by most credit companies to avoid account closure and loss of credit card customer.

There are really some companies which have the tendency to hide charges and change their policies irregularly, thus an end result will be accumulated debts for a certain period of time. To counter these hidden charges, read the detailed breakdown of your credit card policy and ask questions right from the start.

Credit Score Questions

Who Uses Auto Insurance Score?

Insurance companies today use a new numerical point system called auto insurance score to determine if they will issue insurance coverage on your car. It also determines what premium rate they will charge you if they decide to undertake the risk. Don’t blink now but under this new scoring system, you may end up paying higher premiums for your auto insurance even if you have an unblemished driving record. Here’s why.

In the past, your car would be automatically slapped a higher premium if you have previously figured in a car accident where you are at fault, or if you have incurred speeding tickets or other traffic violations the previous year. On the other hand, a pristine driving record meant lower insurance premiums then. This is no longer the case with the new system.

The Evolution of Auto Insurance Score

In the past, your auto insurance premium was calculated based on age, driving history, your vehicle type, where you live, and the car’s safety rating with your driving history having a profound effect on the final premium. But since various studies have shown a Draconian relationship between the credit report information and the insurer’s risk of loss or profitability. Soon enough, insurance companies adopted a credit-based scoring system which is not only based on the previously mentioned factors but also on information appearing on your credit reports.

By 1990, the new credit-based scoring system started to be used throughout the auto insurance industry to develop a more accurately predictive picture of a client’s risk profile. Insurers found it especially useful in determining rates on policies where there are no records of any insurance claims or where the owner has a pristine driving record. Industry wide, it was widely used as the basis for determining whether an auto insurance policy should be issued or not and in many instances in setting the insurance premium rate.

Auto insurance Scores are different from Credit Scores

Credit Score QuestionsDo not confuse a credit score for the auto insurance score. They are totally different from each other despite the auto insurance scoring system taking into account certain information from an individual’s credit score. Credit score is meant to gauge the credit worthiness of an individual and is used mainly by banks and other lenders in deciding the fate of credit applications. The scoring system for auto insurance measures the profitability or probability of loss on every risk undertaking relative to each individual auto insurance application.

Auto insurance scoring models differ from company to company since each insurer has its own proprietary formula or algorithm. The details of are kept away from the consumers and are considered as well-guarded corporate secrets. That is why there is very little that is known about the auto insurance scoring system except the fact that it now includes certain credit report factors in combination with insurance claim statistics and profitability data to determine the likelihood of an applicant figuring in a car accident or making an insurance claim in the future..

Who uses Auto Insurance Score

A study conducted by the Federal Trade Commission released on July 24, 2007 acknowledged the fact that credit-based auto insurance scoring system can indeed accurately predict the total cost as well as the total number of claims consumers file. While this may be of help to insurance companies, the benefit it provides consumers is highly controversial and the subject of a continuing raging debate. In Hawaii, the use of credit based auto insurance scoring system has been banned. Other states have attempted to follow suit but have failed.

But whether or not its use can produce a better match between the insurance cost consumers pay and the entailing risk of loss insures have to undertake, the new auto insurance scoring system continues to be the standard based on which insurance policies are issued or denied.

The Auto Insurance Score is currently being used by all insurance companies, the credit bureaus, the Insurance Information Institute, and the American Academy of Actuaries.

Will Getting a Credit Report Lower My Credit Score

Why is My Vantage Score and Trans Risk Score Different?

Trans Risk Score is the proprietary scoring model supplied by Trans Union, one of the three major credit bureaus in the country. It is based on the traditional credit scoring methodology which gives weight to conventional credit factors in calculating the scores such as length of credit history, debts, payment history, number of recent credit inquiries, and credit usage.

On the other hand, Vantage Score is what has been dubbed by its creators as the next generation credit scoring model. Vantage score was created by the three major credit bureaus namely Equifax, Experian, and Trans Union in collaboration with each other in an attempt to come up with a consistent scoring model as well as to veer away from the use of old credit scoring models which gives more weight to credit history.

It is also an attempt by the 3 credit bureaus to develop an alternative method to the FICO scoring system which is widely used by banks and other lending institutions to assess the credit worthiness of consumers. FICO scoring was introduced in 1986 and immediately became the industry standard for objective credit scoring. The 3 CRBs have to pay a license to be able to use the FICO model. Unfortunately, the adoption of the FICO scoring system by the three credit bureaus resulted in 3 slightly different credit scores from the 3 major credit bureaus. This created widespread confusion among consumers and the 3 CRBs wanted to address the problem by offering Vantage Score.

The Big Difference between Trans Risk Score and Vantage Score

Will Getting a Credit Report Lower My Credit ScoreThe main difference between Trans Risk Score and Vantage Score is on which credit element each of them gives more weight to. Trans Risk is a traditional scoring model which gives more weight to the length of the credit history of the consumer while Vantage Score gives more weight on his most recent credit transactions than the length of the credit.

This alone creates a big disparity between the two scoring systems your credit score falls in different national percentiles with the two scoring models. Vantage Score is able to efficiently score more consumers than Trans Risk to include the upstarts with short credit histories.

Another difference between the two scoring models which often leads to confusion among consumers is the numerical ranges of their scores. And because they use different formula, even if applied to the same set of data, they will spew out two credit scores which are totally distinct from each other.

Trans Risk Score ranges from 300 to 850  with the 300 to 600 low range considered as high risk; 600 to 700 medium range as credible; 700 to 850 high range as highly credible.

Meanwhile, Vantage Score ranges from 501 to 990 and is divided into 5 divisions. The 501 to 600 low range is considered high risk and assigned the letter F; 601 to 700 is considered non-prime and assigned the letter D; 701 to 800 is considered prime and given the letter C; 801 to 900 is considered prime plus and assigned the letter A; finally 801 to 990 is considered super prime and assigned the letter A.

FAKO versus FICO

With so many credit scoring models available today, experts in this field have conveniently segregated them into two namely (1) the FICO or the credit scoring models that subscribes to and adheres to the FICO credit scoring models and (2) FAKO or the credit scoring models that uses a system other than FICO.

FICO remains to be the standard for credit scoring since most banks and lending institutions use them up to today. The FICO score is what matters most to consumers since it what the lenders refer to when they apply for a loan or a mortgage. In short, FAKO credit scoring models which include both the Trans Risk Score and Vantage score are at best misleading and unreliable for now.

Credit Cards

Best Credit Card Concierge Services

A few years back, credit card concierge services were only available to the most exclusive types of credit cards, i.e. Black Centurion, Titanium, Coutts World, Platinum, etc. These cards come with the highest credit limits, out of this world services BUT at a price. Usually these cards will charge you annual fees amounting to a few thousand dollars. Some cards cannot be applied for, they are by invitation only. This usually means that less than 1% of the population could afford them.

The Elite 7

These are the most expensive, exclusive, and perk filled credit cards of the world:

  1. Credit CardsCoutts World Card
  2. American Express Platinum Card
  3. American Express Centurion Card
  4. American Express Citi Chairman Card
  5. Bank of America Accolades Card
  6. Barclay’s Visa Black Card
  7. US Bank Stratus Rewards Card

What Do You Get with the Elite 7?

These cards allow you access to most VIP lounge, the highest security purchases, shopping assistants to carry your purchases, and the fastest, and best trained customer service available. If you belong to the 99% don’t despair, there are plenty of credit card concierge services providers that will give you above standard perks.

Visa Signature

If your credit card says VISA Signature, it means you get the basic perks i.e., miles, reward points, cash back, etc. Aside from the basics you also get exclusive deals with restaurants, hotels, shopping centers, additional purchase security. Sometimes these cards have no pre-set credit limits, additional travel rental, and baggage insurance, warranties, etc.

This baby also comes with a 24/7 concierge service. There is no waiting on the phone listening to lounge music, no electronic directories, and no trainee representative. The client gets directed fast, and to an expert “concierge” who sounds like Mr./Ms. Belvedere.

MasterCard World Elite

This credit card is specifically for the world traveler. The above mentioned perks also applies. And it provides you with a personal concierge who will take every inquiry seriously. The client feels the representative is a personal assistant, not a call center agent. For example, if you are traveling to an unfamiliar city, and want to find the best place to buy specialty items then give the concierge a call. If you want to get to your hotel room with a freshly brought up bucket of nachos with lots of cheese, then just call the concierge provide specifics and the same will arrange it with the hotel. If you are lost, and want to find your way back to your hotel room, or have the hotel limo pick you up… yup you got it, just give your 24/7 concierge a call!

A Caveat

Credit card concierge services will bend over backwards to get you what you want. Heck, you can even ask the person for help with a crossword puzzle you are stumped on. One consumer even tried to book a flight to space, and actually got an email the next day from Virgin Galactic. Some consumers use their concierge to get daily affirmations, or just find someone to talk to.

BUT any and every service provided should be within reason. If a hotel is fully booked, obviously they cannot un-fully book it. They cannot go to your kid’s school and talk to the principal. They cannot do your laundry or do your errands. But they can direct you or arrange for the same to be made.

Getting Different Credit Scores

What is and Who Uses Vantage Score?

With a market so overwhelmingly dominated by FICO, consumers are apt to ask who uses Vantage Score. According to the company, 90% of the largest lenders in the U.S. use the FICO credit scoring model before making lending decisions. 75% of residential mortgage applications are also decided with the help of FICO according to the same sources. The company’s long list of clients (built up from 1986 when FICO was first introduced) even includes 25 of the largest issuers of credit cards and auto loan providers in the country. So where does all these put Vantage Score?

What is Vantage Score and where is it in the industry relative to FICO?

Getting Different Credit ScoresVantage Score is one of the dozens of other non-FICO credit scoring systems. It was created by the three Credit Reporting Bureaus (Equifax, Experian, and Trans Union) and introduced to the market only in 2006. The three Credit Reporting Bureaus collaborated with each other to develop a more predictive alternative credit scoring model that can reach more consumers than FICO.

Vantage Score is considered by its creators as the next generation credit scoring model. In contrast to FICO, it gives more weight to payment history than the length of the credit. Vantage veers away from the traditional credit scoring method which weighs on credit history a lot, leaving the “thin file” consumers, those who never availed of credit, and those just starting their credit relationships without credit scores and effectively squeezing them out from availing of loan opportunities.

According to Tower Group, a financial research firm, 10% of U.S. Lenders now use Vantage Score.  And if we are to believe the company’s figures, their list of current clients include 4 of the top five financial institutions in the country; five of the country’s top credit card issuers; 2 out of the top 5 auto loan providers; one of the 5 highest ranking mortgage loan providers. So far Chase Bank has been the only one so far to have acknowledged its use of Vantage Score.

Verified or not these claims may be, there is still no denying that Vantage has started to make inroads into major industry. After being in the market for barely six years and considering the fact that the well entrenched FICO has been in the market uncontested for almost three decades, you can consider this a great achievement with still brighter prospects for the future.

Who then may find Good Use for Vantage Score?

Because of its unique credit scoring methodology, Vantage Score can reach more consumers including the 35 to 50 million strong ‘thin file’ consumers representing 18% to 25% of the country’s adult population. This includes the young adults about to embark on their new careers; recently arrived immigrants, divorced or widowed personalities with no credit histories of their own, people digging out of bankruptcies, and people who hardly availed of credit in the past.

This market is by all accounts huge but has been traditionally left out by design from availing of credit by 90% lenders using the FICO model. Vantage can now effectively score them thus, giving lenders an opportunity to assess their credit worthiness and provide credit despite them not having a long credit history.

Entities and institutions who may find good use for Vantage Score include companies in highly competitive industries who’d want to discover new niches to market their products. This will include companies like auto lenders, credit card providers, and home mortgage loan providers.

Vantage’s growth may be slow but it definitely is a sure way to make an inroad into a market long dominated by a single provider and where the cost of a changeover to a new credit scoring model can be prohibitive for now.

Houses and Credit History

Can I get a Mortgage with a Low Credit Score?

As a general rule, yes you can. However, you will have to shop around for a lender. You will not be given the best rates. And, the terms and conditions will be a bit lopsided.  Below are a few things you want to consider to increase your chances of getting approval for a mortgage with a low credit score.

What is a Low Credit Score When It Comes to Home Loans

Houses and Credit HistoryThe 2012 National median credit score is 692. However, based on statistical data, most home loan providers require a consumer to have a higher score. The 2012 home loan average credit score (for approval) is around 734. Take note, this is only the average score, not an excellent one. Suffice it to say any score below 734 is low. However, you do not want to be so low as to go below the “all around” national median credit score of 692. In other words, when it comes to a home loan any score below 692 is not low, but bad.

The Down Payment

The higher your down payment the higher your chances go getting mortgage approval. The usual minimum down payment is 10%. For you to substantially increase your chances, anywhere between 25 to 50% or higher is your goal. This works two ways. Number one, this serves as “show money” and no lender will ignore a substantial cash amount, direct from the buyer. Second, this works to lower your total loanable amount. The lower the loanable amount the higher the chances of getting loan approval on a mortgage with a low credit score.

Mortgaged Property

A mortgage is an arrangement that attaches to a loan. This means that the property bought becomes a security for the fulfillment of the terms of the contract. Otherwise the same will be sold or applied to the debt. A mortgage on a property with a stable and high resale value within a good neighborhood and near basic necessities will be an easier deal than an out of nowhere location. Remember, the lender thinks ahead and in the worst case scenario. The same will not mind you defaulting and them acquiring on foreclosure, a highly marketable property. But they will not be too accommodating to grant a mortgage with a low credit score, if the property is not easily marketable.

Amount and Source of Income

Lenders will want positive data on the consumer to offset the negative or low credit score. Consumers with permanent jobs that pay well are preferred. At the very least they want to see a net income to loan amount of ratio f 30% max. This means that the amortization payments will not go beyond 30% of the net disposable income of the consumer.

What’s on Your Report?

In some cases it is not the score that is important, but the information found therein. Some lenders will assess a consumer based on the score and then based on specific reported information. For example, a low credit score because of dozens of credit card debts that are paid after it is due, but paid nonetheless is not as bad as a charge off or a previous bankruptcy filing, or a judgment involving fraud.