q&a
Credit Score Q&A: Positive and Negative Actions on FICO Score
Q: if you cancel/close a credit card account within a short time (lets say 6 months) you took it, will it affect your credit score?
A: It will probably not. This kind of behavior should fall into the “New Credit” section that is in your credit report, however, since the majority of this section is to figure out your interest to new credit, the more you are interested, the more negative to your credit. Given this guideline, if you close new accounts shortly, that doesn’t affect your credit score negatively.
References: How Your FICO Credit Score is calculated from myFICO.com. You may also find out your FICO score by visiting here.
FICO Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining your FICO score.
These percentages are based on the importance of the five categories for the general population. For particular groups – for example, people who have not been using credit long – the importance of these categories may be somewhat different.
Payment History
- Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
- Presence of adverse public records (bankruptcy, judgements, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
- Severity of delinquency (how long past due)
- Amount past due on delinquent accounts or collection items
- Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
- Number of past due items on file
- Number of accounts paid as agreed
Amounts Owed
- Amount owing on accounts
- Amount owing on specific types of accounts
- Lack of a specific type of balance, in some cases
- Number of accounts with balances
- Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
- Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)
Length of Credit History
- Time since accounts opened
- Time since accounts opened, by specific type of account
- Time since account activity
New Credit
- Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
- Number of recent credit inquiries
- Time since recent account opening(s), by type of account
- Time since credit inquiry(s)
- Re-establishment of positive credit history following past payment problems
Types of Credit Used
- Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)
Also check out service review of credit reporting/monitoring and identity theft services
Important Disclaimer: the credit cards information in this post were accurate as of the date of publishing, some or all of the card programs may be discontinued, their terms may be changed after wards.
Rate Q&A: APY to APR and APR to APY conversion methods
APR and APY are common concepts of savings interest rate that you have to deal with. For example, the review of online saving accounts lists APY version of various bank’s saving account interest rates. The concepts of APR and APY are so close to each other, they sometimes confuse a lot of people. In fact, they describe the same thing, interest rate, from two perspectives. APR stands for Annual Percentage Return, it measures how much interest dollar you will get if you cash out whenever you earn interest. APY stands for Annual Percentage Yield, it measures how much interest dollar you will get if you don’t cash out interest earned, but put it back to earn interest again.
The two types of rates are interchangable, here is how to convert one to the other. Before you calculate, you need to set a method of compounding, which is how many pieces you want to slice a year into. Daily compounding slices a year into 365 days, then periods of year is 365. Monthly compounding slices a year into 12 months, then periods of year is 12. With this in your mind, you can start converting.
Supposing you want to calculate daily rate for the year of 2009 which has 365 days total.
If you have APR available, here is how to calculate APY:
APY = (APR / periods of year + 1) ^ periods of year – 1
For example, for APR 2.08%, and you want daily APY,
APY = (2.08% / 365 + 1) ^ 365 – 1 = 2.10%
Converting APY to APR is a little more complicated, say If you have APY available, and need APR
APR = ((1 + APY) ^ (1/periods of year) – 1) * periods of year
For example, for APY 2.10%, and you want daily APR,
APR = ((1 + 2.1%) ^ (1/365) – 1) * 365 = 2.08%
Important Disclaimer: the credit cards information in this post were accurate as of the date of publishing, some or all of the card programs may be discontinued, their terms may be changed after wards.
Credit Card Q&A: What does New Credit Card Rules Mean to You
The fact that Federal Reserve approved new credit card rules means that, before it’s too late, it’s time now to apply for balance transfer credit cards with low interest and low transaction fee.
Federal Reserve released a set of new credit card rules that will take effect starting July 2010. Based on these new rules, credit card companies must:
- Raise interest rates only on new credit cards and future purchases or advances, not on current balances.
- Give you 45 days’ notice before any changes are made to the terms of an account, including slapping on a higher penalty rate for missing payments or paying bills late. Under current rules, companies in most cases give 15 days notice.
- Apply any payment above the minimum to the part of the balance with the highest interest rate.
Credit card companies must not:
- Place unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay.
- Place too-high fees for exceeding the credit limit solely because of a hold placed on the account.
- Unfairly compute balances in a computing tactic known as double-cycle billing.
- Unfairly add security deposits and fees for issuing credit or making it available.
- Make deceptive offers of credit.
- Charge upfront fees for subprime cards (high-interest cards for people with low credit scores, typically with $500 credit limits) that exceed half of the credit-card limit, or require full repayment in less than a year.
The rules were approved by the Federal Reserve, the Treasury Department’s Office of Thrift Supervision and the National Credit Union Administration on Dec. 18th, 2008.
For consumers, these rules will protect those debt-ridden, cash-strapped from being charged sky-high interest rates by credit card companies. They will also prevent consumers to fall in the trap of getting a 0% Balance Transfer card, but actually ended up paying high interest for that balance because credit card companies allocate payment to low interest balance tiers first. Finally, credit card companies will be prevented from taking negative actions such as “universal default” against consumers.
For credit card companies, these rules will definitely shrink the profitable margin of credit card industry, since they eliminate many levers that they could use to bring profit and prevent credit risk: such as raising interests without notice, payment allocation, charging late fees etc.
All in all, while the new rules bring more power to consumer side of the game, the credit card companies may respond by cutting credit card offerings. While consumers may have better than before leverage to get more transparent terms and be treated more in expectation, credit may not be as easy to obtain as before. After all, there will still be more than a year before these rules take effect, which gives people enough time to digest the impact and take action, but one thing is certain: more and more people are taking actions to be more and more financial disciplined.
Important Disclaimer: the credit cards information in this post were accurate as of the date of publishing, some or all of the card programs may be discontinued, their terms may be changed after wards.
Card Q&A: Can I Apply for a Business Credit Card without Having a Business?
The short answer is Yes, you can.
Many business credit cards offer fabulous deals. Some of those deals are much better than those of consumer credit cards. For example, American Express Business Gold Rewards Card ran a promotion in summer 2007 to give out 25,000 bonus points for new applicants, which can be redeemed for either free round-trip domestic tickets or a $250 gift card. But many people stop short of applying for business credit cards because they mistakenly believe that they need to run a business to qualify for a business credit card. This is not the case. Anyone can apply for business credit cards even if they are not part of a corporation or LLC. Just use your own name as the business name and use your Social Security Number (SSN) as the Tax ID to apply for business credit cards.
Why? Because an individual can be a business too. The type of the business is called a sole proprietorship, which is the simplest business entity. Sole proprietorship is completely legit and is recognized by the Internal Revenue Services (IRS). In a sole propiertorship, your name is your business name and your SSN is your business Tax ID. When you are filling out application for business credit cards, just choose sole proprietorship as business legal structure, and enter your SSN as business tax ID.
For the vast majority of business credit cards, even if you are part of a corporation or LLC, you will still be personally liable for business debts and credit card issuers use your own credit report to determine on your qualification. That’s why they’ll always ask for your SSN.
You also don’t need to worry about any filings with the IRS for using business credit cards. You can simply use your business credit cards for regular daily purchases and pay off the balances as you would do with a typical credit card.
In addition, for most business credit cards, the credit card itself won’t show up in your personal credit report. This means that you can open many new accounts, max out the credit limits without affecting your personal credit score. This also means you can save thousands of dollars by taking advantage of the 0% Balance Transfer offers from business credit cards without worrying about your credit score.
Now that you are able to get access to the fabulous deals, check out my articles that compare business credit cards.
Important Disclaimer: the credit cards information in this post were accurate as of the date of publishing, some or all of the card programs may be discontinued, their terms may be changed after wards.
