The good, bad and the ugly of credit card offers

Credit card offers are back from the dead, so  if you have a high credit score, you're in demand and are likely to have a mailbox stuffed full of offers. If you've got average or bad credit, however, the story's likely quite different. 

During and after the recession, credit card companies, stung by high default rates and wary of new rules, pulled back on offers. But now, with the economy slowly recovering and the new rules in place, offers are up significantly from this time last year, though many have changed.

But one fact does hold true: The better credit you have, the better terms you'll get. And issuers are heavily targeting consumers who spend more but pay it off each month, rather than consumers who carry high balances, says Jim Bramlett, a managing director with Novantas, a financial services consulting firm.

"Issuers have retrenched away from trying to aggressively go after people who have very high revolving credit," he says, "because that has obviously proven to be problematic" as banks have coped with high delinquency rates and charge-off rates in recent years.

The big picture
Overall, annual percentage rates (APRs) are up across the credit score spectrum, with APRs for new card offers averaging 14.14 percent, according to CreditCards.com's Weekly Rate Reporton September 22, 2010. That's mainly due to fallout from the Credit CARD Act and new Federal Reserve rules governing credit cards, says Richard Bialek, CEO of Bialek Group, a financial services consulting firm in Wheaton, Ill. Rates are going up for purchases and balance transfers and fees are going up across the board, says Gaurav Gupta, a director at Novantas. "APRs are higher than they were earlier, and fees for cash withdrawals and foreign currency transactions have also gone up," he says.

Bill Coleman, a small business owner in Denver, Colo., agrees, saying, "Rates are way up. I used to get offers of 0 percent for 12 months plus a 3 or 4 percent balance transferfee. Now offers are for 4 to 6 percent, plus a 5 percent or more transfer fee. Might as well get a loan from my credit union."

Here's an overview of the fallout in terms of what it means for you:

Good to excellent credit
If you've got good to very good credit, defined roughly as a credit score of 680 or higher, you can expect credit card offers with:

APR: 10.9 percent to 13.9 percent, variable rate
Annual fee: 0 to $175, depending on rewards

If you're lucky enough to be part of this group, expect to be bombarded with credit card offers for people with excellent credit, as issuers are focusing their attention on consumers with the highest credit scores, says Scott Crawford, CEO of Debtgoal.com. "If anything, there's more competition for the high-credit-score consumer, with offers slightly more generous than they were before if you've got a good score," he adds.

Gupta agrees, saying, "A lot of card issuers are focusing on the pristine, the prime and the superprime segments, and the need for better rewards and better product features, which is what works in that segment." He defines superprime as those with FICO scores over 720 or 750, though some reports have pushed that number even higher.

And don't surprised if issuers of your existing cards either try to induce you to spend more on their card or move up to a better card, Bialek says. This could include a so-called negative-option offer, in which a new card will be sent to you unless you opt out, he adds. "Issuers are doing more and more to identify favored customers based on creditworthiness and the amount of spending and to tailor offers specifically to them."

Average credit
If you have average credit, which is defined as a credit score of 600 to 680, you can expect credit card offers with:

APR: 13.9 percent to 19.8 percent, variable rate
Annual fee: 0 to $175, depending on rewards 

"If you've got a score of 600 or above, you can find some credit with a major issuer," says Lehrer. "That's always been the case and continues to be the case." But rates for those consumers have risen more on average as credit card companies are trying to cope with the fallout from the Credit CARD Act, which prevents them from raising rates on consumers without notice.

Indeed, the biggest impact of the Credit CARD Act has been "to eliminate risk-based pricing," says Bialek. "It used to be that card issuers could give consumers an offer and then, over time, change the pricing on that card if the risk changed. The card issuer was able to protect itself against late payments by being able to increase rates. Now, that's been limited to a large degree."

Poor creditIf you're saddled with bad credit -- a credit score of 600 or lower -- expect credit card offers with:

APR: 19.9 percent to 29.9 percent, variable rate
Annual fee: $35 to $120

Issuers continue to shun consumers with FICO scores below 600, says Gupta. Eli Lehrer, national director at the Center on Finance, Insurance and Real Estate at the Heartland Institute, agrees saying, "Consumers with poor credit will have few options, such as secured credit cards, but it's much harder these days to get a card if you are trying to rebuild your credit."

Bramlett sees some thawing in the market for consumers with poor credit, but there still aren't a lot of options for those consumers, beyond secured cards or cards with sky-high rates and high annual fees. "As the panic of the credit crunch subsides, it will be interesting to see how quickly the banks get back into this market," he says. "I've seen signs that they are sort of putting their toes back in the water with higher risk credit populations, but very cautiously in terms of who they make offers to and what the nature of those offers will be."

In order for that market to be viable again for card issuers, they need to figure out a new business model so that they can make money without taking on too much risk, says Gupta. "Until issuers figure out an alternative model to make sufficient returns on higher risk customers, there will be a lack of credit in that area," he adds. "The Credit CARD Act is one reason and what has happened in the economy is another reason."

These 6 Tips Will Help You Get The Most From A Credit Card

Most people agree that using a credit card to pay for day-to-day purchases is a smart idea.

After all, credit is safe, convenient, and rewarding.

Plus, if you're responsible, you'll also be building a solid credit score with every swipe.

But are you really making the most of your plastic experience?

Here are seven credit card tips everyone should know:

1. Balance alerts can help you keep your spending in check.

Keeping a watch on how much you're spending with your credit card is easier than ever before. Most issuers allow you to set up balance alerts so that you'll receive a text and/or an email whenever your total spending hits a certain threshold that you've set.

Sign up for this service so that you'll get a notice when your credit utilization ratio is approaching the 30% mark — this way, you'll know to make a payment before you jeopardize your credit score.

2. Spending analysis tools make sticking to your budget a cinch.

One of the most underrated online banking features offered by most credit card issuers these days is the spending analysis tool. This allows you to see a breakdown of how much you're spending with your card in different categories (restaurants, travel, general merchandise, etc.). You can usually choose to view this on a per-month basis or take a look at your spending patterns over time.

Be sure to look around for this tool the next time you log into your card's online banking platform. It can provide some helpful insights into where you're doing a good job sticking to your budget, and where you might need to cut back.

3. Mid-cycle payments could improve your credit score.

Every month, your credit card issuer sends a report about your account to the three major credit bureaus. Included on this report is your balance, which is used to calculate your credit utilization ratio.

However, this data isn't necessarily sent over after you've made your monthly payment — it could be reported at any point in your billing cycle. If you tend to charge a lot to your card each month, getting into the habit of making a payment mid-cycle will keep your credit utilization ratio low. This, in turn, will help 30% of your credit score determined by amounts owed.

If you do your shopping on your computer, see if your credit card offers a rewards mall.

4. Shopping through rewards malls will earn you stellar rewards.

If you're a big online shopper, you should definitely use your credit card's rewards mall every time you place an order. This is an easy and convenient way to earn tons of extra rewards on every dollar you spend. And don't assume that your particular issuer doesn't offer this benefit. Even if it's not widely advertised, look around a little the next time you visit your credit card's website. You'll probably find some type of rewards mall or portal that you never noticed before.

5. Moving your due date could help you avoid missing a payment.

Missing a credit card payment is bad news for your FICO credit score, since 35% of it is determined by your history with making on-time bill payments. If your credit card billing due date comes at an inconvenient time during the month, consider switching it. You can usually do this online or by placing a call to your issuer. This one simple move could go far toward preserving your good credit.

6. Strategic swiping is the best way to maximize rewards earning

Using just one high-rewards card for all your spending is a good way to rack up a lot of points. But getting a couple of cards that earn big in the merchant categories you spend the most in and then using them strategically is a great way to pump up the volume on the rewards you're accumulating.

For example, if you spend a lot on gas, dining, and travel, getting both the Chase Freedom® - $200 Bonus and the Chase Sapphire Preferred® Card is a smart idea. You can use the Chase Freedom® - $200 Bonus at gas stations when they're featured as a 5% category (which historically happens 2 out of 4 quarters per year) and the Chase Sapphire Preferred® Card when you travel and dine out.

Then, transfer all the points you racked up on gas spending with the Chase Freedom® $200 Bonus into your Chase Sapphire Preferred® Card account and bingo — you've got a boatload of points to use toward your next vacation.

7 signs you can't afford to buy a home

Making the leap from renting to buying is thrilling and liberating — for many, it signifies the realization of "the American Dream." 

Buying a home is also a long-term commitment, and one that requires strong financial standing. 

If any of these signs strike a chord, you may want to delay taking on a mortgage

You have a low credit score

Before considering home ownership, you'll want to check your credit score, which you can do through free sites like www.creditchecktotal.com

"The higher your score, the better the interest rate on your mortgage will be," writes personal finance expert Ramit Sethi in "I Will Teach You To Be Rich." Good credit can mean significantly lower monthly payments, so if your score is not great, consider delaying this big purchase until you've built up your credit. in the near future.

You have to direct more than 30% of your income towards monthly payments

Personal finance experts say a good rule of thumb is to make sure the total monthly payment doesn't consume more than 30% of your take-home pay.

"Any more than that, and your finances are going to be tight, leaving you financially vulnerable when something inevitably goes wrong," write Harold Pollack and Helaine Olen in their book, "The Index Card." "To be fair, this isn't always possible. In some places such as New York and San Francisco, it can be all but impossible."

While there are a few exceptions, aim to spend no more than one-third of your take-home pay on housing.

You don't have a fully funded emergency savings account

And no, your emergency fund is not your down payment.

As Pollack and Olen write,

We all receive unexpected financial setbacks. Someone gets sick. The insurance company denies a medical claim. A job is suddenly lost. However life intrudes, the bank still expects to receive our monthly mortgage payments ... Finance your emergency fund. Then think about purchasing a home. If you don't have an emergency fund and do own a house, chances are good you will someday find yourself in financial turmoil.

Certified financial planner Jonathan Meaney recommends having the equivalent of a few years' worth of living expenses set aside in case there is a job loss or other surprise. "Unlike a rental arrangement with a one or two year contract and known termination clauses, defaulting on a mortgage can do major damage to your credit report," he tells Business Insider. "In addition, a quick sale is not always possible or equitable for a seller."

You can't afford a 10% down payment

Technically, you don't always have to put any money down when financing a home today, but if you can't afford to put at least 10% down, you may want to reconsider buying, says Sethi.

Ideally, you'll be able to put 20% down — anything lower and you will have to pay for private mortgage insurance (PMI), which is a safety net for the bank in case you fail to make your payments. PMI can cost between 0.5% and 1.50% of mortgage, depending on the size of your down payment and your credit score — that's an additional $1,000 a year on a $200,000 home.

"The more money you can put down toward the initial purchase of a home, the lower your monthly mortgage payment," Pollack and Olen explain. "That's because you will need to borrow less money to finance the home. This can save you tens of thousands of dollars over the life of the loan."

To get an idea of the savings you'll have to put away, check out how much you need to save each day to put a down payment on a house in major US cities.

You plan on moving within the next five years

"Home ownership, like stock investing, works best as a long-term proposition," Pollack and Olen explain. "It takes at least five years to have a reasonable chance of breaking even on a housing purchase. For the first few years, your mortgage payments mostly pay off the interest and not the principal."

Sethi recommends staying put for at least 10 years. "The longer you stay in your house, the more you save," he writes. "If you sell through a traditional realtor, you pay that person a huge fee — usually 6% of the selling price. Divide that by just a few years, and it hits you a lot harder than if you had held the house for ten or twenty years."

Not to mention, moving costs can be insanely high.

You're deep in debt

"If your debt is high, home ownership is going to be a stretch," Pollack and Olen write.

When you apply for a mortgage, you'll be asked about everything you owe — from car and student loans to credit card debt. "If the combination of that debt with the amount you want to borrow exceeds 43% of your income, you will have a hard time getting a mortgage," they explain. "Your 'debt-to-income ratio' will be deemed too high, and mortgage issuers will consider you at high risk for a future default."

You've only considered the sticker price

You have to look at much more than just the sticker price of the home. There are a mountain of hidden costs — from closing fees to taxes — that can add up to more than $9,000 each year, real estate marketplace Zillow estimates. And that number will only jump if you live in a major US city.

You'll have to consider things such as property tax, insurance, utilities, moving costs, renovations, and perhaps the most overlooked expense: maintenance.

"The actual purchase price is not the most important cost," says Alison Bernstein, founder and president of Suburban Jungle Realty Group, an agency that assists suburb-bound movers. "What's important is how much it's going to cost to maintain that house," she tells Business Insider.

Read up on all of the hidden costs that come with buying a home before making the leap.

The 9 steps I took to Get My Finances Back on Track

1.Know your number
2.Get your credit score every year
3.Clean up your accounts
4.See that savings account? Use it
5.Use that dirty B-word  BUDGET
6.Adjust your expectations
7.Don't let terms like 401(k) scare you
8.Face it: Eventually you'll need to retire
9.Find a mentor

Raise your credit score with this knowledge

If you're suffering from poor credit, there are several surefire ways to get your credit healthy again. Follow these tips and you'll be well on your way:

• Always pay your bills on time and pay down the total amount you owe. 
  (accounts for 35 percent of your score)
  If you forget all else after reading this, remember this one! This is the single most important rule for having a good credit score.
•  Keep a low credit utilization rate. 
  (accounts for 30 percent of your score)
  Let's say you have a credit card with a $10,000 limit. If you're carrying a balance month-to-month of $3,000, you're only using 30 percent of the total limit. But if your credit limit is suddenly dropped to $3,000, then suddenly you're using 100 percent of what's available to you. That's yet another reason to always pay down credit card debt as quickly as possible. You always want to stay at credit utilization of 30 percent or less.
• When you pay off a credit card, don't close the account. 
  (accounts for 15 percent of your score)
  Doing so only reduces your available credit and drives your score down. You want to have between four to six lines of credit. Be sure to use them twice a year -- even if it's just for a dollar store purchase -- and pay them off right away. That will keep them active in your credit mix.

If you're facing a huge new annual fee on a card that has a zero balance, try "leapfrogging." That's my term for using the 45-day window you have before any new terms of service go into effect to shop around. So once you get notice about a new annual fee, start looking around for other no-fee credit cards. Submit your application and once you get your new no-fee card, then go ahead and shut down the original one that wanted to spring a fee on you.

The remaining 20% of your credit score is comprised of what types of credit make up your credit mix (10%) and how much new credit you have in your life and how quickly you took it on (10%).

Building credit after paying off old debts

You have already done exactly the right thing in paying off your debt. Now you need to demonstrate that you have learned from your mistakes and can manage new debt.

Getting a pre-paid card will not help rebuild credit because pre-paid cards are not reported to credit reporting companies and, therefore, are not part of your credit report. If you can’t qualify for a standard credit card, you should consider a secured card where you deposit funds in a savings account to guarantee that your charges on the card will be paid if you fail to pay as agreed.

Apply with your bank or credit union for a secured card with a small credit limit that is reported to the national credit reporting companies. Use the card sparingly and pay off the balance each month. Over time you will build a history of positive credit management.

Eventually, the negative account information will be deleted, leaving only the positive account details.

Remember, you didn’t get into credit trouble overnight, and you can’t restore a great credit history overnight either. But you are definitely headed in the right direction. Time and patience are now your best allies.