A couple credit card questions...

Hey guys,

I was hoping some of you could help me with some questions regarding credit cards and my credit history. I'm pretty clueless when it comes to this stuff and tend to worry a lot so any help would be great.

Does applying for a new credit card hurt my credit in any way? I just applied for my second card tonight and I am pretty worried at the moment. The card is through my bank and has no annual fee and a low APR so I'd like to think I'm pretty safe.

From what I can tell, applying for a credit increase on my exsisting card doesn't affect my credit. Is this true?

Since the new card has no annual fee, are there any charges that can be placed on it if I do not use it? I mean, if I don't use it to make purchases for a few months, will there be any charges accessed to me monthly?

Thanks for any help.

The number of credit inquiries on your credit history does have an impact (how big or small is debatable) on your credit rating. The assumption is that someone who solicits lots of credit lines may be overextending themselves. If one is shopping for a mortgage, however, it doesn't matter how many inquiries there are as it is expected to get several rates before choosing a mortgage.

I don't think you need to worry about 2 applications. In fact your credit score improves with higher credit limits (not used limits though) and a few (not many) lines of credits.

If your credit card is truly a no-fee credit card, there shouldn't be any fees posted to your account. Read your agreement terms - they'd list any fees if there were any.

Requesting a credit increase to an already existing account will not negatively affect your credit score.

Thanks for the reply and the help Spunky.

What is considered a good APR rate normally? I assume that the APR rate is what is accessed on top of my balance at the end of every month. If I pay off the balance in full every month, there would be nothing charged. Is this correct? Or are transaction fees etc. seperate from the APR?

Unless you have an annual fee there won't be any charges on your account if you pay your balance in full every month.

An APR is your annual interest rate. It is, however, slightly different than the interest stated. The difference is due to how the interest is calculated. Ie. your interest is often charged on the "average monthly balance" vs. "the balance of the last day". Thus, if you recompute the interest rate, you'd have a slightly different rate than the regular interest rate. However, I've found that most credit cards state their rates as an APR.

I don't know about a low APR rate, but a low credit card rate would be at or below 10%, I think. I know that many years ago there were cards with 3 or 4 percent rates, but I don't think they are around anymore. My lowest rate is 11% and it is with a credit union I have a checking and savings account with.

If you have an annual fee or transaction fees, those will be in addition to your interest. An annual fee usually comes with a card that has a fantastic reward program and/or a very low interest rate. OR, in case of people with bad credit, the only way to get a credit card. Transaction fees are usually charged if you draw cash from your credit card and/or overdraft, make a purchase in a foreign currency and/or transfer a balance.

Another factor to consider is any reward programs. American Express has some great cards where you get points based on your spending and you can redeem them on many ways - giftcards to just about anything and flyer miles, etc. Make sure you have use for whatever reward you might get - if you don't care about frequent flyer miles (like me as I dont' want to be bound to those terms when I do travel), you may want to look for a cash reward card and/or one that offers gift cards to starbucks, department stores or restaurants you frequent. Discover has a cash back program.

Why do you need so many credit cards? You're not going to pay off your balance every month and then they'll suck you in and you'll be in debt with everyone else.

I always wonder about credit cards and such too. Personally I only have a debit card, because I don't like to spend money that I don't have. At most I dip into my overdraft on my account, but only when I know for sure that I've got money going in to cover it soon thereafter.

Credit cards are great as a 'just-in-case' measure. I'd hate to be stranded somewhere (particularly abroad) without any cash and with nobody to turn to for help. I have an Egg card that's still 0% on all purchases which I have for emergencies and then my Corporate American Express card for business travel, hotels, etc. That's more like a charge card, though, in that it has no credit limit and has to be paid off at the end of the month following the purchase.

The problem with a large proportion of card holders is that they see it is free cash and never pay it back. Credit card companies are as much to blame as the consumers, however; offering very low introductory offers and huge credit limits which aren't backed up by the earning potential to ever pay them back. Given the amount of unsecured borrowing and the current credit crunch, they're going to have to get tighter with the application criteria and the amount of credit they offer, or every Tom, Dick and Harry will be apllying for IVAs in th next few years.

Debt is a feature of our society that is very difficult to avoid. Very few people manage to fund themselves through university without loans and overdrafts, the vast majority of homeowners have increasingly large mortgages and most working adults have at least one credit card. It isn't right that we all load ourselves up, but spiralling prices unmatched by increased earnings mean that there aren't really any alternatives.

1) if you live in the US you NEED a credit history and the better your credit score the lower an interest rate you will get when you need a mortgage to buy a house. If you have a few (not a ton and more than one or two) credit cards with a very low or no balance your score will be higher than if you had only one credit card or none.

2) many credit cards offer great rewards and you'll get something extra for paying your bills. Plus, you have a better manageable cash flow than if everything came out of a debit account and you don't keep track of it and you might have an overdraft.

3) security for the reasons Richie mentioned.

4) convenience.

5) you can't rent a car or book a hotel in the US without a credit card.

There is nothing bad about managing your money wisely. Credit cards can be a great tool. Irreponsible people will manage to get into financial trouble with or without credit cards ... education is the best way to gain financial control and in the end freedom.