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Have Questions About Credit Cards? We Answer 5 of Them Here
Credit cards are a staple of American consumerism, with the average adult carrying about $6,000 in credit card debt. But using credit cards isn’t just about paying them off and charging balances again — there are plenty of strategies with credit cards you can use to boost your credit score, fix your credit or even garner tons of miles and bonuses.
1. Is the Chase Sapphire Reserve signup bonus worth it?
I’m considering signing up for the Chase Sapphire Reserve® card to get a whole bunch of miles after a few months, but the card is really expensive with a $550 annual fee. What do you think about signing up for the card, getting that initial bonus and getting the 3% rewards for a while, and then ditching it for another card?
Hopping from bonus to bonus is a strategy known as churning, and it works well if you’re jumping between cards without an annual fee. However, cards with a big annual fee aren’t worth it.
With the Chase Sapphire Reserve®, you have to pay that $550 annual fee upon signup to get the card. However, that fee is essentially reimbursed for the first year by the signup bonus, which is 50,000 miles in the program. Those miles will probably net you a few domestic flights by itself. Since you’re getting 3% of your purchases in miles and you have to spend $4,000 in three months to get the bonus, you’ll generate at least 12,000 more miles getting that signup bonus, so you wind up with 62,000 miles (at least), but you paid $550 for it. Of course, for the rest of the year, you get 3% of the value of all purchases in the form of miles. That’s not bad, but it’s not a particularly efficient card for churning.
Honestly, I think that the Chase Sapphire Reserve® is an excellent primary card for someone who travels a lot and puts many purchases on their card. If I were someone who traveled several times a year, I would strongly consider the card for myself because that annual fee would be more than compensated by the perks of the rewards. However, it’s a pretty poor card for churning. This is a card you want to lock into and use over the long haul if you’re a heavy traveler. If not, there are many other travel cards with no annual fee that are a better choice for you.
2. What credit card can I get with bad credit?
I had a hard time keeping up with my bills in 2018 and 2019 and wound up avoiding creditors who kept calling. I finally have that mostly straightened out and have a better job. I want to get a credit card again and start repairing my credit but I know it’s bad. Any suggestions? I hope to eventually buy a house.
A credit card is actually a pretty convenient way to start rebuilding your credit. The challenge, of course, is getting the initial approval for that card, which can be difficult for someone with bad credit.
I’d suggest starting with a credit card designed for someone with bad credit. There are really two main flavors of these cards: secured and unsecured. Secured cards are pretty easy to get — you can probably get one. The catch is that you have to pay a deposit upfront to get the card. This is so that, if you end up not making payments, they can take the money out of your deposit instead — but it will still hurt your credit. Unsecured cards — the ones that don’t require a deposit — usually have somewhat higher credit requirements and usually have a pretty low credit limit for people with marginal credit.
If you have been catching up on your debts and have been paying your bills consistently for several months, I’d try applying for one of the unsecured cards for people with bad credit. If you’re declined, try applying for one of the secured ones if you have enough money for a deposit. Another option is to visit a local credit union, as they’re often very helpful in situations like these.
3. Is it safe to use a credit card online?
I feel OK using my credit card online at Amazon but how do you know if another retailer is safe or not?
If you are buying a product or service directly from a well-known company online, you’re safe giving your credit card information to it. Almost all well-known reputable companies use pretty secure online credit card processing. However, you should be going to that company’s website directly, not through an email link or anything else. If you don’t know the company’s website, use Google to find it.
For smaller businesses, I would be hesitant to buy through them with a credit card unless they’re using a prominent third-party credit card processing service, like Stripe. If a small business is using Stripe to process their credit card purchases, I feel safe using it.
What if neither of the above applies? I’d try to find somewhere else to buy the product, honestly. If there’s truly no other option, I would contact my credit card company and see if they can generate a one-time-use number for that purchase. Most credit card issuers offer this service under a variety of names, but the purpose is that it creates a number that can be used once, and any subsequent charges to that number are declined, so your initial payment will go through, but any later attempts to misuse that new number won’t work.
The most important thing is to make sure you’re going directly to the retailer’s site. Use a Google search to make sure you’re going to the correct website, then make your purchase from there. Don’t rely on links in emails or texts.
4. What order should I pay off my credit cards?
I have five credit cards with balances. I want to pay them all off but I’m not sure how to approach it.
- Card #1 — $1,200 balance — 19.9% APR
- Card #2 — $2,000 balance — 19.9% APR
- Card #3 — $2,400 balance — 24.9% APR
- Card #4 — $2,500 balance — 29.9% APR
- Card #5 — $3,200 balance — 32.9% APR
I read “The Total Money Makeover” and Dave Ramsey said I should pay them off in this order but it feels like I am paying way more interest on Card #5. Thoughts?
Dave Ramsey’s debt snowball method would indeed encourage you to pay off Card #1 first. However, the debt snowball strategy is based more on psychology than math. His reasoning is that the success of paying off a card will spur you to keep going, and you’re going to be able to pay off Card #1 the quickest by far.
However, if you’re committed to paying everything off and want to minimize the total interest you pay, you should pay the cards off in descending interest rate. You can almost perfectly reverse the order of this list. Paying off Card #5, then Card #4, then Card #3, then the other two in any order will minimize your total payments, but it will take a lot longer to have your first card paid off in full.
Before you do any of that, though, you should aim to reduce interest rates where you can. I would aim to get the interest rates reduced on all the cards over 20% interest. You can do this by exploring balance transfer offers as well as calling the credit card company directly to request a rate reduction. Then, reorder those cards based on the new interest rates. If you have a temporarily lower rate, use the higher rate that it will eventually return to.
Ramsey’s argument is a good one if it’s going to be a long time before you pay off your first debt because some people may become discouraged if it takes a long time to pay off that first one. However, if you keep the long-term goal in mind — and do a lot of short-term things to get rid of that first debt, like cleaning out your closet to sell stuff off— you’ll have that highest interest debt gone quickly.
5. Can I add my child as an authorized user?
My son is 15 years old. I am considering adding him as an authorized user to my credit card to help build his credit. My plan is to not actually give him the card and instead have his credit helped by my own use. Does this work? Any thoughts?
This is a great idea, one we’re considering ourselves for our oldest son. We’ve looked into this quite a bit lately, and here’s what you need to know about it.
First, most credit card issuers will allow you to add a 15-year-old as an authorized user, but not all. US Bank requires children to be 16, and Synchrony seems to have varying policies from card to card, but every other major issuer seems to be fine with a 15-year-old authorized user.
Second, most cards won’t charge you for this, but a few will. You will absolutely want to check the specific card to find out if there’s a fee for adding an authorized user, but the vast majority of cards offer this for free.
Third, not all issuers will report the status of a credit card account to the credit report of all authorized users. The policy seems to vary widely from company to company, so you’ll want to call your credit card company and ask directly.
Finally, be aware that credit card issuers that do report on an authorized user will usually report both positive and negative things about credit card use on that account to the authorized user’s credit report. If you pay everything on time and keep the balance low, it’ll be nothing but a positive for your son, but if you’re more than 30 days late on payments or hit the credit limit, it will hurt your son’s credit. American Express, however, doesn’t report negative account problems on the credit reports of authorized users, which is a mark in Amex’s favor.
So, here’s your game plan.
- Call your credit card issuer and ask whether it reports information to the credit card bureaus for authorized users on your card. If not, then adding your child as an authorized user is useless. 2.
- If it does, make sure it allows a minor to be added, and then move forward with your plan.
- Afterwards, be careful with the account, making sure that you’re keeping the account very clean by keeping the balance relatively low and never being late with a payment.
Do you have any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I’ll attempt to answer them in a future mailbag (which, via full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.
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