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Credit needed for real estate mortgage financing differs from credit needed for consumer loans. If you need help getting a home mortgage, these credit tips will help you.
Contrary to what many credit advisors say, paying off credit cards each month is not always the best action to take. When making credit card payments, don't pay the balance in full each month -- let a little roll over.
Paying balances in full does not increase your credit score; paying balances in full may in fact lower your credit score. Accounts with zero balances do not compute significantly in your total score. For instance, a credit card with a perfect payment history and no balance will not weigh as heavily in your credit score as a credit card with a low balance, which might have a poor payment record.
You most likely have been advised to cut up your credit cards and close your accounts. Following this advice degrades many credit scores.
Canceling Credit Cards
Canceling credit cards can also lower your score. Keep your longest-term credit card account open to show long-term credit history. If this account has prior late notations, negotiate with the creditor to drop negative reporting on your credit history file. Slowly close out newer accounts after they are paid off. Keep your best accounts open -- those paid on time or reporting "pays as agreed" and with the longest history.
Credit card companies may raise your rate if you cancel a card before it is paid off; it is best to keep accounts with outstanding balances open until you pay them off.
Perfect Balance of Credit
Mortgage over one year old with all payments on time
Visa Card or Master Card with less than 10% of available credit as balance due
Discover or American Express Card with less than 10% of available credit as balance due
Auto loan either paid off or paid down with low payments compared to monthly income
Debt-to-Income Ratio
Credit scores do not reflect income -- credit bureaus do not have income reported to them. However, lenders look at the consumer debt-to-income ratio --the amount of monthly debts in relation to the amount of earnings. Consumer debt is more highly regarded/scores higher if total debt is under 20% of net income, or total monthly payments on all debts is less than 35% of monthly gross income.
Qualifying Ratios
Lenders want the total debt ratio (the percentage of total monthly payments, including the new mortgage, to income) to be less than 33% for a typical conventional mortgage. This means the new mortgage payment, credit card payments, and all other monthly debt payments should not equal more than about one-third of the monthly income.
Lenders want the mortgage debt ratio (the percentage of the new mortgage payment to income) to be less than 28%.
Sub-prime loans have lower standards; some lenders allow debt-to-income ratios as high as 55%. Borrowers with less than perfect credit qualify more easily for a sub-prime loan compared to an “A-paper” loan.
Once you total your monthly expenses and determine your debt ratio, you can estimate how much you can afford for a house payment. For example, if your income is around $3,000 per month, you can afford a home with payments around $1,000 per month (including taxes and insurance) with a conventional loan, if your other debt does not total more than 5% of your income.
For investors, these equations change. Lenders expect 10%–25% down on investment property and allow about 75% of the rental income to offset the debt ratio.
Understanding your credit helps you manage your credit so you can obtain real estate financing, either for the house of your dreams or for your financial future.
Copyright (c) 2004 by Jeanette J. Fisher
About the Author
Professor Jeanette Fisher, author of Doghouse to Dollhouse for Dollars, Joy to the Home, and other books teaches Real Estate Investing and Design Psychology. For more articles, tips, reports, newsletters, and sales flyer template, see http://www.doghousetodollhousefordollars.com/pages/5/index.htm
Having less than perfect credit can hurt you and your financial future. One way to get yourself out of the dark hole of credit is by responsibly using a credit card. If you have bad credit and are looking for a credit card, you may want to stick with the bad credit credit cards. Bad credit credit cards are just like regular credit cards, but they are specifically for high risk cardholders.
Since your credit score is low, you are considered high risk to the credit card companies. Bad credit credit cards should be used responsibly however or your situation will just worsen. If you think there is even a possibility of you defaulting on the card, simply don’t even apply. Before applying for bad credit credit cards, be sure to check out the common terms for bad credit credit cards.
Credit Limits
Credit limits on bad credit credit cards are usually relatively low. The highest limit you will usually see is around $1000. This is for your own protection. The lower your limit, the more likely you are to use the card and pay off your balance in a timely manner. It is much more difficult to pay off higher balances. Therefore, don’t think of the low balance as a disadvantage.
APR
Most APR rates on bad credit credit cards are very reasonable. They fall around 10% which is good for a credit card. Try to find cards that hold the lowest interest rate possible. This will help you repay your charges quickly while giving your credit score a positive boost.
Fees
Although typically annual fees on credit cards should be avoiding, with bad credit credit cards, they are standard. Bad credit credit cards often charge annual fees of up to $50 or more. This is a protective act for the credit card company. It may be something you simply must accept if your credit score is low and you need a credit card.
Another fee you may encounter is an enrollment fee. Again, this is something no one with good credit should ever accept. However, with bad credit credit cards, the enrollment fee is common.
Credit Bureau Reporting
Make sure than any bad credit credit card you apply for reports to all of the major credit bureaus. This will help you regain good credit. You don’t want to pay diligently on a card that cannot help your credit. You may have to call customer support ahead of time to ask this question, but it is worth your attention.
Bad credit credit cards can be just the things that save your credit. If you want to boost your credit, then consider getting one of these unique cards. Just remember to spend and repay responsibly. In no time you can have your credit looking 100% better!
About the Author
About the Author: Morgan Hamilton offers expert advice and great tips regarding all aspects concerning Credit Cards. Get the information you are seeking now by visiting http://www.Find-Cards-Now.com
Many people believe that because of their bad credit, unsecured credit cards are not available to them. While it may be more difficult, there are options for people with bad credit who want an unsecured credit card to build their credit or have available for use in an emergency. While a secured credit card is the most commonly recommended option for people with bad credit, unsecured credit cards ARE available - even for those with the worst credit.
Bad Credit: Unsecured Credit Cards vs. Secured Credit Cards
One of the easiest ways to get a credit card when you have bad credit is to opt for a secured credit card. With a secured credit card, you deposit money in a bank designated by the credit card company to serve as a 'security deposit' - an assurance that they'll get their money if you default on payments. Depending on the lender, that deposit might be equal to your desired credit limit, or slightly higher or lower. A security deposit of $300, for instance, might get you a $150 line of credit with one company, a $300 line of credit with another, and a $400 one with yet a third. The interest rate is generally competitive, since the company has a guarantee of getting its money if you don't make payments.
An unsecured credit card requires no security deposit. A bad credit unsecured credit card will often have either a high APR (annual percentage rate), high fees, or both. How do the two stack up against each other? Here's a comparison from two actual credit card offers that are sitting on my desk as I write:
Credit Limit Increases: $100 increments, each require $100 deposit
Bottom Line: It will cost you $370 to maintain a $250 credit limit for the first year, with at least $250 up front, at an APR of 15.40%. You'll have $170 available credit upon receipt of your card. You'll have to put up an additional $100 every time you want to increase your credit limit.
Bad Credit Unsecured Credit Card
Annual Fee: $48
Setup Fee: $29
Participation Fee: $72 (annual, billed at $6 monthly)
Program Fee: $95 (one time fee)
APR: 9.9%
Credit Limit Increases: $25 (per increase of $100, at their discretion)
Bottom line: It will cost you $244 for the first year, all of it billed to your credit card on your first statement, to maintain a $250 credit limit with an APR of 9.9%. You'll have $72 credit available upon receipt of your card.
In the long run, while a bad credit unsecured credit card may cost you more, you won't be tying up your money up front. Either card will help repair your credit as you make payments on time and regularly, but the unsecured card has an APR that's almost 5% lower. You're the only one who can decide which is the better option for you - but it makes sense to weigh all your options before you decide that your only way to have a credit card is with a security deposit.
Assuming a trader is highly experienced and competent he will trade the Daily Forex market on his own. He may only use automated assistance when he rests but for the most part his trading may well be done 'flying by the seat of his pants'.
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The stage is now set for your wild adventure into the unknown world of online currency trading. Where one moment you are sure your are going to be the next Warren Buffet and the next moment your confidence wanes and doubts appear. There are many unsolved potential pitfalls to over come before you start trading. When it comes to forex trading, the platform and trading system on which you're going to trade is essential.
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You will read a lot of nonsense online from people claiming the markets have a mathematical order and can be predicted when its obvious they cant! Why? Well if you could, everyone would know the price in advance and there would be no market. You can't predict prices; you can win though, if you understand the following.
If you want to win at forex trading and enter the elite 5% who make big gains you need to understand and avoid the reasons 95% of traders lose. Let's look at them. Anyone can claim their an expert and they do. These vendors peddle sure fire systems with meaningless simulated back tests which they present as evidence they can make money (odd, as they know all the closing prices when they make the track record up!) the greedy trader believes them, gets spanked in the market and wonders why.
A personal loan company is a good option if a borrower has been unable to get a loan at a bank or through conventional lenders. An established personal loan company will be a one stop solution for a borrower who wants to borrow loans to deal with his financial problems. Specialist advisors at a personal loan company will discuss various loan options, interest rates and repayment terms with borrowers and help them choose a loan deal which matches their requirements.
A personal loan company can source the best loan deals through a wide network of lenders. The borrower can gain access to the best loan deals from the convenience of his/her home and deal with all financial adversity even in case bad credit, arrears, CCJ’s etc. Personal loan companies are dedicated to sourcing and matching personal loans to borrowers depending on their needs and constraints. Personal-loans-company-uk.co.uk will scour the market for the best personal loan deal.
When looking for a loan, it is wise to shop around and before deciding on a lender borrowers must get free quotes and then decide on a loan deal. However a personal loan company simplifies the whole process by doing the necessary legwork to find the best loan deal so a borrower can solve his financial worries by simply opting for services of a personal loan company. A reputed personal loan company will offer the borrower lowest rates and quick approvals. Few loan companies also waive any arrangement fees. Trained financial advisors at personal loan companies will assist borrowers by providing timely and effective financial advise to ensure that borrowers make the right choice while choosing a loan.
With the number of options available to the borrower, one can afford to be picky while opting for services of a personal loan company. A little research online will yield extensive results for personal loan companies. The borrower can then choose a personal loan company depending on their circumstances and convenience.
A personal loan company will help arrange loans with major banks or financial establishments for your needs. The whole process of finding and applying for the best personal loan is simple and hassle free with a personal loan company. Borrowers no longer need to waste their precious time and money to search for the best loan deal. A personal loan company will change the way borrowers look for personal loan deals. Borrowers can look forward to a wider choice of loan deals to compare and are more in control of their decisions as they don’t encounter any pushy sales people at a personal loan company. Some loan companies also have provisions for online loan calculators which are extremely user friendly. They ensure that the loan comparison process is simple and hassle free. Personal-loans-company-uk.co.uk assures a simple and straightforward process for a personal loan approval.
The borrower is assured of utmost confidentiality and security with a personal loan company. Expedite the personal loan approval process with the help of a personal loan company.
In order to make money we have to learn how to manage it. There are different money management strategies, and they all aim at preserving your balance from high risk exposure.
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Many college students and graduates are looking for a solution for their student loan debt. While borrowers may be having difficulty paying back student loans, there is help. Solutions for paying back student loans are available.
What causes difficulty in paying back student loans?
New college graduates may find that it takes them longer to find a job than they expected. While there's a six month grace period from the time students graduate until repayment begins, sometimes it takes six months or longer to find a job.
Many recent graduates who are employed are underemployed -- working part-time or temporary jobs until they find a permanent position. During this time they may need help in making loan payments.
New college graduates can use several strategies to help with student loan repayment. Taking on additional part-time jobs or freelancing may be an option.
It is also wise to keep living expenses low the first few years out of college. Graduates can live with a roommate, or downsize into a smaller apartment. If new graduates are still looking for a job, it may be a good idea not to move until permanent employment is found. Then it will be easier to move to an area closer to the job.
Applying for a forbearance may be an immediate solution for times of difficulty making loan payments. A forbearance is temporary period of suspension of payments on a federal or direct loan after repayment has begun, and if the student does not qualify for deferment.
This means that if a student has already started paying back loans, they can apply for a suspension of payments on the grounds of financial hardship. A forbearance must be applied for through the lender. Being able to hold off payments for a few months can be a big help during a time of financial hardship.
Another student loan debt solution is to consolidate payments. Unless consolidated, each student loan is accounted for and paid separately. When a student graduates they will receive paperwork and payment slips for each loan. 2, 5, 12... no matter how many loans were taken out, they will be billed separately. Adding up all of these individual loan payments could total $300-$1000 per month or more! Not many students can afford such payments.
That's where consolidation comes in. Consolidation is a process that combines all of the student loans into one loan. Borrowers can dramatically reduce monthly payments of student loans by consolidating. Average monthly payments could be less than $100 to around $250 per month. This is just an estimate. The monthly payment depends on the total amount borrowed, the interest rate and the way that loans are consolidated.
Consolidating through The Income Contingent Repayment plan is designed to help make repaying student loans easier for students who intend to pursue jobs with lower salaries, such as careers in public service. The monthly payment amount is adjusted annually, based on changes in family size and annual income. This program is only available through the US Department of Education, not a lender or bank.
Finally, the Graduated Repayment Plan starts the payments at a low level (usually interest only) and gradually increases the payments until the balance is paid. This is helpful for graduates because payments are low when the first graduate, and increase as earning power increases over the years. This plan is available by consolidating through a bank or other lender.
It is important to note that according to current regulations student loans may only be consolidated once. So borrowers who have already graduated and consolidated with a standard plan cannot take advantage of the income contingent or graduated plans. For borrowers who have already consolidated, a forbearance may be the best option for temporary relief of student loan debt.
Use the student loan repayment calculator from finaid.org to find out what loan payments could be using different types of consolidation.
College graduates can find student debt relief using one of the solutions mentioned above. Discuss loan repayment options with your lender and see what can be done to help you repay student loans.
Michael Carter is a contributor at College Financial Aid Guide, an online informational resource for educational funding, scholarships and student loans. Find out more about Paying Back Student Loans
About the Author
Michael Carter is a contributor at College Financial Aid Guide, an online informational resource for educational funding, scholarships and student loans. Find out more about Paying Back Student Loans.
This must not however discourage us from finding a solution to the debts. Debts can make lives difficult. You will have creditors making regular phone calls and then dropping by at your house demanding the amount lent out. With the creditors making a scene, the personal image and the credit is badly marred. The mind is heavily stressed and some people may even contemplate suicide.
But how many of us do actually take the step to end ones life? Only a handful of us; because we value our lives and because we know that ending ones life is not going to solve the problem of debts. The creditors do not intend to leave the amount. Once the principal borrower deceases, they catch the co-borrowers or the dependants of the principal borrower.
A simpler method of getting rid of debts is debt consolidation. Debt consolidation can provide relief from the debts without burdening the borrowers. Debt consolidation as the name goes consolidates or brings the various debts on the borrowers account together. The debts could have been dealt individually, but this would have been a tedious process. The consolidation of debts helps to generate the feeling that they are not as invincible as they appear.
Once the debts are consolidated or brought together, they are ready to be settled. The borrower will have to choose from a variety of ways of debt consolidation. In the following section we shall discuss the methods of debt consolidation in detail.
Debt consolidation through credit cards:
Credit cards can be an excellent method of debt consolidation. There is no requirement of the collateral. This saves the users from the fear of losing assets in case they are not able to repay. However credit cards are very costly. The interest rate charged by the credit card companies is very high. The manner in which the user negotiates the interest rate will decide the actual interest charged on the balance transfers.
Debt consolidation through Debt consolidation loans:
Borrowers who want to save on the interest rate would do best by repaying debts through a debt consolidation loan. The interest rate is minimal. The debt consolidation loans are traditionally used and preferred most because of the flexibility that they offer. The burden on the borrower is reduced by spreading the loan amount on the various months making up the term of repayment. People having resources can pay off the loan amount without waiting for the term of repayment to end, provided the lender does not forbid a premature repayment. The borrowers can decide on the manner in which the interest is to be charged.
Debt consolidation through home equity loans:
Home equity loans are secured loans. These are generally issued against the home as collateral. The minimal risk calls for a lesser interest rate. The repayment of the home equity loan is similar to the debt consolidation loans. However, the borrowers must be regular in the monthly repayments to the home equity loan. Otherwise the home may be repossessed to make the default good. The home equity loan can be used for purposes other than debt consolidation, if the borrower so desires.
Debt consolidation through credit counseling:
Credit counseling agencies help in the settlement of loans by payment plans. The borrower will be required to make monthly repayments to the payment plan suggested. Credit counseling can agencies provide tips on how the debts can be prevented from erupting again.
Debt consolidation through cash-out refinance:
Cash-out refinance helps to refinance mortgages and other debts. These mortgages and debts are refinanced either to get an improved interest rate or get benefited on the increased equity in ones home.
Debt consolidation through debt settlement:
When consolidating debts through debt settlement, the borrowers are to make the repayments to the settlement company. As the balance on the debt falls, the settlement company repays the balance of the debts. The main advantage of debt settlement is that the borrowers are freed of dealings with the creditors. Creditors contact the settlement company for any queries related to debts.
Debt consolidation through rapid debt repayment:
The method of debt repayment repays the debts according to the priority. A monthly repayment is to be made towards the payment of debts. The high interest debts are to be repaid first because more is the delay in the repayment, more will the cost be.
Since there are massive differences between people and their conditions, no one method can be imposed on all. Each method has its own pros and cons. while some may be benefited by a debt consolidation loan, others are not. A proper study of the individual condition either by oneself or by people having a proper knowledge of the field can help find the best method to fight the monster named debt.
You want to raise a business on your own or you want to expand it further. You have a plan and the vigour to make your mark in this field. The company that produces refrigerators to the one that produces anti wrinkle cream; every company no matter how small it is – requires money, hard core moolah to take it to great heights. You dream of the same every night. But isn’t there a nightmare that invariably spoils your dream every time you plan your business. It is bad credit. So, how to end this chain of unpleasant circumstances? Bad credit business loans have furthered the cause of preventing financial mishaps for people who want to make it on their own.
Not every loan lenders is geared to provide bad credit business loans. You know you have bad credit if you are a bankrupt, CCJ, default, charge off, or have any past loan related arrears. Start from the beginning – get to know your credit score. A credit score enable the loan lender to judge the credit worthiness of loan borrower. It is a number generated by statistical methods. Based on these number bad credit business loans contenders are given grades like B, C and D. All these grades mean you have to apply for bad credit business loans. Starting a business with credit score ranging from 500-550 could be ideally done with bad credit business loan. Try to get an objective assessment of your credit report before you undertake your quest for bad credit business loans.
Now that you know about your credit score, concentrate on your business budget. You should be clear about your money requirements before you take out bad credit business loans. Your Bad credit business loans should be backed by a feasible business plan. Don’t go applying for a bad credit business loan, if you are not ready with a business plan.
You can’t expect to get a bad credit business loan without a proper plan. Bad credit business loan application that is replete with all the required information is usually placed on the top of the pile of applications. Provide your bad credit business loans application with the nature of your business, the objective of using the business loan, business name, your social security number. Be prepared with all the required documents before you go ahead.
Paperwork should be complete whilst you go for bad credit business loan hunting. Get a lawyer to review your loan papers and also check with him before signing any papers. Don’t hand over your documents to the loan lender and don’t sign any blank document.
You have bad credit. So your approved bad credit business loans application will bring with it higher rate of interest. Nevertheless bad credit business loans can be very good source of finance. The amount you can borrow with bad credit business loans is £50,000 and £1,000,000. The loan repayment term would be any where between 3 to 25 years depending on the loan amount. A secured business loan with bad credit will usually have lower rate of interest than unsecured bad credit business loans.
Bad credit business loans are a very good form of finance because it has an exceptional amount of advantages. The biggest convenience with bad credit business loans is flexibility and freedom. Bad credit business loans can provide continuous access to cash. You also get to hold your ownership of your company instead of resorting to selling the interest of your company in order to raise money.
Alright, you got approved for your bad credit business loan. You are high on the cloud, but did you read the fine print? You are nodding your head in the negative. Fine prints may carry at times hidden charges, including annual fees, bank charges, closing costs, commissions and balloon payments. Borrowing money for business with bad credit is not only serious but liable to fraud and deception. Don’t get into something you are not comfortable with and also ask questions about fundamental things like APR, your monthly payments etc. on your bad credit business loan.
You want to do business, you want to do the right way, you want consistent inflow of cash, and you want to retain your business completely. You have bad credit and all you need is a bad credit business loan. Bad credit means rejection? Not these days. It was like in 1957. That was long back. Bad credit business loans now means requisite start up for business.
About the Author
Amanda Thompson holds a Bachelor’s degree in Commerce from CPIT and has completed her master’s in Business Administration from IGNOU. She is as cautious about her finances as any person reading this is. She is working as financial consultant for chanceforloans .To find a Personal loans,bad credit loans,Debt consolidation,home equity loans at cheap rates that best suits your needs visit http://www.chanceforloans.co.uk
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Years ago, credit card reward programs were simple: There weren’t any.
Then Discover came along with its cash-back offer, and airlines hooked up with banks to issue credit cards that earned frequent flier miles.
Today, consumers face a bewildering array of ways to earn, and spend, credit card rewards:
A credit card can contribute to a retirement account, score theme-park tickets or knock thousands off the price of your next car.
You can convert miles into hotel stays or restaurant meals -- or use them where you stay and eat to earn extra miles.
Once you reach the stratosphere of spenders, you can use your rewards to design one-of-a-kind vacations and “experiences,” like a week at a French cooking school. All this choice leads to inevitable second-guessing. Sure, you’re getting rewards. But are you getting the most rewards possible? Do you have the best card, and are you taking the best advantage of it that you can?
Do You Carry a Balance?
The answer is simple if you’re the kind of credit card user who carries a balance. Reward cards are not for you.
Any benefit you get from a rebate card is swamped by the added interest costs when you carry a balance. Instead, you should look for the lowest-rate card you can find so you can pay off your debt as quickly as possible. Don’t get sucked in by 0% offers on rebate cards; after they expire, you’ll typically pay a much higher interest rate than you could find if you looked for a low-rate, non-rebate card.
For everyone else, though, there are no easy answers. The best reward card depends on a number of factors, from how much you charge to how much flexibility you want to how fast you can use your accumulated rewards.
It Takes Time and Effort
Anyone who wants to get the optimum deal must be willing to invest a little time -- not only in choosing a card but in managing it afterwards. Savvy rebate card users view their programs as a kind of investment, and know the payoff can vary with the amount of attention they give. They peruse statement stuffers or e-mail newsletters for tips on earning extra rewards, and focus their spending patterns to give them maximum rebate bang for their bucks.
Here are four ways to get started:
Know your currency. To compare deals, you should know how rewards are valued.
Frequent-flier miles are the gold standard of the rebate credit card game, and they’re typically valued at 1 or 2 cents apiece (although you can stretch their worth to 8 or 9 cents when used to win upgrades on a discount coach ticket, according to miles guru Randy Petersen, publisher of WebFlyer online newsletter). One or two cents is the equivalent of a 1% to 2% rebate when you're earning one mile per dollar spent.
Knowing a mile’s value helps in two ways. You wouldn’t want to stick with a program that offered you rewards of much less than 1%. You also wouldn’t want to squander any miles you earn for merchandise or other conversions that give you much less value for your money -- unless your reward is about to expire. (For a list and comparison table of airline mileage cards, see MSN Money's Credit Card Analyzer.)
Know your limits. Most airlines have moved away from automatically expiring miles, but some airline-affiliated credit cards have a “use it or lose it” policy, as do many “travel reward” plans not affiliated with a specific carrier. If it will take you a long time to earn or use your reward, you’ll want to make sure you can bank it. American Express and Diners Club, for example, have frequent-flier programs with miles that never expire. (Use the Credit Card analyzer to find and compare travel reward cards.)
Other types of rebate cards may limit how much of a reward you can earn a year.
The “car cards,” for example, tend to be the most generous reward cards in terms of what percentage rebate you earn -- but the reward has its limits. The GM Card lets you earn 5% toward the purchase or lease of one of its vehicles, but then curbs how much you’re allowed to apply to a given vehicle. Only $1,000 in rebate awards currently can be redeemed on a new Hummer or Corvette, for example, while $3,000 can be used to purchase a Silhouette minivan. (You can find and compare auto rewards cards using MSN Money's Credit Card Analyzer.)
The Subaru Platinum MasterCard from Chase, meanwhile, has a 3% rebate but limits your maximum reward to $500 a year. That means if you charge more than $16,667 a year, you won’t be earning any additional rebate.
Don’t want a GM or Subaru vehicle but still want bucks off on your next car? Another option is the Citi Driver’s Edge Platinum Select Card, which gives you a 1% rebate (up to $500 a year) toward the purchase or lease of any new or used car. You can charge up to $50,000 a year before hitting that cap.
If you want the discounts but charge more than these levels, you can switch to another card (with a separate rebate program) after you’ve earned the maximum reward.
Do the math
Match the card to your spending. Just as heavy credit-card users can run into limits on how much of a reward they can earn, light users can find themselves not earning enough rebates with their card to make the cost worthwhile.
If you charge just $5,000 a year on a card that costs $60 annually, for example, it will take you five years to earn a free airline ticket with most cards (assuming one dollar spent earns one mile, and a ticket costs 25,000 miles). In that time, you’ll have paid $300 in fees -- enough to buy a discount coast-to-coast ticket on your own.
Even some of the no-fee cash-back cards might not be the answer. Most don’t give a full 1% back until you reach certain spending levels. Discover, for example, gives just .25% cash back on your first $1,500 of charges and .5% on the next $1,500, reaching the vaunted 1% level only on purchases above $3,000 a year. So you’ll earn a whopping $7.50 on your first $3,000 in charges, then $10 on every $1,000 charged after that. The American Express Costco Cash Rebate Card requires $5,000 in spending before you reach the top 1.5% reward. (To find and compare cash-back rewards, use the Credit Card Analyzer.)
If you’re a light user, you may be better off in one of the cards that offer 1% from your first purchase, such as the no-annual-fee Chase CashBuilder, or one that offers higher rebates for certain purchases. The Toys R Us Visa, for example, has no annual fee and its 1% cash back is elevated to 5% when you use the card at a Toys R Us store. The Marathon Platinum MasterCard, meanwhile, waives its annual fee if you make at least nine purchases a year at a Marathon station -- plus you get a 5% reward when the card is used for Marathon gas (the reward is 10% during the first six months).
Know how much flexibility you need. This is where it gets really tricky. Consider the situation if your primary goal is to earn airline miles:
If you’re a frequent flier on a single airline, you’ll earn rewards the fastest if you charge on the airline’s affiliated credit card. Each dollar spent earns you a mile, and you have opportunities to earn additional miles through certain purchases.
If you have to use a number of different airlines, you might go with American Express or Diners Club, which both offer miles that can be used on a number of different airlines. Diners Club also gets you into airport lounges worldwide.
If you travel different airlines but need a MasterCard or Visa, which are accepted by more merchants than American Express or Diners Club, you can choose a bank-issued card that has an affiliated “travel awards” program. Each dollar earns a “point” that translates into one airline mile. (Not sure if one of your current cards offers such a program? Call and ask.)
There are drawbacks to each option. The travel awards programs, as noted above, tend to have rewards that can expire unused. They also often cap the value of the airline ticket you’re allowed to purchase. While most frequent-flier experts advise not using your 25,000 miles to buy tickets worth less than $500, most travel awards programs won’t let you buy a ticket worth more than that.
Miles for plastic surgery, college tuition
Then there’s the issue of flexibility of use. The good news is that the airline and travel reward cards have gotten much better at offering alternatives to miles. If you don’t want to use your rewards for free tickets or upgrades, you can use them for hotel stays or certain merchandise.
The conversion rate, though, is generally pretty poor. While 25,000 miles could buy you an airline ticket worth $500 or more, it might buy a hotel stay worth half that much -- or merchandise valued at $100 or less.
With enough miles, though, you can design your own reward with Diners Club and American Express. A Diners Club program has allowed those with more than 100,000 miles to pay for everything from plastic surgery to college tuition.
If you’re not into miles, you can opt for a card with a very specific goal -- like the no-fee Nesteggz Loyalty Rewards Credit Card from MBNA, which can contribute 1% of your spending into your IRA, SEP or SIMPLE retirement accounts, or cards affiliated with BabyMint or UPromise, which make similar contributions to Section 529 college savings plans.
Or you can pay for your entertainment. Both Disney and Universal have credit cards (issued by Bank One and Chase, respectively) that give you points good for theme-park admissions, DVDs, movie tickets and other goodies.
For maximum flexibility, though, you’ll probably want to stick with a cash-back card and use your reward to buy whatever you want.
A final thought: Don’t let your lust for miles or other rewards lead you to damage your credit score, the three-digit number that lenders use to gauge your credit-worthiness. Maxing out any credit card can ding your score, even if you pay the balance off in full every month. Even applying for a card can hurt your score, so make sure you select your rebate cards carefully -- and sparingly. (For details on how credit cards can affect your credit score, read "4 steps to building great credit.")
About the Author
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money
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