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Managing Credit Card Usage, Debt Amid Turmoil is Key

Sat, Sep 20, 2008

Financial services companies are failing and merging. The stock market is heaving up and down. Many jobs will be eliminated as a result of Wall Street's meltdown.

And it's become clear that credit will become harder and pricier to get for both consumers and businesses.

It's a time when managing your credit card usage and debt is more important than ever, experts say. Especially as squeezed credit card issuers will be looking for every excuse to slap you with fees or raise your interest rate, said Michael Kresh, president of M.D. Kresh Financial Services Inc. in Islandia.

While there's no one-size-fits-all strategy for the times ahead, financial experts do agree on some points - you want to make payments on time, be vigilant regarding changes in your credit card terms and policies, and work to keep your credit score as high as possible.

"Late payments is the single biggest killer in credit scores," said Craig Watts, a spokesman for Fair Isaacs Corp., the Minneapolis-based company that developed the FICO credit rating scoring system that lenders use to dole out cash to consumers. "If you pay on time, you can gradually increase your scores; if you make late payments, you hurt your scores."

According to myfico.com, a consumer Web site run by the company, the scoring system ranges between 300 and 850, with scores 720 and above often getting the most favorable interest rates.

To help you keep in good standing, here are some related issues to consider:

DO

Make payments on time and keep low balances on revolving credit accounts. "Generally, 50 percent or more of the maximum allowed on the account is considered a high balance," said Fair Isaacs Corp. spokesman Craig Watts.

Eliminate cards from department stores, gasoline companies and other typically high-interest cards. "Cards issued by stores tend to have higher interest rates," said Candy Wright of GreenPath Debt Solutions, a Michigan-based company with offices in Jericho and Hauppauge.

Consolidate but be sure terms are favorable. If you can transfer to a card with a low interest rate, that generally is good, Wright said. But Watts warned to do it with caution because transferring balances and closing accounts can have an adverse effect. "From a credit-reporting-bureau standpoint, all they can see is that someone has opened a new account and closed an old one. A lot of activity or a number of new accounts can hurt a credit score."

DON'T

Don't open too many new lines of credit. "Be the frugal farmer who distrusts bankers," Watts said. "Shopping for new credit is part of the formula that brings down your score."

Don't apply for too many cards in a short time period. Every application shows up with FICO and "too many applications gets them nervous," said Michael Kresh, an Islandia financial planner.

Don't be a co-signer. If you take out a credit card with your child and they miss a payment, it shows up on your credit score, Kresh said.

Don't take cash advances from one card to make payments on another. "That's usually a big sign you need debt counseling," Wright said. Plus, cash advances often have higher interest rates.

Don't dismiss the rejection letter if you are denied credit. You are automatically entitled to a free credit report so you can see why you were turned down. Kresh advises you to check it out because incorrect information may be the culprit.

Don't agree to a deal that seems too good to be true, like the offer of 15 percent off your purchases today if you sign up for their credit card. That's one more application registered with FICO.

Source : http://www.newsday.com/