6 Tips to Make the Most of Banking and Credit/Debt

published 5 March 2012

Beat pesky bank fees

Credit unions are a good source for free checking accounts; 78% of the credit unions surveyed by Bankrate.com in 2011 offered free accounts, compared with only 45% of the banks surveyed. In addition, most credit unions have no minimum balance requirement. Community banks are another good option. Find a credit union at www.culookup.com or www.asmarterchoice.org, and a high-yield checking account at www.checking finder.com.

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To avoid annoying ATM fees, open an account with an online bank such as Ally, Schwab or USAA, all of which rebate customers’ ATM fees. With an account at Citibank, which has more than 1,000 U.S. branches and 29,000 ATMs, chances are you’ll always be close to a free ATM. Another option is to have your account at a bank or credit union that belongs to the Allpoint network, with its 43,000 surcharge-free ATMs.

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In most cases, if you don’t give a bank permission to enroll you in an overdraft-protection plan, your ATM withdrawals and debit card transactions will be declined if your balance is too low, and you will avoid any fees. However, this doesn’t apply to checks and automatic payments. You can circumvent the typical $35 overdraft fee on these transactions by linking your account to a savings account or line of credit. If your balance dips below the total of the checks being processed that day, your bank will move the necessary funds and generally charge a $10 transfer fee per check.

Signing up for free alerts on your phone or by e-mail can cut down on bank fees and thwart fraud. Your bank will notify you if your balance dips below the amount you specify; if a payment is due; if a transaction has occurred in your checking, savings or credit card account; or if your online ID, password or mailing address has been changed.

Take advantage of perks from plastic

Rewards points and cash back aren’t the only goodies that come with credit cards. Your card may also offer valuable perks that are less well known. Warranties. Gold and platinum MasterCards, Visa Signature cards, and American Express cards all extend the manufacturer’s warranty by up to one year when you purchase an item with your card -- even for products you buy overseas.

Purchase protection. If, for example, your iPad is stolen from your hotel room, MasterCard and American Express will reimburse you if you paid for the room with a gold or platinum card. Drop that new iPad and Visa Signature cardholders can have it repaired or replaced at a cost of up to $500 within 90 days from the date of purchase. Citibank and American Express offer protection up to $1,000.

Luggage protection. Was your luggage lost or damaged by the airline on your last flight? If you paid for your ticket with a Visa Signature card, you can be reimbursed for up to $3,000.

Rental-car coverage. You may decline collision damage waiver (CDW) insurance if you paid with most Visa, MasterCard, American Express or Discover cards. (For more information about limits on credit card coverage, see Put the Brakes on Rental Car Fees).

Concierge services. They’re available 24 hours a day for Visa Signature, World and World Elite MasterCard customers, as well as American Express platinum cardholders, to help you get tickets to sold-out events, book travel, make dinner reservations and find unusual gifts.

Travel assistance. If you become ill while traveling or your passport is lost or stolen, Visa, MasterCard and American Express will provide referrals to medical care, legal aid and help replacing your passport (you pay the costs of the services you receive).

Pick the right rewards card

Deciding between a cash-back card and a travel rewards card? Cash-back cards, such as Chase’s Freedom card, may let you redeem your points periodically for cash, travel, gas or merchandise, or post a credit to your account. Or you could select the Fidelity Investment Rewards American Express card, which automatically deposits the cash in your brokerage account. Travel rewards cards, such as the Simmons First Visa Platinum Rewards card and the PenFed Premium Travel Rewards American Express card, generally require at least 22,000 points for a round-trip ticket to fly anywhere within the contiguous 48 states.

A cash-rebate card is probably a better option if the travel card has an annual fee and you don’t spend enough to accumulate the points you need for a flight within a year or two. And if you tend to carry a balance on your card, note that the extra cost of paying interest would probably offset any rewards you’d earn on your purchases.

Check your credit report

It’s smart to regularly review your credit report, which includes such information as loan and credit card balances and payment history. Checking your report is especially important before you apply for a loan. At AnnualCreditReport.com, you can get a free report from each of the three major credit bureaus -- Equifax, Experian and Trans-Union -- once a year.

In addition to surveying your credit health, check the report for errors. If you find a mistake on one report, get reports from the other two bureaus to see if they’re also in error. To resolve the issue, you may have to contact the lender involved, which could be giving inaccurate information to the reporting agencies. File a dispute with each bureau at which the error shows up, and include evidence, such as a letter from the lender, to support your claim. You should get a response from the agency within 30 days.

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Fact or Fiction?

Starting out: A bad credit history—late payments and mounting debt—is the biggest roadblock to getting the best rates.

Fiction. It wasn’t mounting debt or late payments that kept Sam Marcus, 25, from being approved for a PenFed American Express Card last winter. Rather, the lender told him, it was a lack of action in his credit file. All that appeared on his credit report at the time, Marcus says, were a student loan and his history as an authorized user on his parents’ credit card.

Twentysomethings with thin credit records often have trouble getting the most desirable rates. But there are ways to beef up your profile and boost your credit score. Try applying for a credit card through your bank or credit union. Credit cards from retailers are often easier to get than standard cards. Or get a secured credit card; your transactions will be reported to the credit bureaus.

Marcus eventually qualified for a Blue Card from Amex, which considers, among other criteria, income and assets -- possibly a factor in his application’s approval. After a 12-month period featuring a 0% rate, Marcus’s APR for the Blue Card will jump to 20.24%, but after a year he can apply for a lower rate.

Midlife: Your credit score could recover from a bankruptcy, foreclosure or loan default in a few years.

Fact. If you have a long credit history and you previously managed your credit well, your score could bounce back to decent standing in a few years if you return to good habits and start paying your bills on time, says Barry Paperno, consumer affairs manager for MyFico.com. He also suggests adding positive credit information to your file to counteract the negative. For example, open a secured card, keep the balance low and pay it off monthly. Six months later, apply for another secured card.

Within three to five years after filing for bankruptcy, your score could rise enough to get a standard, unsecured credit card. But any card issuer involved in your bankruptcy is unlikely to extend credit to you again. Some lenders require that a set period pass before they will offer credit to a customer who has declared bankruptcy. And you’ll have to wait three to seven years after a foreclosure to get a mortgage backed by Fannie Mae or Freddie Mac (two to seven years after a deed in lieu of foreclosure or short sale), depending on the reason for the problem and how much money you can put down on a new home.

Retirement: Once you’ve built a solid credit history, it will stay with you forever.

Fiction. As a retiree, you may have banished credit from your life. Perhaps you’ve paid off your mortgage and other loans and now use your debit card for purchases instead of a credit card. You should be aware that your credit score could disappear along with the debt. To have a FICO score, you must have an account that has been open for at least six months, and the account must have been reported to the credit bureaus in the past six months.

To ensure that you have an active account that’s reported to the credit bureaus, use at least one credit card—just a charge or two per month is all it takes. You can pay it off monthly and still revive your score. Even if you can’t think of any compelling reason to have a credit score now, it will be crucial if you eventually decide to, say, take out a home-equity line of credit, open a rewards credit card or cosign a loan for a family member.

Pick the best ways to pay off student debt

Choosing the right payment plan is critical.

Consolidate. Refinance your federal loans through the federal Direct Loan consolidation program. Consolidating gives you a single monthly payment and, because it typically extends the payment period, it lowers your monthly bill. (A longer period means you pay more interest overall, however.) You may be eligible for a special consolidation program, available through June 2012, that has some advantages over the traditional program. See the Direct Loan consolidation Web site for details.

Get a discount. Shave 0.25 percentage point off your interest rate on federal loans by setting up automatic loan payments. To sign up, first access your loans through www.myedaccount.com. (If you’re visiting the site for the first time, you’ll need to select a password and take other security measures.) Log in and click on “KwikPay” to enter your bank-account information. You must agree to the terms and conditions and provide your electronic signature.

Find the right repayment plan. With federal loans, you have six plans to choose from, including the standard plan -- 120 equal payments over ten years—and several income-based plans, which set the monthly payments according to your ability to pay and forgive any remaining amount after 25 years. (For details, go to www.studentaid.ed.gov and click on “Repayment Plans and Calculators.”) Ask for help. Apply for deferment or forbearance, each of which offers a respite on repayment of federal loans for up to three years. Still have a problem? Call the Federal Student Aid Ombudsman, at 877-557-2575.

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