Debunking Myths about Credit Scores- Go Ahead, Pay Off that Credit Card!

By Amber Stubbs, CardRatings.com Reporter

Lurking among many other credit related myths is the belief that paying off credit cards may cause your credit score to decline. I continue to hear this and other related credit scoring myths from consumers that I interact with on a daily basis. In reality, when you pay off credit cards you decrease your overall utilization - your total balances vs. your total available credit - which improves your score.

In fact, utilization accounts for approximately 30% of your credit score. It is best that you keep your overall utilization below 10%. For example, if your total available credit on all credit cards is $25,000, then you want to keep your collective balance at less than $2,500. And, the lower your utilization is the better your credit score. So, the idea that paying off balances will negatively affect your score is simply not true!

However, the above scenario should not be confused with closing credit card accounts, which could have an adverse affect on your score for two important reasons. First, as discussed above, you have to consider how it will affect your utilization. Typically, closing an account will cause your utilization to increase and, as a result, your credit score to decrease. So, it is important to do the math before making a final decision. (Keep in mind how it could affect your utilization in the future as well!)

Additionally, you have to consider the age of the account. If it is one of your older credit cards, then it could also adversely affect the length of your credit history which makes up 15% of your FICO Score. Most of the time it is better to just "sock drawer" the card if you do not plan to use it anymore. That way having an account in good standing and the available credit is continuing to help your credit score.

Just be sure to remember to use the card about once per year for a small purchase, then pay in full when you get your statement. Doing so will help the account stay active and reporting as such to the three major credit bureaus. Reporting your on-time payments (preferably to all three major credit bureaus) is an effective way to boost your credit score. On a related note, it's also a good idea to check with your creditor to find out which bureaus they are reporting to.

Do you have a credit score related question or what you feel might be a myth that you'd like debunked? Please share your questions and comments by posting on our active credit forum! Also, if you don't know your credit score, be sure to check out our offers that allow you to get your credit score for free.

This article was written by Amber Stubbs, Amber began working for CardRatings.com on a part-time basis in July of 2005 while pursuing her bachelor's degree at the University of Arkansas at Little Rock. She was promoted to VP of Operations and became a full-time salaried employee in August of 2007. Amber is a member of the Arkansas Young Professionals Network and the Arkansas JumpStart Coalition for Financial Literacy.

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Fed Cuts Key Rate By One-Quarter of a Point: Credit Card Users Will Likely Benefit

By Jessica Austin, CardRatings.com Public Relations Associate


The Fed announced a 25 basis point rate cut, bringing a key rate to 2.00 percent. The prime rate will also fall one-quarter of a percentage point to 5.00 percent. The move by the Federal Open Market Committee followed several rate cuts in the first quarter of 2008 that brought the federal funds rate down to its lowest level since December 2004.

This was the seventh consecutive rate cut. The Fed said in the statement accompanying the rate-cut announcement:

"The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability."

So, why is this happening? The goal is to promote spending and borrowing to boost the economy and to recharge the buying power of American consumers.

According to John Hoefl, a financial advisor with Ameriprise Financial in Little Rock, Arkansas:

"The rate cuts will be especially great for consumers if they take advantage of low rate cards such as Simmons Bank and Pulaski Bank. They have some of the lowest rates in the country."

The good news for some cardholders is that since the prime rate fell, interest rates on many variable rate credit cards will fall as well. Most credit cards issued today have variable rates that typically move up and down in response to the prime rate.

Curtis Arnold, Founder of CardRatings.com and author of How You Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line, notes:

Given the recent rate cuts, if you are paying over 10% on your current credit card and you have a credit score above 700, then I would strongly suggest that you search our listings of low rate credit card offers.

The rate cut should have a positive impact on most consumers that are revolving credit card debt on variable rate cards. Unfortunately, though, a significant portion of consumers will see no benefit at all for various reasons. For example, consumers with fixed rate credit cards will see no changes in their rates. The current average rate based on all the cards listed in our comprehensive database is about 12.5%."

It is worth noting that this latest rate cut brings the total rate cuts to 3.25 percentage points since September 2007. Many analysts feel this rate cut may be the last one that the Fed does for a while. Time will tell!

This article was written by Jessica Austin, Jessica joined our staff on a part-time basis recently, but has previous work experience in the credit industry where she served in a managerial capacity. She has met the equivalent hours requirement for a bachelor's degree in sociology/media relations from Southern Arkansas University in Magnolia, Arkansas and is currently pursuing a master's degree from the International School of Divinity.

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

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Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!

Your Credit Card: Help from an Unlikely Source in the Event of an Airline Bankruptcy

By Curtis Arnold, Founder of CardRatings.com

With the cancellation of numerous American Airline flights and several other airlines filing bankruptcy, you might be feeling a little leery about purchasing airline tickets these days. And if you have already purchased tickets you may be worried about not being able to use the tickets and/or being out the money you paid for them. However, if you purchased those tickets with your credit card you may be in luck!

We contacted public relations representatives from Chase, Citi, Discover, and American Express to find out what assistance, if any, they offer their customers in this type of situation. We found out that airline tickets purchased from airlines that subsequently went bankrupt are eligible to be disputed via their normal dispute resolution process with two notable caveats:

1. You will probably need to try rebooking your ticket through another airline first. Some airlines, as well as credit card issuers, are offering to assist with the rebooking process.

2. Some credit card issuers will want to see the unused ticket.

According to Discover's public relations department:

"We are providing information to facilitate re-booking of their tickets with other airlines. If they are unable to re-book their ticket, we are initiating disputes and issuing credits to the accounts."

Overall it seems like a fairly painless process to get your money refunded. All the issuers we talked to said that they would do everything possible to support their customers. Gotta love the free benefits that cards offer!

This article was originally published on CreditBloggers.com by Curtis Arnold, a nationally recognized consumer educator and advocate. He is the founder of CardRatings.com and the author of How to Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line (FT Press, 2008). Curtis has been educating consumers about credit cards since 1998. He is regularly interviewed and quoted by respected members of the national press regarding consumer credit issues.

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

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Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!

Fed Cuts Key Rate By Three-Quarters of a Point: Credit Card Users Will Likely Benefit

By Jessica Austin, CardRatings.com Public Relations Associate


The Fed announced a 75 basis point rate cut, bringing a key rate to 2.25 percent. The prime rate will fall three-quarters of a percentage point, also, to 5.25 percent. The move by the Federal Open Market Committee followed a half-percent rate cut Jan. 30 and brought the federal funds rate down to its lowest level since December 2004.

This was the sixth consecutive rate cut. Also in September, the fed funds rate stood at 5.25 percent. The Fed said in the statement accompanying the rate-cut announcement:

"Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters."

So, why is this happening? The goal is to promote spending and borrowing to boost the economy and to recharge the buying power of American consumers.

According to John Hoefl, a financial advisor with Ameriprise Financial in Little Rock, Arkansas:

"The rate cuts will be especially great for consumers if they take advantage of low rate cards such as Simmons Bank and Pulaski Bank. They have some of the lowest rates in the country."

Why didn't the Fed cut rates a full point as was rumored by some analysts? A cut of a full percentage point had been widely expected, but the Fed apparently believed that would be too inflationary:

"Inflation has been elevated, and some indicators of inflation expectations have risen," the central bank said in its policy statement. "The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased."

According to the Fed,

"The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets."

The good news for cardholders is that since the prime rate fell, over the coming weeks and months interest rates on most variable rate credit cards will fall by 75%. Most cards issued today have variable rates that typically move up and down in response to the prime rate.


Curtis Arnold, Founder of CardRatings.com and author of How You Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line, notes:

Given the recent rate cuts, if you are paying over 10% on your current credit card and you have a credit score above 700, then I would strongly suggest that you search our listings of low rate credit card offers. The rate cut should have a positive impact on most consumers that are revolving credit card debt, though not all consumers will benefit. An example would be a cardholders that has a fixed rate card. The current average rate based on all the cards listed in our comprehensive database is 12.82%."

It is worth noting that this latest rate cut brings the total rate cuts to 3 percentage points since September 2007.

This article was written by Jessica Austin, Jessica joined our staff on a part-time basis recently, but has previous work experience in the credit industry where she served in a managerial capacity. She has met the equivalent hours requirement for a bachelor's degree in sociology/media relations from Southern Arkansas University in Magnolia, Arkansas and is currently pursuing a master's degree from the International School of Divinity.

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

---

Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!