How To Can Closing a Credit Card Damage Your Credit Score? Latest 2015

How To Can Closing a Credit Card Damage Your Credit Score? Latest 2015

“Credit cards are a convenient way for consumers to purchase items now and pay them off over time,” said Charles Chung, vice president of consulting and analytics for Experian. “However, if mismanaged, credit cards can get consumers into an unmanageable financial situation that can have a negative effect on their credit rating and as a result, future credit will come at a higher price or they may even be denied credit.”

It’s a common fallacy that closing credit cards will always help your credit rating.

One area — call it a “myth,” Chung says — is when consumers close a credit card, and expect that to mean a subsequent hike in their credit score. “It’s a common fallacy that closing credit cards will always help your credit rating,” Experian says in a recent study. “Focus more on the amount of available credit being utilized, making sure you are not over extending your debt beyond levels you can manage. Closing good accounts could actually hurt your credit rating.”

Of course, where there’s a will, there’s a way — and that goes double for consumers looking to close down a card and protect their credit score. First up, know what’s at stake when you cut that piece of plastic in half. “Closing a credit card affects two factors used to calculate credit score — length of credit history, which accounts for 15 percent of your score, and balances — also known as debt to available credit ratio — which accounts for 30 percent,” says John Janney, past president of the National Financial Awareness Network.

If you need to close a credit card, it’s best to close the youngest account with the smallest credit limit to minimize the damage, Janney adds.

“Closing older accounts or accounts with larger credit limits may lower your score, because it makes you look, at least on paper, as if you’re new to the credit game and have less credit to work with,” Janney says. “My recommendation for someone wanting to close a credit card to is shift balances from the youngest card to the oldest card and close the younger account once its balance reaches zero — not before. The credit effects may be less harmful, but they will also be temporary.”

Also, consider your options — there is no shortage when it comes to closing a credit card account, experts say.

There may be many reasons why you want to close a credit card, and understanding why will help you make the right decision and avoid hurting your credit, says Alex Matjanec, chief executive officer of MyBankTracker.

“For example, if the issue is your APR is too high, negotiate with your card issuer,” he says. “In many cases, they would prefer to lower it and keep you than have to spend money acquiring a new customer. On the other hand, if you have multiple cards and some are costing you money, you may want to consolidate as the hit to your credit score may outweigh the money you are wasting on fees.”

The ‘Split’ Approach

Of course, you could opt for the “split” approach, and cut your card in half but keep the account open. “Closing a credit card could hurt you because it eliminates your payment history,” notes William Matthews, a self-described millennial finance adviser located in Houston. “For example, if you have a Visa card for three years and kept a low balance, paid on time, closing that account will wipe out the good payment history which helps give you a higher credit rating.”

It’s better, Matthews says, to cut the card with scissors but leave the account open. “This gets tricky when you have to pay a membership fee for a card you no longer use,” he adds. “[Alternatively] keep the card but only use it once a quarter for groceries or gas just to show activity on the card.”

John Schmoll, who runs the personal finance website Frugal Rules, says he has canceled numerous credit cards himself, with minimal to no impact on his credit.

“Both my wife and I have 810-plus scores,” Schmoll says, adding that if you have two or more cards from the same issuing bank, ask to transfer the limit you have on the card you’ll be canceling to another card. “This is important, as it won’t impact your credit utilization ratio,” he says. “I’ve done this every time I’ve canceled a card and in most instances the entire amount is transferred.”

Also, if you want to cancel a card, consider calling your other card issuers and asking them to increase your limit. “If you’ve been a good customer it’s possible they will and thus potentially replace what you’re losing and mitigate the impact on your credit,” Schmoll adds.

If you’re mulling over the notion of closing down a credit card, count to ten first, and consider the right way — and the wrong way — to peel away from your plastic. Your credit score will be all the better for it.

6 Online Financial Tools to Simplify Your Life 2015

6 Online Financial Tools to Simplify Your Life 2015

These days, consumers have a vast array of financial products and services to manage. Consider these digital resources to help you keep track of it all:

1. Automatic bill payment and saving. To keep a record of bill payments and how the money is spent (helpful if you’re trying to stick to a budget), check out Mint.com. Another alternative is PersonalCapital.com, which provides budgeting tools and will track your investments, too.

2. Credit cards. Free tools at www.creditkarma.com help you gauge where your credit stands and show how you can improve it. You can also get access to your TransUnion credit report, updated weekly.

3. Insurance. The Insurance Information Institute offers Know Your Stuff, free software that will help you create a record of your possessions. It’s also available as an app for iPhone and Android smartphones. Your insurance company may also provide mobile or online tools you can use to record information you’ll need to file a homeowners or auto insurance claim.

4. Password management. PCMag.com provides a good rundown of thepassword managers available (along with their prices).

5. Paper files. Shoeboxed.com offers a free service that allows you to upload as many as five documents a month; after that, prices range from $9.95 to $99.95 a month, based on the number of documents stored and other services. Or use a free cloud-based service.

6. Retirement accounts. Your IRA provider probably offers tools you can use to figure out whether your overall port¬≠folio is appropriately diversified, based on your age and risk tolerance. To see if you’re saving enough, use our Retirement Savings Calculator.

Why Planning to Work in Retirement Is a Risky Business 2015

It can make a big difference, but it is tough to pull off. Half of all retirees leave the workforce earlier than planned due to a health problem or job loss.

Blue collar workers with physically demanding jobs are most susceptible to early retirement, according to conventional wisdom. New research confirms that, but it also shows at least one type of early-retirement risk is spread much more widely across job types than previously thought.

These findings serve as a reminder that while working longer is a worthy aspiration, it is not a reliable financial plan. They also underscore a fallacy in the policy debate about raising eligibility ages for Social Security and Medicare.

Almost every occupation has one ability that would be expected to decline with age.

Researchers at the Center for Retirement Research developed a “susceptibility index” for early retirement that ranks 400 occupations on a 1-100 scale (100 is highest risk). They did it by cross-analyzing the federal Occupational Information Network database and the Health and Retirement Study, a long-running University of Michigan research project on Americans over age 50. The susceptibility index looks at the abilities required to do a job and measures the likelihood that those skills will decline with age.

The index doesn’t measure the risk of early retirement due to job loss or other factors, such as the need to care for a family member. Instead, it looks at cognitive, psychomotor, physical and sensory abilities required to do various jobs. The key finding: highly educated professionals can be as susceptible to early retirement risk as a steelworker or truck driver.

“Almost every occupation has one ability that would be expected to decline with age,” says Anek Belbase, research project manager at CRR and a co-author of the report.

The occupations least at risk are those where verbal skills are key. “These also are jobs where people rely on social skills, which tend to be constant or improve with age,” Belbase says. The group includes sales representatives (index ranking: 4), judges and magistrates (5), receptionists (6) and bookkeepers (10).

Cognitive Skills

If your job requires a high level of cognitive skill, you might be at greater risk, depending on the type of cognitive skill needed. “Crystallized” cognitive ability, or knowledge, tends to accumulate with age and boosts your odds of functioning well at older ages. But “fluid” cognitive ability, which includes things like episodic memory and reaction time to new information, tends to decline with age.

“A CEO mostly makes decisions using crystallized knowledge, but fluid intelligence does decline with age, and that is very important for some types of decision making,” Belbase says. Still, CEOs scored just 21 on the index, far lower than designers (63), dentists (67) and photographers (71).

On the high end of the susceptibility scale are automotive service technicians and mechanics (100), electricians (96), detectives (83), and iron and steelworkers (98).

CRR’s findings underscore the substantial risks to a financial plan of relying on extra years of work.

An unplanned early retirement requires stretching savings over more years, with fewer years of saving at high income levels just before retirement. Early retirement also can mean early filing for Social Security benefits, which reduces annual income substantially for the rest of a retiree’s lifetime. And if early retirement comes before you qualify for Medicare (at age 65), the cost of health insurance can rise substantially.

The scattering of risk across occupations also has important public policy implications. Proponents of boosting eligibility ages for Social Security and Medicare argue that we can all delay claiming these benefits because we are all working longer these days. But it would create unnecessary, unpredictable retirement outcomes for millions of Americans.

How to know your own susceptibility number? Belbase’s index has not been published in its final form, and there is no online tool yet that can show an occupation’s susceptibility. Belbase’s research will be published sometime in the next 12 months, along with downloadable charts of the index rankings.

“If you want to assess your chances of being able to work as long as you want, simply talk to older workers in your field,” he suggests. “If you can’t find any, that means you should probably have a back-up plan.”

By the way, reporters and news analysts, I am pleased to say, scored a 37, so count on me to stick around here for a while.

If You Have Poor Credit 2015, This Common Household Bill Doubles

If You Have Poor Credit 2015, This Common Household Bill Doubles

There is one other area that homeowners, who usually have higher credit scores than non-homeowners, need to pay special attention to. That would be theirhomeowner’s insurance, which can double in cost due to a low credit score.

According to fresh data from Insurancequotes.com, “homeowners with poor credit pay twice as much for homeowner’s insurance as people with excellent credit.” Additionally, American homeowners with median credit pay 32 percent more than those with excellent credit.

Insurancequotes.com’s senior analyst Laura Adams says the practice of linking homeowner’s insurance to consumer credit scores is “controversial,” but that’s not stopping insurance companies from doing so, as the industry claims there is a strong connection between credit scores and claims. “In most states, insurers are putting more emphasis on credit scores this year,” says Adams. “The impact of a poor credit score is higher now than it was last year in 29 states and Washington, D.C., while it is lower in just 17 states. It’s more important than ever for people to maintain a solid credit rating by paying their bills on time, keeping their balances low and correcting errors on their credit reports.”

How much house can I afford

 

The company says that homeowners with toxic credit pay double the going rate for homeowners insurance in 38 states and Washington, D.C. “West Virginia’s 202% increase is the highest in the nation, followed by D.C. (185%), Ohio (185%) and Montana (179%),” the study reports. Only three U.S. states — California, Massachusetts and Maryland — ban insurance companies from tying credit to homeowner’s insurance costs, although Florida has set limits on what insurance companies can charge Sunshine State homeowners.

Why the big hit on homeowners by insurance carriers?

Carriers use credit scores, because they predict future losses and policy persistency more reliably than other data sources such as previous claims history, says Kevin Haney, an industry analyst with SavvyOnCredit.com, and a long-time insurance industry executive.

“Homeowner claims are large, but infrequent,” he says. “This means that carriers have little or no claims data to work for most consumers. Credit information provides a richer data set for the majority of applicants. Credit information also helps predict policy persistency — which is correlated with financial stability — a major factor used to price policies.”

To rally against onerous home insurance bills, consumers should expand their vision and covering as much ground as possible. “Consumers with poor credit scores can do better on homeowner insurance premiums by shopping around,” says Haney. “Carriers differentiate on underwriting, and they evaluate risks differently. Some do not use credit scores at all, while those that do place different weights on the scores.”

Consequently, your best bet is to work with a licensed agent in your area specializing in homeowner policies. Haney says you should know which carriers in each local market emphasize credit scores, and which weigh other factors more heavily. That can steer you to the right company.

If you’re stuck with low credit and want another avenue to lower homeowner’s insurance, try attaching it to your life, auto and other insurance bills.

“Combining your house, car, health, dental, life and other insurances can save you big with some insurance companies offering bundle discounts,” notes Arvin Sahakian, vice president at BeSmartee, an online mortgage-services firm. “Also, consider making a payment in bulk for the full insurance term. Companies have been known to offer a discount to clients willing to pay in bulk.”

Also, don’t miss a chance to let your insurance company know your credit is improving. “Negotiation time arrives when you have been working on improving your credit scores and delinquent payment history,” Sahakian adds. “Once you run a report and see a significant improvement in your scores, then it’s time to call your insurance rep and send them a copy of your credit report. They will conduct their own research to double check, but that will help you to normalize your homeowner’s insurance expense the next time you need to renew your policy.”

Are New Bank Chip Cards Safe 2015? Experts Aren’t So Sure

Are New Bank Chip Cards Safe 2015? Experts Aren’t So Sure

credit card customers are about to experience a new card technology their peers in Europe have used for years — new, so-called “chip” cards that promise greater security for card consumers addled by recent security breaches.

But are the cards as safe as some banks and card carriers claim?

Banking industry professionals say so. On a recent segment on NBC’s Today Show, a MasterCard spokesperson claimed that the new EMV cards have slashed fraud breaches by 80 percent in Europe and Canada.

Yet some card security experts take issue with the claim. In a recent statement, the Arlington, Virginia-based Retail Industry Leaders Association says that banks are only taking “half-steps” by rolling out chip cards that “are still more fraud prone than cards issued elsewhere in the industrialized world.”

Why? The RILA say other safer credit cards, like those used by European consumers are both so-called chip and PIN cards, and aren’t ones that rely strictly on signatures, like the chip cards inching onto the marketplace in the U.S. right now. U.S. chip cards “do not provide the added layer of security for cardholders that exists in other countries,” RILA states.

The group says that U.S. consumers shouldn’t rest easy until card carriers and banks answer three critical questions about new chip card security:

  • Why aren’t new chip cards being issued with an accompanying PIN if it’s the smartest and safest technology available?
  • Why, if “chip and PIN” has been successful across the globe in reducing fraud, would we implement a less secure standard for American cardholders?
  • Why are banks and card networks willing to make the added investment in security in other countries but not here in the United States?

“Banks and card networks continue to gloss over the fact that the cards they are issuing in the United States are inferior to the same products they offer in the rest of the industrialized world,” RILA states. “It’s time for them to honestly answer these questions.”

For their part, consumers aren’t taking the same harsh stance as industry retail groups. For instance, Americans overwhelmingly believe the EMV chip (41 percent) is more secure on credit cards than the “magnetic stripe” (5 percent), while 20 percent feel both are equal when it comes to credit card security, according to data from NerdWallet. But Americans are less sure who will be held liable in the event of a major security lapse, NerdWallet reports.

Chip cards, while nice in theory, aren’t as safe as banks would have us believe.

Thus, the rather significant layer of uncertainty covering the chip credit card issue.

“As the Eagles once said, you can’t hide your lying eyes,” says Michael Bremmer, chief executive officer of Orange County, California-basedTelecomquotes.com. “Chip cards, while nice in theory, aren’t as safe as banks would have us believe. A quick Google or YouTube search for ‘app to hack a chip card’ shows I can purchase an app for my Android device, or just watch a video, to easily trigger a hacking situation.”

“Obviously the banks are aware of this and are taking steps to fight back, but this is an ongoing game of cat and mouse,” he adds.

Others say there is some good news, and more bad news, linked to the new chip cards. “In chip cards, the card number or [primary account number] is sent to the card reader along with a unique digital signature,” says Rahul Ray, founder of Burr Capital, in Edgewater, New Jersey. “But the two-form identification is a vast improvement over legacy mag-stripe cards. That said, it suffers from a few issues. The PAN, or card number, is still unencrypted, making it a vastly inferior solution to the newer ‘tokenization’ technology found in ApplePay.”

By and large, financial industry security experts believe the card industry stopped one, critical step short with the new chip cards — and will face an uphill climb with retailers and consumers as a result. “The new chip cards are definitely safer than the former standard cards with the stripe,” says Amanda E. Cioban, a certified public accountant at Manada Tax Service, in Lancaster, Pennsylvania. “However, the new American banking law falls short in not requiring a chip pin card. The regulations call for the cheaper less secure alternative of chip-plus signature cards. This level of security still puts the United States behind Europe and Canada in the prevention of credit card fraud.”