It seems like every retailer is offering its customers its own credit card nowadays. While the incentives to applying for a new store credit card are often enticing — many stores offer 25% off the first purchase, no interest for one year, or monthly discounts or gifts to cardholders — having so many store credit cards in your wallet can put you into debt in a hurry, if not seriously hurt your credit score.

High debt is often a problem for holders of store credit cards, since they generally charge much higher interest rates than bank-issued cards. Unless you plan to pay off the full amount of the balance each month, expect high finance charges, likely enough to render obsolete any cardholder incentives you may have received.

Having a different card for each store you shop in may earn you some store rewards here and there, but holding so many cards does not look good to creditors and thus, your credit score is likely to take a beating. Consumers should balance their card portfolios carefully and only apply for cards with genuine value, according to the National Retail Federation's senior VP Mallory Duncan.

The reason why stores are able to offer such huge incentives to their cardholders is because they reap huge savings on the transaction fees that Visa, MasterCard, Discover, and American Express charge. Visa and MasterCard charge a fee of 2% for each transaction, which comes directly out of the retailers' bottom lines. When a retailer co-brands with Visa or MasterCard, often times that fee is halved. When they offer their own independent card, the retailers can avoid the transaction fees altogether. While some of these savings are passed on to their customers, consumers should still exercise sound judgment when offered a new store credit card. More is not always better.

If you're like many Americans, you probably receive two or three credit card solicitations in the mail each week. Most likely, you want to get rid of them. But be warned: you shouldn't just throw away an unwanted application. Someone could rummage through your trash and fill out the application for you, since your personal information is already preprinted on it. That person would then have an account open in your name and run up the bill, possibly without you realizing it until it was much too late. It's a classic case of identity theft.

Most would tell you that tearing them up into several pieces and tossing them in the trash is sufficient. But recently, John Crudele of the New York Post, a la Cockeyed, decided to test this method of application disposal to see how effective it truly was against fraud. In his column Tearing Through Credit Cards' Security Measures, Crudele describes step by step how he tore up his application into several pieces, taped the pieces back together, filled out the application using a different address, and still received a new credit card with an $18,000 credit line. Somehow, Cockeyed was able to get past Chase while Crudele was able to sneak through the cracks at American Express. It makes you wonder just who exactly is receiving these applications and what kind of training they get. In any case, both Cockeyed and Crudele suggest using a cross cut shredder, since tearing up the application by hand obviously does not work.

Another option is to opt out of credit card solicitations altogether. The three national credit bureaus have set up a toll-free phone number for consumers to call to opt-out of further credit card solicitations with one phone call. Just call 1-888-5-OPT-OUT and follow the instructions. In a week or two, you'll receive a letter in the mail. Just sign and return it and you'll be taken off their lists forever. Use of this toll-free number is endorsed by the Federal Trade Commission. See Sharing Your Personal Information: It's Your Choice for more information.

When you have buried yourself under a mountain of credit card debt, it can feel as though you'll never get out from under it. The thought of owing so much money while being pummeled every month by high interest rates is overwhelming. But the truth is that people like you do pay off their credit card debt every year, and you can too (with a bit of discipline). Here are 33 tips to help you get through this tough time and come out the other side debt-free.

Continue reading "33 Tips to Dig Yourself Out of Credit Card Debt" »

Credit repair companies claim that they can erase your bad credit and repair your credit report, all for a small fee. They may even claim to remove bankruptcies, liens, and bad loans. But beware of these claims that sound too good to be true because most of them are. They take hundreds, perhaps thousands, of dollars from you and then make little to no improvement to your credit history.

Some warning signs of this type of scam include a company who charges you fees before they do anything for you. Legitimate credit repair companies will consolidate your payments and reduce your interest rates before they charge you anything. Also beware of any company that is not forthcoming about what you could be doing for yourself for free. They only want your money, not your peace of mind. Also watch out for companies that discourage you from contacting credit bureaus personally, that encourage you to dispute every entry on your credit report, and that advise you to create a false identity with an EIN instead of your Social Security number.

The truth is only time, consistent repayment of your debts, and new conscientious activity will repair your credit. For some reliable methods of repairing your credit yourself, see the FTC's article, Credit Repair: Self Help May Be Best.

One of the most insidious forms of credit card fraud occurs with a little device known as a skimmer. Skimmers are the size of a pager and can be carried by a scam artist to swipe your credit card and steal the information needed to create a counterfeit card with your name on it. Here’s how it works: You pay at a restaurant or other business and the clerk takes your card. In the back, the clerk swipes your card for the purchase and then swipes it secretly into the skimmer, which records the name and numbers.

The numbers in the skimmer can be downloaded into a computer and emailed anywhere across the globe. They are then used to make fake credit cards that are used by thieves in Europe, Asia, Latin America, and the US. Skimming is responsible for over $1 billion in losses each year.

Skimmers can also be placed on some older ATMs so that when you swipe your own card, the information is stored in the tiny bug and then retrieved at a later date by the scammer. To protect yourself, keep an eye on your credit card bills. Watch for any unusual activity and report it immediately. Also shred all your statements so that the numbers cannot be stolen.

When out and about, keep a close eye on your credit card as well, and report any suspicious activity to the Federal Trade Commission.

Unfortunately, phishing has led to the successful fraud of thousands of people over the last few years. Sophisticated scammers use e-mail to lure people into divulging their personal and financial information. In the case of credit card scams, there are basically two methods.

The first method involves a similar scam to the phone fraud scam described in yesterday's post. An e-mail that appears to be from a legitimate credit card company is sent to the unsuspecting potential fraud victim. The e-mail requests the person to click a link and verify personal information, usually in response to feigned suspected credit card abuse. Most credit card companies now state clearly to their members that they will never request this type of information via e-mail.

The second version of this scam involves e-mails from credit card companies, banks, or other financial institutions. The letter requests the reader to click a link and provide information such as your Social Security number, your mother’s maiden name, or your birth date. These items are then used to assume your identity and set up fraudulent credit card accounts in your name.

To avoid these scams, never reveal any information after following a link in an e-mail. If you think the e-mail is legitimate, go directly to the company’s website by typing the URL into your browser's address bar rather than by clicking the link. For more information on phishing scams, visit the Wikipedia.

The basic phone scam goes something like this: You get a phone call from someone claiming to be from Visa or MasterCard. They tell you there has been an unauthorized purchase on your card and ask if you are the one who purchased such an item. When you tell them it was not your purchase, they claim to be starting a fraud investigation. They then ask you to confirm that you have the credit card in your possession by asking you certain details about your card. The most recent scammers ask you for the three digit code on the back of the card, known by Visa as the CVV2 and by MasterCard as the CVC2.

The person on the phone with you is not a fraud specialist from Visa or MasterCard. But, this person calling already knows something about you. They may have your billing address, the last four digits of your credit card from a receipt, or even the entire credit card number. So they may also ask for an expiration date or a billing zip code.

While this scam usually occurs over the phone, there are also Internet versions, so beware. Never give someone information about your credit card statement or billing history over the phone or the Internet. Bottom line: a credit card company would not need to ask for this; it would already have it. Hang up and report the call to the credit card fraud reporting department. For a sample phone call from one of these scammers, visit Urban Legends.

If you are one of the millions of people with poor or damaged credit, you could fall prey to a popular credit card scam without knowing it. The number of credit card scams out there is growing, but there are five basic scams you need to be aware of before you take any action to repair or maintain your credit. This week, we will detail one scam per day that you should be aware of and also tell you how you can avoid falling into one.

Scam #1 is about secured credit card marketing.

These scams start with an offer for credit that sounds too good to be true. They may tell you that regardless of your past credit history, you can get a large line of credit. It may promise that all you need to do is send in a simple form or call a listed number and you will get your credit card.

Secured credit cards are those that offer you a line of credit based on an amount that you deposit. Basically, if you deposit $500, you have up to $500 in credit. This can help you to rebuild damaged credit over time, as your secured card can be transferred to an unsecured credit card with good payment history.

But too many companies try to take advantage of this idea. You can tell a fraudulent offer by a few details. First, if they require you to call a 900-number that charges you for each phone call, this is probably a scam. Second, if the ad leaves out important information, such as security deposits, monthly fees, high interest rates, or eligibility requirements like income or age, they are probably trying to lure you into applying and paying money you don’t know you have to pay.

To avoid these scams, look for details in the ads you receive and avoid those that leave out important information. Also never dial a 900-number to follow up on an offer. Doing so could cost you a lot of money, even for just a two-minute phone call. If you have any doubt about the offer you receive, contact the Federal Trade Commission. For a list of lawsuits against fraudulent companies, visit Crimes of Persuasion.

Usually when you hear about 0% balance transfers, you think of consolidating high interest credit card debt into a new 0% credit card. But what about other debt, such as a car loan or even a home loan? What if you were to transfer that balance onto a 0% balance transfer credit card, essentially financing your debt at a 0% rate? Most would advise against this for two reasons: Firstly, the 0% APR would only apply during the introductory period, which is generally 12 months. Secondly, it is a huge risk to do this because if for some reason you aren't able to pay the debt off within the introductory period, your interest rate on the debt would go through the roof.

This risk however does not bother LAMoneyGuy, who is planning to refinance his car loan by obtaining a 0% balance transfer credit card. Admittedly, the 0% balance transfer arbitrage risk for him is minimal, since he currently has enough money in his savings account if he needs it in 12 months. Some more interesting thoughts on this are at Blueprint for Financial Prosperity.

So if LAMoneyGuy can do it, shouldn't you too? Some advice — at Credit Card Blog, we tend to be risk-averse. In fact, we are extremely risk-averse. We would never advise playing the 0% balance transfer arbitrage game unless you have in hand some emergency cash, as LAMoneyGuy does. You never know what might happen with your cash flow situation several months into the future. Should it dry up for some reason, you could be left with some pretty hefty interest on your new 0% balance transfer card a year from now. As usual, be aware of the risk and play it smart, or don't play it at all.

In the United States, credit reports are compiled by three credit bureaus — Equifax, Experian, and TransUnion. These three major credit unions use the FICO scoring system to determine credit scores. As credit history data compiled may vary from one credit bureau to the next, so too may credit scores.

The FICO score can range from 300―900 and the mean score is 723. Fine, but just what exactly does that mean? Your FICO score is determined by the following factors:

35% Payment history — Do you pay your bills on time? Any late bill payments, particularly those that are more than 30 days late could adversely affect this section of your score.
30% Amounts owed — How much outstanding debt have you accrued? How much do you owe on car loans or home loans? The more you owe, the lower this section of your score will be. Also included in this section is the amount of cards you have at their limits.
15% Length of credit history — Do you have a long established credit history? Generally, more data in your credit report helps your score by increasing the reliability of that data. Too short a credit history does not give credit agencies a very good look at your long-term habits.
10% New credit — Have you had many recent inquries on your credit report? An exorbitant amount of recent inquiries could mean that you're experiencing financial trouble. This could lower your credit score.
10% Types of credit used — How many loans and credit cards do you currently have? Too many credit cards or loans from finance companies, like the ones you see on TV at 2:00 a.m., could negatively affect your score.

The exact algorithm used to calculate credit score is confidential proprietary information owned by Fair Isaac. But carefully considering the points laid out above should help you take the necessary steps to improve your score.