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Financial Literacy

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Financial Literacy Articles

7 Credit Card Tips For Using Your Card Wisely

a woman using her credit card in a retail store

If you’re like most people, you probably keep a small stack of credit cards in your wallet or purse. The average American has three credit cards.

But surprisingly, many people don’t use their credit cards to their best advantage, overlooking things like cash back rewards and credit score boosts. A line of credit can do you a world of good if you know how to use it wisely.

At Foothill Credit Union, we take time to educate our members on the ins and outs of credit card usage, and we offer these credit card tips for getting the most out of your plastic.

1. Take advantage of your credit card rewards

Rewards come in many forms, from coupons to cash back, and many lenders use these rewards to entice consumers into carrying their cards.

However, you may have to activate the rewards you wish to use. For example, your favorite card might offer a percentage back on the money you spend eating out — but only at participating restaurants. In this instance, you may have to log in and choose the restaurant you frequent the most to earn rewards.

Make sure you understand which rewards your credit card offers and how to cash in on them effectively. And if you’re currently using a card that offers no incentives, consider switching to one that does.

2. Understand your DTI ratio

Your debt-to-credit (DTI) ratio describes how much available credit you have in relation to how much you’re currently using. A high percentage can actually damage your credit score.

For best results, use only 30% of your available credit at any time. This means if you carry credit cards that offer combined credit of $10,000, use only $3,000.

By keeping most of your credit available, it’s clear to future lenders that you’re not overextended, which will make it easier to finance big purchases such as a car or a home when the time comes.

3. Pay your credit cards on time, every time

One of the kindest things you can do for your credit score is to make every payment on time, forever.

It may sound like a lot to remember if you carry multiple cards, but it’s vital to your credit health. If you have trouble remembering when each payment is due, set reminders or sign up for automatic bill pay that simply deducts the money from your account before the due date each month.

You really can’t afford even one late payment if you want to cultivate good credit.

4. Consider leaving your credit cards at home

Another handy trick for making the most of multiple credit cards is to leave one or more locked up at home when you go out. This way, you won’t be tempted to use them for impulse purchases. And if you only actively carry the one or two cards that provide the best rewards, this strategy will help you accrue points more quickly.

5. Keep your credit cards secure

Everyone knows not to give out PIN numbers and to sign the backs of their credit cards, but there are other, more subtle ways thieves have of stealing your credit card information.

These include online phishing tactics, card skimmers attached to ATMs, and malicious Wi-Fi hotspots. Any one of these can capture valuable credit card information, such as account numbers and PINs. This may let hackers take over your credit card account and bilk you out of hundreds or thousands of dollars.

Fortunately, there are simple ways to protect yourself, including:

  • Use only ATMs located inside occupied buildings
  • Don’t use public Wi-Fi for shopping or online banking
  • Don’t click links inside suspicious emails
  • Never give out financial information over the phone
  • Read over your credit card statement monthly and dispute unrecognized charges
  • Obtain free copies of your credit report annually

6. Pay more than the minimum due on credit cards monthly

You can also gain additional benefits from your credit cards by paying more than your minimum due every month. This will help you pay down balances quickly, freeing up credit, and boosting your credit score. Even adding as little as $10 or $15 extra each month is beneficial. It could be the action that nudges you under that 30% DTI ratio.

This credit card tip will also save you money in finance charges over your lifetime of usage.

7. Be choosy in how you use your credit cards

While it may pay you to use your cash back rewards cards often, you should still be choosy about what you put on them.

For instance, you don’t want to end up paying finance charges on your lunch or utility bill. Use credit cards as sparingly as you can, while keeping them current and active, but pay close attention to your interest rate and how much money it’s costing you each month.

Credit Card Tips For Responsible Usage

If you follow the credit card tips presented here, you’ll be well on your way to responsible usage which leads to overall financial health.

Foothill Credit Union can help you and offers great resources for financial education. For more information on how to use a credit card and maintain strong credit, click the button below.

Compare our Credit Cards

a woman using her credit card online

8 Ways to Use a Credit Card

Something about having a credit card tucked away in your purse or wallet just feels good. It means that a financial establishment knows you’re trustworthy, and they’ve not hesitated to issue you a line of unsecured credit.

Accordingly, how you use that credit card tells the issuer about you. It says a lot to anyone who views your credit report, as well. This includes your prospective mortgage company or the bank you’re asking to finance your new car loan.

If you use your credit card to your advantage, it will raise your credit score and open financial doors in your future. Use it incorrectly, and it can set you back for years. Here’s what we know regarding the best way to use a credit card.

Keep Your Credit Card Balance Low

Maxing out your credit card may not only leave you adrift in an emergency, but it’s a ding on your credit report, as well.

Ideally, you want to keep the bulk of your credit available. This describes your debt-to-credit ratio, and it tells future lenders that you’re not financially strapped to where you’re forced to live on credit.

For the best credit score, use only 30% of your available credit at any given time. This means per card and per available credit across all cards. So, if you have a credit limit of $10,000, try not to exceed a balance of $3,000.

Use Your Credit Card Regularly

At the same time, you don’t want to leave credit card accounts dormant. Keep that monthly paid-on-time report coming by charging something small to your card regularly. This could be a recurring debt, such as your utility bill. Or, it could be small purchases that add up to less than 30% of your available credit.

By keeping cards current, you have a better chance of scoring an occasional credit limit increase.

Watch Your Debt-to-Income Ratio

Your debt-to-income ratio is best described as how much you pay out each month, divided by how much you earn. In a perfect world, your debt-to-income ratio would be less than 36%. Even better, if your home mortgage makes up less than 28% of your overall income, you’re in prime shape.

In a nutshell, pay raises are great credit boosters. But if you experience a sudden decrease in income or lose your income temporarily, both situations could impact how lenders view your loan application.

Pay Your Credit Cards On Time Every Time

Even one skipped payment can reflect poorly on your credit report and can actually drop your credit score several points. And if you’re someone who hovers on the edge of fair-to-good credit, this could be a significant hit.

It’s vital to pay your credit card faithfully every month. And if possible, pay more than the minimum balance due. Even an extra $10 each month will help you pay down high balances that may be eating you up in finance charges.

There’s another good reason to pay credit cards on time, too. When you miss a payment, you’ll likely accrue penalties such as late-payment or over-the-credit-limit fees. These can balloon quickly. If you’re struggling to make your payments each month, even one missed payment may trigger a domino effect of costly fees that are difficult to pay down.

Keep Your Credit Card Information Secure

Along with using your credit card responsibly comes the task of protecting your credit card information from thieves, both online and in-person.

Never write your PINs on your credit cards. Always sign the backs of your credit cards. And don’t share financial information over public Wi-Fi or with online sites that seem shady. If you suspect your information may not be secure, or if you lose your card, contact your financial institution right away to have it canceled and a new card issued.

Monitor Your Interest Rates

Some cards come to you with a low-interest rate that will suddenly balloon if you miss making your payment on time.

According to Credit Karma, the average APR on credit cards in the US right now is 15.09%.

You might be surprised to find that your credit card charges much more. If this is true, it’s time to search for a new card that charges less interest each month. You can then transfer the bulk of your balance to that card, saving you hundreds of dollars over the lifetime of your card.

Do not, however, close out the account you’re transferring from. Closed credit accounts may count against you on your credit report. It’s best to move the bulk of the balance to a cheaper card and put just enough on the old card to keep it open and current.

Choose Credit Cards That Offer Useful Rewards

And if you do decide to open a new credit card account, choose one that offers rewards you’ll actually use. If you’re not interested in frequent-flyer miles, opt for a card that offers cash back on gas or restaurant purchases. Your credit cards should help support your lifestyle and the way you live, so choose them wisely.

Open A Credit Card That Works For You

Foothill Credit Union wants all members to experience financial success. That’s why we’re here to help you all the way. You can count on us for all of your borrowing needs. We offer two Mastercard credit card options, both starting at competitively low-interest rates. Click the button below to check them out.

Compare Our Credit Cards

0% Financing: Financial Literacy Article

0% Auto Loan Might Not Be the Best Deal

In seeking the best deal on your next car, you might've stumbled upon advertisements or offers to get a 0% interest auto loan. As great as this sounds, you may not save as much as you expect with this type of incentive.

Since auto loans can come through either a dealer or a lender, such as a bank or credit union, it's important to note that a 0% interest loan generally, if not always, is obtained through a dealer. Automakers offer them to attract buyers to certain car models, especially ones that aren't selling well. Here are a few things to consider about 0% financing and why it might not be in your best interest to use it.

You might be forfeiting a better deal

Typically, you can't receive both reduced rate financing and a cash rebate when you buy a car, so you may have to choose one. Manufacturers' cash rebates can range from a couple hundred to a few thousand dollars. The well-known auto research website Edmunds found that the cost of incentives that automakers pay to attract customers was around $2,300 per car industrywide, which includes cash rebates and cost of reduced financing.

While a 0% loan may sound appealing, a cash rebate might save you more money. If you buy a $20,000 car that has a $2,300 rebate, you are really paying $17,700 plus interest. If the interest rate for a five-year loan is 2.7%, which was the average rate at credit unions toward the end of 2015, then you would pay a total of $1,242 in interest. That would bring the cost of the car plus interest to $18,942, saving you $1,058 compared with what you'd pay with a 0% loan.

You may want to check the auto loan rates at local lenders too, since you might be able to get a low rate and pick up a rebate when you negotiate with the dealer.

Rate may not last as long as your loan

Some car models may have 0% financing for a limited term, such as five years, which could be less than the length of your auto loan. In the third quarter of 2015, the average loan term for a new car was five years and seven months, and the term for used cars was five years and three months, according to Experian's State of the Automotive Finance Market report. These are the longest average terms calculated since the firm began collecting data in 2006.
You may even receive a longer loan if you want lower monthly payments than you were offered initially. If your term is longer than the 0% financing deal, you generally pay interest on the remaining months or years.

This offer can be limited

A 0% rate might only be offered for a handful of models, especially newer cars, and less for used cars or older models. But even if this deal is available for the car you want, qualifying for it typically requires a high credit score. Check on the eligibility rules for getting this rate before stepping onto the dealer's lot if you can.

As you sift through car prices and incentives, remember that trade-offs are part of the process when buying a car. Although a 0% interest rate may save you money in some cases, you might also be letting a better savings opportunity pass you by.

© Copyright 2016 NerdWallet, Inc. All Rights Reserved

Finance a New Car: Financial Literacy Articles

Best Ways to Finance a New Car

So you've found your dream car, and now comes the hard part: paying for it. Most people don't have the means to pay cash for a new car.

That's why there are alternatives for financing. Here's a primer.

To buy or lease?

Leasing allows you to drive a nicer car without the hefty costs. You'll usually have lower monthly and down payments than with purchasing, as well as reduced repair costs since the average three-year lease expires before the vehicle's warranty does. You pay sales tax only on the portion of the car that you finance.

Here's the catch: You never really own the car. It's similar to renting a car for several years. At the end of the lease, you'll pay for wear and tear, as well as any miles that you drove over the limit, which is typically 12,000 to 15,000 a year. It can also be costly to terminate the lease early.

With a lease, you'll always have a payment. It's a great short-term option, especially if you like to buy and trade in cars regularly, but the costs add up over time. In contrast, when you buy, there will be — eventually and ideally — a period of several years when you aren't making a car payment.

If you tend to drive cars into the ground, buying is a better option financially. There is more flexibility in selling, you have no mileage charges, and you can save money in the long run.

There are advantages and drawbacks to both options, so consider your budget, lifestyle and driving needs before deciding.

Can you use a credit card?

Most dealers allow you to pay only a small portion of a car's price with a credit card. Dealers have to pay a credit card transaction fee, generally 1% to 3% of whatever was charged on the card. Since dealers typically have a profit margin of only a little over 2%, they aren't interested in sacrificing it to a card company.

So should you put at least part on a card? It depends. If you can get a 0% interest card and you'll be able to pay it down during that introductory term period, it may be worthwhile. Otherwise, it's probably best to stick with a traditional loan.

What other financing options exist?

Don't confine your financing search to just the dealership. Your local financial institution is more likely to offer lower rates, which means less interest paid over the life of the loan.

With financing in hand, you can focus solely on getting the best deal and turning your dream car into your real ride.

© Copyright 2016 NerdWallet, Inc. All Rights Reserved

Real Estate Terms: Financial Literacy Articles

10 Terms Every Homebuyer Should Know

Buying a home is a common undertaking for many Americans, but it's also one of the most complicated — not to mention costly — purchases adults will ever make. It's important to understand these 10 essential terms so you're ready to make smart decisions with your money.

  • Adjustable-rate mortgage (ARM): A mortgage with an interest rate that can change over time. It typically has a low, fixed initial interest rate and then may adjust regularly either up or down depending on market conditions. It can't exceed a set rate cap.
  • Closing costs: Fees from buying a house from both the lender and third parties like inspectors, attorneys, surveyors and title insurance companies. These typically add up to 3%-6% of the total home price, though some of these charges are negotiable.
  • Down payment: When you're buying a home and financing it with a mortgage, most lenders require you to put down a certain amount of cash upfront, usually 5% to 20% of the total price. Your mortgage covers the amount remaining after the down payment.
  • Escrow: A neutral, third-party account that protects the money of both buyers and sellers until real estate transactions are finalized. For example, if you choose to make a deposit with an offer on a home, it would go into an escrow account first rather than directly to the seller. Once you've bought a home, escrow accounts are also typically used to hold money for homeowners insurance and property taxes until payment is due.
  • FHA loan: A mortgage offered through the Federal Housing Administration that has less strict credit and down payment requirements compared with conventional loans. It's ideal for people with less-than-stellar credit who aren't able to qualify for conventional financing. The tradeoff: Along with paying monthly mortgage insurance fees, you'll also pay a hefty upfront premium.
  • Fixed-rate loan: A mortgage with an interest rate that won't change over the course of the loan. The rate may be higher than an ARM, but you'll never have to worry about it increasing.
  • Interest: Money your lender charges you for cash you borrow, indicated by an annual percentage rate, or APR (for example, 4%). Your interest rate will depend on your credit history and how much you can afford for a down payment.
  • Principal: The amount of money you borrow. Note that you end up paying significantly more than this amount because of interest.
  • Private mortgage insurance (PMI): If you don't put 20% of the home's price in a down payment, some lenders require this insurance to lessen their risk. It's typically paid with a  monthly fee added to mortgage payments. You can often cancel it once you have a certain amount of equity in the home.
  • VA loan: Mortgages for qualified current or former members of the U.S. military. These typically offer more favorable interest rates and require low to no down payment. They're offered by financial institutions but backed by the Department of Veterans Affairs.

Home buying can be confusing, but knowing this important lingo will make it easier to navigate the process.

© Copyright 2016 NerdWallet, Inc. All Rights Reserved

Banking Tips: Financial Literacy Articles

7 Banking Tips for Young Millennials

Once you start receiving your first paychecks after graduation, knowing how to spend or save your money wisely can be tough. While you may be able to do your banking with just a few taps on your phone, managing money well is much more complicated. Here are a few tips to help you get started.

1. Budget using apps

Tracking how much you spend weekly and monthly shows you where your money goes and how you can save more. You can use a budgeting app that tracks your cash automatically, such as Mint, or one where you enter information manually, like Spending Tracker. Choose an app that lets you spend as little or as much time on budgeting as you want. From there, you can identify your total fixed expenses, such as rent and car payments, and more flexible costs such as shopping and dining out.

2. Set up automatic transfers to savings

When you have a rough idea of how much you can save regularly, create a recurring transfer from your checking account to a savings account. By making savings automatic, you can get used to spending “below your means” and never have to worry about remembering to transfer.

3. Avoid overdrawing your checking account

Before you pay rent or spend any other big chunk of money, take a look at your checking account's available balance. This can prevent you from spending more than you have in your account. If you overdraw, you may be charged a fee.

4. Establish credit

Student loans and credit cards can help you build good credit — as long as you stay current on monthly payments and don't overuse your cards. Your credit score, which shows how responsible you are with credit, is an important factor that lenders check before approving car loans and mortgages. The better your score, the lower the interest rate you may be eligible for.

5. Repay debts strategically

If you have debts from multiple credit cards and student loans, pay the minimum on each and then contribute more to your higher-interest debts. By making those a priority, you can reduce how much interest you're paying faster than by treating all debts the same.

6. Start an emergency fund

Being financially prepared in case of health emergencies or unexpected unemployment can save you from going into debt. Have a separate savings account just for this purpose — don't mix it up with your regular savings. A good rule of thumb is to save enough to pay three to six months' worth of living expenses.

7. Set long-term savings goals

Consider saving for retirement in an employer-sponsored 401(k) plan or individual retirement account. When you start saving early, you take advantage of compounded returns to make more money off your contributions overall.

From smart budgeting to setting goals, make good money choices now. Since time is on your side, you can benefit from building credit and saving early to be ready for big financial decisions in the future.

© Copyright 2016 NerdWallet, Inc. All Rights Reserved

First Job? Here’s How to Set Your Finances Up for Life

Landing that first job means having a regular influx of cash, but steady work alone doesn’t guarantee financial health. Here’s how to build the foundation for lifetime financial security.

Get on budget

It truly doesn’t pay to wing it. Budgeting is the most effective way to get and keep finances on track. Just add up your monthly income and subtract expenses such as student loans, rent, clothing and entertainment. This gives you a basic financial snapshot. If the numbers look shaky, adjust by cutting unnecessary expenses or adding extra work hours. Using a mobile budget app such as Mint or Level Money can make this process almost effortless.

Establish goals

Financial goals act as a road map toward your dreams. Maybe you’d like your own home or apartment, an exciting vacation or a new car. Highly effective goals are often referred to as “S.M.A.R.T.”: They should be specific, measurable, achievable, rewarding and time-framed.

Build solid credit

Even if you don’t need to borrow right now, having excellent credit history can reward you with the best picks for jobs, apartments and vacation deals as well as with lower insurance premiums and preferred rates when you’re ready for a mortgage or other financing. To begin building credit:

  • Apply for a credit card.
  • Pay your credit card bill and all other bills on time.
  • Use your card regularly, but keep your balances to 30% of your credit limit or less. Also, don’t apply for more credit than you need.
  • Monitor credit reports to clear errors, delinquencies or fraud immediately.

Expect the unexpected

With an emergency fund, unexpected challenges such as a job loss or medical issues don’t have to wipe you out financially. Aim to save a minimum of three to six months’ worth of living expenses, and keep that money in a separate savings or money market account that can be accessed quickly during emergencies.

Prepare for retirement

When you first start working, retirement probably is the last thing on your mind. But the hard truth is that the average retirement lasts 20 years, and it will take a massive bundle to support yourself all that time. Social Security won’t cover this alone; you’ll likely need 70% to 90% of your final income annually for a comfortable retirement. It’s never too early to start preparing. Make the maximum employer-matched contribution to any work-sponsored retirement plan, and deposit whatever you can afford into your own private retirement account, which should include traditional and/or Roth IRAs.

Become a saver

Even if you don’t have much extra cash, small amounts saved consistently really grow over time because of compound interest. Commit a set amount to save monthly and make a habit of paying yourself first, before any other bills. Setting up an automatic savings plan that regularly transfers funds from checking to a savings account or deposits a portion of your pay directly to savings can make growing a nest egg a no-brainer.

Personal finance doesn’t have to cramp your style. With a minimum of planning and discipline, your smart choices will help you live well today and achieve your most exciting dreams in years to come.

© Copyright 2016 NerdWallet, Inc. All Rights Reserved

Pay Day Loans: Beware

A payday loan is a short-term loan, generally for $500 or less, that is typically due on your next payday. Payday loans generally have three features:

  1. The loans are for small amounts.
  2. The loans typically come due your next payday.
  3. You must give lenders access to your checking account or write a check for the full balance in advance that the lender has an option of depositing when the loan comes due.

Some ways that lenders might give you the loan funds include: providing cash or a check, loading the funds onto a prepaid debit card, or electronically depositing the money into your checking account.

The cost of the loan (finance charge) may range from $10 to $30 for every $100 borrowed. A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400%. Yikes!

Don't fall into the Payday Trap

Don’t fall into the trap of borrowing time and again with never ending interest rates. You usually pay back double the amount you borrowed, if not more! Payday lenders usually bait you with “FAST CASH” gimmicks, but that convenience is often accompanied by outlandish high interest rates and fees. Borrowers who cannot repay their loan within two weeks are often forced to roll over the loan, and can get trapped in the cycle of borrowing over and over! Contact us and see how we can help.

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