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July/August 2011
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Credit Card Rewards: Five Factors to Consider
Before getting too excited about free airfare, $500 cash back or a new Kindle, make certain you meet all qualifications and understand all costs associated with credit card rewards.
After the economic downturn, many consumers have cut back on credit cards or stopped using them altogether. As a result, credit card issuers are raising rewards to win back customers or lure them away from their competitors.
However, just because a credit card offers larger reward items doesn’t mean that it’s the best deal. Here are five factors to consider before applying for a rewards card:
- Annual fees. Most airline rewards cards charge an annual fee, ranging from $30 to $75. These cards often provide a concierge and access to airport lounges. Unless you travel frequently, however, the rewards probably won’t justify the fees.
- Your balance month-to-month. Typically, rewards cards carry higher interest rates than non-rewards cards. If you’re carrying a balance from month-to-month, whatever you’re making in rewards will probably be eaten up by the higher annual percentage rate (APR). In order to make the rewards work for you, you need to pay off your credit card each month.
- Your spending habits. Pay attention to the amount you need to spend to qualify for rewards. For example, the Chase Sapphire Preferred card offers enough points for a free flight, if you spend at least $3,000 in the first three months you own the card. That may be achievable for a frequent business traveler, but others could fall short.
- Your lifestyle. A card that offers 100,000 miles on Delta Airlines is good for someone with elite status and experience flying with Delta. However, if you have no interest in flying with Delta, there’s no reason to pay the $75 annual fee.
- Your credit score. Applying for several rewards cards may seem like a good way to rack up lots of miles, but it could damage your ability to get credit in the future. Every time you apply for credit, the inquiry appears on your credit report; multiple inquiries could hurt your credit score.
Credit card issuers will continue to tempt you with attractive rewards to earn your business. Considering these five factors, among others, will help you find the best deal and effectively choose the rewards credit card that’s right for you.
The Peoples Community Bank recently announced names of high school scholarship recipients for 2011. Candidates of these $500 scholarships are graduating seniors who are non-relatives of any officer or director of The Peoples Community Bank and who are planning to attend a post-secondary program of study. Recipients were selected based on academic merit, leadership, and community involvement.
Scholarship recipients for 2011 are:
- Dillon Bowser, Hannah Hetue, and Joanne Parent from Barneveld;
- Nina Anderson, Trevor Salmon, and Kali Weber from Wisconsin Heights
- Alex Richard, Melissa Liegel and Taylor Gruber from River Valley.
The Peoples Community Bank Scholarship Fund was established with a mission to support the educational growth of talented, young leaders within the various communities served by the bank. Each year, in excess of $5,000 is awarded to qualifying students in the Barneveld, Wisconsin Heights, and River Valley school districts.
High school seniors wishing to apply for a scholarship from the bank are able to pick up and return applications at their respective school guidance office.
Q&A: Credit Reports and Credit Scores
Q: I’d like to cancel some of my credit cards. Will it affect my credit score?
A: There are a couple of ways that closing credit cards could affect your score. The first thing to keep in mind is that the second-largest factor in calculating your credit score (accounting for about 30% of your total) is how much of your available credit has been used. If you’re carrying balances on some cards, but close cards that you’ve paid off or no longer use, your available credit line decreases thus negatively affecting your credit-utilization ratio. In this case, paying off balances but keeping the cards open until you pay off (or at least pay down) the balance on the remaining cards can help improve your score.
The next thing to consider is that closing old cards reduces your length of credit history, especially if you’re closing accounts that you’ve had for a long time. If you have to choose between closing a card that you’ve had for two years vs. one you’ve held for 10, closing the two-year-old card could have less of an effect on your credit score. Also, keep in mind that some of the credit you may consider getting in the future (such as a mortgage) might require a minimum number of lines of credit.
In summary, if you are considering closing credit card accounts, it’s wise to pay down all of your other outstanding balances first, close newer accounts instead of older ones, and make sure that you still have a few open lines of credit. But don’t forget that the biggest piece of your credit score is your payment history. This can make up 35% of your score, so regardless of which accounts you close or keep open, paying on time every time will improve your score.
Q: I would like to buy a home next year, but my credit score is terrible. How can I improve it?
A: If your credit score is poor, it’s important to do everything possible to get it cleaned up before applying for a home loan. Otherwise, you may end up paying a high interest rate, which will increase the cost of owning a home.
The first step is to obtain a credit report from all three bureaus at www.AnnualCreditReport.com.
If you have outstanding debts, start paying them off as soon as you can. To rebuild your score, it also helps to have different forms of credit. A car loan or another type of secured loan will help. Also, see if you qualify for a small credit card or a secured credit card. Be sure to pay your cards in full each month so you don’t have outstanding credit card debt when you apply for a mortgage.
This newsletter does not constitute tax, legal, accounting or other professional advice. We attempt to be accurate, but neither we nor any other party shall be held liable for loss or damages resulting from reliance upon or use of this material. © 2011 The Peoples Community Bank
