A Closer Look at Credit Cards
Myth: Just One Missed Payment Won’t Damage Your Credit Score
Fact: On the contrary, your score could plummet more than 100 points, says Liz Pulliam Weston, the author of Your Credit Score (FT Press, $19, amazon.com). A missed payment is particularly damaging if you have a great score (700 and up). The higher it is to begin with, the harder the fall can be. “Someone with a lower score is already seen as a risk, so their messing up is almost expected. As a result, they would potentially lose only 60 to 80 points, versus 90 to 110 for someone with stellar credit,” says Weston. Once your payment is so late that you’ve already received your next statement, there’s not a lot you can do—which is why (yes, you’ve heard this before, but it bears repeating) it’s extremely important to set up automatic bill pay.
Myth: You’ll Save Money If You Transfer a Balance From One Credit Card to Another With a Lower Interest Rate
Fact: Balance transfers offer numerous benefits: You reduce your monthly payments, save money on finance charges, pay less in interest
charges, and simplify your financial life overall. But they’re not for everyone. And it requires some homework to determine
whether the transaction is worthwhile.
Balance-transfer offers have gotten stingier: Transfer fees may be as high as 5 percent of the balance (meaning a $10,000 transfer would cost $500). And the best deals (for example, a 0 percent balance transfer for 18 months, available from Citi Platinum Select MasterCard, among others) are typically reserved for those with a spotless credit history.
Before you apply for a card that you plan to use for a balance transfer, find out these five important pieces of information from a company representative: how long the introductory-interest-rate period lasts; how much you need to pony up each month to pay off the balance before that time ends; the balance-transfer fee; the penalties you’ll incur for late or missed payments; and whether the teaser rate applies to new purchases.
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