Credit Cards

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Regular readers know I’m currently pursuing an MBA. What they don’t know is that I’m currently taking 6 classes plus an Applied Management Research project which is almost twice the usual workload. I’m a third of the way through the quarter and I’m already feeling burnt out.

To help take my mind off things, I decided to look at vacation packages. Once my quarter gets over, I might travel for a week.  I’ve been dying to visit South America or the West Indies for quite a while. Several packages look pretty good. And by  good, I mean from the aspect of being good value for money. Yes, I like to travel cheap, or as I like to emphasize, I’m a price-conscious consumer. Some of the places that had good deals were Costa Rica, Puerto Rico, and Mazatlan. Argentina also looked enticing, but the flights were slightly more expensive. One of the things I noticed was that my Discover Card was offering 5% cashback on travel booking until the end March 2010.

I don’t usually use my Discover credit card very much. It has a strange (but useful) rotational rewards program. Usually, you get 1% cashback, but every month (or sometimes for a whole quarter) you’ll get 5% cashback on a specific category of purchases. Each month its a different category. For example, it might be on travel (plane, hotel, car rentals or cruises), only restaurants, gas or maybe just groceries. This quarter, it just happens to be travel. Pretty useful if I actually end up traveling somewhere.

I typically use my American Express True Earnings Card instead of Discover. The rewards are more predictable. You get the typical 1% cashback on regular purchases, but you always get 2% cashback at restaurants and 3% cashback on travel. I paid my MBA tuition fees with it and got over $500 on it! While I don’t condone spending $50,000 just to get $500 back, it still makes for a nice Christmas present! (I would’ve actually preferred the American Express Starwoods Card since the rewards are great for taking vacations and the points are redeemable for stuff on Amazon, but I was coldly rejected).

So before making any major purchases, you should definitely go through your credit card rewards and see which one gives you more bang for your buck. If you don’t have a Discover card, make sure you sign up for it – the additional 5% might be worth it if you’re planning a big ticket purchase.

If you’re a student with limited credit history, you can sign up for the Discover Student credit card. It is a bit easier to get approved for it and it comes with the same set of rewards.

And if any of you have any vacation suggestions for the end of March, please let me know.

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Yesterday I got a call from American Express.  I was curtly informed that my True Earnings American Express Cash Rebate Credit Card limit was reduced 90%.  It isn’t a really big deal because I don’t need that sort of limit. I’ve never used more than 40% of the limit anyway. But I was still pissed. It’s very useful when traveling and I enjoy the cash rebate I get with the card.  I’ve been putting my tuition on it and then paying the balance off, which allows me to get some free cash.  Some of the benefits include:

  • 3% cash back for gasoline purchases
  • 3% cash back for restaurant purchases/dining out
  • 2% cash back for travel
  • 1% cash back for everything else, including Costco purchases
  • I guess Amex decided they weren’t making any money on my account so they basically told me my credit limit was now $2,500.  Since my revolving balance is close to that amount every month,  my ratio of available credit to debt ratio will look like its over 80% which will hurt my credit score.

    Apparently this isn’t an isolated incident. Smart money just had an article about credit card companies reducing credit limits on numerous borrowers, sometimes with the current balance exceeding the new limit.

    While the fees, frozen accounts and default interest rates resulting from credit-line cuts can sting your finances, they can do some serious long-term damage to your credit score. Your credit utilization ratio — the total amount of debt you owe in relation to the amount of credit available to you — accounts for roughly 30% of your score. A credit line cut has the potential to decrease your score by 50 points or more if you don’t have much other available credit, says Craig Watts, spokesman for FICO, the company that calculates and issues the credit score that most lenders use.

    One of my friends just graduated from USC’s Marshall School of Business. Last year he told me that a visiting professor announced in class that consumer lending was going to dry up and people would no longer be able to get credit.  His advice was to get it while they still could!

    Seems like that day has now arrived. Regardless of your credit, skittish credit card companies are reducing credit limits. How do they expect to make any money if they’re not lending money?

    But more importantly, what good is your credit if you can’t borrow any money?  Do you think this might drive people to max out their credit cards while they still have available balances and then default on them?

     

    Get $25 cashback on credit card signup