You Can Get a Credit Card to Build Credit

Some major banks do not offer starter credit cards. Getting approved for credit with these banks requires a history of successfully managing credit. For this reason, it is harder to obtain credit from Chase or Citibank with no credit history or past credit problems. Apply with your local bank and you can obtain a secured credit card account. Open a savings account with the bank, place a security deposit in this account and obtain your plastic. The security deposit acts as collateral and helps minimize the bank’s  loss if you default.

You Have a Relationship With the Bank

If you’re a long-time customer with a history of good account management, this opens the door to an unsecured credit card — even if you don’t have a long credit history. Major banks base approval solely on your credit report. However, your local bank representative will review your credit application, as well as your account history with the bank. A history of overdraft fees and bounced checks can prevent a credit approval, but if you know how to manage money and you have a stable financial history, local banks are more willing to approve your credit request.

Quick, Personable Service

Call the customer service number for a major bank and expect a long wait time. Because local banks are smaller and have fewer customers, you’ll spend less time on hold and you’ll speak with a representative quicker.

Convenient Payment Options

Major banks that issue credit cards aren’t located in every city. For this reason, you’ll have to either mail your credit card payment several days before the due date or pay your bill online. But if you apply for a credit card with your local bank, you can submit your payments via drive-thru or inside teller. Perfect if you don’t have Internet access or if it’s too late to mail your payment.

Competitive Offers

Don’t assume that major credit card issuers are the only banks that offer low fees on balance transfers and low interest rates. A local bank credit card can have offers similar incentives, and when shopping for a new credit card, it pays to check out your local bank and compare their offers with the major banks. As an existing customer, your might be eligible for certain perks with your local bank, such as no balance transfer fees, a 0% interest introductory rate or a low permanent rate.

One thing that you do not want to do is to judge a car just because it has a certain brand name. While some brand name cars may perform better than others, this is not going to be true every year for every car that they make. Part of it may depend on where they get their parts from, or on how experienced a manufacturer of a specific part is.

You can find lists of the most reliable cars on a number of websites (and in various car magazines). One of the most popular is the ConsumerReports.org. A good reason to find out about the reliability of a car before buying it is because it affects the resale value. With a reliable car, it can retain much of its value over several years, but a lemon will rapidly lose its value and you may have difficulty finding a buyer, or in getting much for it on a trade-in.

One thing that has surprised many recently is that a number of American made cars have surpassed cars made in Asia in 2011. Consumer Reports says that some American cars this year have seen a slight drop in overall reliability in many models. It also mentions that Chrysler and Dodge have actually gotten better this year, and Jeep has become the most reliable American made vehicle.

The same report says that the best two models in the Consumer Reports survey are the Lexus CT 200h and the Honda CR-Z. The Lexus CT is a hybrid sedan and it will cost about $31 (42mpg average), and the Honda CR-Z starts out about $20,000 (37mpg average). Both cars have a variable driving system, the Lexus has four modes, and the Honda gives its drivers three to choose from.

Another ranking was performed by the insurance company Insweb, and it combined results from Consumer Reports and J.D. Power and Associates. Its list of the top 10 most reliable cars were not in any order, but it started out with the Toyota Prius. This popular car gets an average of 50mpg and it is a hybrid. It will start out about $24,000. The car is noted for having very few mechanical problems.

Other vehicles named by Consumer Reports as being the most reliable 2012 cars that are in the small sedan category includes the Scion xD, the Honda Fit, the Scion xB, the Chevrolet Volt, and the Mazda 3. There were also some luxury cars that made the grade, too, and this includes the Lexus CT 220h, Lexus ES, Lexus IS Sedan, and the Lexus LS.

The good news is that many cars have improved in their levels of reliability in the past couple of years. The company with the most reliable cars was Toyota, which ended up with eight cars being considered the most reliable. Other companies that produced the most reliable cars include Porsche, Cadillac, and Scion.

While the majority of cash downfalls are unexpected, one can still prepare for them.  It is almost certain that at some point in a person’s life they will experience an accident.  They might total their car, incur high medical expenses, or have some other event that costs them a lot of money.  Nobody wants it to happen, but by preparing for the unexpected, the individual can lessen the blow.

Preparing is as simple as starting an emergency fund.  This fund should be kept in a savings or money market account, and it should have at least six months living expenses (many experts now say 2 years is actually better).  With each paycheck where there is no big, unexpected cash outlay, the individual just needs to save as much as they can.  Before the emergency strikes, make sure to have a plan on what to do.

That plan should include using the emergency fund first.  This is why it exists.  As it gets close to being depleted it would be best to talk with a debt consultant.  For medical bills, most clinics will offer their consulting services free of charge.  For other bills, seeking out a debt consulting company with a good reputation is imperative.  Well before the emergency fund has even run dry the entire plan on how to get out of the debt and back into the positive should be ready and in place.  The very last resort anyone should consider is bankruptcy.

Everyone dreams about, and often expects cash windfalls.  Every so often it feels good to find a $20 bill or winning the lottery. It is much more exciting to dream about the home on the lake, the fancy cars, and the personal butler.  Nobody ever expects, and subsequently many fail to plan for, a financial emergency.  The reality is that most people will have emergency expenses that deplete their savings rather than a big win that increases it.  For those who have taken the time to make a plan, and implement an emergency fund, the battle against the downfall will be much easier.  For those who fail to even consider it, they will have a much longer uphill battle to get back to a positive net worth.

The report issued April 28^th showed a large decrease in the initial number of claims.  While a onetime drop is always a good thing, it can be due to onetime events.  After several weeks in a row of the numbers not climbing the employment situation looks more hopeful.  As the economy builds strength more people are finding work.  A look at the four week moving average shows that there is a consistent downtrend in the number of initial claims.  This chart shows a nice visual of that downward trend.

March was a great month for adding jobs.  There were several jobless claims reports that showed the lowest numbers during the recovery.  During April the claims started to rise until the end of the month when huge strides were made.  Now during May those gains are being held.  If consumer and employer confidence continue to increase, there should be more reports that look good in the future.  Unfortunately it is still too soon to tell if the confidence will remain.

While the labor market may not seem too solid, especially with the worries of high energy costs, inflation, European debt, and a whole host of other factors weighing on people’s minds, it is important to take a step back and look at what it was like a year ago.  Last year the report for this point in May there were a seasonally adjusted 418,000 initial jobless claims and the four week moving average showed 434,500.   Insured unemployment was at 3,747,000.  In just twelve months the initial claims have dropped over 11% and the insured unemployment number has fallen nearly 13%.  By keeping the big picture in mind one can help alleviate some of the concerns that there is little progress being made.  Small, consistent wins are needed for a healthy recovery.

The initial jobless claims report is issued once per week from the Department of Labor.  The report details how many claims from the week prior, and revises numbers from two weeks prior.  The report is a great snapshot of the overall employment situation for the country and can help economists and investors see trends and determine the direction of the labor market.

The talk of QE3 shows there are many more likely supporters than previously thought.  But there are some heavy stipulations on when, or if, it should be implemented.  Since the economy is continuing to grow, there is no reason for the influx of money now.  Only if the economy starts to lose momentum will it be considered.  Since the Fed does not plan to raise the interest rate within the next year and a half, QE3 will most likely not come to fruition.  The dissenting votes feel it would only cause more problems than it would solve.

The overall outlook of the economy is slightly better than previously thought.  The continued drop in unemployment and initial jobless claims is encouraging.  Payroll and incomes are increasing and consistently better numbers are being brought forth in those reports.  And despite consumer sentiment remaining low, consumer spending is increasing.  The main concerns are still the housing market, and many investors are wary of what is going on in Europe.  Those markets could be on the verge of recovery, or collapse.  These fears are stifling growth domestically.

One major factor that is keeping consumer spending from reaching levels that could spur rapid growth is the overall fear of inflation.  While the Fed is trying to limit inflation to 2% for 2012, many people do not see it staying that low.  With gas prices consistently edging upward, people are finding themselves spending more at the pump, and more for consumer goods than they desire.  This is causing more people to be hesitant to make larger purchases.  The FOMC did admit that while inflation is not of major concern, it is higher than they expected and wanted it to be.

Interest rates are predicted to remain low through 2014.  Most of the committee had no concern about the rates staying low, and they did not indicate that rates would go up any time sooner than that.  Richmond Fed President Jeffrey Lacker was the only dissenter.  He feels as though the rates will go up before the end of 2014.

The FOMC meets every 6 weeks. There is a three week lag between the meeting and when the Fed Open Market Committee minutes are released.  Once per quarter Chairman Ben Bernanke will hold a press conference shortly after the meeting in order to provide more timely information, and have a question and answer session with the press.  The meetings are considered by many investors and consumers alike to be a valuable source of information on the status of the economy.

Business or Frequent Travelers

Whether you plan frequent trips and getaways or you’re a corporate traveler, a credit card with travel rewards is a great option if you constantly book airfare, hotels and car rentals. The majority of travel credit cards, such as the Chase Sapphire Preferred Card and the Blue Sky from American Express offer points on each dollar that you spend and  these points are redeemable for airline miles, hotels, cruises and car rentals.

What’s more, many travel cards feature bonus points if you spend a certain dollar amount within the first few months of owning the card. But don’t think that you can only use these credit cards for travel-related purchases. You can use these credit cards anywhere — restaurants, grocery stores, movies or gas stations. The more you swipe the card, the more travel points you earn.

High Interest Rate and High Debt

If you owe huge balances on your credit cards and you can’t seem to remedy these balances due to a high interest rate, perhaps now’s the time to look into balance transfer credit cards. Balance transfer credit cards are a popular choice among people with high balances because they typically feature 0% interest or a very low interest rate during the introductory period — between six and 12 months.

Paying zero interest for an extended period can jump start your debt elimination plan because every cent paid to the credit card company is applied to your outstanding balance. Even if you don’t pay off the balance completely by the end of the six or 12-month period, can can significantly reduce your balance.

No Credit History or Poor Credit

Apply for a credit card with no credit history or a low credit score and there is a good chance that the bank will deny your request. This is almost always the outcome if you apply for an unsecured credit card. But if you need credit to improve your credit score, a secured credit card is the best credit card. You don’t need good credit for these cards. In fact, you don’t need a credit score or history. You can apply with your bank, and once you pay the deposit and the annual fee, you can obtain a credit card in your own name.

The bank that issues this card will report your payment history to the bureaus each month. And as long as you pay on time and keep your balance within a reasonable range — no more than 30% of your credit limit — you’ll improve your credit score. Compare secured credit cards before applying. Fees vary by bank, and oftentimes, you can find lower fees by shopping online.

There is no single best credit card just like there is no single best movie.  The best card for you may not be the best card for your husband.  Think about why you’re looking for a credit card and consider the possibilities from there.

How Does Mortgage Lending Work

When a bank decides to loan someone money for a mortgage, they have an underwriting process that the loan goes through in order to make sure that the loan is a good risk and that the borrower is likely to pay it back. Based on this process, a loan is either approved and granted or denied.

When a loan is approved, the mortgage lender has a few different options. The lender can keep it “in-house” or on their books. This means you will keep making payments to the mortgage lender that you originally borrowed the money from. They will make money in the form of the interest that they charged to you and the loan will be an investment that they carry.

The mortgage lender also has the option of selling the investment on the secondary mortgage market to investors. This means your home loan can be resold to a different mortgage company. When this occurs, you will often need to make payments to someone different than the original bank that lend you the money. Sometimes, this happens immediately after you get the loan, while in other cases, you may be notified later on that your mortgage servicer has switched.

When a bank resells a loan, they make money through the sale of that loan rather than through your interest payments. The investors who bought the loan make money from your interest payments.  The actual process of who the loan is resold to and how it is resold can be complicated, as mortgage products are sometimes packaged and a bank sells a whole bunch of different mortgages at different risk levels at once.

As a consumer borrower, the only thing that is important to be aware of is that your loan might be sold and you’ll need to send your payments to someone else (all other terms of your loan do remain the same though, even if it is sold).

What about FHA Mortgages?

One common misconception that people have is that the government actually gives out mortgages through the Department of Housing and Urban Development (HUD). You may have heard of FHA or VA loans and assumed that this meant the government was a mortgage lender.

In reality, however, the FHA or VA just guarantees loans made by other lenders if those loans fall within specific guidelines and meet specific criteria. This means you will go to a regular bank or mortgage lender and you will get your FHA loan through them. The FHA will provide a guarantee to the lender that if you do not pay back the loan, the losses will be covered.

Who is Engaged in Mortgage Lending?

Any number of financial institutions are engaged in mortgage lending. Most people get their mortgage loan through banks or credit unions. However, it is also possible to get owner financing and get your mortgage right from the person who sells you the property, or to find non-conventional lenders willing to carry a mortgage loan.

There are also financial professionals called mortgage brokers that help in the mortgage lending process. These professionals have relationships with a number of different banks and shop around to find a loan that works for you. There is a charge for using a mortgage broker so it may not be worthwhile to pay this cost unless you have a unique situation that might make finding a mortgage lender difficult.

After three months of increases, the seasonally adjusted energy index declined 1.7 percent. The drop in the energy index led to declines in other important indexes. For example, most of the energy index decrease has a direct correlation with the 2.6 percent drop in the gasoline index, recorded in April. The AAA reports the price for a gallon of gasoline reached a 10-month high of $3.94 a gallon on April 5,2012. As of May 14, gasoline prices have fallen to an average of $3.73 a gallon.

Ben Bernanke, Chairman of the Federal Reserve Board, stated in late April that the climb in gasoline prices was “temporary” and the Fed expected the inflationary effects of higher gasoline prices to “pass through the system.”

In addition, fuel oil and natural gas fell to 1.1 percent and 1.8 percent, respectively. The indexes for five out of six food group components rose. The overall food index increased 0.2 percent.

For all categories measured by the Consumer Price Index, excluding energy and food or the “core measure,” increased by 0.2 percent—the same percentage change registered in March 2012. On a year-to-year basis, the energy index has increased 0.9 percent. During the same period, the food index rose 3.1 percent.

The following indexes increased in April.

• Shelter
• New vehicles
• Used cars and trucks
• Airline  fares
• Medical care
• Apparel

With the exception of the unpredictable energy and food indexes, the moderate increase in the CPI means that inflation has not become an immediate concern for the economy. According to Bernanke, the Fed will hold to the current course and avoid any monetary stimulus. The Fed will step in if prices rise at a slower rate than expected or the economy goes into a tailspin. The Federal Reserve Board has a target of two percent for inflation.

April Retail Sales Report

The momentum of retail sales, which many economists credit to the usually warm winter, came to a halt in April. The  U.S. Census Bureau said retail sales increase a weak 0.1 percent—the smallest increase since December 2012, when sales were unchanged from the previous month. The 0.1 percent increase meets the expectation of the economist survey by Bloomberg News.

Apparel sales fell in April. However, other purchases, with the exception of vehicles, service stations and building materials, recorded higher sales than anticipated. Sales on a year-over-year basis increased 6.1 percent. The Census Bureau adjusted March retail sales figure, from 0.8 percent to 0.7 percent.  Taken together with the April Consumer Price, today’s economic news suggests inflation remains under control while economic activity slowly increases.

Now imagine that on the way to work you filled your car with gas and got a cup of coffee. The total you spent at the gas station and its convenience store was $32. However, they were separate card swipes, one at the pump for $30 and one in the convenience store for $2.

You have opted-in to your institution’s overdraft protection plan – a document of over 100 pages that you barely understood.

Later in the day you realize that your mortgage is due. You hurry on your lunch hour over to the bank that holds your mortgage and pay it with your debit card – you did not have a check with you. But, you realize that your account is about $20 short. If you delay the payment by one day you incur a late fee of $50, but, if you put it on the debit card you will only incur a $35 fee. Right?  No, wrong! You will incur $70 in overdraft protection fees.

You see, for your convenience and their profits, banks have the right to forget the order that items are paid in. They reorder them at the end of the day by size of the transaction.

Under this system of reordering of credits to your account the good news is that your mortgage payment earned no late fee – wait, do not become delirious with joy. Your two other purchases cost:

• Gas Purchase $30.00 plus overdraft protection fee $35: total gas purchase $65.00
• Coffee Purchase $2.00 plus overdraft protection fee $35: total coffee purchase $37.00

Your gas station stop in the morning cost you a whopping $102.00.

Crazy, yes – legal, yes – fair, no.

Unfairness stems from two issues.

1. Consumers for the most part have no comprehension of the reordering of withdrawals from time based to size based.
2. The fee is supposed to reimburse the bank for the expenses incurred in covering your overdrafts. It does not cost them $35 to do this. Banks are using overdraft fees as profit centers.  It is estimated that nearly 75 percent of profits for deposit account services come from overdraft fees. Nine percent of customers account for 84 percent of the fees.

You Can Act

The Consumer Protection Finance Bureau is seeking comments on the overdraft practices of banks.   Have you had an experience related to reordering overdrawn checks?  Submit your thoughts here. The comment period closes on June 29, 2012.

How is a Mortgage Rate Determined?

A mortgage rate is determined by both your finances and the home you are buying, as well as by market conditions at the time when you purchase the home.  Mortgage rates vary across the country and from lender to lender. It pays to shop around to get a competitive rate.  It is easy to check out rates by lenders in your area.

The reason mortgage rates are similar is that they are determined by market factors or prevailing economic conditions.  For instance:

• Mortgage money generally comes from investors who are interested in earning a return on their investment (the return they earn is equal to the interest you pay). Mortgages thus have to be attractive to investors as compared with other investments such as Treasury Bonds. The 10-year treasury yield (amount paid by treasury bonds issued by the government) can thus affect mortgage rates.
• The Federal Reserve (the central bank in the U.S.) affects interest rates by controlling the money supply. When more money is available, interest rates go down because there is more money to lend. When less money is available, interest rates go up because the market is tighter.
• Inflation: Inflation is an upward change in the prices of items across the economy, affecting purchasing power (for instance, when milk cost $1.00 last year and $1.10 this year, your purchasing power is affected and your money is essentially worth less). When there is high inflation (your money is quickly becoming worth less), mortgage lenders charge higher interest to make up for the fact that the money they have is less valuable.
• Supply and demand: When the economy is going badly, unemployment is high and consumer confidence is low, fewer people are going to want mortgages. This drives mortgage rates down since the demand is low. When housing prices are increasing rapidly and the economy is great, there is more demand for mortgages and the rates might go up because of more demand.

Because of all of these external factors affecting mortgage rates, many people try to time the market and buy when rates are at their lowest. This can be challenging and is not necessarily the best way to decide when to buy a house unless you are an experienced investor. Instead, you should focus on whether the time is right for you and your family and on whether you can truly afford the house at the current market interest rates.

Other Factors Affecting Mortgage Rates

While market factors play a big role in setting general mortgage rates, some of the things that you do will also affect your particular mortgage rate. For instance:

• Your Credit Affects Your Mortgage Rate

Having good credit. allows you to qualify for the lowest rates while having bad credit can make it difficult to get a loan or can result in a higher mortgage rate because lenders will see you as a riskier investment for which they want a higher return for taking a chance.

• Buying a home that is very expensive can result in a higher interest rate.

Loans above $417,000 are considered “jumbo” or “non-conforming.” Banks usually don’t keep loans in house but instead resell them. The two major purchases of mortgage loans are Fannie Mae and Freddie Mac, but they will only cover or purchase loans up to the $417,000 “conforming” amount (in certain areas of the country, this amount is higher to account for higher housing prices). A jumbo loan comes with a higher mortgage rate since it is more difficult for the bank to sell the loan if it needs to.

• The type of mortgage you choose affects rates as well.

A thirty-year fixed rate mortgage will have the same mortgage rate over the life of the loan. This gives investors a guarantee of their return and lets you know what you will be paying. Because the loan is held for a long time (30 years), the interest rate is a little higher than a 15-year fixed rate mortgage that is paid back in half the time.

The higher rate compensates investors for inflation and ensures they make enough money to make the loan worth their while. An adjustable rate mortgage, on the other hand, typically has the lowest interest rate initially since it is a teaser rate designed to get you to take the mortgage and buy a house. However, this rate can adjust upward over time as it is typically only fixed for a designated number of years before it begins to adjust based on some set formula.

Getting a Mortgage

As you shop for a mortgage, it is important to compare mortgage rates. The higher the rate, the more you will pay in interest, the higher your monthly payments will be and the more you will pay over the life of your loan.