Why Does My Card Issuer Keep Increasing My Credit Line?

Every now and then, you might get an offer from your credit card company congratulating you on being a fantastic cardmember. In fact, you are so great that the company is going to do you a good turn. It’s going to increase your credit limit!

This may come in the form of unilateral action on the part of the credit card company, or it may be an offer for you to request one. The increase could be just a small bump, or it may be as much as 30%. If you have proved yourself to be a good credit risk, then a card issuer is going to engage in additional underwriting and risk assessment to see if they are comfortable with giving you more credit.

There are many reasons for this sudden generosity, and it isn’t exactly altruistic.

Card issuers increase credit lines to boost retention

It’s a jungle out there in the battle for market share. Credit card companies obviously want as many cardmembers as they can get. The more cardmembers they have, the more revenue they can generate from them.

Raising your credit limit just gives you one more reason to continue using that bank’s card. They don’t want you to even consider canceling and moving to another card. Heck, even if you don’t cancel, they don’t want you using another card.

The issuer hopes you’ll carry a balance

Many credit cards generate revenue from annual fees and other services, but nothing is better for a bank than if you carry a balance. If a bank can charge you any interest, especially a high interest rate, and your credit is so good that they think you will pay off that entire balance at some point, you are their favorite customer.

It may be better for the bank

It’s a bit of a reverse mind-trick, but credit card companies like to see a low credit utilization rate. This is the percentage of credit you are using of the total amount you have available from all sources. If you carry $10,000 on a card and have $40,000 in total credit available, your utilization rate is 25%. If total credit is raised to $50,000, your utilization rate is 20%.

The idea is that by giving you more credit, it “relieves the pressure” on the utilization rate. You may become a better risk if you have more credit available, but then do not use it or use just a bit of it.

Temporary increases make money

Discover Card recently sent a friend an offer that explains a new revenue tactic. They offered to temporary extend his credit line from $10,000 to $13,000 if he transferred a balance to the card at a 0% rate. The higher limit would be in place, along with the 0% offer for 12 months only.

Discover made this offer because he was carrying a $6,000 balance at 0%. They made 3% on the original balance transfer, so why not make another offer at 0% APR, and hope to collect a 3% transfer fee on a higher limit. By making that higher limit temporary, Discover isn’t taking much of a risk. It returns to the original level in a year, and because the customer had been paying down that 0% card on a monthly basis, it was really a no-risk situation.

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I Want To Use a 0% Balance Transfer Offer, but Can’t Get Approved — What Should I Do?

There are few things better in the credit world than a generous bank offering you the ability to charge several thousand dollars worth of purchases and not pay any interest on them for as long as 18 months. But what if you’ve applied for one of these 0% balance transfer offers and gotten turned down?

You probably got dinged because your credit wasn’t good enough. That means you need to spend some time building up that credit score before trying again.

You need good credit to get a 0% balance transfer deal

Your credit score is based on the following: payment history (35%), amount owed (30%), length of credit history (15%), new credit (10%) and type of credit (10%). All of these factors are what determines the level of risk you present to a creditor. They have no idea who you are. They are taking a risk on you. All they have to go on is your credit history, and you have to prove you are a good credit risk.

• Pay off your balance in full each month. This is a big one. The zero-percenters want to know that you won’t take a free ride for 18 months and then default. Show them you pay for what you charge. The way you manage this is by never charging more than you know you can pay each month.


• Pay off your balance on time, every time. 35% of your credit score is based on payment history. Late payments are a big negative mark on your credit, so this task is critical. The zero-percenters want to know you aren’t a deadbeat that will lead them on for a year or more, so do whatever it takes to remind yourself of your card’s payment due date. Automated payments from your bank account is one method.


• Consider a secured card. You may have good credit, but if you get a secured card, you may demonstrate to those zero-percenters that you are good to your word and can pay off whatever you charge.


• But don’t overapply for credit. The more times your credit report is examined (“pulled”) by a creditor, the lower your score. So if you got dinged for that 0% offer, don’t start applying for other deals right away, except for that secured card, noted above.


• Check your credit score. Federal law requires that each of the three major credit bureaus provides you with a free credit report each year. Check in on your credit score at least twice a year, or even quarterly. It’s rewarding to see your credit score creep up as you behave responsibly.


• Pay off outstanding balances. The bureaus look at your credit utilization rate, or the ratio of how much debt you have drawn down to how much total credit is available to you. The smaller that number is, the better for your credit score.


• Boost your credit in other ways. Another approach is to get utility services, like gas or electric or cable TV. Credit bureaus consider your on-time, in-full payment of these services to be of value in risk management, because you receive services before you pay. But you must check to see if your utility company reports those payments. Most will, but only if you’re delinquent. You can also see if your landlord is a member of (or will consider joining) WilliamPaid. This service reports your rent payments to Experian RentBureau.

Next step: Once you’ve gotten your credit house in order, and established six months or so of better credit behavior, give that 0% offer another try.

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Why Is the Credit Scoring System So Complicated?

Becoming credit-savvy is harder than it seems. This is largely due to the fact that the credit scoring system we use in the United States is complicated, at least at first glance.

But why is this the case? The Nerds are excited to explain – take a look at the details below.

Is the credit scoring system complicated?

If you’re having a hard time understanding how your credit score is determined, you’re not alone. A 2013 survey by the Consumer Federation of America revealed that many Americans are confused about the factors that affect their scores. For instance:

• Two-fifths believe that personal characteristics like age and marital status are used to calculate their scores. (They aren’t.)


• Only 7% know that applying for several loans in a 1-2 week window (also known as rate shopping) won’t lower their scores.


• More than one-quarter don’t know the key ways to raise their scores.

There are many conclusions to draw from this data, but one interpretation is that the complexity of our credit scoring system leads to certain misunderstandings. FICO, the company responsible for the most commonly used credit score in the United States, uses a host of data points and a sophisticated algorithm to create your score. It’s no wonder that so many people are in the dark about what impacts this three-digit number!

Believe it or not, a complicated credit scoring system leads to fairness

By now you might be shaking your fist in frustration, wondering why credit scoring can’t be more straightforward. But if you look a little deeper, you’ll see that there’s a good reason for the complexity.

For help in explaining this, the Nerds reached out to Anthony Sprauve, a senior consumer credit specialist at FICO. Sprauve emphasized that using a large number of variables to determine consumers’ scores is beneficial, because it provides an accurate and objective picture of how likely they are to repay borrowed money. He stated:

“For the FICO Score to identify as many creditworthy consumers as possible, it is important to look at a variety of information. … For example, if a person forgets to pay a bill one time, but has an otherwise spotless track record, doesn’t have much debt, and doesn’t apply for credit very often, then we want to be sure the FICO Score reflects the fact that the person is probably a creditworthy individual.”

We asked Sprauve to clarify another confusing point: Why do certain actions have a big impact on one person’s credit score, but only a small impact on another’s? He explained:

“Every person is in a unique situation. No two people have identical credit histories or credit reports, and the FICO Score is designed to take these differences into consideration. For example, the FICO Score of a consumer with a short credit history will be impacted more by one delinquency than a consumer with a very long history of consistently paying all her/his bills on time.”

So it seems that in using a lot of data points, weighting those points differently, and taking every individual’s situation into account, the credit scoring system seeks to be fair and comprehensive. It might be complicated, but it’s probably helpful, too.

Achieving a high score boils down to only a few behaviors

It’s comforting to know that the thorny nature of the credit scoring system is meant to benefit consumers. But if you want to make the most of your credit score, how are you supposed to know which steps to take?

Luckily, you don’t need to know every nuance of the system to build good credit. Scoring high on the FICO scale boils down to a few behaviors:

• Paying your bills on time – no exceptions!


• Staying out of credit card debt


• Getting started with credit as soon as you can


• Applying for new credit sparingly


• Keeping a good mix of credit accounts (revolving and installment) on your credit report

The takeaway: The credit scoring system is complex, but this probably benefits consumers like you and me. Just be sure to keep up with good credit habits, and you’ll be on your way to a great score in no time!

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Senior Citizens Want Priority Boarding – Are Airline Cards the Ticket?

Can our elders get priority boarding without elite status?

You’d think that airlines would establish a policy letting senior citizens board a plane early. We owe as much to them as we do our military, and you’d think they would get the same honor as our servicemen do when boarding a plane.

I mention this because a friend’s mother – 75 years old – just purchased the more expensive American Airlines Choice Essential Fare on a long-haul flight strictly for the privilege of Group 1 boarding. She’s in great shape and moves well, but she’s diminutive and often needs assistance getting her bag into the overhead bin and getting settled in her seat. In fact, that’s all the more reason to board seniors with servicemen. The latter would gladly assist the former!

Anyway, one can’t fault American for its new fare structure. Priority boarding is a perk, and if the airlines can get additional revenue for this privilege, then more power to them.

Yet, many senior citizens are living on a fixed income, and every dollar counts. In this case, the fare differential was substantial. Was there another way she could have obtained priority boarding? What other options might exist?

Seniors can get priority boarding with airline credit cards

Many airlines are now offering perks with some of their credit cards. As of this writing on July, 15, 2014, the Citi Platinum AAdvantage Select MasterCard offers priority boarding with membership. So does the United MileagePlus Explorer Card, and you even get a couple of United Club passes each year.

If a senior citizen is going to fly even once a year, the annual fee associated with the card is likely worth the expense, considering the additional cost of a Choice Essential fare on American. When you factor in the free first checked bag with these credit card offers, it makes even more sense.

The upgrade option for cardholders

Hopefully, my friend’s mother would be able sock away enough miles to upgrade to business class, where she can (and should) travel in style. As people get older, they either empty out their frequent flyer accounts as they anticipate less travel, or they collect them like mad to earn the very perks we’re discussing.

The customer rep option for priority boarding

Seniors should note: There is nothing to lose by calling the airline 24 hours before the flight and asking for Group 1 boarding. All it takes is a good explanation and a sympathetic rep. Even asking for a supervisor isn’t unreasonable. What’s particularly important in the pitch is to say, “I know that priority boarding is an earned or paid privilege, and I really don’t mean to overstep the airline’s rules, but …”

Seniors can seek priority boarding at the gate

Ultimately, a senior’s best chance is at the gate. Arriving early, talking to someone that is preferably in a red jacket or the senior gate agent, and being really nice is a good way to go. Always show respect for those who have paid or earned status, apologize for any inconvenience, and ask for the courtesy. You never know.

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My Prepaid Debit Card Has Been Discontinued. Now What?

There has been a huge move to prepaid debit cards, ever since the product was first introduced. A prepaid debit card allows you to electronically load it with a certain amount of money. Then you can use it to pay for transactions as you would a credit card, with each purchase debiting the card’s balance until it hits zero. At that point, unless you opt-in for overdraft protection, you cannot spend any more. It’s just like a credit limit.

Debit cards are often branded, just like credit cards. There’s always a bank of some kind involved, but debit cards may have some name attached to it. It might be a loyalty card or somehow have a celebrity’s name attached. Heck, you could even have your own branded card if you can find a bank to handle the transactions.

But what happens if your debit card is discontinued? What if your card has funds on it? Do those funds just vanish into the ether?

Don’t panic. The odds are very, very good that you won’t lose a thing. A lot depends on exactly why the card is being cancelled.

If it’s the brand …

Some branded debit cards simply aren’t sustainable. Yes, I said you could have your own branded debit card, but if nobody knows who you are, chances are you won’t have many users. The problem with niche brands is that they are, well, niche. The brand makes money from a variety of fees that are often charged for debit cards, which may or may not be split with the bank.

The brand itself may be of questionable value. The Kardashian Kard was criticized for charging several months of fees up front. This is not only poor business practice, as far as what consumers expect from a card, but how many people are really going to use the Kardashian Kard over the long term?

If the brand folds or somehow doesn’t meet its contractual requirements with the bank, the bank can opt to shut the card down. In that case, the bank is very likely to give you a drop-dead date by which you must use all the funds on your card. If you fail to do so, the bank would be foolish to not refund to you whatever is left on the card by sending you a check.

Failure to do so would make a lot of consumers angry, and possibly catch the attention of the FTC or CFPB.

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If it’s the bank …

You may be in real trouble, however, if the bank involved with the card discontinues it because it has suddenly become insolvent. That is, they basically have no money. If you happen to have a bank account, it’ll be insured by the FDIC. That isn’t usually the case with prepaid debit cards, however.

This is exceedingly rare now that we’re past the financial crisis, but it’s a good reason why you should stick to debit cards that are associated with large banking names.

In the event that this occurs, spend every dime on that card as quickly as possible. It may turn out that the funds will not be available.

One of the most famous cases involved Neteller, a prepaid debit card that was primarily used for online gambling. The federal government swooped in one day and shut Neteller down, and people had to wait six months to get their money back.

That’s another reason to be aware of branded cards, by the way. You don’t want to associate yourself with a dubious name. Always do your research on your brands!

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I Need to Improve My Credit Fast — What Should I Do?

Any reputable financial adviser will tell you that building your credit takes time. You need to demonstrate good credit habits over a long period to earn an excellent credit score. That said, there are a few shortcuts for those who need to improve their credit quickly — like in the next six months. If you need a quick credit boost, here’s what you should do.

The five credit score factors

In order to improve your credit score, you need to know what influences it. Your credit score is calculated based on these five factors:

• Payment history (35%)


• Credit utilization (30%)


• Length of credit history (15%)


• Types of credit in use (10%)


• New credit (10%)

All of this data is taken directly from your credit report.

I need to improve my credit as quickly as possible, what should I do?

The first thing you should do is pull your free annual credit reports at annualcreditreport.com. If this information is incorrect, your credit score will also be incorrect. Pull your credit reports and use this NerdWallet article on how to read your credit report to check for errors. If discrepancies exist, follow these five steps for disputing them.

After you’ve verified that your credit reports are error-free, move on to the five factors. Here’s how to increase your credit score — or avoid decreasing your score — for each factor:

Payment history. Make all of your payments on time. This is crucial to building and maintaining a good score. There’s a chance that your late payments won’t be reported immediately — but why take the chance? Furthermore, why incur the late payment fee? Always make your payments on time.

Credit utilization. Here’s where you can really improve your score fast. If your utilization ratio — or percentage of your debt balance to your credit limit — exceeds 30%, you need to pay it down as soon as possible. Use excess savings and discretionary income. Need more cash? Take these steps to make more and/or spend less.

Length of credit history. You can avoid hurting your score here by not applying for new credit accounts or closing old credit accounts. The length of credit history is the average length of your collective accounts, so you’ll want to avoid shortening it.

Types of credit in use. Not applying for new accounts is more important than having a good mix of credit accounts. However, there’s one thing you could do to keep an existing credit mix diversified. If you have credit card, car and student loan debt, pay down the credit card debt first. These revolving accounts will remain open while installment loans like car debt will likely close when you pay them off, effectively decreasing your credit account mix.

New credit. Don’t apply for anything new until you have to. Applying for new credit results in a new credit penalty to your credit score, which will decrease your score by several points.

Bottom line: Take the steps above to either increase your score quickly or keep it from decreasing. Also, understand that building excellent credit takes time, and this credit bump likely won’t put you exactly where you want to be. After your quick credit score improvement, continue to work on your score to get approved for the best credit terms in the future.

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What’s the Difference Between Prepaid Debit Cards and Secured Credit Cards?

Unless you happen to be very credit savvy, it’s entirely possible that you are unaware of two interesting credit options that don’t get much attention. The first is a secured credit card, and the second is a prepaid debit card. In both cases, the user very likely has no credit history or a poor credit history. They even operate in similar ways, although there is a huge difference between the two as far as building credit.

Secured card vs. prepaid debit: The basics

A secured credit card is a credit card, but with a unique function. Whereas most credit cards are unsecured — in that the issuer is relying on your promise and credit history to pay the card off in full at some point — a secured credit card has a backstop for the issuer. You actually put up a certain amount of money that the issuer will use in the event you default. They are covered against any losses. That amount of money serves as your credit limit.

A prepaid debit card allows you to electronically load it with a certain amount of money. Then you can use it to pay for transactions as you would a credit card, with each purchase debiting the card’s balance until it hits zero. At that point, unless you opt-in for overdraft protection, you cannot spend any more. It’s just like a credit limit.

Both are a great way to learn how to spend money responsibly. However, there are big differences that go beyond just simple usage. For starters, a prepaid debit card may have loads of fees attached to its usage. Those fees are not always disclosed clearly, so always check the fine print, or use Nerdwallet’s comparison tool. Visa, however, is beginning to issue a Best Practices protocol for disclosure. There are fees for secured credit cards, also, but the law requires clear disclosure of those fees.

What about building credit, scoring rewards?

The big difference is that using a secured credit card will build your credit while using a prepaid debit card will not. Credit bureaus look at how you spend money, and how you pay it back. It’s about credit – using the bank’s money to buy something with a promise to pay later.

A prepaid debit card is a cash-centered transactional device. You aren’t borrowing a bank’s money. You are using your money to load up a card, and then spend it down. Some people may get tricked into thinking it will help build credit, because most prepaid debit cards have a Visa or MasterCard logo. That logo simply indicates that one of those two companies is processing the flow of money from each transaction. That’s all it is.

One other difference involves rewards. A few prepaid debit cards offer very modest loyalty rewards. Credit cards, however, offer rewards for their use. Secured cards can also be somewhat limited in their reward offers. However, after awhile, you can graduate to a regular credit card that does offer rewards. There is no such graduation with prepaid debit cards.

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