Will Consolidating My Credit Card Debt Help My Credit Score?

Dealing with debt on multiple credit cards is stressful, which is why many people consider consolidating their several debts into one. There are a lot of benefits to this move, including the potential to give your credit score a boost.

If you’re not sure how consolidating your credit card debt will affect your score, take a look at the details below – the Nerds will tell you everything you need to know!

The non-credit benefits of consolidating credit card debt

Rolling multiple credit card debts into a single consolidation loan has a lot of important benefits. Before discussing how it could help your credit score, let’s review the non-credit perks of consolidating credit card debt.

First and foremost, consolidation could save you big bucks on interest payments. As of July 2014, the average credit card interest rate is hovering around 15%. If you’re carrying debt on several cards with this interest rate, you might be shelling out hundreds every month in interest. By consolidating with a personal loan or 0% card, you’ll cut your finance charges dramatically. This savings can be reinvested in your debt payoff to eliminate your balance faster.

Another advantage to consolidation is that you’re moving from multiple monthly debt payments down to just one. This will help simplify your financial life and make it easier to plan your budget.

Consolidating credit card debt could help your credit score

In addition to the advantages described above, consolidating your credit card debt could also help your credit score. If you choose to consolidate with a personal loan, you’ll likely see a jump in your score within a few months.

This is because, in doing so, you’re quickly reducing your credit utilization ratio. Your credit utilization ratio is the amount you owe on your credit cards relative to the total amount of credit you have available. It heavily influences a whopping 30% of your credit score, and if you have several maxed-out cards, yours is probably sky-high.

But keep in mind that only the balances on revolving lines of credit are factored into your credit utilization ratio; by moving your credit card debt onto an installment loan (the personal loan), you’re shifting it in such a way that it will have a minimal impact on your credit. As a result, your score will likely improve.

If you choose to consolidate with a 0% card, the picture is a little more complicated. On the one hand, opening the 0% card will increase your available credit, which will help your utilization ratio. Plus, you’ll pay off several cards with big balances as part of the consolidation. But on the other hand, you’re probably going to end up carrying a very high balance on the 0% card, which is not ideal. In a perfect world, you shouldn’t be using more than 30% of your available credit on any card at any point in time.

All this is to say that consolidating with a 0% card might help your credit score somewhat, but you’ll probably see bigger gains by opting for a personal loan.

Nerd note: Remember that any time you obtain new credit your credit score will lose a few points temporarily. This means that consolidating your credit card debt with either a personal loan or a 0% card will cause a short-term dip. However, the long-term gains you’ll see in interest savings and your credit score make this move worthwhile for most people.

Be sure to think carefully about consolidation before moving forward

Although consolidating your credit card debt is advantageous in a lot of ways, there are a few questions to ask yourself before moving forward:

• How’s my credit? If you don’t have a sterling score, you might not qualify for a 0% card or a good rate on a personal loan.


• Am I prepared to pay on time? If you choose to consolidate with a 0% card and then miss a payment, your deal will likely be canceled and you’ll have to start paying interest right away.


• What are the fees involved? Personal loans sometimes come with origination fees, and you’ll probably have to pay a balance transfer fee to consolidate with a 0% card. Be sure to factor these costs into your calculations when you’re deciding if consolidation is worth it.


• Have I changed my ways? Consolidation treats the symptom of a larger problem – overspending on credit cards. To tackle the problem itself, take a hard look at your spending habits and make changes where necessary.

The bottom line: Among its other benefits, consolidating your credit card debt has the potential to help your credit score. Just be sure you’ve considered all the Nerds’ points before moving forward with consolidation.

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Independent Retailer Month: Should I Use a Credit Card When Buying Local?

There are many reasons why people use credit cards, whether at big box stores or at independent retailers. For some, it is strictly a matter of convenience. Others want the cash back. Others want the rewards. Others need to manage cash flow. Whether shopping at Home Depot of Bob’s Independent Retailer Hardware, those reasons don’t change.

Yet, here we are in July, which is Independent Retailer Month. It’s a good time to review what independent retailers experience when you use credit cards, to see if you should change your charging behavior in deference to the independent retailer.

Merchant fees and independent retailers

Independent retailers usually must operate on thinner margins (lower profits) than large competitors with huge national footprints. They don’t have the economies of scale that come with massive operations. Consequently, whether on the revenue or expense side of the profit and loss statement, the dollars have a greater impact on the bottom line.

Every time someone makes a charge on a credit card, the issuer (Visa, MasterCard) charges a fee to the merchant for processing the transaction. It can vary, but it’s usually around 3% of the total transaction, although American Express tends to charge more.

That’s 3 cents or more for every dollar that the merchant does not see. That means higher expenses. That means less profit.

Your own code: Points to consider

How much does this matter to you? Do you want to support Bob’s Independent Retailer Hardware instead of Home Depot? If so, you might want to consider paying in cash. Don’t fool yourself, though. The pennies you save Bob won’t make any difference. It will take a lot of Bob’s customers using cash on a regular basis to really have any impact.

Chances are, Bob takes credit cards because his customers want him to, for all the reasons explained above. He’ll appreciate the gesture, but ultimately, that’s all it is likely to be.

Tipping with cash or credit?

When it come to tipping service folks, it generally doesn’t matter whether you tip with cash or credit as far as what your actual service provider takes home. Tips are usually pooled and divided.

However, this is a circumstance where tipping in cash may make a substantive difference to the service folks. If you tip with credit, just adding it to the total bill, then the tip is subject to those processing fees. Service people like waiters generally earn minimum wage or a bit higher, so tips make a real difference. Every penny literally does count here.

It’s not like a restaurant owner is necessarily making a mint, but his revenue will be affected less by credit card fees than waiters take-home pay will. It will vary based on the business.

Doing the math on tips

But let’s say you have a restaurant taking in $5,000 per day in revenue, which is pretty darn high. If tips come to a total of $1,000, and there’s a 4% average processing fee taken from it, there’s $960 left to split among, say, six other employees. That’s about $6 per person per day lost to fees, or $30 per week, or $1,500 per year.

Now you have to decide about giving up the rewards or cash back on that 15-20% tip. Once again, it’s strictly a matter of personal preference. If you feel your rewards are too valuable to give up, then charge. If you feel generous, pay cash. Of course, you can also alternate.

Conclusion: It’s up to you

The local vs. big box debate is really a matter of personal preference. For some, it’s a matter of great import. For others, it’s not. Only you can decide how you want to pay. Just remember that your credit score depends on using credit responsibly. If you went to all this trouble to get and maintain good credit, then you have to ask why you would always want to pay in cash.

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Where is California’s Water Going?

Water consumption is a serious issue in California. Check out this NerdWallet chart about water consumption in the home. Remember folks: If it’s yellow, let it mellow.

Check out other interesting data visualizations here.

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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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