Is Overdraft Protection Must-Have Coverage?

You don’t have to be broke or even bad at managing your money to occasionally overdraw your bank account. With 90% of American adults using checking services, overdrafts are relatively common. Despite this, new research indicates that many consumers remain confused about debit card overdrafts, the associated fees and whether they should opt for the coverage it provides.

One in 10 Americans who use a debit card tied to a checking account got slapped with at least one overdraft charge and another 5% paid a funds transfer fee to cover a transaction that exceeded their balance last year, according to The Pew Charitable Trusts. The costs stem from optional services that customers must agree to have applied to their accounts under rules regarding electronic funds transfers that took effect in 2010. Those regulations are supposed to make overdraft coverage and fees simpler to understand and less expensive for consumers who have debit cards, but confusion abounds as more than half of affected customers surveyed by Pew didn’t recall accepting the service, called “opting in.”

Protection versus coverage

When it comes to overdraft protection, there are three basic options:

1. Default setting: where the debit transaction is rejected by the bank or credit union because of nonsufficient funds in the account.


2. Overdraft protection: where the financial institution transfers money into the checking account from a linked fund, such as savings, to provide enough to cover the transaction when the balance is too low.


3. Overdraft coverage: where the bank or credit union pays on the transaction, producing a negative balance in the checking account – what amounts to a personal loan until it’s reimbursed.

Fees generally are charged for both overdraft protection and coverage, although some financial institutions offer accounts that provide the services at no charge. Generally, the fee for overdraft protection involving a funds transfer ranges from $10 to $12 per item. For coverage – when the bank pays for you – the fees are considerably higher, often as much as $35 or more per transaction. Also, if the negative balance persists for days or longer, many banks charge more until the condition is eliminated.

Neither of these overdraft services protect against rejected payments, which can happen when a deposit or share account contribution isn’t honored by the check’s issuer. In such cases, the amount will be deducted from your balance and a returned item fee, often from $12 to $19, will be charged.

Opt in or not?

The decision to accept overdraft protection or coverage should reflect how often you overdraw your account. In general, NerdWallet recommends declining, or staying with the default setting.

Typically, debit card purchases blocked at the point of sale aren’t worth the cost of the protection, according to 68% of the respondents to the Pew survey who have overdrawn an account. They said they would prefer to have such transactions refused rather than pay the fees associated with coverage. The median value of an overdraft for a debit card user is $24, according to the U.S. Consumer Financial Protection Bureau. The agency says those who opt in tend to have far more overdrafts than those who don’t accept the services.

While a declined charge for a cup of coffee or a fuel purchase may be easy to shrug off, more important transactions could be disastrous if rejected. So if the majority of activity in the account deals with important payments – for groceries, for instance – overdraft protection could be a good idea.

Keep in mind, personal checks and regularly recurring debits – like those bills scheduled for automatic payments­­ – will be subject to your financial institution’s regular procedures for handling overdrafts, whether or not you opted in for debit card coverage, and you may face charges that result if your balance isn’t adequate, according to the Federal Reserve.

Another option, particularly smart for those who may overdraw their account relatively often, is finding an online-only bank or a credit union that charges lower fees. Capital One’s 360 account, for example, treats overdrafts like a line of credit loan and charges interest on the balance outstanding until it’s refunded. It does, however, charge a $9 fee for bounced checks. Others, such as Grow Financial Federal Credit Union in the Tampa, Fla., area offer low-cost coverage through account transfers.

Check out NerdWallet’s checking account comparison tool for other options.

So if a low balance means nothing more than embarrassment at a favorite coffee shop on the rare occasion when a debit transaction is rejected, overdraft protection may not be worth the cost. But for those in more tenuous financial circumstances who sometimes need an extension of credit to stave off disasters like disconnected electricity, coverage may be more a necessity than a discretionary option. In such cases, it may pay to find a financial institution that won’t penalize you too severely for the protection it provides.

Fee-stung depositor image via Shutterstock

Source Article http://ift.tt/1y39EC7

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Is Overdraft Protection Must-Have Coverage?

You don’t have to be broke or even bad at managing your money to occasionally overdraw your bank account. With 90% of American adults using checking services, overdrafts are relatively common. Despite this, new research indicates that many consumers remain confused about debit card overdrafts, the associated fees and whether they should opt for the coverage it provides.

One in 10 Americans who use a debit card tied to a checking account got slapped with at least one overdraft charge and another 5% paid a funds transfer fee to cover a transaction that exceeded their balance last year, according to The Pew Charitable Trusts. The costs stem from optional services that customers must agree to have applied to their accounts under rules regarding electronic funds transfers that took effect in 2010. Those regulations are supposed to make overdraft coverage and fees simpler to understand and less expensive for consumers who have debit cards, but confusion abounds as more than half of affected customers surveyed by Pew didn’t recall accepting the service, called “opting in.”

Protection versus coverage

When it comes to overdraft protection, there are three basic options:

1. Default setting: where the debit transaction is rejected by the bank or credit union because of nonsufficient funds in the account.


2. Overdraft protection: where the financial institution transfers money into the checking account from a linked fund, such as savings, to provide enough to cover the transaction when the balance is too low.


3. Overdraft coverage: where the bank or credit union pays on the transaction, producing a negative balance in the checking account – what amounts to a personal loan until it’s reimbursed.

Fees generally are charged for both overdraft protection and coverage, although some financial institutions offer accounts that provide the services at no charge. Generally, the fee for overdraft protection involving a funds transfer ranges from $10 to $12 per item. For coverage – when the bank pays for you – the fees are considerably higher, often as much as $35 or more per transaction. Also, if the negative balance persists for days or longer, many banks charge more until the condition is eliminated.

Neither of these overdraft services protect against rejected payments, which can happen when a deposit or share account contribution isn’t honored by the check’s issuer. In such cases, the amount will be deducted from your balance and a returned item fee, often from $12 to $19, will be charged.

Opt in or not?

The decision to accept overdraft protection or coverage should reflect how often you overdraw your account. In general, NerdWallet recommends declining, or staying with the default setting.

Typically, debit card purchases blocked at the point of sale aren’t worth the cost of the protection, according to 68% of the respondents to the Pew survey who have overdrawn an account. They said they would prefer to have such transactions refused rather than pay the fees associated with coverage. The median value of an overdraft for a debit card user is $24, according to the U.S. Consumer Financial Protection Bureau. The agency says those who opt in tend to have far more overdrafts than those who don’t accept the services.

While a declined charge for a cup of coffee or a fuel purchase may be easy to shrug off, more important transactions could be disastrous if rejected. So if the majority of activity in the account deals with important payments – for groceries, for instance – overdraft protection could be a good idea.

Keep in mind, personal checks and regularly recurring debits – like those bills scheduled for automatic payments­­ – will be subject to your financial institution’s regular procedures for handling overdrafts, whether or not you opted in for debit card coverage, and you may face charges that result if your balance isn’t adequate, according to the Federal Reserve.

Another option, particularly smart for those who may overdraw their account relatively often, is finding an online-only bank or a credit union that charges lower fees. Capital One’s 360 account, for example, treats overdrafts like a line of credit loan and charges interest on the balance outstanding until it’s refunded. It does, however, charge a $9 fee for bounced checks. Others, such as Grow Financial Federal Credit Union in the Tampa, Fla., area offer low-cost coverage through account transfers.

Check out NerdWallet’s checking account comparison tool for other options.

So if a low balance means nothing more than embarrassment at a favorite coffee shop on the rare occasion when a debit transaction is rejected, overdraft protection may not be worth the cost. But for those in more tenuous financial circumstances who sometimes need an extension of credit to stave off disasters like disconnected electricity, coverage may be more a necessity than a discretionary option. In such cases, it may pay to find a financial institution that won’t penalize you too severely for the protection it provides.

Fee-stung depositor image via Shutterstock

Source Article :http://bit.ly/1mrVrYh

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I Make a Small Income – How Can I Qualify for a Credit Card?

Let’s face it: Prior to the 2008 recession, it was probably a little too easy to qualify for a credit card. Since then, issuers have definitely tightened up their standards.

But for responsible people who make a small income, trying to get approved for a credit card can be a frustrating experience. After all, you need to get credit to build credit – so what’s a consumer with a tiny paycheck to do? Don’t worry, the Nerds are here to help. Take a look at the details below!

Why income matters when you’re trying to get a credit card

When you’re applying for a credit card (or any other type of loan), one of the major factors banks look at is your income, and this has always been the case. Here’s why: They’re trying to determine if you have the means to pay back the money you’ve borrowed.

But remember, income isn’t the only thing they’re looking at. Other considerations that affect whether or not you’ll be approved include:

• Your credit score


• Your other monthly obligations


• Your employment status


• Your age (in the case of credit cards)

All of this is important, but credit card issuers were forced to start paying special attention to income after the passage of the CARD Act in 2009. It specifies that banks must now look at an applicant’s independent ability to pay when deciding whether or not to extend credit. In the past, it was acceptable to use an applicant’s household income in making that determination. As a result, people without a high, steady income of their own can no longer qualify for credit based on what others in their household are making.

Nerd note: A 2013 amendment to the CARD Act now makes it possible for stay-at-home spouses to qualify for a credit card in his or her own name. As long as the non-working spouse has “reasonable access” to household income and assets, banks are allowed to approve these applications.

There are options for those with small incomes

The income requirements for credit card applicants specified by the CARD Act are probably preventing some shaky borrowers from getting in over their heads. But these rules also make it difficult for some low-income folks to get a credit card. This, in turn, makes it hard for this population to build good credit.

But there are steps you can take to improve your chances of getting approved:

Get a cosigner – If someone in your life who has good credit is willing to cosign your credit card, this is probably the easiest way to qualify with a low income.

Accept a low limit (and manage it carefully) – In lieu of a cosigner, another option is to work with a few issuers to see if one of them will approve you for a card with a very low credit limit. This is a good way to get your foot in the door, but it’s important to manage this card very carefully. You should never use more than 30% of your available credit, and if your limit is low, this is an easy threshold to hit.

Consider a secured card – If you have the cash to put down an up-front deposit, a secured credit card is a good choice. You’ll be tapping a credit line, so your credit score will improve if you use the card responsibly. Eventually, you should be able to graduate to an unsecured card.

Bump up your income – Issuers aren’t just looking at your income from your primary job when they’re evaluating your application. If you can increase your income by starting a side business or getting a second job, this might be just the ticket.

A final word of advice

Aside from the tips above, it’s also worthwhile to head over to your local bank or credit union to see if they’re willing to work with you. Small lenders are often in a position to take on borrowers that big banks won’t consider; getting a credit card with one of these institutions might be an option if your income is preventing you from qualifying with other issuers.

Getting a credit card when you have a small income is a challenge, but it’s an important one to take on. Check back often with the Nerds for updates, tips and tricks – we’re always here to share our best advice about this important matter!

Frustrated credit card applicant image via Shutterstock

Source Article :http://bit.ly/1voghx9

Read More

I Make a Small Income – How Can I Qualify for a Credit Card?

Let’s face it: Prior to the 2008 recession, it was probably a little too easy to qualify for a credit card. Since then, issuers have definitely tightened up their standards.

But for responsible people who make a small income, trying to get approved for a credit card can be a frustrating experience. After all, you need to get credit to build credit – so what’s a consumer with a tiny paycheck to do? Don’t worry, the Nerds are here to help. Take a look at the details below!

Why income matters when you’re trying to get a credit card

When you’re applying for a credit card (or any other type of loan), one of the major factors banks look at is your income, and this has always been the case. Here’s why: They’re trying to determine if you have the means to pay back the money you’ve borrowed.

But remember, income isn’t the only thing they’re looking at. Other considerations that affect whether or not you’ll be approved include:

• Your credit score


• Your other monthly obligations


• Your employment status


• Your age (in the case of credit cards)

All of this is important, but credit card issuers were forced to start paying special attention to income after the passage of the CARD Act in 2009. It specifies that banks must now look at an applicant’s independent ability to pay when deciding whether or not to extend credit. In the past, it was acceptable to use an applicant’s household income in making that determination. As a result, people without a high, steady income of their own can no longer qualify for credit based on what others in their household are making.

Nerd note: A 2013 amendment to the CARD Act now makes it possible for stay-at-home spouses to qualify for a credit card in his or her own name. As long as the non-working spouse has “reasonable access” to household income and assets, banks are allowed to approve these applications.

There are options for those with small incomes

The income requirements for credit card applicants specified by the CARD Act are probably preventing some shaky borrowers from getting in over their heads. But these rules also make it difficult for some low-income folks to get a credit card. This, in turn, makes it hard for this population to build good credit.

But there are steps you can take to improve your chances of getting approved:

Get a cosigner – If someone in your life who has good credit is willing to cosign your credit card, this is probably the easiest way to qualify with a low income.

Accept a low limit (and manage it carefully) – In lieu of a cosigner, another option is to work with a few issuers to see if one of them will approve you for a card with a very low credit limit. This is a good way to get your foot in the door, but it’s important to manage this card very carefully. You should never use more than 30% of your available credit, and if your limit is low, this is an easy threshold to hit.

Consider a secured card – If you have the cash to put down an up-front deposit, a secured credit card is a good choice. You’ll be tapping a credit line, so your credit score will improve if you use the card responsibly. Eventually, you should be able to graduate to an unsecured card.

Bump up your income – Issuers aren’t just looking at your income from your primary job when they’re evaluating your application. If you can increase your income by starting a side business or getting a second job, this might be just the ticket.

A final word of advice

Aside from the tips above, it’s also worthwhile to head over to your local bank or credit union to see if they’re willing to work with you. Small lenders are often in a position to take on borrowers that big banks won’t consider; getting a credit card with one of these institutions might be an option if your income is preventing you from qualifying with other issuers.

Getting a credit card when you have a small income is a challenge, but it’s an important one to take on. Check back often with the Nerds for updates, tips and tricks – we’re always here to share our best advice about this important matter!

Frustrated credit card applicant image via Shutterstock

Source Article http://ift.tt/1y39EC7

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California Law Paves Way for More Credit-Building 0% Loans

California broadened the reach of nonprofits that target low-income borrowers who lack the credit standing needed to obtain a traditional loan, enacting a law that lets the organizations lend as much as $2,500 interest free without a license.

Clients of groups like the San Francisco-based Mission Asset Fundare often unbanked, underbanked or have low credit scores. Under the new law, payments must be reported to companies that create the rankings, such as Experian and Equifax. By repaying in full and on time, borrowers can create the track record they need to qualify for regular loans.

A few nonprofit groups around the U.S. provide low- or no-interest micro loans to people whose financial options are limited and may otherwise turn to payday lenders, leading to a mire of mounting debt at exorbitant rates. The U.S. Consumer Financial Protection Bureau estimates 12 million Americans use payday lenders and says most get trapped into rolling over a two-week loan at least once before paying it off at annualized interest rates that can surpass 400%.

“Everyone in California, regardless of their income level, and regardless of their background, deserves access to the financial mainstream,” state Sen. Lou Correa, a Santa Ana Democrat who introduced the measure, said in a statement. The law, signed Aug. 15 by Gov. Jerry Brown, “gets government out of the way, and provides needed flexibility to nonprofits that are offering a bridge to Californians whose incomes or credit scores have limited their access to affordable financial products,” the senator said.

Credit-builder loans

The statute clarifies the legal standing of nonbank organizations that make small loans to help borrowers create or enhance their credit rating. According to legislative research, more than 12 million payday loans were made in California during 2012, compared with about 265,000 unsecured consumer loans of under $2,500. The Mission Asset Fund ‘s lending program, begun in 2008, has facilitated more than $3 million in debt and helped borrowers to an average 168-point improvement in their credit scores, the research shows.

The San Francisco fund works with 19 nonprofit organizations, including three in Los Angeles and others in states such as Nevada, Oregon, Massachusetts and Minnesota. Organizations in several other states also operate credit-building loan programs, according to Consumer Action, although some charge interest.

Under the California law, nonprofits can get a lending license exemption to make unsecured personal installment loans at 0% interest and with origination fees initially capped at 7% or $90, whichever is smaller. Late payment fees can’t exceed $10. Loan terms can’t exceed 90 days for amounts less than $500, 120 days for up to $1,499 and 180 days for debt between $1,500 and $2,500. The borrower’s debt to income ratio can’t top 50%, or 25% for those with unverified income, and the payments made must be reported to at least one credit bureau.

So now more Californians can skip payday lenders and get interest-free, credit-building loans thanks to a law that lowers the barriers to people helping each other reach a better future.

Loan sign image via Shutterstock

Source Article :http://bit.ly/1tqo9wV

Read More

California Law Paves Way for More Credit-Building 0% Loans

California broadened the reach of nonprofits that target low-income borrowers who lack the credit standing needed to obtain a traditional loan, enacting a law that lets the organizations lend as much as $2,500 interest free without a license.

Clients of groups like the San Francisco-based Mission Asset Fundare often unbanked, underbanked or have low credit scores. Under the new law, payments must be reported to companies that create the rankings, such as Experian and Equifax. By repaying in full and on time, borrowers can create the track record they need to qualify for regular loans.

A few nonprofit groups around the U.S. provide low- or no-interest micro loans to people whose financial options are limited and may otherwise turn to payday lenders, leading to a mire of mounting debt at exorbitant rates. The U.S. Consumer Financial Protection Bureau estimates 12 million Americans use payday lenders and says most get trapped into rolling over a two-week loan at least once before paying it off at annualized interest rates that can surpass 400%.

“Everyone in California, regardless of their income level, and regardless of their background, deserves access to the financial mainstream,” state Sen. Lou Correa, a Santa Ana Democrat who introduced the measure, said in a statement. The law, signed Aug. 15 by Gov. Jerry Brown, “gets government out of the way, and provides needed flexibility to nonprofits that are offering a bridge to Californians whose incomes or credit scores have limited their access to affordable financial products,” the senator said.

Credit-builder loans

The statute clarifies the legal standing of nonbank organizations that make small loans to help borrowers create or enhance their credit rating. According to legislative research, more than 12 million payday loans were made in California during 2012, compared with about 265,000 unsecured consumer loans of under $2,500. The Mission Asset Fund ‘s lending program, begun in 2008, has facilitated more than $3 million in debt and helped borrowers to an average 168-point improvement in their credit scores, the research shows.

The San Francisco fund works with 19 nonprofit organizations, including three in Los Angeles and others in states such as Nevada, Oregon, Massachusetts and Minnesota. Organizations in several other states also operate credit-building loan programs, according to Consumer Action, although some charge interest.

Under the California law, nonprofits can get a lending license exemption to make unsecured personal installment loans at 0% interest and with origination fees initially capped at 7% or $90, whichever is smaller. Late payment fees can’t exceed $10. Loan terms can’t exceed 90 days for amounts less than $500, 120 days for up to $1,499 and 180 days for debt between $1,500 and $2,500. The borrower’s debt to income ratio can’t top 50%, or 25% for those with unverified income, and the payments made must be reported to at least one credit bureau.

So now more Californians can skip payday lenders and get interest-free, credit-building loans thanks to a law that lowers the barriers to people helping each other reach a better future.

Loan sign image via Shutterstock

Source Article http://ift.tt/1y39EC7

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Source Article http://ift.tt/1y39EC7

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