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5 Secrets that Credit Card Companies Won’t Tell You Up Front

5 Secrets that Credit Card Companies Won’t Tell You Up Front

While there are a lot of terms and conditions that are buried in the fine print of credit card agreements, most people only pay attention to the big numbers in the summary box: the interest rate, the penalty interest rate and late fees.

Although these are important factors that can help you choose the right credit card, there are still some little-known facts that can make or break your creditworthiness once you’ve decided on a card and have started using it. Here are five secrets that credit card companies won’t always tell you directly, but that you can use to your advantage when building or maintaining your credit profile:

Credit Card Companies Can ‘Snoop’ on How You Pay on Other Cards

Most people realize that payment history on other accounts directly impacts their credit scores, which in turn affects whether or not their credit card application is accepted. However, this initial check is not the only time that your payment history can affect your credit card account.

If you are consistently late or over the limit on your other credit card accounts, some credit card companies will raise the rate you pay on their card, even if you’ve never been late paying them. The rationalization is that if you have poor payment performance on one account, theirs is likely to be impacted in the future.

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They Can Raise/Lower Your Credit Limit at Any Time

In the same vein, how you pay other accounts can also affect your credit limits. Late payments to other accounts or going over your limit on other accounts can cause your credit limit to be lowered on accounts where your payment history and credit utilization is satisfactory.

For example, let’s say you have a credit card with a $10,000 limit that you pay on time, and never use more than 20% of the balance. And let’s also say you have a credit card with a $5000 limit that is maxed out, and you’ve been late on a few payments. The company that issued the $10,000 credit card may decide to lower your credit limit significantly, even if you’ve never been late with a payment for them.

This will directly impact your ability to get new credit, as part of your credit score is based on your credit utilization and lower credit limits are seen as higher risk and can lower your credit score.

You Can Ask for a Credit Limit Review Any Time

On the other hand, if you have a good payment history across all of your accounts but haven’t gotten a credit limit increase, in most cases you can just ask for one. Some credit card companies make this easy and automated. To see if your credit card company is one of these, just log into your account and look for a link that says “Credit Limit Increase” or “Credit Limit Review”.

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Otherwise, you can call customer service and ask directly. In most instances, you can ask for a credit limit increase every six months.

Be aware that this may incur a hard inquiry on your credit file depending on the credit issuer, so don’t request credit limit increases on all of your cards at the same time.

There are a few credit card companies that do automatic and periodic reviews, in which case you won’t be able to ask but you should be seeing regular limit increases if your payment history and credit scores are satisfactory. If not, call and ask about their criteria for raising credit limits so you know what you need to improve in order to qualify.

Paying Early Cuts Your Balance Faster

Nearly all credit cards charge interest on your average daily balance, and most cards have a 30-day grace period so that if you pay off your statement on or before the due date, you don’t accrue interest.

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If you can’t pay off your entire credit card balance, the next best thing is to pay early. Why? Because lowering your balance early in the month lowers your average daily balance, which in turn lowers the amount of interest you pay for your purchases.

For example, let’s say you have a $1,000 balance on your card. If you pay $100 off immediately, you’ll only pay interest on the $900 balance remaining throughout the month. If, on the 15th of the month, you make an additional $100 payment, your average daily balance will be calculated like this: (15 x $900 + 10 x $800)/30 = $850.

Therefore, instead of paying interest on the full $1,000 balance like you would if you waited to pay at the end of the month, you’ll only pay interest on $850. This adds up in the long run, especially when you have higher balances.

You Can Ask for (Some) Penalty Fees to be Waived

Let’s say you get a payment in a few days late, and are hit with one of those pesky $30+ late fees. Nothing to do but pay up, right? Wrong.

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If you have an excellent payment history with the credit card company, in most instances you can request to have that fee waived. It’s generally not something that you can request online. You’ll need to call in to speak to a representative, and expect them to scrutinize your past payment history and credit utilization before agreeing.

Usually, you can only make this request once per year, or once every six months at the most, so don’t waste it.

To Sum Up…

Credit card agreements have a lot of confusing terms and conditions in the fine print, but there are ways to use these to your advantage if you are savvy and keep track of how you are using your credit. Pay attention to how much of your credit you’re using on each card, pay early, and make sure you are getting credit limit increases in order to improve your credit scores a

Featured photo credit: Paper money, extreme macro/Kevin Dooley via flickr.com

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5 Secrets that Credit Card Companies Won’t Tell You Up Front

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Published on May 7, 2019

How to Invest for Retirement (The Smart and Stress-Free Way)

How to Invest for Retirement (The Smart and Stress-Free Way)

When it comes to stocks, I bet you feel like you have no idea what you’re doing.

Everyone who’s not a financial expert has been there. I’ve been there. But, time is passing and you need to be crystal clear with how you’re investing for your retirement.

Otherwise, it’s back to work until you can afford not to. So, how can you invest for retirement when you’re not a financial expert?

You take the time to learn the fundamentals well. If you do, you can grow your wealth and retire happy. The best part is that you don’t need to be a financial expert to make smart investment decisions.

Here’s how to invest for retirement the smart and stress-free way:

1. Know Clearly Why You Invest

Odds are you already know why should invest for retirement.

But, maybe you know the wrong reasons. It’s time you get clear on why you’d like to retire. Here are some questions to help you get started:

  • Will you spend more time with your family?
  • What does retirement mean to you?
  • Are you looking to launch that business you’ve been holding off for years?

Everyone wants to retire but not for the same reasons. Once you’re clear for why retirement is important for you, you’ll focus on making it happen.

Investing in the stock market allows you to take advantage of compound interest.[1] All this means is that your money earns money on top of its interest. A reason why investment in the stock market is one of the best ways to plan for retirement.

2. Figure out When to Invest

“The best time to plant a tree was 20 years ago. The second best time is now.”– Chinese Proverb

It’s true if you’d had started investing when you were 10 years old, you’d have a lot more money than you do today.

The reality is that most people don’t start investing until it’s too late. So, if you’re currently waiting for the perfect time to start an investment, it would be today. Open your calendar and block out 2 to 3 hours to choose how you’ll invest for retirement.

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A quick way to get a snapshot of where you stand is to use Personal Capital. Input all your personal information and spend some time setting your retirement goals. Once completed, you’ll know where you stand with your retirement.

Having a savings account for retirement isn’t planning for retirement. Why? Your money loses value when you factor in US inflation.[2]

3. Evaluate Your Risk Tolerance to Create the Perfect Portfolio

Investing your money well depends on your emotions.

Why?

Because when the market drops most people panic and withdraw their money. On average, the US stock market yields an annual 6% to 7% ROI (return on your investment.) But, this won’t happen if you’re worried about short-term loses.

Before you invest your next dollar, know your risk tolerance.[3] Your risk tolerance determines the number of risky and safe investments you’d have.

Regardless of your investing style, you need to view investing for retirement as a long term game. Know that some years you’ll lose money but recoup this in the long-term.

Avoid watching market-related new. Also, create a double authentication to log in your investment account. This way you’re less likely to withdraw your money.

4. Open a Reliable Retirement Account

Depending on your circumstance, you may need to open a new brokerage account. This is the account is where you’ll invest your money.

If you’re currently working for a company, odds are that they offer a 410K investing account. If so, here’s where you’ll invest most of your money. The only problem with this is that you’re limited to the stock options that are available.

You do have the option to open a separate IRA (individual retirement account.) Here are some of the best brokers:

  1. Vanguard
  2. TD Ameritrade
  3. Charles Schwab

5. Challenge Yourself to Invest Consistently

Committing to invest for retirement is hard, but continuing to do so is harder.

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Once you’ve started investment for your retirement, you run at risk from stopping. Often you’ll want to contribute less, so you’d have more money in your pocket.

That’s why it’s important that you create a budget that allows you to invest each month. If you’re working for a company, you can set a percentage for the amount you’d like to contribute each month. Most people by default contribute 1% but aim to contribute 10% to 15%.

Be the judge for how much you can afford to contribute after covering important expenses. To stay motivated, use Personal Capital to view your net worth.

A benefit to contributing money to your retirement account is not taxed. For example, if you earn $100 and invest 10%, you’d contribute $10, then get taxed on the remaining $90. As of 2019, the most you’re able to contribute towards your 401K is 19K but this can change.

6. Consider Where to Invest Your Money

The most common way to invest your money is in stocks, but it’s not the only way. Here are other ways to invest:

Robo Advisors

Robo-advisors[4] are fancy algorithms that’ll choose the best investments for you. Sites like Wealthfront make it easy for first-time investors to invest their money. You’d input information about yourself and set your risk tolerance.

Then, set your monthly contribution amount and your robo-advisor would do the rest. Robo-advisors charge a fee to manage your money, but less than regular advisors.

Bonds

Think of bonds as “IOUs” to whomever you buy them from.

Essentially, you’re lending money and charging interest. Like stocks, not all bonds are equal. Some will be riskier than others depending on their rating.

Here are the different types of bond categories:[5]

  1. Treasury bonds
  2. Government bonds
  3. Corporate bonds
  4. Foreign bonds
  5. Mortgage-backed bonds
  6. Municipal bonds

Mutual Funds

Picture a group of people dumping all their money in a jar that’s managed by a professional. This is how mutual funds work. The fund manager manages the money looking to earn capital gains (interest.)

One of the best types of mutual funds is index funds. Since these funds don’t try to beat the market and instead follow it, they need less research. Because of this they often charge the lowest fees and yield the best long-term results.

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Real Estate

Yes, buying a home is an investment when done correctly.

Imagine buying a home and using it as a rental property. After repairing it, you receive a monthly surplus check of $100 to $200.

This may not sound like a lot, but repeat this process enough times and you’d earn a large amount of passive income. That’s why real estate is one of the best investments to not only retire but become wealthy.

But, it requires a lot of money to start and you should expect losing money along the way as you learn the process.

Savings Accounts

Your money can still grow in a savings account. Nowadays most online banks offer a 2% annual return. Although the average inflation is higher your money will be available when you need it.

7. Master Disincline to Dodge Short Success

Investing for retirement is a long-term strategy. That’s why you need to master delayed gratification. All this means is delaying short-term pleasure for something bigger in the future. Research shows that those who have delayed gratification are more successful.[6]

So how can you master delayed gratification?

By building your discipline.

Think back to what retirement means to you. A clear purpose will help you avoid withdrawing your money during a market downturn. It’ll help you contribute more towards retirement when you’d want to waste it instead.

Your journey towards retirement will be long, so reward yourself along the way. Choose a reward that’s relevant and meaningful, so that you reinforce positive behavior. For example, after contributing more towards retirement, treat yourself to dinner.

8. Aggressively Invest on This One Investment

I’ve mentioned several types of investments but haven’t covered the most important one.

It sounds cliche but here’s why you’re your best investment towards retirement. The more you know, the more money you’ll be able to make. The more good habits you adopt, the more secure your retirement will be.

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More importantly, investing in yourself is an investment that no one can take away. There’s no market downturn nor tragic circumstance that’ll wipe your knowledge and experience.

But, how can you invest yourself?

Reading books, blogs, and anything that’ll help you learn new topics daily. Listen to podcasts and audiobooks on your commute to/from work.

Save money to buy courses and hire coaches. I used to believe hiring coaches was a waste of money when I could learn the subject alone.

But, coaches see your blind spots and hold you accountable. Hiring the right coach will help you achieve your goals faster than you would’ve alone.

Retire Happy with Excess Money

The key to a secure financial future doesn’t only belong to financial experts.

It’s possible for you and I. What if you were able to retire earlier than most people and weren’t a financial planner? What if you were able to focus on what you enjoy doing the most while your money was working hard for you?

I know this sounds impossible now, but the truth is you’re capable of taking charge of your retirement. I’m not a financial expert but I’ve learned how to invest my money by reading books and learning from others.

Investing your money is scary. So start small and invest a small amount of your money with a robo-advisor. Feel your money drop and rise for a month or two. Then, invest more and keep this up until you’re aggressively saving for retirement.

One day, you’ll wake up with a net worth you’re proud of – confident about your retirement. You now know a few strategies you can use to invest in your retirement. Will you take action to retire happy?

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Featured photo credit: Matthew Bennett via unsplash.com

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