Q. When the prime rate and other key rates are falling, does that mean credit card interest rates will decline as well?

A. Generally, yes. Fed rate cuts often translate into better deals for many credit-card holders, said Justin McHenry, research director for Indexcreditcards.com, which compares credit-card features.

On the other hand, a number of credit-card companies have recently raised rates despite the recent rate cuts by the Federal Reserve. This may be in response to the subprime mortgage crisis and unrest in the credit markets. So some credit card holders may have actually seen increases in their rates

Depending on your credit-card agreements, payment history, and credit history, cardholders may find that their interest rates fall automatically after a Fed rate cut. If, for example, your rate is prime plus 4.99 percent, your Annual Percentage Rate, or APR, may fall along with the prime rate.

And you might be able to get an even better deal.

“For a lot of people, this is a good time to either see if they can get a lower rate, or to look around” for other cards charging a lower rate, McHenry said.

Some credit cards have a floor below which rates can’t fall, he said. But it’s cheaper for a credit-card company to keep old customers than to recruit new ones, so many companies are willing to bargain within those limits to keep good customers.

“Your best negotiating point is how good your credit history is and whether you actually could go get another card,” according to McHenry. “You need leverage on your side. The more you know about your credit history, the more leverage you have in asking for something.”

One caution: Your credit could take a slight hit if you close an older account in favor of a new one, especially if you will be close to the credit limit on the new account with a balance transfer.

Your credit rating can help determine whether you get a loan and what interest rate you pay, so getting your score as high as possible can save you big bucks.

The difference in interest rates for mortgage loans is nothing to sneeze at. Someone with a FICO score, or credit rating, of 760 to 850 could pay $188 less per month on a $216,000 30-year fixed-rate mortgage than someone with a score of under 658, according to MyFICO.com. The amounts are based on interest rates of 5.99 percent for the higher rating and 7.31 percent for the lower rating.

Credit scores are grouped into five basic categories, according to MyFICO.com. In general, about 35 percent of the score is based on your payment history, about 30 percent on how much you owe, 15 percent on the length of your credit history, 10 percent on new credit and 10 percent on types of credit used. The mix can vary depending on your situation.

Credit ratings evolve over years, but there are ways to raise your credit score a few points at a time.

Pay your bills on time.
“I’m not sure a lot of people understand that,” said Jack Guttentag, professor of finance emeritus at the Wharton School at the University of Pennsylvania and the man behind The Mortgage Professor Web site (mtgprofessor.com). “They always say, ‘I always pay it eventually.’ ”

Pay more than the minimum on your credit cards every month.
Your score could go up a few points as your credit card balances go down. Just a few larger payments can help if you previously were paying the minimum.

Limit the number of new credit-card accounts you open.
An exception is for people who are trying to re-establish credit after a bankruptcy or other financial crisis, according to MyFICO.com. “Opening new accounts responsibly and paying them off on time will raise your score in the long term,” says the Web site, which is published by Fair Isaac, the company that invented the FICO score.

Keep your balance well below the credit limit on revolving accounts like credit cards.
Your credit score will likely be higher if you have small balances on four or five credit cards (as an example) than larger balances on two or three cards, especially if the balances are close to the credit limits, Guttentag said.

Pay off any uncollected items.
Your credit score is being hurt if you’re withholding payment because of a dispute with the lender, no matter how “right” you are.

And finally, always remember that paying down your revolving credit, or credit cards, is the best way to improve the portion of your credit score that looks at how much you owe.

Failing to understand how your FICO® scores are calculated can be costly. Although it’s not the only thing lenders look at, the scores calculated by the nation’s three major credit-rating bureaus can make or break your loan request, or at the very least increase the cost of borrowing.

Yet myths about how these important scores are calculated persist, potentially keeping borrowers from getting higher credit ratings – and lower interest rates.

Here are three myths – and realities — about FICO® scores:

Myth: Closing old or paid-off accounts will increase my score, especially if I open new accounts.
Truth: Old accounts in good standing generally benefit your FICO® score. They show you have a long history of managing credit, particularly if you pay off the balances or keep them low. What’s most important is to stay well below the credit limit, regardless of the age of the account. And be reasonable about the number of credit cards and accounts you maintain.

Myth: My score will go down if I shop around for a loan.
Truth: If you’re shopping for a mortgage or an auto loan, multiple credit inquiries for the same type of loan within 14 days won’t affect your score. The formulas used by the three major credit bureaus recognize you are shopping for the best rate. However, if you’re shopping for a mortgage one month and an auto loan two or three months later, your FICO® score could take a hit.

Myth: I don’t need to check my FICO® scores if I pay my bills on time.
Truth: Credit reports often contain errors that can bring down your score. The only way to know the information is accurate is to check your credit report yourself. You can get one free credit report a year from each of the agencies: Equifax, TransUnion and Experion Group Ltd. Keep in mind that the free credit report does not give you your FICO® score. You can get all three of your FICO scores at www.myfico.com.

Fair Isaac, the company that developed the FICO® score formula, had made changes in 2008 meant to better predict risk. The occasional delinquency will count less, but patterns of delinquency or other problems will count more.

Old formula or new, the basics remain the same. A solid record of paying bills on time and avoiding becoming overextended is your best path to getting and keeping a good FICO® score.

Visit the LendingTree Credit Resource Center for information and tools to help you manage your credit.

You’ve pulled a copy of your credit report and are now looking at a tangle of information. You see your last three addresses, a long list of businesses that have checked your report and dozens of credit accounts. But what does it all mean? Which information should you look at first? Here’s a quick rundown of your credit report and the key information on it.

Why should I care about my credit report anyway?
A credit report is a factual record of your payment history and other credit-related items that lenders use to help determine whether to grant you credit. The information on your report is compiled by the credit bureaus, which regularly receive data on whether you make payments on time and how much you owe. Since creditors are constantly reporting new information to the bureaus, your credit report is always changing.

What should I be looking for?
In a word, inaccuracies. Mistakes are not entirely uncommon on credit reports. Sometimes they’re caused by simple human error, other times they occur when credit files of people with similar names are inadvertently mixed. Increasingly, unfamiliar or inaccurate information can also be an indicator of identity fraud – when someone uses your name and accounts without your knowledge. Look closely at the following areas to catch mistakes or fraud:

• Personal information. Are the names and addresses listed on your report accurate? Often, an incorrect address or unfamiliar suffix, such as Jr. or Sr., can be an indication that your file may have been mixed with that of another person. Additionally, a recent address change may indicate that someone is fraudulently opening accounts in your name, but routing the bills to their address.
• Public records. If any bankruptcies, judgments or liens are listed in this section, make sure they are accurate and complete. Remember, some bankruptcies can stay on your report for up to 10 years while others cycle off after seven years.
• Accounts. You will notice basic information such as your credit limit, current balance and date the account was opened. Also check out the detailed payment information by month for incorrect late payments or charge-offs. Remember to check for unfamiliar accounts or activity on accounts that you thought were closed. Someone besides you could be using the account.
• Inquiries. This section shows you who has received information from your credit report and who was given your name during the recent past, as allowed by law. Often, credit grantors will “pre-screen” your credit file in order to offer you special rates. Additionally, inquiries are recorded when you apply for new credit or authorize an employer or insurance company to check your credit history.

What next?
If everything looks accurate, then you can breathe easy. Just remember to regularly monitor your credit to make sure everything stays accurate.

If you find a mistake, then you have the right to dispute the information free of charge. You should contact the credit bureau that provided the information and dispute the inaccurate information. You can also contact the creditor and ask that new, accurate information be provided to the credit bureau.

Finally, if you suspect fraud, contact the credit bureaus immediately and place a fraud alert on your report. Then, contact your credit card companies and bank to protect your accounts.

This information is provided in partnership with ConsumerInfo.com, an Experian company.

If there’s one thing that makes parents more nervous than picturing their kids with the car keys, it’s imagining them with a credit card. Yet in recent years, the number of teens using plastic has increased dramatically as credit-card companies actively pursue young people with applications in the mail, at college fairs and especially on campuses, where students get T-shirts and other free gifts for signing up.

Your kids are a target
It’s not surprising that card issuers are targeting teens — kids aged 12 to 17 in the U.S. spent over $100 billion in 2004. And according to a poll conducted by Coinstar Inc., the average teen reports plunking down more than $250 a month. The question for parents is this: Does having a credit card teach a teenager to use credit responsibly, or is it simply the first step toward a lifetime of debt?

The answer lies somewhere in the middle. There’s no question that some college students — like some adults who should know better — use credit cards irresponsibly. So getting a credit card at age 16 and starting with a low limit of $500 or so may indeed help teens learn to budget, and teach them that reckless spending has a high price.

That logic, however, doesn’t always hold up. According to a recent study conducted by the Jump$tart Coalition for Personal Financial Literacy, about a third of high-school students have used a credit card, either belonging to their parents or issued in their own name. Yet when questioned about how credit works, these kids actually scored lower than their peers who had never used plastic.

When teens start asking for a credit card, it’s therefore important to help them understand some basic facts. Here are some practical ways you can help your kids learn how to use credit cards with care.

What they need to know

• Credit cards have higher interest rates than almost any other type of borrowing. This means higher costs. For example, it costs $15 a month to carry a $1,000 purchase on a card with an 18 percent interest rate.
• If they make only the minimum payment each month, their debt will keep growing, even if they don’t make any other purchases.
• If they miss any payments, their credit rating will suffer and they may have trouble getting a loan or apartment lease in the future.

How to help kids learn

• You can order an extra card in your teen’s name and link it to your own account. Any purchases will show up on your statement so you can keep an eye on your teen’s credit card habits. By agreeing on a pre-set spending limit, and holding them responsible for paying off the charges each month, you can help your kids learn how to budget.
• Some credit-card issuers also offer prepaid cards designed specifically for teens, such as Visa Buxx. These cards work much like an allowance: You load them with a fixed amount of cash, and when it’s gone, so is your teen’s spending power. While these cards don’t actually extend credit or charge interest, kids who use them may learn that charge cards are not a license to make unlimited purchases.
• You can suggest that older teens who are earning income and applying for a credit card in their own name ask to have the card linked to their own bank account, so the whole balance is automatically paid off each month. This way they can start building up a good credit rating while avoiding hefty interest charges on an unpaid balance.

Credit cards have become an essential part of everyday life. About 145 million Americans use them, and for almost every kind of purchase. An estimated 40 percent also use them as an easy form of short-term credit, carrying an unpaid balance from month to month. But while card holders may be aware of the relatively high interest rates they’re charged on their balances, they may not be aware of other ways card companies can raise the price they pay for this easy form of credit.

Universal default: A hot topic these days, this is the card issuers’ practice of penalizing you for falling behind on your other credit accounts, even if you haven’t missed a card payment. In some cases, a single late payment to any of your other creditors can trigger the card company to impose a penalty rate, which can be 29 percent or even higher. Reversing the change can be difficult.

Low minimum payments: Low minimum payments may look like a blessing. But even with new guidelines that have recently caused most credit card companies to increase the minimum amount you’re required to pay each month from around 2 to 4 percent, it can often take a long time to pay off your debt, and you can still end up paying thousands in extra interest charges.

“Teaser” rates: Many people choose a credit card based on its low advertised interest rate — in some cases, zero percent. But these rates don’t last. Many disappear after six months, and most are gone after a year, leaving you stuck paying a higher rate.

Changeable rates: Not many of us read the fine print on our cardholder agreements, but it often gives the card issuer the right to change its interest rates and its fees for any reason — and sometimes for no reason. It often needs to give you only 15 days’ notice before bumping up your interest rate or raising its fees.

Varying rate levels: If you make some purchases at a promotional rate and others at the card’s regular rate, the card company often applies your payments to the lower-rate debt first, leaving you paying off the higher-rate debt. This can also occur if you take cash advances that carry a special higher rate.

Fees, fees, fees: Many cards carry a variety of fees you may not discover until you have to pay them. These include application and processing fees, late payment fees, transaction fees, fees for going over your credit limit, overdraft protection fees and balance transfer fees. And some even impose their late fee if your payment arrives after a designated hour on the due date.

You can avoid some of these costs by reading your card agreement, and by paying off your credit card balance every month. If you are in need of long-term credit, one strategy is to consider other, less costly kinds of loans. One option is a home equity loan, which can allow you to borrow money at a considerably better rate than a credit card. In fact, many cardholders use these loans to consolidate their credit card debt.

A home equity loan often carries a lower rate than a regular personal loan. And, the interest is usually tax-deductible up to $100,000, saving you more money. (Consult a tax advisor for advice on how this would apply to your own particular situation.) The amount you can borrow depends on how much equity you have in your home. You can choose a fixed-rate home equity loan to pay off an existing card balance, or a home equity line of credit (HELOC) to cover occasional costs instead of using your credit card.

Another option is cash-out mortgage refinancing: you refinance your home for more than you currently owe, and take the difference in cash. You can use this money to pay off your credit card balance, or to cover expenses that would have gone on the card. The new debt is paid off at your mortgage rate — likely much lower than the credit card rate.

Either way, these loans can provide affordable credit — without a credit card’s extra costs.

With college tuitions rising by up to ten percent in 2004 alone, you may be thinking of taking on a student loan to help with the finances.

Your student loan will likely be the largest debt you’ve ever had — possibly also the first. How you handle your student loan can have a huge effect on your credit rating and, since your credit rating determines how much you can borrow for years to come, your financial future.

Your credit rating reflects the debts that you have and your repayment history. The key to a good credit rating is to make regular payments on time and pay off your debt as quickly as possible. With careful planning and financial responsibility, you won’t feel overwhelmed by your student loan. Here are a few tips to help you effectively manage your debt.

Make interest payments
If you have obtained an unsubsidized government or bank loan, you may have to make interest payments while you are still in school. Factor this amount into your monthly budget and make payments on time.

You may have the option to defer the interest payments, adding them to the principal amount due after graduation, but try to avoid this. The interest will add up quicker than you think.

Use the grace period
Upon graduation, you usually have a six- to 12-month grace period before you start repaying your loan. This time is designed for you to find a job that affords you some financial stability. If you get a job before your grace period is up, put some money aside and make a large payment into your loan to start off on the right foot.

Pay it off as soon as possible
Most student loans give you 10 years to repay. The monthly payment that your lender requires is based on this timeline. If you can afford it, increase your monthly payment and pay your loan off sooner. Also, if you get a tax refund or bonus check, use it to make an extra payment toward your principal.

By paying more than the minimum payment, you will reduce your debt and pay off your loan faster. Not only will this lower the total interest you pay over the life of your loan, it will have a positive effect on your credit score.

One caveat: Interest rates for student loans are usually lower than for other types of debt. If you are carrying a significant amount of more expensive debt, such as from credit cards, put the extra payments toward that debt first. You’ll save money on interest in the long run.

Don’t skip payments
Contact your lender immediately if you’re having trouble making your loan payments. By communicating with your lender, you show a desire to cooperate, which makes lenders more willing to work with you to find a solution. You may be able to arrange an alternative repayment plan with lower payments and a longer-term loan. You may also be able to defer payments for a few months, but remember your loan may continue to accrue interest.

If you can’t afford to pay the full amount, make a smaller payment to show a good faith effort. If you skip payments, your loan will be considered delinquent. This will show up as a negative mark on your credit report.

When you repay the loan, your credit rating should improve, but your missed payments will still be on your record.

Never default
Defaulting on your student loan can leave a stain on your credit history for up to seven years after your loan is paid in full. When you default, collectors will hound you for payments and may eventually seek legal action. Your lender can garnishee your wages and your tax refunds in order to repay the loan.

If you declare bankruptcy, keep in mind that your student loans are not always forgiven. Government loans may still have to be repaid. A bankruptcy also remains on your credit report for seven to 10 years.

As with any money you owe — be it a credit card balance, a student loan or a mortgage — your best bet is to make regular payments and try to pay the balance off as quickly as possible. Not only will this improve your credit score, but you’ll also sleep better knowing the debt is off your shoulders.

Lenders view your credit score as a measure of your financial trustworthiness. They’re more likely to lend you money and charge you a lower rate of interest if your score is good. So, it’s in your best interest to try to build the best credit rating you can. While you can’t raise your score overnight, you can improve it if you follow these steps:

1. Establish a credit history.
In order to have the best credit rating possible, it’s important to establish a history of responsible borrowing. If you currently don’t have any credit history, you may want to consider applying for a gasoline company credit card. Not only are these usually easy to obtain, but gas cards can be a great way to charge regular small purchases each month without being tempted to overspend.

2. Pay your bills on time.
Late payments are often the single biggest factor in a low credit score. When you receive your credit card statements, utility bills and other payment notices, put them in a prominent place where you won’t forget about them. Or, better yet, to ensure they’re always paid on time, arrange to have them automatically paid each month via direct debit from your bank account. If you do this, however, take care you maintain a sufficient bank balance to cover them so you don’t end up getting hit with charges for having insufficient funds.

3. Review your credit reports.
You can request a free credit report from each of the three bureaus (Experian, Equifax and TransUnion) once a year (go to www.annualcreditreport.com), or request your free credit report and score through LendingTree®. Review your files at all three bureaus, and if you find mistakes or missing information, contact the bureau to resolve the issue. Instructions for reporting errors are on each bureau’s Web site.

4. Reduce your debt.
Sure, it’s easier said than done, but try to lower your credit card balances and lines of credit a few months before applying for a mortgage or personal loan. One of the important factors included in your credit score is the difference between the current balances and the available limits on your accounts. Try to keep the balances under 30 percent of their allowable limits.

5. Make sure lenders report your credit limits.
Here’s a tip that few people know about: Some credit card issuers do not report your credit limit to the bureaus, so your account may appear to be maxed out even when it’s not. For example, if your card balance is $1,200 and your limit is $12,000, you’re at a very healthy 10 percent ratio, but if your limit is not reported, your score won’t reflect this. Correcting the problem — by asking credit card companies to report your limit — may improve your score considerably.

6. Confirm your good credit history has been reported.
When you check your credit report, you may find there’s no record of a loan you successfully paid off or a credit account that you’ve kept current. If so, ask the lender to report this positive history to the credit bureaus or send a letter to the bureaus yourself, along with copies of the statements showing you’ve paid on time.

7. Don’t apply for, or cancel, accounts you don’t need.
If your credit report shows you’ve applied for a lot of different kinds of credit in a short period of time, your credit score may drop, especially if you have a short credit history or few existing accounts. (However, multiple inquiries within 14 days for home and auto loans are counted only once.) That’s why it’s usually a bad idea to sign up for cards you’re not likely to use. If you have already opened a number of accounts, however, don’t rush to cancel them. Closing accounts, especially ones you’ve held for a long time, will reduce your available credit and may shorten your credit history, which can lead to a lower score.

8. Monitor your credit regularly.
While an annual credit check is often enough, if you’re actively trying to improve your credit it’s a good idea to track it more regularly. There are many companies that offer credit monitoring services. (For example, if you apply for your credit report and score through LendingTree, you will also receive a free trial membership in LendingTree Credit Monitoring, a service that monitors all three of your credit bureau reports daily and sends you email alerts regarding any key changes.)  

1. To detect identity fraud early
We all know we should check our credit card statements every month for charges that we haven’t made. But that only catches the thief who uses an account you know you have. Scan for signs of possible fraud with your free credit report.

In the past few years, identity fraud has risen dramatically. In this insidious form of credit fraud, a thief steals your good credit by taking over or opening accounts in your name, running up large balances and leaving you to deal with the collectors when they come calling.

New accounts opened with your identity will appear on your credit report, revealing identity fraud to you. If you don’t check your credit report, it could be months before the credit grantor, fed up with nonpayment, turns the account over to a collector who tracks you down and demands payment for a loan you’ve never even heard of.

As with much less problematic inaccuracies, identity fraud is something you can detect and remedy most effectively by checking your credit history thoroughly and on a routine basis.

2. To become an informed consumer of credit services
Your credit report can have a dramatic impact on your financial stability. With good credit, you can obtain benefits of all kinds – a home mortgage or lease on an apartment, an auto loan, low-interest credit cards and more – with ease. But if your credit history is poor, many of these financial options may be unavailable to you. Either way, you have a right to know what to expect when a lender runs a credit check on you.

Aside from paying your bills regularly and on time, the single most important thing you can do to ensure that when others check into your credit they’ll find you to be a good risk is to be aware of the contents of your credit report. Check your report for free and approach lenders with confidence.

Studies have shown that many credit files contain inaccuracies that can harm your credit rating, leading to rejections when you apply for loans, insurance, or even a job. Often the result of simple human error, they can be caused by anything from a clerical error to a computer glitch in which your file is mixed with that of someone with a similar name.

That’s why it’s essential that you check all of your credit files – and monitor your credit regularly – to protect your good credit standing, even if you always pay all your bills on time.

And if your credit is less than perfect now, checking your report will help you identify lingering problems so you can deal with them effectively and move on toward an improved credit standing. Whatever your situation, reviewing your report regularly is the only way to be sure that you will go into any credit conversations knowing everything lenders will know.

This information is provided in partnership with ConsumerInfo.com, an Experian company.

Did you know that whenever a lender obtains a copy of your credit report, that your name, telephone number and other information might be sold to other lenders as part of a “trigger lead” program?

Not many borrowers know about trigger leads, but these programs are familiar to lenders and mortgage brokers, who can purchase these leads for as little as 35 cents apiece.

What is a trigger lead?
When you authorize a lender to “pull” (i.e., obtain) your credit report as part of a specific inquiry about a loan, the information in your report automatically becomes part of the credit bureau’s trigger lead program.

This pool of information is searched against criteria or “attributes” selected by lenders and mortgage brokers who want to buy trigger leads. Searchable attributes include your age, gender, state of residence, annual income, monthly mortgage payment, credit score and so on. If your information matched the selected attributes, your name, telephone number and home address would be sold as a trigger lead.

For example, suppose a mortgage broker wanted to target prospective home-loan borrowers who lived in California, owed at least $300,000 on a current mortgage and had credit scores of at least 550. If you inquired about a home loan and your data matched those selected criteria, your name and contact information could be sold to that broker. The broker then could use that information to contact you and attempt to obtain your business.

Trigger leads may be sold 24 hours after your credit report was pulled. A so-called “soft pull,” e.g., a credit report inquiry that you didn’t initiate with a specific lender, typically wouldn’t become a trigger lead.

Pros and cons of trigger leads
Some people like the idea of being contacted by multiple lenders who are eager for their business so they can comparison shop among a wide range of options. The credit bureaus don’t limit the number of times a trigger lead can be sold, so one credit inquiry potentially could result in dozens of contacts.

If you’re comfortable with this open-door approach, you still should exercise caution and be sure to deal with reputable professionals. The ability to purchase trigger leads doesn’t necessarily mean an individual or company is reputable or trustworthy.

Other people don’t like the idea of having their personal data sold in this way. These individuals may be concerned about privacy or identity theft or may not wish to receive unsolicited telephone calls or mailings. (Trigger leads normally are scrubbed against the national do-not-call list.)

How to opt out of trigger leads
If you don’t want your information to be sold, there are two ways to opt-out of trigger lead programs. One way is to complete and submit an online form at www.optoutprescreen.com. This method stops trigger leads for five years. The other way is to complete a separate form at the same Web site and then print, sign and mail a letter generated by that form to confirm your opt-out request. This method stops trigger leads permanently.

Both of the opt-out methods take five days to become effective, so if you don’t want your information to be sold, you need to opt-out at least five days before you make a specific inquiry. If your information is already in the trigger lead pool, you may continue to receive telephone calls and mailings for some time after you elect to opt out.