This is a guest post by Michael from CreditCardForum.com, a message board and blog for the discussion of credit card deals, as well as a place to talk about the drawbacks that come with the use credit cards. In today’s post, he will be talking about one of those drawbacks.

Last week, Simon wrote about how Citi tried to automatically “upgrade” him to a World MasterCard – a credit card that has no pre-set spending limit. I actually have the Citi Dividend Platinum Select card myself but I am lucky that they haven’t tried to change my card, yet .

However I have faced this same problem with Bank of America forcing my current card to become a Visa Signature card (which is Visa’s version of the World Mastercard – so no pre-set spending limit as well). But before I tell you that story, let’s discuss the basics about these cards…

Why all the hate for World MasterCard/Visa Signature?
These cards are marketed as a high “premium” tier for the aforementioned card issuers. They offer added benefits like free phone concierge, extra travel insurance, purchase protection, and more. All that without an annual fee! So why all the hate?

Well unfortunately, these cards have on drawback – they do not have a set credit limit. Part of your credit score is based on credit utilization (the percentage of your available credit that is used). You don’t want this number too high. According to many talking heads in the finance world, the general recommendation is to not use more than 30% of your credit limit on an account.

On many accounts from current cardholders, the highest monthly balance on these “no pre-set spending limit cards” are reported to credit bureaus as the credit limit. As you can imagine, this may not be to your benefit because it would hurt your credit score.

You may have had a $20,000 limit on your original account but you could have a reported credit limit of $2,000 if that was your highest monthly balance.

Which would you rather have shown as your credit limit? Obviously the $20,000!

Why was there no opt-out option for my Bank of America credit card?
Back in 2004, I switched my checking account to Bank of America. During the process, they also offered me one of those credit card deals where they give you a free $100 bonus if you also open a credit card. I took the bait.

I’ve used that card periodically over the years and had built up a very nice credit limit on it. Then in May, I got a notice in the mail that my specific type of card was being discontinued in August and would be replaced with a BankAmericard Cash Rewards Visa Signature card. I called up and vehemently made clear I did NOT want my new card to be a Visa Signature, instead I wanted it the tier below (Platinum Plus). The CSR said that was not a problem and confirmed the replacement card coming in August would indeed be a Platinum Plus.

Well it’s now August and I got the card in the mail and guess what… it was a Visa Signature. Furious, I called up customer service as I was sure they must have forgotten to fulfill my request. As it turns out, the CSR in May did opt me out of the Signature version. But guess what happened? They decided to re-evaluate my account again on August 1st and made the decision to issue me a Signature without my approval.

Why the no preset limit cards are going to become more common
After talking with someone I know at the bank, it turns out that even if you opt-out of these “upgrades” they might upgrade you again a few months later, without your consent! So basically, these “opt outs” are only temporary, because when they re-evaluate your account again (possibly every few months) they might just try and do the upgrade again.

The reason these banks love these no pre-set limit cards is because it limits their liability.

If you have $20,000 of available credit that’s a $20,000 liability for the bank. But if you have a no pre-set spending limit card, your purchases are approved (or declined) on a case-by-case basis. So, they no longer have to record your account as that $20,000 liability. Instead, they can just cut off your spending whenever they want.

With the shaky economy we’re in today, you can bet that banks will be utilizing this technique more and more to limit their risk.

If you want a set credit limit, what should you do?
As mentioned, for some people the benefits offered on these cards may be a worthwhile deal (I actually have one myself, the Chase Freedom). However, I wouldn’t recommend having more than one of them due to the credit limit predicament discussed above.

If don’t want them, respond to these notices right away and opt out, but even then, there are situations where it’s not a guarantee (like what happened to me, where my card was discontinued). Also, realize that some issuers may try multiple times a year to upgrade your account – so be diligent and pay attention to all the notices they send you.

Simon’s Note: Some people have been able to transfer their credit card limits to a different card under the same issuer. Because the bank may have a goal to convert a select group of cardholders, moving your account to a different card may be a viable option to keeping your credit limit out of the line-of-fire. You may lose some of the perks of the original card though…

Related posts:

1. Opting Out of Citi Dividend World Mastercard Upgrade Two months ago, I received a letter from Citi saying...
2. What Does No Pre-set Spending Limit Mean For My Credit Score? So, I recently got a letter in the mail regarding...
3. Review: Citi Dividend Platinum Select Card for College Students The Citi Dividend Platinum Select Visa Card for College Students...

Two months ago, I received a letter from Citi saying that they were going to “upgrade’ my Citi Dividend Platinum Select card to a Citi Dividend World Mastercard.

My primary concern was that the new card would have no pre-set spending limit – meaning it would have a negative effect on my credit score.

Now, I admit I slipped up when I accidentally tossed out the notification letter. I was supposed to call up Citi to let them know that I refused to receive this unrewarding upgrade. Anyway, they’ve sent out another letter alerting cardholders that the new card would arrive within 14 days. Without hesitation, I was on the phone with a Citi customer representative.

The Buzz Around the Changes
From a little research around the web, many Citi cardholders were finding out that their cards are on the list of those being upgraded. Many have been unsuccessful in opting out of this upgrade. Many have had to get a little rowdy (with persistence) to opt out. And, many have had no problems getting just what they wanted. They believe that it all depends on your luck in connecting to the right customer representative.

But, one thing is for sure:

You can opt out – no matter what they say.

If you didn’t receive prior notice of the upgrade and received the new card in the mail, you can ask them to reinstate your old card along with the old terms and conditions. Several card users were put in this position and were able to get their old cards back (even after activation of the new card).

My Opt-Out Call
For those who are in the same situation I was, I hope this will help you when you make your call:

1. I dialed 1(866)775-0556 and asked for customer representative (had to fight the automated answering system a little).
2. First, I had to verify my identity with the answer to a security question.
3. When asked “How can I help you today?”, my answer was “I received a letter in the mail saying that my card was be upgraded. I’d like to opt out of this upgrade because I like my card as it is.”
4. The customer rep. tells me they’ll process my request. It took around 30 seconds.
5. After I asked for proof of confirmation, the rep. offered her employee ID.
6. Of course, I declined the usual “special offer” pitch for a balance transfer at low rate.
7. Finally, I thanked her and went on my way.

The entire call took only 5 minutes.

I expected at least some resistance but it was nice to not have to escalate my voice past my typically amiable tone. One point for Citi on this one!

(Photo credit: hoyasmeg)

Related posts:

1. Opting Out of Credit Card Upgrades May Only Be Temporary This is a guest post by Michael from CreditCardForum.com, a...
2. Review: Citi Dividend Platinum Select Card for College Students The Citi Dividend Platinum Select Visa Card for College Students...
3. Citi Dividend Platinum Select Credit Card Now Offers Bonus Cashback on Rotating Categories After logging into my Citicard account today, I happened to...

This is a guest post by Kris Bickell. Kris is the owner of Debt-Tips.com, a site developed to share the lessons he learned about getting out of debt. Check out his debt reduction calculator and other tips that will help you pay off your credit card debt.

To start off, I’ll admit it, I’m no kid. So don’t think I’m blaming my parents for any money troubles I’ve had over the years. But if they had taught me these three lessons, then maybe life would have been a little easier.

Of course, there’s no guarantee I would have listened to any advice from my parents, but that’s another story.

A friend of mine used to say “too bad credit cards don’t come with instructions…”

What I Wish I Learned About Credit Cards
While most people know how credit cards work, I don’t think they truly understand the incredible impact they can have if you don’t know how to use them properly.

So for those of you who are new to adult life, or if you’ve had money problems and are starting over, or if you’re just stuck in debt and looking for some help digging out of a big financial hole, maybe these lessons can help you out a bit. I know they would have helped me.

So, here are the 3 lessons my parents never taught me about credit cards:

1. Credit cards are way too easy to get. I got my first one while still in college – American Express. Right on the front it says “Member since 1986″ (I told you I wasn’t a kid any more). By the way, what a great marketing tool because who wants to get rid of a credit card with a status symbol like that!

   Sounds cool, right? Actually it was a big mistake. I was a financial “newbie” way back then – with no job, no career, and no way to pay back what I charged on the card. Of course, with AMEX you must pay the entire balance each month, so that part wasn’t so bad. But what was crazy was the message that “Hey, getting credit cards is so easy you can get them even if you don’t have any income!”

   And then over the years you get a few more. Start buying things you really can’t afford. Then start making partial payments. And then you start paying high interest fees each month, so the debt builds up higher even when you don’t charge anything!

   See, these things shouldn’t be so easy to get. Wish my parents had warned me!!! Oh well, on to lesson #2:

2. Credit card companies won’t warn you – or stop you – or help you – when you’re getting in way too deep! I always figured that since I was such a valuable customer that the banks would want to do whatever it takes to keep me.

   Way off base on that thinking! Sure, as long as I kept paying, they would keep me around. But as soon as you’re late on a payment — ZING! — your interest rate goes way up. And if you need to skip a month, well, forget that idea. And if you get to the point of needing real help… then they tell you to call someone else, of course. Or have your card frozen. And you get hammered with late fees, over-the-limit fees, and before you know it your debt is growing by leaps and bounds!

   I know, it’s my fault for getting into financial trouble, not theirs. And the rules are in the terms & conditions. But I was just asking for a little warning, or a little help.

   And I was forced to learn the hard way that I was all alone and it was way too late. My bad, now on to lesson #3:

3. Credit cards should really be used like debit cards. To be paid off in full every month. And you should ignore the credit limit, and instead pay attention to the amount in your checking or savings account.

   Sounds a little idealistic for many people, I know. And not realistic when you get stuck with a huge medical bill or car repair bill, and need help paying it.

   But in the long run, if you don’t use your credit card like a debit card, and you charge more than you can afford, chances are pretty good you’ll get stuck in the good old “debt trap”, where the balance, and fees, and payments all keep going up and up and up …

   And more importantly, you figure out just how hard it is to get out! Just like the banks want (see Lesson #2).

So there you have it. If only my parents had taught me these lessons, I would have done like any teenager and listened very carefully to their words of wisdom, followed their advice every step along the way, and never would have had to deal with debt.

Well, OK, to be honest I probably wouldn’t have listened to most of what they had to say. But when the money issues started, at least I would have heard their words of advice buzzing somewhere in the back of my mind. And avoided some of the worst money issues I dealt with.

Hopefully, you’ll learn a tip or two from these lessons and avoid some of your own credit card disasters!

Simon’s Note: With the new Credit CARD Act legislation, credit cards are much less accessible by young adults under 21 years of age. But afterwards, it is still easy get credit cards and fall into tremendous debt.

(Photo credit: fromcolettewithlove)

Related posts:

1. No Credit Cards Under 21? You Can Still Build Credit So the Credit CARD Act of 2009 has put a...
2. How Closing Your Old Credit Cards Really Affects Your Credit Score Like the majority of other money-conscious folks out there, I...
3. Things To Watch For When Applying For Student Credit Cards Behold, the notorious gateway to debt of a typical college...

So, I recently got a letter in the mail regarding my Citi Dividend Platinum Select Card. Supposedly, I’m such a valuable cardmember that I’m being “upgraded” to the Citi Dividend World Mastercard.

Among some new perks such as price protection, concierge service, and PayPass, the most worrisome addition is that the card has no pre-set spending limit.

What is “no pre-set spending limit”?
According to Citi, it means:

You can make purchases beyond your revolving credit limit, as long as the amount exceeding your revolving credit limit is paid in full each month. The ability to make purchases beyond your existing revolving credit limit is based on cardmember account performance, payment history, credit record and ability to pay the maximum account balance.

So, there is a credit limit but I’m allowed to go over it if my credibility is good. It sounds great but the negative side to this slight convenience is how this line of credit is reported to credit bureaus.

The Negative Effect on My Credit Score
The buzz from the personal finance community is that “no pre-set spending limit” cards can prove to be detrimental to credit scores. While credit card issuers may be more lenient to my spending, they do not actually report the card’s credit limit like the typical credit card.

Instead, Citi will report my highest balance as my credit limit. If I have no balance, that means this credit card account is considered to have a credit limit of $0. So, my current credit limit of $10,000 will no longer exist to the three credit bureaus.

This comes as a drastic change to the way my debt utilization ratio is calculated and that ratio represents a substantial part of every person’s credit score calculations.

• With a $10,000 limit, a $100 balance results in a debt utilization ratio of 10% – cheers to a great credit score.
• With no pre-set spending limit, my $100 balance would mean a $100 reported limit that results in 100% debt utilization – credit score goes to hell.

Staying Out of Harm’s Way
While I do have another credit card for use, my Citi card was my first line of revolving credit with a substantial limit and I’d like to keep it that way. The best way to not let this affect my credit is to opt out of this upgrade (hope I don’t have to close my credit card if I can’t).

(Photo credit: xJasonRogersx)

Related posts:

1. How Closing Your Old Credit Cards Really Affects Your Credit Score Like the majority of other money-conscious folks out there, I...
2. Sudden Credit Limit Increase and APR Decrease Yesterday, I received an email confirmation that my statement was...
3. Opting Out of Credit Card Upgrades May Only Be Temporary This is a guest post by Michael from CreditCardForum.com, a...

After logging into my Citicard account today, I happened to stumble across a link that said “Earn 5% cash back in selected categories”. With the thick skin that I’ve developed towards credit card offers, I was skeptical as to what it really meant.

Rotating Categories System
It turns out that the Citi Dividend Platinum Select Credit Card has followed the footsteps of the Chase Freedom Card and the Discover More Card. Currently, when you log into your Citicards account and click the link, you’ll find that the 5% cash back works at restaurants, hotel, and on car rentals.

There doesn’t seem to be a yearly rewards calendar so that cardholders don’t know which cash back categories will be coming up next. And, you have to sign up for it – pretty much the same with the Chase Freedom card.

It Becomes a Worse Card
Ever since my Citi Dividend Platinum Select Card exhausted its introductory offers, I’ve used it sparingly – swiping a few bucks every month just to keep it alive. It has been replaced by my Chase Freedom card with which I’m still enjoying 0% APR.

I’ll be losing the nice 2% cash back on purchases at supermarkets, drugstores, gas stations, convenience stores and utilities, including cable. Instead, I’ll be earning 2% cash back on rotating categories (with the first quarter bonus promotion at 5% starting July 1, 2010). The categories are less than spectacular and I prefer the original system more. So, it’ll probably get even less action.

Related posts:

1. Remember To Enroll In Rotating Categories For Your Chase Freedom Card With the barrage of credit card reforms in 2009, one...
2. Review: Citi Dividend Platinum Select Card for College Students The Citi Dividend Platinum Select Visa Card for College Students...
3. Opting Out of Citi Dividend World Mastercard Upgrade Two months ago, I received a letter from Citi saying...

So the Credit CARD Act of 2009 has put a lid on credit card access for anyone under 21 years old. Luckily, there is a tiny crack in the seal that can still help build good credit history for young adults.

According to the new rules, you can get a credit card under 21 only if you:

1. have an adult (of 21 years of age) to co-sign the credit card agreement.
2. or, can demonstrate the ability to repay the balance.

Now, it may seem like the end of the world when a parent refuses to co-sign for a credit card while it seems impossible to find a job that would prove you can sustain credit card debt.

Obviously, they know that the credit card is an evil they don’t want to be left responsible for. But, that doesn’t mean there aren’t options that they’d be willing to co-sign.

• Student Loans
  The cost of a college education is only going to go up and it is highly unlikely an 18-year-old has the money to pay for all of it on their own without help from parents, scholarships, and… student loans.

  While a student loan would probably still require a co-signer, parents are more comfortable with co-signing because it is used to pay for an education as opposed to discretionary spending. On top of that, the interest rates are lower than credit cards and most student loans (such as Federal Stafford Loans) do not need to be repaid until after graduation.

  If you can afford the college education without taking student loans, but would still like to begin building credit at an early age, consider applying for a small federal student loan in the first semester of school, if possible.

• Secured Credit Cards
  Secured credit cards are the optimal tools for cautious consumers and those rebuilding their credit after financial disasters such as bankruptcy.

  While the rules of the new credit card laws do not state any exceptions for secured credit cards, I’m assuming that they still apply. With money in a collateral account that ensures you’d have money to repay the debt, parents are much more likely to co-sign one for you. Or, credit card issuers may be more lenient as to who gets a card.

• Monthly Services
  Firstly, this is a long shot. A few companies that offer monthly services such as cell phones, cable, or internet services may post monthly payment amounts on your credit report. To find out if they do, simply give them a call and ask or check your credit reports at www.annualcreditreport.com.

  Selecting a cell phone company based on whether they report monthly payments to the credit bureaus is not a good idea, nor is signing a cellphone contract just to build credit.

You Don’t HAVE to Build Credit Yet
The new credit card legislation was written to stop young adults from falling prey to consumer debt. If you can’t find a way to build credit, don’t sulk and whine because having a super high credit score is not that big of a deal. Our government is telling us to stop digging ourselves a hole that we spend the rest of our lives trying to climb out of.

Many people have lived with little to no credit. They may have safer loans such as mortgages or car loans but they rarely rely on a credit card – a feat that is quite liberating. Some of you may find that you don’t really need credit as you live some your liveliest years without it.

(Photo credit: vestman)

Related posts:

1. How I Was Able To Build Good Credit As A College Student In the minds of most young college students, the word...
2. 3 Lessons My Parents Never Taught Me About Credit Cards This is a guest post by Kris Bickell. Kris is...
3. How Closing Your Old Credit Cards Really Affects Your Credit Score Like the majority of other money-conscious folks out there, I...

For the many young adults, especially college students, how to use a credit card may be common knowledge but how credit works is quite the mystery. That doesn’t come as a shock since most teens start receiving credit card offers as soon as they become 18 (although that is no longer the case).

On the other hand, there are some young adults who are more cautious when it comes to consumer debt and avoid credit cards until they find out later that credit cards play a significant role in building good credit history and a good score.

Reader and 22-year-old college graduate Cora asked:

“I don’t have credit card yet, but I do have a debit card. Do I still have a credit score (especially when I charge credit instead of debit for certain purchases)?”

Almost Everyone Has a Credit Report
Firstly, if you have a Social Security number, you have a credit report. The moment a Social Security number is issued in your name, you have your own credit report – and you could be just a few weeks old. It’s not surprising when we hear crooks committing identity fraud on children and those children grow up many years later to discover they have a tarnished credit history.

• If you have no credit history, you have nothing on your credit report. A blank credit report offers no information to input into a credit score calculation – therefore, you have no credit score. You cannot be classified as having poor, fair, good, or excellent credit.

With no credit history, lenders have no way to gauge your likelihood to repay your debts and they are reluctant to extend a line of credit to you. Like most young adults including myself, your first opportunity to establish credit would probably be with a student loan co-signed by a parent.

Thanks to the Credit CARD Act of 2009, building good credit is now more of a hassle since credit cards can no longer be issued to those under 21 years of age unless they have a cosigner or proof of ability to repay.

If you have no credit history and find it difficult to obtain a regular credit card (and you’d like to remain financially independent), sign up for a secured credit card. A secured credit card uses money you deposit in an account as collateral – the amount you deposit is your credit limit.

It would be wise to visit www.annualcreditreport.com to retrieve a free credit report. In fact you might as well perform a financial checkup while you’re at it.

Credit-less “Credit” Debit Card Purchases
As for those “credit” purchases made with your debit card, there is no direct relationship to your personal credit report. Since the debit card is linked to your checking account, which is not considered a line of credit, nothing is recorded on your report.

Banks ask you to select the “credit” option because when you do so, they can charge the merchant (where you swiped your debit card) a credit processing fee which is around 2-3% of the purchase amount as opposed to the ten cents it costs them to conduct a “debit” transaction.

(Photo credit: Dplanet::)

Related posts:

1. How Closing Your Old Credit Cards Really Affects Your Credit Score Like the majority of other money-conscious folks out there, I...
2. No Credit Cards Under 21? You Can Still Build Credit So the Credit CARD Act of 2009 has put a...
3. What Does No Pre-set Spending Limit Mean For My Credit Score? So, I recently got a letter in the mail regarding...

Like the majority of other money-conscious folks out there, I was also one to believe the long preached advice to not cancel your old credit card accounts because the credit history of that account would disappear from our credit report.

We don’t want to see our squeaky clean credit repayment habits wiped off our reports so we follow the widespread convention of cutting up the old plastic or putting them in the back of the freezer.

Luckily, Craig Watts, a spokesman for FICO, has come out to debunk the financial myth.

Positive credit history remains on your credit report for 10 years while negative credit history sticks with you for 7 years. Information from closed credit card accounts still plays a factor in calculating the “payment history” portion (35%) of your credit score. Another 15% of the credit score consists of the length of your credit history, which will still account for the age of the closed accounts.

While this may come as a relief to those who have been on the fence about officially closing their old credit card accounts, canceling your old, unused credit cards doesn’t mean that it will have absolutely no effect on your precious credit score. Depending on your financial situation, how much your credit scores suffers will vary.

Your Credit Score Can Still Take a Hit
Disproving this once-universal belief of closing old credit cards doesn’t not solve the headaches and worries of those who still carry major credit card debt. The FICO credit score takes the debt-utilization ratio into account – comprising a whopping 30% of your credit score. Also, known as the credit-to-limit ratio, the debt-utilization ratio is calculated by dividing your total outstanding debt by your total available credit.

Closing an old credit card account will mean that you are decreasing your total available credit – and if you’ve had it for a long time, you may have a large credit line. If you are carrying a ton of debt and you cancel a credit card, it will make a significant dent to your credit score because the debt-utilization ratio went up.

• If you have a balance of $2,000 on credit card A with a credit line of $5,000 and no balance on credit card B with a credit line of $5,000, your debt-utilization ratio is 20%. Closing credit card B would change your debt-utilization ratio to 40% and therefore, would hurt your credit score.
• If you have no balance on credit card A with a credit line of $5,000 and no balance on credit card B with a credit line of $5,000, your debt-utilization ratio is 0%. Closing either one of the cards would still result in a debt-utilization ratio of 0%.

To Minimize the Damage
So, the announcement would be of great news to those who are already debt-free and are looking to rid themselves of the potential to become repeat victims of credit card debt. Since the largest impact of closing a credit card account seems to be on the credit-to-limit ratio, it would be best to close the account when you have zero debt (yes, quite an impossible feat for many). With no debt, your debt-utilization ratio would be 0% whether your total available credit is $100,000 or $100.

Even if you have a small amount of credit card debt, closing a card of two shouldn’t do much harm – especially if it acts as a psychological stepping stone towards your goal of becoming debt-free.

(Photo credit: kainr)

Related posts:

1. What Does No Pre-set Spending Limit Mean For My Credit Score? So, I recently got a letter in the mail regarding...
2. Stop Trying To Get The Highest Credit Score Ever played a game where you have to level up...
3. If You Have No Credit, You Have No Credit Score For the many young adults, especially college students, how to...

The provisions of the Credit CARD Act of 2009 targeting youth and credit will be going into effect Feburary 22, 2010. President Obama is on a mission to reduce the availability to young consumers in an effort to solve a problem that hurts so many of us college graduates today – we graduate with too much debt.

Here is a summary of the major changes that will affect young adults:

1) Less Access to Credit Cards Before the Age of 21
The CARD Act’s most significant rule is putting the lockdown on availability of credit cards to young adults. Reckless spending has always been an activity that people identify with the similarly ruthless lives of many young adults. Well, the time has come to limit the spending power of everyone under the age of 21.

• Credit cards can no longer be issued to anyone under the age of 21 with the exception that
  (i) they have an adult (of at least 21 years of age) to co-sign the credit card agreement.
  (ii) or, they can provide proof that they are able repay the debt they incur.
• Pre-screened credit card offers cannot be available to consumers under the age of 21.
• Joint credit card accounts can only have their limits increased with the permission of the adult accountholder.

2) A Close Watch on College Campuses
College campuses are hotspots for credit card companies. Their pretty booths with free t-shirts, pens, toys, and other stuff will cease to exist within close proximity of campus locations. Hopefully, less college students will become victims of consumer debt.

• Credit card companies are banned from offering free goodies as incentives to get students to sign up for credit cards in or near campus.
• Companies must also disclose the details of their contracts with colleges and universities regarding their marketing towards students and alumni.

3) Promotion for Financial Literacy
A major reason why everyone is having problems with debt is because they didn’t learn how to handle money at an early age. Now, the government is taking the initiative to change this trend that is ruining the financial futures of people.

• The act will require certain federal agencies to examine federal financial and economic literacy programs available to the youth ranging from kindergarten to 12th grade and adults.
• They must also recommend methods of funding and promotion of financial literacy programs.

Some of My Predictions
I’m guessing I was fortunate enough to not be caught in the middle of these changes. For those who are actually financially responsible during their younger years, the Credit CARD act may be a slight, but not major, setback. Also, just because these particular provisions are targeting young adults, it doesn’t mean they are the only ones affected – parents should embrace these changes as well.

For the future I foresee that:

• there will be less credit card debt for college students
• there will be a larger burden on parents to support their children
• students will borrow more on college loans
• college students are no longer a profitable market for credit card companies
• credit card companies will find loopholes to extend credit to young consumers
• many co-signers will have their credit histories ruined
• personal finance classes would be a standardized educational requirement

Alcohol is prohibited to everyone that is under the age of 21 but we all know that law hasn’t much of a restraint. How will this act fair in making a difference?

What are some of your thoughts on this act and how it’ll affect the younger generations? Share some of your predictions on the effects of this legislation.

(Photo credit: Rain Rannu)

Related posts:

1. Typical Get-Rich-Quick Pitfalls Of Young Adults Ever since leaving high school and entering college, ditching my...
2. How Closing Your Old Credit Cards Really Affects Your Credit Score Like the majority of other money-conscious folks out there, I...
3. If You Have No Credit, You Have No Credit Score For the many young adults, especially college students, how to...

A friend asked me this week with a reasonable concern regarding the use of his credit card for a purchase that may affect his credit:

Hey, dude. I want to buy my girlfriend some “nice” lingerie from an online merchant that may be considered somewhat “spicy” to banks. I heard that people who have memberships to adult websites usually have lower credit scores. Should I charge it on my credit card?

It is already known that credit card companies do analyze the types of transactions that are made with credit cards. The activity on a credit can be used to create an overall profile of a consumer. Therefore, there are certain purchases you should not put on your credit cards.

Things not to put on your credit card include:

• Traffic tickets
• Retreading tires
• Bargain binges
• Adult playthings
• Marriage counseling and therapy
• Lottery tickets
• Cash advances
• Personal pampering
• Income taxes
• Booze

Effects on Credit
Luckily, should a consumer choose to make naughty purchases such as gambling, adult entertainment, and alcohol – there would be no direct effects on your credit history or credit report. Rest assured that the credit bureaus do not care what types of credit card purchases you make.

The credit card companies on the other hand… do care.

People are judging people all the time and banks are judgmental too. After approving your credit card application, credit card companies will truly learn what your financial habits are. Even though they may not cancel your card, they can limit the privileges of your account.

Naughty purchases are considered risky behavior in the eyes of credit card companies. If you called to ask for a lower interest rate or to have a fee removed, good luck – because a flagged card would certainly decrease your chances of getting it.

Use Your Credit Card, But Safely
While refusing to use your card is the 100% safe way to go when making naughty purchases, it may be impossible to buy anything online without one. Two ways you can avoid having your credit card company find out about these purchases are through gift cards and electronic payment services.

• Gift Cards
  These are not store gift cards what one would normally purchase. The gift cards that you should get are those from Visa, which can usually be purchased online or at a major bank branch. The gift cards can be paid for with your credit card and they work the same as a prepaid credit or debit card. Since your name is not connected with the card, you can now use it to pay for your “dirty little secrets”.
• E-commerce Payment Services
  The first option that comes into mind is Paypal. Online payment services may or may not be a viable method of paying for naughty stuff because it depends on how the company describes your purchase or whether or not they provide money payments and transfers to these risky businesses.

There are probably several other ways to hide your naughty credit card purchases but I do believe that gift cards is the best alternative other than strict cash. Cash is not dead and is still a powerful financial tool.

(Photo credit: Stitch Out Loud)

Related posts:

1. How the Credit CARD Act Affects Young Adults The provisions of the Credit CARD Act of 2009 targeting...
2. No Credit Cards Under 21? You Can Still Build Credit So the Credit CARD Act of 2009 has put a...
3. Rebate Card Best Used With Paypal? I had a Staples Rebate Visa Card worth $15 after...