Is it time to give up on that large national bank and find a local credit union to take care of your hard-earned money?

Understanding some of the subtle differences between banks and credit unions can help you make a more educated decision, so here are a few important things to keep in mind before making up your mind.

Banks

Banks are for-profit institutions whose main focus is to maximize profits for their shareholders. Never forget that.

However, while the interest of shareholders and depositors may not always align, banks are limited in the fees they can charge relative to other banks due to heavy financial regulations and the extremely competitive nature of the industry.

For instance, if you were charged a much higher interest rate at one bank, it would be easy to take your business to another bank down the street that provides practically the same product.  Likewise, if your bank were to start charging a fee for checking accounts or debit card use, it wouldn’t be too difficult to find another bank that still offers these services free of charge (let’s hope this is still true in a few years).

The main point here is that banks are in the business to make money for their shareholders, which means your interests may not always be the highest on their list of priorities. That said, there is often a certain amount of convenience that comes with utilizing a large national or international bank. Easy access to ATMs and branches are important to many people, especially those who travel often, which may make a big bank more appealing in spite of other shortfalls.

Credit Unions

Credit unions are non-profit entities regulated by the government but owned by the depositors themselves—not third-party shareholders. In addition, credit unions, like banks, are required to hold insurance on deposits, but the insurance on your accounts can vary as the amount isn’t necessarily set by the Federal Deposit Insurance Corporation (FDIC) at the minimum of $250,000.

Most credit unions have varying degrees of deposit insurance, which is often a product of the union’s charter, the local municipality, and the state and federal government. This is one reason why credit unions obtain the stigma of being a bit “more risky” than a large national bank. Of course, based upon what we’ve seen in recent years with many of the large banks, it’s difficult to say any banking institution isn’t risky!

If you’re legitimately concerned about the higher risk associated with a particular credit union, you may want to do some additional research into how the specific union operates its charter. But, keep in mind, the lower fees and higher return on interest you’ll likely receive by using a credit union verses a large national bank may alone be worth the additional risk.

So how do credit unions deliver these lower fees and higher returns on interest? Apart from the revenues needed for operation, credit unions generally return profits to depositors in the form of lower fees and higher interest rates on savings accounts and deposited securities like certificates of deposit (CDs).

This benefit can often carry over to low interest credit cards as well. If you obtain a credit card from a local credit union, the fees and interest rates can be substantially lower than what you might find elsewhere. Unfortunately, the rewards programs associated with the cards don’t usually pack the same punch as those offered by larger credit issuers.

Photo by NNECAPA

I’ve been a long-time fan of the Citi ThankYou Cards. In fact, I’ve personally used the Premier version of the card since 2007 and have blogged many times about why the Citi ThankYou Premier card makes me smile.

While the rewards program definitely isn’t as lucrative as it was back in 2007, my wife and I still continue to rack up a lot of points on this card and redeem them for some pretty spectacular travel deals. For example, last year we booked $2,400 worth of tickets to the Cayman Islands for only 120,000 points through the ThankYou Network.

That’s $1,200 worth of points for tickets worth double the value. Anytime we can double the average value of points we’ve earned absolutely free, it makes hopping on the plane to head off on a beach vacation just that much more gratifying!

The Premier Card packs a fairly hefty annual fee of $125 now for new cardholders, which immediately turns a lot of people off. That’s understandable, and it’s probably why Citi launched a new version with no annual fee called the Citi ThankYou Preferred Card, which has been quite popular among consumers searching for no annual fee credit cards with rewards.

Citi has now rounded out the ThankYou Card trifecta by launching a 0% interest version of the card this week too. If you like the ThankYou Network as much as I do, prefer a rewards credit card with no annual fee, and are searching for card options with a 0% interest promotional period, the Citi ThankYou Card may be the perfect fit.

With 0% interest on purchases and balance transfers for 15 months, it certainly doesn’t have the longest no-interest period available on the market, but it’s only 3 months shy of the market leaders. In addition, an anniversary bonus of up to 3%, 1 ThankYou point per dollar spent, and no limit on points that will never expire all make this a no annual fee credit card worth checking out.

To read more about the details of this card offer, check out Creditnet’s complete review of the Citi ThankYou Card and consider applying securely online today.

Before you begin cursing the IRS for trying to dig even deeper into your pockets, let me make it clear that the tax law hasn’t changed.

Traditional rewards earned by making purchases with credit cards are still considered tax-free. You can rack up as many points as possible on your purchases without worrying about a 1099-MISC for the value of the rewards mysteriously showing up in the mail.

Sign-up bonuses for credit card accounts, on the other hand, have technically never been safe from the tax man. The value of a gift that’s received when opening a new account, whether it be 50,000 points or a shiny set of new golf clubs, is generally considered reportable income by tax professionals.

Has anyone been reporting it this way on their personal tax returns? I highly doubt it. Most credit issuers haven’t been sending 1099 notices to the IRS or cardholders, and the IRS certainly hasn’t been coming after anyone for underreporting a few hundred dollars in income from rewards credit cards. If there is a case out there, I’ve never heard of it.

However, Citi drew a lot of public attention to this issue last week when customers began reporting that they had received 1099 tax notices from Citi for credit card sign-up bonuses valued above $600. In response to all the media hype around the issue, Michelle Eldridge, an IRS spokeswomen, was recently quoted saying “when frequent flier miles are provided as a premium for opening a financial account, it can be a taxable situation subject to reporting under current law.”

So there you go. Sign-up bonuses can create a taxable event, but the catch is the IRS doesn’t require banks to send a 1099 unless the amount is over $600. And since many sign-up bonuses fall under that threshold, I have a feeling a lot of underreporting of income will continue by taxpayers. The question that remains is will the IRS begin cracking down on this in the near future? For the sake of rewards credit card lovers that chase lucrative sign-up bonuses every year, let’s hope not.

Have you received any 1099 notices from banks that provided you with sign-up bonuses last year?

Also, if you don’t receive a 1099 even though you were the recipient of a sign-up bonus, do you plan on reporting what you received as income on your tax returns? If so, how will you place a value on the rewards?

I’d love to hear your comments below.

Photo by JD Hancock

Dear Creditnet: I lost my job a year ago and have been unable to find full-time work ever since. I’ve also fallen behind on my bills during the past 6 months, which has really trashed my credit scores. I think my FICO scores are now below 600.

I’ve heard that employers can pull credit scores when reviewing a job application. Is this true? If it is, this may be one reason I keep getting turned down for new jobs. Is there any way to avoid this?

Answer: Unfortunately, this is one of those credit myths that just won’t seem to die. The truth is that while potential employers can obtain access to your credit reports with your permission (in most states), credit reporting agencies do not provide credit scores to employers.

Let me repeat that so it’s very clear. Credit reporting agencies, like Experian, Equifax, and TransUnion, provide credit reports to employers but not credit scores.

The important thing to note here is the difference between your “credit reports” and “credit scores”. They are not the same thing, even though many people tend to use the two terms interchangeably.

Credit reports are generated by credit reporting agencies and contain a history of your credit-related activities as well as other personal information. Your credit scores, on the other hand, are 3-digit numbers generated from the information found in your credit reports. They don’t remain as a permanent part of your credit reports and aren’t tracked by the credit bureaus.

The bottom line is a potential employer isn’t going to turn you down for poor credit scores, but they could very well choose to overlook your application due to the information they find in your credit reports.

If you have bad credit scores, your credit reports may have some questionable marks on them, right? If so, be prepared to explain what they are and why they don’t make you a poor candidate for the job you’re seeking

I blogged about the Discover More Card – $0 Balance Transfer Fee deal when it was first launched just after the new year. At the time, Discover wouldn’t say anything more about how long the deal would last other than it was a “limited-time offer”.

What credit card offer isn’t, right?

Since we couldn’t get any specific dates out of them, we assumed that the no balance transfer fee deal might only last through the month of January. However, now we’ve received confirmation from Discover that the offer, which features 0% interest for 12 months and no balance transfer fee, has been extended through the entire month of February.

So, if you’ve been procrastinating the transfer of your high-interest credit card debt to a 0% interest credit card, the good news is you’ve still got some time to take advantage of this great deal from Discover. The bad news is you’re still paying high interest on your old credit card debt if you haven’t taken advantage of it yet, so stop procrastinating!

I’ve received several emails from readers asking what the catch is with this card. There is no catch folks.

It really is a completely free 0% interest loan for 12 months. It’s as good as it gets when you compare balance transfer credit cards. The only thing you have to do is make sure you pay your balance off in its entirety before the 0% promotion ends, as you would with any 0% interest deal.

Keep in mind that the Discover More Card – $0 Balance Transfer Fee is for those with excellent credit. If your FICO scores aren’t at least in the mid-700s, I wouldn’t count on an approval.

To read more details on the pros and cons of this credit card offer, check out my original post from January 3rd, 2012: “Discover More Card Launches No Balance Transfer Fee Deal”.

Dear Creditnet: I have a new rewards credit card that offers 0% interest for 12 months. My plan is to transfer all my existing credit card debt to this card so I can save on interest in 2012.

Do I have to make minimum payments at all during the first year, or can I just save up my money and make a one-time payment in full before the 0% interest promotion ends?

Answer: Look closely at your credit card statement. If a minimum payment is required, your statement will clearly state how much it is and when it’s due.

Most major credit issuers require minimum payments these days on deferred-interest promotions, so I would frankly be quite surprised if your new 0% interest credit card didn’t include such a requirement. Log into your account online or review your most recent credit card statement, and you should be able to easily find the answer to your question.

Whether or not a minimum payment is required each month, let me suggest that the best way to tackle credit card debt after transferring balances to a 0% interest credit card is by creating your own payment plan and then sticking to it throughout the promotional period. Just making the minimum payment during 12 months of 0% interest should never be the goal—the goal is to pay off the entire balance during the promotional period while saving as much on interest as possible.

You’re playing a dangerous game if you decide to wait until the very last minute to pay off your entire balance. Instead, try making regular monthly payments as part of your overall plan to pay off the entire balance at least a month before the promotional period ends.

Photo by Andres Rueda

Leaps in technology generally don’t obliterate older methods overnight. As you might imagine, there are often transitional developments which help to act as bridges from one generation of technology to another.

We’re currently seeing this take place in the auto industry as we work to move away from fossil fuels and into something more sustainable. Likewise, we’re seeing a huge transition take place in the credit card industry. Soon, NFC chips will most likely replace our current standard wallets. But until that shift actually occurs, we’ll continue to see technologies like Square and Card.io become transitional players in the industry.

You’ve probably heard of Square before, but the latest to hit the market is the lesser-known Card.io. Much like Square, Card.io is a mobile phone application that allows users to accept credit cards anywhere as long as they have a smartphone. Unlike Square, however, the application doesn’t require a hardware dongle to perform a manual swipe. A photo-scan of the card is taken instead, and the card is charged as a “keyed-in” transaction.

While the photo-scan makes transactions more convenient, it also increases the per transaction fee by about a percentage point because of its keyed-in nature. However, if using the app means the difference between getting paid or not, I’m sure convenience will easily trump cost in many cases. Of course, Square allows you to perform “keyed” transactions as well, but does not include the scanning feature—something which could easily be added in the near future.

Finance blogs have been awash with concerns over security since the launch of both Card.io and Square. This doesn’t seem to be slowing down the growth of Square, which has been garnering massive support from consumers and merchants all over the country. Square’s cost of doing business is certainly higher though, as they have been shipping out millions of their dongles to merchants for free. Card.io, on the other hand, represents a “creditable” competitor (pun intended) with what I would imagine to be much lower overhead.

The makers of this new transitional technology are none other than the founders and employees of AdMob, the mobile advertising company that was acquired by Google in 2009 for $750 million. According to recent press releases, the company’s September-released API has amassed over 160 independent developers eager to utilize the technology in their applications.

The concern is will consumers like the thought of letting strangers take a picture of their credit card information? While Card.io touts how secure and private its service is, the average consumer will most likely be quite skeptical of the process.

What do you think? Would you let a merchant take a picture of your credit card in order to process a transaction?

Photo by The Consumerist

In my last post regarding Charge-offs and Collections, I wrote about how a lot of consumers become confused when they pull their credit reports and find an overdue credit card account reporting twice.  The same debt can’t be listed on your credit reports twice, right?

Wrong.  In fact, most credit card accounts that have been charged off by the original creditor are not only reported as charge-offs, but they’re also reported as collections after they’re sold or transferred to a third-party collection agency.  It’s a double whammy to your credit scores and a very frustrating situation to find yourself in.

So, can you actually remove a charge off from your credit reports? And what if you pay off the collection?  Will the original charge-off then disappear?  What happens to the paid collection itself?

I can’t tell you how many times I’ve seen these questions in our Credit Talk Forum.  It frankly can be quite confusing, but the simple answer I give to our forum members is usually the same.

Yes, charge-offs can be removed.  No, charge-offs won’t disappear just because you paid off the collection. And finally, paid collections are just that- paid collections.  They will probably remain on your credit reports, and the FICO credit-scoring model doesn’t really like them any more than “unpaid” collections either.  Of course, the caveat here is that everything is negotiable when dealing with creditors, so success in removing collections or charge-offs from credit reports will vary from situation to situation.

The key is to not be afraid to negotiate with your credit scores in mind.  While it’s not always possible, many consumers have found success negotiating the removal of a collection when making payment in full.  If you don’t ask for it, it’s not going to happen, so push for it.  Ask multiple times, and don’t give up the first time someone says it’s impossible. If you do finally get a yes, get it in writing before doing anything else.

Likewise, it can’t hurt to take some time after the collection has been paid off to send a goodwill letter to the original creditor requesting that they delete the charge-off now that the debt has been paid in full.  Remember, the original creditor has absolutely no incentive or obligation to remove the charge-off from your credit history, but it’s certainly worth a try.  You may be surprised at the result.

Lastly, the FCRA provides consumers with the right to an accurate credit report, which means credit bureaus aren’t allowed to report anything that’s inaccurate, incomplete, or unverifiable. Don’t be afraid to dispute items that fall into these categories through the 3 major credit reporting agencies—Experian, Equifax, and TransUnion. Credit reports often contain errors, and something as simple as a valid dispute could result in a quick deletion that otherwise might have damaged your credit scores for many years.

You have the dreaded double whammy on your credit reports—a charge-off and collection for the same old debt.  But how did this happen?

Frankly, the whole process can be quite confusing to most consumers, which is why I’ve done my best to break it down into the following six simple steps.  While your situation might be a little bit different, my experience has been that 90% of the time this is exactly how it all plays out.

Why You Have a Charge-Off and Collection for the Same Debt

1. The original creditor charged off your credit card account because you stopped paying and they considered it a business loss.  They report it as a charge-off to the major credit reporting agencies.
2. The original creditor decides to make a few bucks on your uncollectible debt so they sell it to a collection agency that specializes in buying charged-off debt. Note that the debt could also be transferred instead of sold.
3. The collection agency reports the account as a collection to the credit bureaus in hopes that this will anger you even more and prompt you to pay up.
4. Now you have a legitimate charge-off and a collection on your credit reports for the same debt.
5. The collection agency is badgering you and you want to finally take care of the debt, so you pay off your outstanding balance to the collection agency.
6. You’re surprised to find out that after paying off the debt both the collection and the charge-off remain on your credit reports.

If you’ve been in this situation before, you know just how frustrating it is.  Many people assume that the negative entries on their credit reports will simply go away after they make payment to the collection agency, but this just isn’t the case.  In fact, the negative marks can remain for up to 7 years from the first date of delinquency, even if they’re already paid off.

So, how can you try to responsibly take care of your old debts while avoiding negative entries on your credit reports for the next 7 years?  Stay tuned, because I’ll be covering this question in a follow-up post later this week.

If you have immediate questions you want answered, try joining our Credit Talk Forum today where there are over 30,000 members waiting to offer their support and advice.  Once you check out our community, I’m sure you’ll want to be a part of it. And it’s free, so why not give us a try?

Dear Creditnet: I know that my credit utilization ratio makes up a large part of my FICO credit score.  I’ve also read that it’s important to keep my ratio under 30%, or preferably at 10% or less.

My question is would it be better to keep my credit utilization ratio at 0% or 10%?  If I pay my balance off every week and my credit utilization is reported at 0%, is that hurting my FICO scores?

Answer: A 0% credit utilization ratio certainly isn’t hurting your FICO scores. Technically, it’s the best credit utilization ratio you can achieve, which means it should also translate to the best possible FICO credit scores.

However, even if you never carry balances on your credit cards, a 0% utilization ratio can be difficult to achieve.  Credit issuers all report balances at different times each month, which means keeping track of when your balances are reported and trying to pay them off in advance can become quite tricky for many cardholders.

If you have just one card and wish to pay it off each week in order to keep your available credit as high as possible, keep doing it.  Your FICO scores will thank you.

Targeting a 10% credit utilization ratio isn’t bad though.  Your credit scores will not be negatively affected.  In fact, according to FICO, credit card users who have scores above 760 have an average utilization of 7%.

Credit utilization is obviously an important factor to keep in mind as you work on improving your credit scores, but I wouldn’t get too hung up on the difference between a ratio of 0% and 10%.  Shoot for 10% and your credit scores will be happy.

If you can do even better, that’s great, but there’s no reason to obsess over constantly keeping your credit utilization at 0%.  Use your credit cards sparingly, aim for a credit utilization ratio of around 10%, pay your bills on time and in full each month, and you can count on your credit scores improving over time.