Strategies for Getting Credit Card for First Time
Q: How can my adult daughter, a divorcee, obtain a no-annual-fee credit card on her own? For the last six years, she has shared a card that bears the names of my husband and me.
However, the card has been used exclusively by our daughter, who has consistently repaid the entire balance every month. She does not have a high income or a large bank account. But she has demonstrated an ability to handle credit responsibly. Isn’t there some way for her to qualify for her own card? --D.S.
A: Your first step should be to contact the issuer of your present card and explain how the card has been used and by whom. If your daughter’s credit history is as good as you say, the issuer should be willing to give her a credit card.
If not, you could offer to be responsible for the debts in the event your daughter fails to pay off her balance. This should be all the incentive and protection the issuer should need.
If the issuer is still unwilling, you can begin shopping around for a credit card. By now you probably know that many banks and credit card issuers charge some sort of an annual fee. Although you may feel that these fees are unjustified, most are in the neighborhood of $15 to $25 per year--hardly a huge sum.
It would seem a bit foolish if your daughter were to close off a chance to get her own credit card and build her own credit history over such a small amount. Furthermore, once your daughter establishes a sterling credit history, she should have no trouble qualifying for any type of credit card she wants.
Still, there are many issuers that do not charge annual fees. The most widely held credit card in the country is the Discover card, issued by Sears, Roebuck & Co. Not only does the card carry no annual fee, it offers up to a 1% rebate on amounts charged on it. However, qualifying for a no-fee card may be a bit more difficult.
Although it may not make a difference to your daughter, since she apparently pays off her credit balance entirely every month, consumers should pay more attention to the interest rates a credit card carries for unpaid balances than to its annual fee. Differences in rates, which are now ranging from 14% to 19% depending on the issuer, can amount to hundreds of dollars in interest charges every year--far more than a $25 annual fee.
Consumers who have difficulty qualifying for regular credit cards because of a spotted credit history should consider applying for a “secured” credit card. Although these cards look and spend like other charge cards, they are unlike conventional cards in one important aspect: Holders are required to deposit an amount in a bank account at least equal to the amount of their card’s credit limit.
The deposit is frozen and off-limits to the card holder for as long as the card is in use. Although this process can require a considerable up-front cash outlay, it is an important way consumers with credit problems can establish a good credit history.
Bankcard Holders of America provides additional information about banks offering secured credit cards. The nonprofit organization also publishes a report detailing the interest rates and annual fees charged by many (but not all) credit card issuers in the United States. Each pamphlet, costing $4, is available by writing Bankcard Holders of America, 560 Herndon Parkway, Suite 120, Herndon, Va., 22070.
Options for Taking Cash Out of a House
Q: I need additional cash, and I want to lower the interest rate I am paying on my home mortgage. Should I refinance my mortgage or take out a second trust deed--or even get a home equity loan? My goal is to repay the money I need quickly, so I can get my monthly payments back down as low as they can go. What should I do? --J.P.
A: You haven’t given a great deal of information on which to base our advice. But we can tell you the issues you should be considering. How much money do you need? If it is a small amount, refinancing the mortgage may cost you more than it is worth, since most refinancings carry fees and points totaling at least $2,000.
However, if your mortgage rate is 10% or more, you might do well to consider a refinancing since current rates on 30-year fixed mortgages are running in the neighborhood of 8%.
Another consideration in a refinancing should be your need for additional cash. This will increase your loan balance and your monthly payments, possibly offsetting any gain you get from a lowered interest rate.
Since you intend to repay the amount as soon as possible, you should try to get your lender to agree to recalibrating your loan entirely--at no additional cost to you--once you repay the money. By doing this, you can get a lower interest rate, satisfy your immediate need for cash and set yourself up for a reduced monthly mortgage payment once the additional loan is repaid.
Home Profit Exclusion Isn’t Automatic Deal
Q: If a parent lists a child as a joint owner of a personal residence, is the child entitled to use the $125,000 profit exclusion when the home is sold? --K.B. H .
A: To be able to use this one-time exclusion, a person must be at least 55 and have owned and occupied the home for three of the last five years. If a parent simply puts a child’s name on the home’s title, for estate planning or whatever reason, our experts say the child will not meet the ownership criteria and would not be entitled to use his $125,000 exclusion upon the home’s sale.
