Have you ever stopped to think about how you handle your credit cards? If you’re typical, you probably haven’t given much thought to this. You use your credit cards, receive statements, pay your balances (we hope) and that’s it.
But the credit card providers don’t look at things the same way. In fact, they actually divide credit card users into three distinct categories as follows.
1. The revolver
This is the person that credit companies love the most. And if this is you they want to keep you as a customer for as long as they can. Why do credit card companies love Revolvers? The reason is simple. These people are virtual money machines for the credit card companies. The name Revolver refers to people who do not pay off their balances at the end of every month, which causes revenue-generating interest to build up and increases the total amount they’ll eventually have to pay. The most diverse type of credit card users is probably the Revolvers. They make up a wide demographic that includes everything from minimum-wage workers to high-powered financiers. If you carry a balance from month to month it doesn’t matter whether you’re the type of person who buys big-ticket items on a small time budget and then makes the minimum payments on a maxed out card or not, you’re still a Revolver. However, it isn’t necessarily bad to be a Revolver. It’s just that you’ll usually end up paying more for most of the things you buy than other people do.
2. The deadbeat
When you see the term deadbeat you might immediately think it’s a person that doesn’t pay their debts. Well, you’d be wrong. A Deadbeat is really a responsible credit card user. But the credit card companies don’t make a lot of money on Deadbeats, which is why they give them such a negative name.
Deadbeats have one simple thing in common that’s undesirable to the credit card companies but desirable to almost everyone else. These are people who pay their credit card bills in full every month. Unshakable deadbeats are credit card users who never pay a single penny in interest, which keeps their credit cost as low as is financially possible. A slightly more easy-going cousin of the Deadbeat is the Transacter. This is a person that typically pays their balances in full and on time but that sometimes allows small amounts of money to ride from month-to-month.
Deadbeats are usually people who are financially responsible and don’t spend more money than they know they can afford even when faced with tantalizing bargains. If you are a Deadbeat and not admired by your friends and family members for your self-control, these people are probably just not paying a sufficient amount of attention.
3. The card hacker
No, this is not a person who is a con artist or identity thief. In this case, Hacker is the type of credit card user who opens two cards at once. One of them will have big bonuses and double rewards in key categories but a very high APR. Simultaneous to this the Hacker will also open a bare-bones reward card or one of those 0% interest balance transfer cards where there are no interest charges for the first 12 months.
Once these people have opened these two accounts they will then charge a few thousand dollars on the big rewards card. For example, they might book a vacation they had already budgeted for or purchase major appliances. They then immediately move this charge over to the card with the low rates on balance transfers. What ultimately happens is that the Hacker ends up with a big stack of earned rewards points and then a full year to pay off their balances before they have to pay any interest.
Does this sound like an exciting strategy? It might be but it does have its risks. Before you attempt credit card hacking, you need to take into account whatever balance transfer fees there might be which would negate the benefits.
Judging by the statistics, the odds are that you’re a Revolver. The Financial Industry Regulatory Authority released a study in April 2012 that 55% of men and 60% of women carry a balance from month to month on their credit cards. In addition, about 40% of American adults make just their minimum payments every month, which means they’re paying more than just the retail price of their purchases.
There’s nothing wrong with being a Revolver
There is really nothing bad about being a credit card Hacker or Revolver. It’s your own business how you choose you to use your credit cards. But our advice is to not let that nasty sounding term of Deadbeat put you off. When it comes to credit cards, it’s definitely best to be a Deadbeat.
Watch out for misleading credit card offers
Whether you’re a Revolver, Hacker or Deadbeat you need to watch out for misleading credit card offers. We read of one recently where the person received a letter from Bank of America that referred to an” Annual Privacy Notice” and on the inside included several mentions of “your prepaid card.” Since the person who received this offer was not a Bank of America customer, she was immediately suspicious. If you receive envelopes like this that refer to “annual privacy notices” or to prepaid cards from banks where you don’t have accounts, be sure to read fine print. These mailing pieces often have misleading print on the outside and then turn out to be advertisements or calls for action for some product or service.
If you are receiving solicitations like this or any others that refer to your privacy or that include calls for action you don’t understand, be sure to get your credit reports from the three credit reporting bureaus – Experian, Equifax and TransUnion. You can get them free once a year either from the individual credit bureaus or altogether on the site www.annualcreditreport.com. You will need to carefully review these reports checking out every entry including all of your accounts, and your identification, which would include your name, address and Social Security number. Be sure to look for any inquiries or new accounts you don’t recognize. In the event you find there are accounts you don’t remember having opened or information that is incorrect, immediately contact the appropriate credit bureau and ask that it put an alert on your credit report and let you know if there are any new inquiries.
If you find mistakes
In addition to looking for accounts you don’t remember having opened, you should look for errors in your credit report. Last year the Federal Trade Commission released a study that 20% of us have errors in our credit reports and 5% of us have errors so serious they could be hurting our credit scores. You should look especially for items that have gone to collection, judgments, missed payments, late payments, bankruptcies foreclosures and tax liens. If you find any of these in your credit reports and you believe they are errors, you will need to contact the appropriate credit bureau and dispute them. This means writing a letter to the bureau along with whatever documentation you have that supports your case. You should send copies of this to the other two credit bureaus as well. When you dispute an item, the credit bureau is required by law to contact the institution that provided the information and ask that it be validated. In the event the institution cannot validate the information or fails to respond within 30 days, the item must be removed from your credit report.