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January 15, 2021

Can you send money with a credit card?

Sending cash to friends and family? Before you reach for that credit card, grab a calculator. Itâs time to do a little math.

With most everything you purchase online or through apps, credit cards have the edge. With plastic, you have chargeback rights. If youâre overcharged or receive the wrong item, broken merchandise or nothing at all, your card issuer will make it right. And if you use a rewards card, you collect points or miles, too. Win-win.

But itâs different story when youâre sending money through peer-to-peer platforms. Many of them (like Google Pay, Popmoney and Zelle), donât allow consumers to use a credit card to send cash.

Others (like Cash App, PayPal and Venmo), allow credit cards but also charge a fee for the privilege â often about 3%.

See related: How to choose a P2P payment service

The hidden costs of using credit cards to send money

Choose a credit card to send money and you might also end up paying additional fees to your card issuer. Thatâs because the combination of some peer-to-peer apps with certain cards are coded as cash advances, rather than purchases.

For many cards, that cash advance code triggers a higher interest rate that kicks in the moment you make the transaction, as well as a separate cash advance fee thatâs often $10 or 5% of the transaction â whichever is higher. (Currently, the average interest rate for cash advances is 24.8%, while the average APR for purchases is 16.05%.)

So the combination of peer-to-peer service fees, credit card cash advance fees and that higher interest rate (with no grace period) could make sending a few hundred dollars a bit more costly than youâd planned.

No chargeback rights with credit cards

The real kicker: Unlike other venues, you donât have chargeback rights when you use credit cards to make peer-to-peer money transfers.

When you present your credit card in an online or brick-and-mortar store, thereâs a merchant involved â and the law provides chargeback rights for your protection in case you donât get what you were promised in the deal. But in a peer-to-peer money transfer, thereâs no merchant, so currently the laws donât give consumers any chargeback rights, says Christina Tetreault, manager of financial policy for Consumer Reports.

âThe chargeback right requires a merchant,â says Tetreault. âOne of the hoops a consumer has to jump through is to try and work it out with the merchant.â

If you use a peer-to-peer service and send the wrong amount or send the money to the wrong person, most platforms advise that the only way to get it back is to contact the recipient and ask them to return it. And thatâs often the same whether you use a credit card, debit card, bank account or funded account on the platform.

âBe doubly sure when youâre sending the money that youâre putting in the correct information,â says John Breyault, vice president of public policy, telecommunications and fraud for the National Consumers League. âItâs still a buyer beware world when it comes to peer-to-peer.â

The solution

If youâre sending money and want to use a credit card, it pays to do a little sleuthing first. Check out the peer-to-peer site. Does it allow users to send money with a credit card? If so what, if any, fees does it charge?

On some platforms (PayPal is one), you could see similar fees for using a debit card â while sending from a bank account or funded account on the platform is free.

The good news is that many peer-to-peer platforms clearly disclose it when thereâs an extra charge to use a credit card, says Tetreault. With Venmo, for example, youâll get a pop-up message.

Harder to decipher: Will credit card transactions on the platform be treated as a cash advance? If your preferred platform doesnât post this information, you might need to contact customer service. (And how quickly and easily you get an answer can tell you a lot, too.)

Ask your card issuer the same question: Are peer-to-peer money transfers on the platform youâve chosen treated as a cash advance? If they are, whatâs the interest rate, and whatâs the cash advance fee?

âWhat I would suggest is to ask that question, via email, of your financial institution,â says Tetreault. âIt may be in their FAQs. And you want to save that email. If you have it in writing, if thereâs an issue later, youâre better positioned to contest that fee.â

But âthe hard truth is you may not be able to find out ahead of time,â she says.

Another solution: Opt to use a credit card issued by a credit union.

âWith credit unions, the APR is usually the sameâ for purchases and cash advances, says John Bratsakis, president and CEO of the Maryland and District of Columbia Credit Union Association.

Likewise, with American Express cards you pay your regular interest rate and no cash advance fees on peer-to-peer transfers, says Elizabeth Crosta, vice president of public affairs for American Express.

And credit cards from U.S. Bank register peer-to-peer money transfers as regular purchases â with no cash advance fees or cash advance APRs, says Rick Rothacker, spokesperson for the bank.

See related: How do credit card APRs work?

Whatâs your reason for using a credit card?

Take a good look at the reason youâre using a credit card, too. If you want chargeback rights, thatâs not an option. If youâre doing it for the rewards, will the value of those points or miles be eaten up by extra fees or a higher interest rate you have to pay to use the card?

And if youâre using a card because you donât have the cash, that might be a good reason to rethink the idea of sending money in the first place.

Thatâs a huge red flag, says Bruce McClary, vice president of public relations at theÂ National Foundation for Credit Counseling.

âThe need to convert credit into cash is what really gets my attention â because that hints at a lack of savings,â he said. âItâs a reality a lot of people are facing, especially now.â

Cash advances arenât as expensive or risky as payday loans and car title loans, but they should be among your last resorts. If you’re looking for short-term relief, you could ask your credit card issuer for help, or find out if you qualify for a personal loan. You could also borrow from a family member or trusted friend, but be wary of the potential relationship toll if you can’t pay them back.

Getting cash from credit cards

Fifty-two percent of Americans report that the pandemic has damaged their finances, according to a recent survey by the NFCC. More than a fifth of those had to tap savings for everyday expenses, while 16% increased their credit card spending.

And thatâs a sign of financial stress, says McClary. âIt means that, in some situations, they have run out of savings.â

There are ways you can use your card to get cash, though.

Cashing in rewards

Some rewards cards from issuers such as Chase, Bank of America and US Bank let you deposit cash-back rewards directly to your bank account.

And Wells Fargo also will let you deposit its Go Far Rewards directly into another Wells Fargo customerâs account, says Sarah DuBois, spokesperson for the bank.

Gift cards

Many credit cards let you convert rewards into retail gift cards. So a pile of points can help a friend or family member buy much-needed groceries or a few holiday presents.

Or simply âbuy a gift card for someone,â says Bratsakis.

Retailer-specific gift cards and gift cards issued through local and regional retail associations and malls often come with no fees â meaning every dollar you spend goes toward your gift.

Convenience checks

While you can get a cash advance or use convenience checks from your card issuer, both those options often come with fees and higher interest rates. Not a smart money move, especially in the current economy.

While some lenders may offer convenience checks with deferred interest, thatâs not the same as âno interest,â says Bratsakis. Also, if you donât pay the loan in full, will you owe the full interest retroactively?

âThatâs where consumers have to be careful,â he says. With a convenience check or even a cash advance, âthatâs usually where consumers can get themselves into trouble if they canât pay it off and get hit with deferred interest.â

See related: What is deferred interest?

Bottom line

When it comes to peer-to-peer payments, cash really is king. You can then put it into a funded account with the money transfer platform or your bank account. And most peer-to-peer platforms let you do this for free.

âThe safest way to use these services is to send money person-to-person and be diligent about getting all the details correct so it doesnât go to the wrong person,â says Tetreault.

Only send to people you trust and know in real life, she says. âAnd before sending money make sure you understand what, if any, fees you might incur.â

Source: creditcards.com

January 15, 2021

Two? Seven? Twenty? How many credit cards should I have?

It would be easy to fill up a wallet with just credit cards. A card to maximize airline miles. A card targeted at your favorite hotel chain. A card that gives you cash back on groceries. Even a card that earns you points when you spend at NFL games. So, where to begin? And where to end?

How many credit cards should I have?

The short answer: you should have at least two – ideally each from a different network (Visa, Mastercard, American Express, Discover, etc.) and each offering you different kind of rewards (cash back, miles, rewards points, etc.). How many credit cards is too many? That depends on the individual – you should never have more than you can handle.

Experts say the number of cards one should have varies according to individual and circumstance. “Generally speaking, there is no one perfect number,” said Ethan Dornhelm, a vice president at FICO.

While the number varies by generation, credit score and other factors, the average American has three credit cards and 2.4 retail store cards, according to a 2020 survey by the credit reporting agency Experian.

To ensure a mix of credit cards and keep your credit score climbing, credit expert John Ulzheimer suggests asking yourself two questions about the cards in your wallet:

Do you have cards across more than one network? If you have three cards, but all of them are Mastercards, this could be a problem if you run into a merchant who only takes Visa. An example? Costco only accepts Visa now, though you can use your Mastercard on the wholesaler’s website.
Do you have a low credit card utilization ratio? Your average balances across all your cards for the past 24 months “should represent no more than 10% of your overall credit limit,” Ulzheimer says.

Credit utilization – how much credit you’re using each month, on average, of all the credit available to you from all your cards combined – accounts for 30% of your credit score under FICO’s traditional model.

If you can add another credit card while keeping your overall spending the same, you’ll lower this ratio – and boost your score.

See related: What is a good credit utilization ratio?

Two? Twenty? The answer is personal

That former number sounds about right to John Corcoran, a hotel industry executive in Aspen, Colorado.

He’s got two for personal use – both airline mileage cards – and a third for work. He added the second mileage card solely for the points bonus, and is thinking about dropping it before the $90 annual fee comes due. “I don’t like credit cards,” he said. “I don’t like debt.”

On the other end of the spectrum is Naomi Sachs, an international business executive in San Rafael, California. Sachs estimates she has 20 or 30 cards “sitting in a sock drawer, unused” – generally retail cards she signed up for to lower the cost of a purchase at that store or credit cards she acquired for the points boost.

Sachs is carrying around in her wallet about 10 more cards, of which she uses two or three with regularity. As for cash? Maybe there’s a $20 bill in there somewhere. Debit? “I don’t put anything on debit, ever, ever,” she said.

Instead, she charges strategically, and checks her card balances a few times a week to stay on top of her finances. “I aggressively try to maximize my spend, for almost every single dollar, every single time,” she said.

Credit expert John Ulzheimer suggests two things that can help you determine the number of cards that is right for you. Always keep your overall credit card utilization low, and secure access to more than one credit card network.

While merchants in the U.S. accept the big four card networks – especially Mastercard and Visa, and, to a lesser extent, American Express and Discover – you can still find places where some of them are not accepted. Costco is one example. The warehouse club switched in 2016 from American Express as its card partner to Citi, so now the only card Costco accepts in-store is Visa.

And if you travel abroad, you should pack credit cards from a variety of card networks. While Visa and Mastercard are most universally accepted, and American Express signs are increasingly common in store windows across the globe, you will inevitably wind up in a place that doesn’t accept the type of credit card you have with you.

Beyond those two key elements, Ulzheimer explains, many approaches are valid, so long as they work for you.

See related: How to use your credit card wisely

How many cards should you have if…

Want to get more specific? Here’s a list of some particular situations you may find yourself in, and some experts’ thoughts on how that might affect what kinds of cards, and how many, you may want to carry in your wallet:

You’re new to credit cards, or just recovering from a bankruptcy or other bad credit incident

Start with one card, a secured card if necessary, then add a second card when you can prove to yourself that you are making your payments on time and paying your bill off in full each month, says Netiva Heard, a credit counselor in Chicago.

“It’s a learning period,” she said. “That’s why you start with just one card first, to get adjusted to those good habits.”

You want to take advantage of rewards programs

Cards that don’t offer rewards “are a complete waste of your time,” Heard says. She recommends thinking about what rewards would benefit you the most, and whether you want to pay an annual fee to get them.

Cards that don’t charge an annual fee generally come with lower introductory bonuses than cards that do and may not be as generous with rewards points on day-to-day spending. But be careful that you don’t sign up for more rewards cards than you can manage to juggle.

Heard advises most people to keep no more than three to five credit cards total in their wallets. Ulzheimer said two rewards cards seems like more than enough – one for airline points and one for cash back.

You plan to buy a new house or car soon

You should stick to the number of cards you already have, at least temporarily. Don’t open even one new credit card within at least six months of applying for a so-called installment loan. Opening a new card will lower your score by a few points due to the hard inquiry on your credit, “and you want it to be in the best shape possible when you go out to get that expensive loan,” Ulzheimer said.

That said, he added, installment lenders will pay the most attention to whether you’ve had a mortgage or auto loan before, if you paid it off on time and whether you tend to pay off your bills in general on time.

You want to improve your credit score

This is not a reason to get a new credit card, Ulzheimer said. “Opening a new card can actually backfire,” he said, because it will, at least initially, lower your score.

When you apply for a credit card, the issuer pulls your credit report, which triggers a hard inquiry. A hard inquiry can lower your score by five points, but it only affects your credit score for one year. After two years, the inquiry falls off your credit report. Note that applying for multiple credit cards at once can exacerbate the negative credit score impact of inquiries, at least in the short term.

A new credit card can also reduce your length of credit history, a key credit scoring factor that considers the average age of all your credit accounts. While length of credit history only counts for 15% of your FICO score, the effect can be significant if you only have one or two existing credit accounts.

On the other hand, if your new credit card has a high credit limit and you keep your balance low, the card can eventually boost your credit score by increasing your overall available credit.

debit card, or cash, Ulzheimer said.

If you need to close your credit cards to avoid using them, then do it, but know that every time you close a credit card, it can lower your score, he said – because it may reduce your available credit, thus increasing your aforementioned credit utilization ratio.

Divorce hits women harder financially: Here’s how to survive it

Bottom line

So, whether you have two or 20 cards doesn’t really matter. What’s important is that your cards give you access to more than one network and offer you the rewards that best meet your needs (which can change over your lifetime).

And, of course, you need to be sure you’re not juggling so many cards that you can’t keep track of all the payment due dates The whole point of having two to 20 or more credit cards is earning points or cash back on your everyday spending that you pay off every month. All the while, keep your credit utilization low so that your credit score climbs.

Source: creditcards.com

January 7, 2021

How to add an authorized user to an American Express card

Having a strong credit score is important. Consumers need it to get approved for a mortgage loan, to finance the purchase of a car and to qualify for the best credit cards at the lowest interest rates.

By adding friends and family members – or anyone else you’d like – as authorized users on your American Express credit card account, you can help them build a credit score if they lack one or improve one that’s weak. Just be careful: Authorized users can cause you financial pain if they overspend each month.

What is an authorized user?

An authorized user is someone who can use your credit card account to make purchases. Every purchase authorized users make goes onto your account.

These users, though, are not responsible for paying these charges. That’s up to you.

This is why it’s important to only add authorized users whom you trust to not run up charges on your account. You also need to create agreements with your authorized users on how much they can charge each month and when they need to pay for these purchases.

build or repair their credit. Every time you make an on-time payment, it’s reported to the three national credit bureaus – helping improve your credit score in addition to the scores of those listed as authorized users on your card.

One benefit for you as the primary cardholder? If you have an American Express credit card that generates rewards, authorized users can help you build those points faster. Every purchase authorized users make on your card will count toward your rewards bonuses.

Authorized user eligibility requirements

You can add anyone you’d like as an authorized user. Most people add family members, maybe their spouse or children. But you’re not limited to that: You can add friends or even people who work for you, such as a nanny or babysitter.

When adding authorized users, you need to provide their name, date of birth and Social Security number. You don’t have to provide authorized users’ birth dates and Social Security numbers immediately when applying for the card, but American Express does require you to provide this information within 60 days of application. If you don’t, the authorized user’s card will be deactivated. There’s one other limit, too – all authorized users must be at least 13 years old.

How to add an authorized user to your American Express account

Adding authorized users to your American Express account is a simple process. First, log into your American Express account. On your account page, scroll down until you see the “Useful Links” option on the right side of the page. You can then click on “Add Someone to your Account.”

Screenshot showing how to add an authorized user

Your authorized user will usually get the same card that you hold. If you hold the Blue Cash Everyday® Card from American Express, your additional card member will also receive a Blue Cash Everyday card.

There are exceptions, though. If you hold The Platinum Card® from American Express card, you can sign your authorized users up for either the Platinum card or the authorized user Gold card (not to be confused with the American Express® Gold Card). This option offers a limited number of benefits from the Platinum card.

See related: Amex Platinum authorized user perks

You can add as many authorized users as you’d like. And if you have more than one American Express card, you can add authorized users to any of them.

Fee for adding an authorized user

Some American Express cards charge a fee for adding authorized users. Others don’t.

For instance, you can add five authorized users to your American Express Gold card for free. If you want to add more, you’ll pay an annual fee of $35 for each extra authorized user.

Adding authorized users to the American Express Platinum card is costlier: You’ll pay a total annual fee of $175 to add three additional Platinum card authorized users. You’ll also pay $175 each year for each additional user you add after those initial three.

You’ll also pay a $175 annual fee for each authorized user you add to the Delta SkyMiles® Reserve American Express Card.

All other American Express cards charge no annual fees for adding authorized users.

Managing authorized user access

American Express does give primary cardholders some control over the authorized users on their account.

First, the charges that each authorized user makes on your account are itemized on your monthly statements. American Express also allows you to check the balances on your additional cards through your online account at any time.

Unlike some credit card providers, American Express lets you set a monthly spending limit for each of your authorized users. You can set this limit as low as $200 up to your full credit limit.

Pros and cons of adding an authorized user

There are both benefits and potential pitfalls to adding authorized users to your American Express card.

Pros

Increased rewards: The purchases your authorized users make all count toward your rewards points and cash back bonuses. Adding authorized users, then, can help you earn rewards and cash back at a faster pace.
You can help your children build credit scores: Want your children to steadily build a strong credit score? Adding them as authorized users can help do this. Many younger adults have no credit score at all because they don’t have enough of a credit history to have built one. Every time you make an on-time payment on your American Express account, it will strengthen your credit score, as well as help users who don’t have a score build one of their own.
Help to those with damaged scores: Maybe you know a family member or friend with a weak credit score. By adding them as authorized users, you can help them repair their weak scores. Again, every payment you make on time is reported to the credit bureaus. These payments will also count for your authorized users, helping them improve their scores over time.

Cons

You’re responsible for authorized users’ charges: You’re responsible for any charges your authorized users make each month. If they run up an excessive amount of debt and refuse to pay for it? You’re responsible for covering that payment. You can control some of this by setting spending limits for authorized users, but adding additional cards to your account is still risky.
A damaged debt-to-income ratio? Your debt-to-income ratio, a measure of how much of your gross monthly income your monthly debts consume, is an important number for your credit score. If your authorized users add too much debt to your American Express card and refuse to pay it off, it could hurt this ratio. This is especially true if you can’t afford to pay off those charges on your own.

Should you add an authorized user to your American Express card?

Adding authorized users is a worthwhile move if you want to help a family member or friend boost his or her credit. The move, though, could be risky if your authorized users charge too much each month. Only add authorized users whom you trust to abide by any spending rules you set up for them.

Source: creditcards.com

The hidden costs of using credit cards to send money

No chargeback rights with credit cards

The solution

Whatâs your reason for using a credit card?

Getting cash from credit cards

Cashing in rewards

Gift cards

Convenience checks

Bottom line

How many credit cards should I have?

Two? Twenty? The answer is personal

How many cards should you have if…

You’re new to credit cards, or just recovering from a bankruptcy or other bad credit incident

You want to take advantage of rewards programs

You plan to buy a new house or car soon

You want to improve your credit score

Divorce hits women harder financially: Here’s how to survive it

Bottom line

What is an authorized user?

Authorized user eligibility requirements

How to add an authorized user to your American Express account

Fee for adding an authorized user

Managing authorized user access

Pros and cons of adding an authorized user

Pros

Cons

Should you add an authorized user to your American Express card?

Whatâs your reason for using a credit card?