Credit Card and Debit Card Blocking

Sometimes, businesses will charge more on your credit card or debit card than what you actually authorize. If you have ever been told shortly after you stayed in a hotel or rented a car that you were over your credit card limit or had your debit card declined (although you knew you had available credit or money in your bank account), you could have encountered what is known as card "blocking." With blocking, a merchant does not actually take out all that money, but does prevent you from spending it in order to make sure they get paid. A block essentially reserves funds available through a credit or debit card to make sure cardholders do not exceed their credit limit, or, for debit cards, their bank account balance, before checking out of a hotel room or returning a rental car.

Usually, card blocking remains unnoticed -- but that could change if you have a card balance near your credit limit or have a low checking account balance when paying by debit card. If you are away from home on a vacation and without access to the Internet, you may have trouble figuring out how all your charges add up to an exceeded credit limit.

Credit card blocking generally takes place when a consumer checks into a hotel or rents a car, instances where a credit card or debit card is needed prior to actual payment. In such cases, the clerk usually contacts the company that issued your card to provide an estimated total. Once the transaction is approved, your available credit (when a credit card is used) or the balance in your bank account (when a debit card is used) is reduced by this amount. Hotels will estimate on the high side and can lock in the hold for three days or more, until your actual charges clear and are posted. This is a block, which some companies refer to as placing a "hold" on those amounts, and can quickly eat up your credit limit.

While some hotels will add a percentage of the room rate onto the hold, other will tack on a set dollar amount. For example, use of a credit card or debit card upon check in to a $100-a-night hotel room for a planned stay of five nights could mean that at least $500 would be blocked. Additionally, hotels and rental card companies often add anticipated charges for "incidentals" like food, beverages, or gasoline to the blocked amount. These incidentals can vary greatly among merchants. Meanwhile, restaurants run your credit or debit card before you tip and usually add on what they expect you to give. If they guessed too high, the amount is adjusted, although it can take a few days. Merchants set the hold amount, but banks choose whether to hold the funds and for how long.

Visa requests that financial institutions issuing its cards release all holds in under three business of the request or when the transaction clears, whichever comes first.

If you pay your bill with the same credit card or debit card you initially used when you checked in to a hotel, the final charge or amount on that card will likely replace the block in a day or two. However, if you pay your bill with a different card, or with cash or a check, the company that issued the card you used at check-in might hold the block for as long as 15 days after you've checked in. That happens because they were not informed of the final payment and did not know you paid another way.

Blocking is perfectly legal and does not require any disclosure. Sometimes blocking is also used by gas stations, by companies cleaning your home, and other businesses to make sure credit or account money will be available to complete payment.

Holds at self-service gas stations can be especially troublesome for debit card users, since they are not removed for up to three business days, until the gas station carries out a "batch" transaction that gives the bank the actual amount. According to the spokesman for the Consumer Action activist organization, oil companies vary in the hold amount, from $1 to $100.

If you are either nowhere near your credit limit or have plenty of money in your bank account, blocking is unlikely to be an issue. But if you are nearing your credit limit of have a low balance in your account, be careful. Not only can it be embarrassing to have your card declined, it can also be inconvenient, especially when you need to make an emergency purchase with insufficient credit or money in your bank account. With debit cards, depending on the balance in your bank account, blocking could result in charges for insufficient funds while the block remains in place.

In order to avoid the trouble that can result from credit card and debit card blocking, you can take the following steps:

• When checking into a hotel or renting a car (or if another business asks for your card in advance of service) find out if the company is "blocking," how much will be blocked, how the amount is determined, and how long the block will remain in place.
• Use the same credit card or debit card at the start of the transaction that you plan to pay with for hotel, motel, rental car, or other "blocked" bills. Find out from the clerk when the prior block will be removed.
• If you do pay with a different credit card or debit card, by cash, or by check, remind the clerk that you are using a different form of payment and ask them to remove the block promptly.
• Call your current card issuer to inquire if they allow blocks, for how long, and from what types of merchants. If they do, you may want to think about getting an overdraft line of credit from your bank. Ask about a plan that always automatically covers the overdraft and does not involve a separate bank decision on whether or not to pay it each time. Although you could incur some interest on this plan if you don't pay off the amount fairly quickly, you would not have an overdraft that goes unpaid. Talk to your bank about an overdraft line of credit, how it would work, and how much it costs.

To reiterate, when looking for a credit or debit card, it's important to consider whether the issuer permits blocks, for how long, and from what types of merchants. You may want a card from an issuer that uses shorter blocks.

Let Credit Cards Work Together to Save You Money

With credit cards providing all sorts of benefits, choosy consumers can get a lot of mileage from having a decent assortment of plastic. Issuers are creating credit cards that target different categories of users, enabling smart consumers to apply for a number of credit cards and only use each credit card in a way that provides the maximum benefit.

However, this approach should not be taken by consumers who have trouble paying off their credit card balances each month, paying on time, or who have damaged credit histories. Those individuals who do better to limit the number of credit cards they hold.

To start, consumers should learn about the variety of available credit card options by visiting websites like CreditCardXPO.com. When considering rewards credit cards, shoppers can drill down into the terms and conditions of the reward plan to find out such things as when the plan expires and if there is an annual limit to the amount of rewards they can earn.

Consumers may want to evaluate their own household needs, picking three to five credit cards that will help the family the most. Perhaps the family could use a cash back credit card, a gasoline credit card, and an airline credit card. Should both members of a married couple each have good credit scores, the husband and wife can separate their card applications, allowing them to take advantage of new deals from issuers who may have already signed up one spouse but not the other.

Consumers can select a main credit card that provides an appealing rebate, making any transactions with this card that do not fall into another category they have a card for.

Perhaps you will decide to use a credit card that provides 0% interest for one year on balance transfers or cash advances. Consumers should call their card issuer to find out the date the balance must be repaid by to avoid any interest charges, marking this date on their calendar. They may then decide to put this credit card aside and not use it for any purchases until the balance has been paid off. Check to see if the card charges fees for balance transfers.

Meanwhile, they can choose a credit card that offers benefits at places they spend a lot of money, such as home improvement stores or at restaurants.

After a year using their selection of credit cards, consumers may want to add up the total of how much they have earned and saved by using the right card at the right time. With card issuers often retooling rewards programs, consumers may also want to review the terms for the plastic they are carrying and decide if they would do better to make some swaps for cards that would provide greater benefits.

When juggling multiple credit cards, it is very important to keep up with payments so you don't get slammed with penalty fees and charges. Online bill payments can help, with consumers making sure they send an automatic payment to each credit card issuer before the payment's due date.

Credit Cards Provide a Safety Net for Cash-Strapped Consumers

Many people live beyond their means. But for cash-strapped consumers simply looking to get by, credit cards act as a safety net, helping them to make ends meet during tough financial times.

Not everyone who carries a credit card debt is a spendthrift. While some cardholders certainly are compulsive shoppers or buyers with little self-control, this is not always the case. A degree of the massive debt in this country can be attributed to Americans who simply lack the necessary savings to get out a jam. As a result, borrowing money is their only choice when times are hard.

Many Americans, from the middle class on down, find that basic necessities become tougher to pay for each year. With an already-tight budget, the events that can force a consumer to run up credit card debt are by no means unusual.

The cost of medical care can be a huge burden, with many necessary procedures or treatments falling beyond the monetary means of the average person. Likewise, with many U.S. companies scaling back operations or moving them overseas, layoffs are a constant threat to the American worker. Without their main source of income, the unemployed may turn to a credit card as their sole access to funds. Meanwhile, the sky-high divorce rate in the U.S. produces not just broken homes, but difficult financial situations for people accustomed to making ends meet on a combined income.

The critics who charge that the American public are unable to live within their means and are simply too willing to rack up unnecessary debt on credit cards should consider these factors. Challenges like medical costs, job loss, and divorce can leave consumers with little choice but to use their credit card for staples like food, gas, and clothing.

For those consumers who need a credit card to get out of a jam, consider a credit card that offers a low interest rate. That way, when financial pressures do ease up, it will be easier to pay back any outstanding balance on the card.

A Brief History of Credit Cards

Credit cards, as we know them today, have been around for just over half of a century. One of the first credit cards appeared in 1951 when loan customers of Franklin National Bank of New York were screened for credit and those approved were given a card they could use to make retail purchases. Participating merchants copied the customer information from the card onto a sales slip and the bank would credit the merchant account for the loan less a flat fee to cover the costs of providing the loan. In 1958, The American Express Company (a company built on the traveler's cheque business) began issuing a charge card for travel and entertainment charges which was accepted at participating restaurant, hotel and airline merchants.

Cardholders enjoyed the convenience of plastic charge cards (especially when on the road for business) as well as the line of credit offered by the new bank credit cards. Merchants found that credit card customers usually spent more than if they had to pay with cash (which is still true today – the average credit card purchase is 112% more than if cash is used). Accepting bank-issued cards was safer for the merchant than dealing with cash (more secure from internal and external theft and error) and less expensive than creating and maintaining a merchant-specific credit program.

Bankcard Associations
In 1959, Bank of America began issuing the BankAmericard within California, which was the first universal credit card with widespread merchant acceptance. Bank card associations began in 1966 when Bank of America formed licensing agreements with other banks. This enabled them to issue credit cards on a widespread basis and settle transactions among participating banks.

Also in 1966, a group of 14 US banks formed Interlink, a new bankcard processing association with the ability to exchange information on credit card transactions. In 1967, four California banks formed the Western States Bankcard Association and introduced the MasterCharge program (which was later renamed MasterCard in 1979) to compete with the BankAmericard (later renamed Visa in 1976) program. VISA and MasterCard are organizations that both issue credit cards through member banks and set and maintain the rules for processing. They are both run by board members who are mostly high-level executives from their member banking organizations.

As the bankcard industry grew, banks interested in issuing cards became members of either the Visa Association or MasterCard Association. Their members shared card program costs, making the bankcard program available to even small financial institutions. Later, changes to the Association bylaws allowed banks to belong to both Associations and issue both types of cards to their customers.

Credit Card Processing Evolves
As credit card processing became more complicated, outside service companies began to sell processing services to VISA and MasterCard association members. This reduced the cost of programs for banks to issue cards, pay merchants and settle accounts with cardholders, thus allowing greater expansion of the payments industry.

Visa and MasterCard developed rules and standardized procedures for handling the bankcard paper flow in order to reduce fraud and misuse of cards. The two associations also created international processing systems to handle the exchange of money and information and established an arbitration procedure to settle disputes between members.

Other Issuers Join the PartyAs mentioned earlier, American Express was among the first companies to issue a charge card. However, it waited until 1987 before issuing a credit card that allowed customers to pay over time. Their original business model focused on the travel and entertainment charges made by business people, which involved significant revenue from merchants and annual membership fees from customers. While these products are still in their tool chest, they have also developed numerous no-annual fee credit card products offering the same low introductory rates and reward programs as traditional bank cards.

Another relatively recent entry into the card business is Discover Card, originally part of the Sears Corporation. Discover Card Services sought to create a new brand with its own merchant network. The company has been quite successful at developing merchant acceptance, surpassing even Visa in worldwide acceptance locations. A 2004 antitrust court ruling against Visa and MasterCard initiated by American Express, Discover and retailing giant Walmart have changed the exclusive relationship that Visa and MasterCard have enjoyed with Banks. Going forward banks and other credit card issuers will be able to provide customers with an American Express or Discover Card in addition to a Visa or MasterCard. While the bankcard associations have dominated the card business in the past several decades the tide may be turning with the new court rulings.

The credit card has evolved significantly in the past half century and will continue to change with technology as new frontiers in payments develop. What will the payments landscape look like in another 50 years? Only time will tell.

Staying Out Of Trouble With Credit Cards

Isn’t it great having a credit card? It gives you so many advantages. You can purchase items online, make hotel and car reservations, and so many other convenient things. Despite these advantages, credit cards can create a lot of problems for some people. The way you use a credit card should be taken seriously. The following are a few tips and suggestions about credit cards that can help take some of the disadvantage out of the credit card experience:

• Credit cards are like loans. You have to pay what you owe. So, don’t overcharge.
• Track how much you spend on your credit card. Always know your exact balance before going out. Little $20 purchases here and there add up.
• Keep your credit card receipts and compare them with your monthly bill. If there are any discrepancies, report them to your credit card company immediately.
• Don’t give out your credit card to ANYONE, including friends and family.
• Don’t owe more than you can repay. This can damage your credit and hurt your chances of getting a car loan, mortgage, insurance, or even a job.
• Pay your bills on time. If not, you will incur finance charges and interest charges that may make it hard for you to pay back your loan.
• If possible, pay your bill in full every month.
• You are liable for $50 of unauthorized charges per card.
• Don’t pay off one credit card with another. This will lead you down a spiral of mounting credit card debt that you may never get out of.

The way you use credit cards is in how you think about them. We want to offer some credit card tips that might help you change the way you look at credit cards:

• Think of a credit card as a 30-day loan that you have to pay back.
• Act as if you are paying with cash. Don’t spend more than what you would spend if you had cash in hand.
• Go out without your credit cards. When you see something you like, go back home and get it. If you still think you need that item, then by all means buy it. But if by the time you get back home, you don’t think it’s important enough to go back for, let it go.
• Pay with cash, and think of your credit cards as insurance. A credit card can bail you out of many situations when you're out of cash, but it can help reign in spending if you avoid using a credit card for everyday purchases.

These are just some credit card tips that will help you stay out of trouble with credit cards. In this world of buy now-pay later, it is important that you understand the heavy responsibility of credit cards. Behind the plastic is real money and real debt. So, you should take credit card usage seriously.

We hope these credit card tips have helped you to better understand credit cards. By following these tips and changing the way you look at credit cards, it will help you to stay clear of credit card debt.

Tips for Credit Cards

There are many advantages to having a credit card such as being able to purchase items online and make hotel and car reservations. The way you handle your purchases should be taken seriously. Following are a few tips and suggestions about credit cards.

• Credit cards are just like a loan-you have to pay what you owe - so try and not overcharge more than you can afford to pay.
• Keep track of how much you spend on your credit card. Remember that incidental and impulse purchases add up fast.
• Save your credit card receipts. Compare them with your monthly bill. Promptly report problems to the company that issued the card.
• Never lend your credit cards to anyone.
• Owing more than you can repay can damage your credit rating. That can make it hard to finance a car, rent an apartment, get insurance or even get a job.
• Pay your credit card bill on time, and in full when possible. If you don't, you'll have to pay finance charges on the unpaid balance-and it takes forever to get caught up if you just pay the minimum.

Federal law limits your liability for unauthorized charges to $50 per card.

Foreign Transaction Fees for Credit Cards -- Who's Affected?

In recent years, many Visa and MasterCard issuers have begun to include foreign transaction fees for credit card purchases made beyond U.S. borders. Why on earth would the banks choose to do this? Is it just a way for credit card issuers to make more money? It's a natural reaction, but not correct, given the fact that most card fees generally are levied to offset higher costs experienced by banks and major issuers for various types of transactions.

The more specific answer concerning foreign transaction fees is that there is simply more inherent risk involved in credit card charges that are made overseas. Issues involving incorrect conversion of currency, merchant charge backs, and outright fraud are significantly more common. Therefore, the Visa and MasterCard associations, which are comprised of member banks, have taken the position of passing these costs on to all consumers with foreign transactions. The typical fee is a flat 3% fee based on the total transaction, including foreign sales and value added taxes.

Are the fees here to stay? Since we have seen no indications otherwise, it appears Officials say that the fees have been effective in offsetting their increased costs and are probably a permanent fixture of the Visa and MasterCard pricing policy. But there are alternatives for foreign travelers who currently carry a Visa or MasterCard credit card. One option is to use traveler's checks when visiting a foreign country. Another is to use a prepaid debit card, although there may be acceptance issues relative to credit cards. Travelers should consult the terms and conditions or card member agreement offer their prepaid debit cards to understand potential limitations.

Currently, Capital One does not levy foreign transaction fees. So, if you carry one of their credit cards, you are probably in the clear.

Since American Express built its brand and reputation on international acceptance, travelers shouldn't have any travel-related issues with either an American Express charge or credit card other than the small fees involved. But, as stated before, travelers checks can be a safe bet as well. American Express can also meet vacationer's needs in this area as well in the form with their traditional travelers checks, as well as their recently launched travelers check card (a stored value card version of paper travelers checks).

The bottom line is that for most people, foreign travel is going to be a bit more expensive. There are ways to avoid the majority of these fees, however, if you play your cards right.

Credit Cards and Charitable Giving

In recent year's, the often maligned credit card has taken on yet another useful function, that of funding your favorite charities. While most people think about using a credit card for online shopping, buying groceries or filling up their cars with gasoline, the thought of giving with a credit card is somewhat new.

This topic came to the forefront in 2005 with the massive destruction of hurricane Katrina and the related outpouring of charitable giving major charities like the Red Cross and Salvation Army. In television, direct mail and online advertising, the word was quickly spread that not only could donors make a difference in relieving the suffering. And, with their donations to these national charities, donors could make this impact immediately by using a credit card.

Charitable giving with a credit card is not only limited to disaster situations, either. Large charities like the United Way have been able to dramatically expand their humanitarian reach by enabling supporters to make pledges through one-time or recurring monthly payments charged directly to a Visa, MasterCard, Discover or American Express credit card.

Other non-profit organizations, apart from true charities, can benefit from credit card payments. Beyond the basic immediate payment benefit are the positives of capturing donor information for future giving and tax deduction purposes. A good example is local public radio and television stations that offer supporters a way to break up larger annual gifts into manageable monthly increments using an automatically recurring credit card payment.

And, depending on the type of card used to make charitable donations, airline miles, cash back and other credit card-related rewards can potentially be earned on any amount pledged. This is because the charge made to the card is considered a standard merchant purchase transaction by the credit card issuer when calculating eligible purchases.

So, when the time comes to open up your heart and wallet for charitable giving, remember to consider making that gift with a credit card, especially if you have a credit card that offers some type of rewards. Who knows, maybe if you have been religiously using a rewards credit card throughout the year, the cash back earned could itself be enough for a generous donation to a deserving cause.

Pros and Cons of Going Cashless with a Credit Card

We've all heard the prognosticators say that a cashless society is right around the corner. And, they've been saying this since the 1970s, which more and more people opting to use a credit card or debit card for the majority of their monthly purchases. Perhaps the much vaunted cashless world is a virtual never-land where the Jetson-type cars and jet backpacks exist that we all grew up expecting to experience.

Regardless of the hype, it is quite possible to live a largely cashless existence in this country by relying on a credit card. This is particularly true if one lives in a major metropolitan area that provides major retailers and restaurants on every corner. It's almost hard to find a gas station anymore that doesn't have a pay-at-the-pump with a credit card option.

However, this does not mean that cash is dead, by any means. It's just a matter of choice and financial style that determines the degree to which a person relies on plastic, in the form of prepaid debit cards and credit cards, to get through their day to day lives.

There are distinct advantages and disadvantages to both paper and plastic forms of payment. Concerning cash, it can provide a healthy dose of anonymity when used as legal tender to pay for goods and services. And, privacy is a rapidly vanishing commodity in this country, so that advantage shouldn't be discounted. On the other hand, cash generally requires in-person payments to be made, which can be inconvenient compared to credit card and prepaid debit card transactions. The latter can be used remotely in a point of sale scenario where the customer swipes the card through a reader as well as for online purchases.

Another set of positive and negative aspects of cash exists that should be discussed. Cash has an immediate, visceral quality that can actually help control excess spending relative to making purchases with a credit card or debit card. You can try this experiment the next time you make an impulse purchase and, instead of pulling out the Visa or MasterCard, count out what you owe in cold hard cash. It provides a greater degree of clarity regarding the sacrifice you are making in exchange for the object of your desire. The downside of being a heavy cash user is the security issue. Losing cash or having it stolen is always a risk, and once it's gone, it's gone.

Concerning plastic, there are many reasons to consider moving to this progressive mode of financial management. These include convenience, security and automatic record-keeping of your purchases. But, as with many seemingly great things in life, there is a price to pay for this convenience. One is the fact that it's much easier to let spending get out of control when all you have to do is swipe a plastic card to make your purchase.

Another involves the expense of paying interest for months or years if you are unable to pay your balance in full each month.

So, which is better? Cash will probably never go away completely, much to the consternation of Visa, MasterCard, Discover Card and American Express. Even though the major card companies have been going after the micro-payments market in a big way, there will probably always be currency floating around the globe. But, it's good to be aware of the pros and cons of both cash and plastic and manage your finances accordingly.

Save a Tree, Apply Online

Last year, according to Synovate's Mail Monitor Service (the leading research company that tracks direct mail), there were over six billion credit card solicitations sent through the U.S. Postal system to consumers. That's billion with a "b", as in six thousand million solicitations. Just last year the total surpassed five billion pieces of mail for the first time in history, an amazing milestone in the marketing of credit cards.

Why are the credit card companies burying the American public in so many pieces of junk mail? Well, when it comes right down to it, direct mail has been proven to be one of the most effective ways to induce consumers to apply for a credit card. The banks and issuers have learned this over the years from trial and error. This, despite the fact that direct mail response rates have been falling over time, and are down to a record low level of less than one half of one percent. That means that for every 1,000 solicitations sent to American households, 995 go into the trash can. It's enough to make even an anti-environmentalist go out and hug a tree.

Direct mail provides credit card issuers with the ability to finely target their offers according to consumers' risk profiles, though. And, the banks, being publicly traded companies, must meet aggressive growth targets to keep their stock prices on track. So, regardless of how many forests are felled in their quest for increased market share, direct mail is probably going to continue as the primary mode of account acquisition for issuers.

However, there is a better way to apply for a credit card—online, through a secure website. CreditCardXPO.com operates the Internet's number one site to compare credit card offers and apply securely online for the offer that best suits your needs. And, comparing offers is really only something you can effectively do online, which doesn't always work to a particular issuer's advantage. Which is why any given individual card issuer probably would prefer that you only ponder their single offer while sitting at your kitchen table rather than seeing hundreds of competing offers in one convenient location.

Not to mention that applying online is faster and more secure than applying through the mail. Online credit card applications made through CreditCardXPO.com employ state of the art data encryption to ensure security of personal information. And, this data is transmitted at the speed of light, rather than the speed of the U.S. Postal Service. Moving secure data at 186,000 miles per second will always win over a promise of 3 – 5 business days.

If you've reached your limit with receiving unsolicited credit card offers and have a soft spot in your heart for the environment, there is a way to stop the flow of junk mail coming into your home. Consumers can go to the website of the Direct Marketing Association (TheDMA.org) to add their name to the national "Do Not Solicit" list. National marketers are required to scrub the names of those on this list at least once per quarter, so while it is effective, it can take several months after signing up before the solicitations stop arriving.

Regardless of your stance on junk mail, searching and applying for a credit card online is the best way to acquire your next card. That way, you can be assured that you have made an informed decision, rather than reacting to a single offer that shows up uninvited into your mailbox.

What's Your Credit Card Lifestyle?

Everyone has a certain method or style of going through life, whether it's the cut of their clothes, the car they drive or how they decorate their house. The same goes with credit cards, it turns out. Virtually everyone has a fairly immutable style with which they handle their finances, including the way they deal with their credit card spending.

Psychologists report the people develop their sense of style from an early age and often emulate the ways of people or groups that they either admire or wish to be like. This can certainly be seen in the way that teenagers dress and speak. And, depending on how a person's parents and other loved ones deal with their financial resources, a life long pattern can often be ingrained.

For example, if your parents were the types to live for today and spend like there was no tomorrow, there is a pretty good chance you grew to adulthood with a similar credit card sensibility. However, if you grew up in a household that watched every penny and paid every bill scrupulously on time, you probably are not the type to revolve a balance from month to month.

While no particular style is good or bad, you shouldn't allow your spending habits to create a mountain of high interest credit card debt. If that occurs, it can be a prescription for financial disaster unless you can alter your credit card lifestyle. Credit cards can definitely provide immediate gratification, but unless you can pay off those resulting bills there can be terrible consequences.

Probably the most productive credit card style can be to leverage the power of cash back credit cards or other reward credit card programs, like those that involve gasoline rebates or frequent flyer airline miles. This allows cardholders to literally get paid to use a particular issuer's credit card. All it takes is the discipline to keep the card paid off each month, and then the rest is gravy. By concentrating spending that might otherwise end up going to cash or check, those who seek credit card rewards can literally make hundreds of dollars back each year. This value shows up in the form of cash, free airline tickets or merchandise.

Understanding your natural credit card style is crucial in determining how to find the best deal when it comes time to get a new credit card. For those who pay over time, rewards credit cards probably don't present the best option. And, for those who wouldn't dare pay a dime in finance charges, low interest credit cards aren't really important. Those individuals should investigate what type of reward presents the most gratification for their card loyalty. Some people like cash, others like free gasoline and others still want airline miles.

So, regardless of your credit card usage patterns, there is a card out there with your name on it. It's simply a matter of narrowing down the choices and comparing the best deals in your particular category.

How Many Credit Cards Do You Need?

Experts indicate that most Americans carry between five and ten credit cards in their wallets, with some plastic-loving souls holding as many as 50 credit cards at one time. (Although perhaps only George Constanza's massive wallet could contain all those cards simultaneously!) But what is the right number of credit cards for you? Should you have more (or fewer) credit cards than you do right now?

The answer is that there is no exact number of credit cards that you should have at a given time. According to Experian, one of the three major credit reporting agencies, there is no right number of credit cards for everyone. Instead, your ideal figure depends on the combination of how much you spend and how much debt you can pay off. You need to consider how many credit cards will best allow you to build a solid credit history.

In terms of the balance on the credit cards you hold, the ideal range is between 25% and 50% of the available credit on each credit card. Once you pass that level, potential creditors begin to view you as a risk for repayment, in the event you encounter a major financial obstacle, with your ability to repay falling as your debt rises. If you make a major purchase that surpasses 50% of your credit limit, it is a smart decision to split the purchase between two cards. Being able to do this is one of the benefits of having more than a single card. Lenders do not like to see that your credit card is almost maxed out, as that causes them to consider you a risk – someone who is using too much credit and has trouble paying off debt.

It may be easier for you to keep track of a smaller number of credit cards. This includes being aware of what your various interest rates and fees are, and any changes that may occur with them or how they are applied. Having more plastic means there are more bills to pay. If you hold just two or three credit cards, it could be easier to stay on top of your balances and spending. And avoiding late fees may be less of a concern when you can easily recall all your payment dates. If you move, changing addresses for many cards may be a hassle. If a card expires, you will need to keep track of when the new one arrives to avoid potential fraud. This becomes tougher when you hold many credit cards.

However, that does not mean the solution is to simply close old credit card accounts as you add new ones. Debt advisers likewise warn cardholders against closing too many credit cards at one time, as doing so will worsen your debt-to-credit ratio. If you have $10,000 of potential credit and a $5,000 balance, you are using 50% of your potential. If you then close a credit card with a $2,500 balance shortly thereafter, you will have $5,000 of debt and only $7,500 of potential, hiking your ratio to 67%.

Additionally, closing your oldest accounts may cause creditors to penalize you, as they are looking for a lengthy and successful credit history. The age of your account with a credit card lender is one of the factors influencing your credit score. When leaving old accounts open, you should try to use the credit card at least once every six months or so. If you do not, the danger is that the issuer will close the card as inactive, which will hurt your credit report.

On the flip side, opening multiple fairly new credit card accounts has its downsides. If you hold a large batch of credit cards, issuers will be aware that you have a lot of credit already available and may keep you at a relatively low credit line for each of their cards. Some experts believe that consumers should hold fewer cards with higher credit limits rather than more cards with lower limits, even if the total credit limit is the same in both cases. For example, holding two cards with $5,000 credit limits is better than 10 cards with $1,000 credit limits. The reason is that your credit history is impacted by the credit lines available to you and your history in making timely payments on outstanding balances. If you can more successfully keep up with payments on fewer cards that have higher limits, it will be better for your credit history.

When carrying multiple credit cards, it is a good idea to hold major Visa, MasterCard, American Express or Discover Card credit cards, as they are the most widely accepted. If you have trouble paying off your credit cards, it might be wise to find a credit card with a low interest rate to use in emergencies. Also, you may want some of your credit cards to be rewards credit cards that provide cash back, bonus points or airline miles. Using the right card at the right time will allow you to get something in return from your credit cards. As long as you pay this rewards credit card off every month, finding one with a low interest rate in less of a concern.

When holding a variety of credit cards, it is important to have credit cards that help you do what you want. Perhaps you need a small business credit card if you are an entrepreneur, as adding this type of card to your collection will enable you to accomplish goals you could not achieve with a regular consumer credit card alone.

Although there is no exact number of credit cards a consumer should carry, there are a number of factors that will help you decide the right number of credit cards for you. The main thing to remember is that you always want to be able to manage your account. Additionally, it is necessary that you know the interest rates for each credit card, your outstanding balances, and other card features. Your credit card debt is part of a larger picture that includes such things as your mortgage, car loans, and student loans in comparison to your income. Your goal, regardless of your card number, should be to keep your total debt to income ratio below 36% and not let your card credit line utilization exceed 50%, in total or on any one credit card.

Using Credit Cards for Micropayments

Here's the situation: you swing by a convenience store looking to buy a pack of gum or similarly inexpensive item, but when you reach the counter to pay, you realize you have no cash in your wallet. Lucky for you, you have your credit card. But there's a problem – the guy at the counter says they won't accept credit cards for any purchase under $5. Muttering under your breath, you quickly grab a couple additional items that you don't really need just to push your grand total high enough to be able to pay with plastic. As you walk out with more merchandise than you planned to buy, you vow to be sure to always carry a little cash from now on.

Such interactions between consumers and retailers, along with a rapacious appetite for new avenues of charge volume growth, have motivated the credit card companies to help facilitate micropayments, or small-change transactions of $5 or less. By encouraging the use of credit cards for small purchases, lenders hope to cash in on the additional transaction volume that would inevitably occur. In the U.S. alone, around 400 billion transactions of $5 or less occur every year, totaling $1.3 trillion in 2004. Visa estimates that online micropayments totaled $3 billion in 2004, with about half of that for music. And it seems credit cards are steadily replacing cash, even for small payments. In 2005, Visa cardholders spent over $17 billion at fast-food restaurants, an almost 63% increase from the prior year. Research firm TowerGroup predicts that by 2009 the volume of micropayments will reach $11.5 billion domestically and $40 billion worldwide.

For merchants, one problem involved with micropayments is the extra cost. Retailers must pay fees for card-based transactions, which can wipe out their profit on the smallest transactions. Another concern is associated with providing customer service, the cost of which eats into profitability on small-ticket items.

In the pay-as-you go model approach to micropayments, customers are charged each time they make a purchase. But in order to avoid high card-transaction fees, some micropayment service providers aggregate small payments from an individual customer into one bulk payment in order to save on transaction fees. However, aggregation only works if a merchant has repeat business from a single customer.

Although the first round for micropayments that occurred in the 1990s was stymied by the dot-com bubble bursting, it seems the tiny money generators now could be getting a second wind. Chains such as McDonald's and 7-Eleven are already accepting plastic for small transactions. Additionally, changing technology, including peer-to-peer networks, radio-frequency identification (RFID technology used in toll tags), and cell phones, have helped bring micropayments into the mainstream.

With consumers evidently increasingly willing to use credit or debit cards to make small payment purchases on a variety of low-priced goods and services, the indication is that merchants, retailers and card issuers could all benefit from greater consumer access to micropayments. Small-change transactions via credit card, if done correctly, provide a winning situation for everyone involved: Online merchants can draw more customers and increase their profit margins, banks gain new classes of merchant customers, consumers can leverage small expenditures to earn more rewards, and the credit card associations get a new source of fee revenue.

Debit Cards vs. Credit Cards

Credit or debit? That question will sound familiar to anyone who has presented their credit card or debit card when making an in-store purchase. But before you even get to the register, you should ask yourself that very same question in order to decide if you want a debit card or credit card in your wallet.

Current data suggests that debit cards are more popular with consumers than credit cards. A recent TNS Financial Services Consumer Credit Card Program Study indicated that over 60% of consumers prefer using debit cards to credit cards as a payment vehicle, because debit feels more like "real money."

TNS reported that between 2002 and 2005, the number of households using an ATM or debit card grew from 47% to 60%. Additionally, debit card transactions now make up the same value of in-store purchases as cash (each around 33% of total transactions), according to the 2005/2006 Consumer Payment Preferences study from the American Bankers Association and Dove Consulting. While cash payments have remained steady at 33% since 2001, debit card use has grown from 21% of in-store purchases that same year. Meanwhile, credit card use dipped from 21% of in-store purchases in 2001 to 19% in 2005.

Debit cards are also gaining favor as a form of online payment. Based on data from JupiterResearch in American Banker, debit cards will account for 46% of all online purchases by 2010, compared to 41% in 2006. The same data forecasts a slide in credit card use to 35% of all online purchases in 2010 from 41% in 2006.

There are reasons that debit cards have become the plastic of choice for many consumers. Debit card payments come out of a checking account immediately, alleviating concerns over credit card bills and interest rates. Since debit cards are linked to a checking account, they can limit purchases to items cardholders are able to pay for at that moment, unlike credit cards. As such, debit cards may be a good option for those Americans that are carrying a debt load. But be careful not too overspend on a debit card, also, as doing so could produce a nasty insufficient funds fee. Separately, using a debit card with overdraft protection means that debit charges can be paid out of your savings account or a home equity line of credit when your account becomes overdrawn.

Also, skillful debit card users enjoy low-to-no cost for paying with their plastic. The majority of institutions do not charge for debit card transactions, making paying with one a no-cost way to practice some financial discipline.

However, debit cards are not superior to credit cards in all respects. Consumers without a debt burden who pay their balance in full each month can benefit from up to 40 days of free float, or the time between when a purchase is made and when you actually pay your bill. With debit cards, the money is withdrawn from your account almost instantly.

And, that immediate withdrawal with a debit card is the reason credit cards offer greater protection for consumers. With a credit card, you have the option of withholding payment should you be unsatisfied with the quality of a purchase. But when paying by debit card, there is a good chance the merchant already has your money by the time you realize something is wrong with the purchase.

The law is on your side when it comes to credit card purchases. The Fair Credit Billing Act basically means you have zero liability for fraudulent purchases, poor-quality or damaged merchandise, or for merchandise that was never delivered. Also, credit card users are not required to pay any amount that may be in dispute, meaning the cardholder retains use of the fund for the amount in question until the issue is resolved. While policies have changed in favor of debit card transactions (providing greater protection and in many cases zero liability), you still don’t have the degree of consumer protection with a PIN-based card as you do with a credit card. The zero liability provided on debit cards is only a policy and therefore can change at any time, like interest rates and fees.

In the event of a debit card theft, the victim may only find out after the money has been withdrawn from the account. Should you be aware that your debit card is lost or stolen, you can take action. The Electronic Fund Transfer Act gives you the right to dispute an error on your bank statement and gives you some protections. For unauthorized card purchases, your liability is capped at $50 if you notify your bank within two days of realizing your debit card is missing. But between two days and 60 days, you could be responsible for paying up to $500 of a crook’s spending spree. If you wait more than 60 days to contact the bank, you will be stuck paying every cent of the unauthorized charges, which could cause you to lose everything in your checking and overdraft accounts.

While debit cards are increasingly being used by consumers, there are still a number of ways in which credit cards remain superior. Due to more limited consumer protections, a debit card may be best used for making smaller, routine purchases such as gas or groceries (although several rewards credit cards offer 5% cash back for these purchase categories).

Paying by debit is quick and easy, and will not result in you paying any interest. However, as mentioned earlier, debit card users do not experience the float enjoyed when making a check or credit card payment. When making debit card payments for large purchases, it is best to do so at a store that allows you to thoroughly inspect the merchandise before buying. Also, large purchases may need to go on your credit card due to the fact some debit cards carry a maximum daily spending limit. Finally, credit cards remain preferable for ordering merchandise over the phone or the Internet, as they allow the consumer greater recourse in case something goes wrong.

Understanding Your Credit Card's Card Identification Number

Credit card transactions where the merchant is unable to physically see the credit card in your possession (such as with payments over the Internet or by phone) often require a short numerical code usually found on the back of the card. Have you ever stopped to wonder what that number is and why it is requested?

That number is known as the CID, or Card Identification Number. For Visa, MasterCard, and Discover credit cards, the CID is the three-digit number located on the signature line on reverse side of the card. For American Express credit cards, the CID is a four-digit number on the card’s front.

The purpose of providing the CID is to let the merchant know that you have the credit card in your physical possession when you pay for a product or service.

In that way, reading off or typing in the CID acts as a security precaution. Even if someone had your credit card number, they still would not know your CID. A thief who attempts to use your credit card number (perhaps off a receipt he or she found) would be unable to make purchases using your card at merchants that require the CID in order to complete a transaction.

Therefore, you should always keep your personal CID number closely guarded. A common technique used by thieves is to call and ask for your CID number, while pretending to be your credit card issuer. So, it's advisable to never provide your credit card’s Card Identification Number to any party that calls you making the request.

However, it can be expected that a reputable retailer will ask for the information should you initiate the call and request to make a purchase over the phone or perform a similar transaction online. In these instances the information can and should be provided to facilitate the transaction.

Credit Cards and Home Purchases

With credit cards so prevalent in U.S. consumers' wallets nowadays, there is a great likelihood that many potential home buyers have some plastic in their pockets. When preparing for a home purchase, consumers should consider the complicated role a credit card can play in that process.

Having a credit card can work in your favor when you go to buy a house. This is largely due to the way that a consistent history of timely credit card payments can help you build a strong credit history and a high credit score. That can be a big advantage for a consumer in the market for a home. A positive credit history can help a consumer secure a loan more easily.

However, on the flip side, negative items on your credit history and a lower credit score could limit your options when buying a home, even if you are currently making all your credit card payments on time. Indications of financial stress on your credit report that could ding your score include new credit card issuances and high utilization ratios, which measure the ratio of credit card balances to credit limits. To avoid problems as you get ready to buy your house, get your utilization below 50% and avoid applying for additional credit cards.

Meanwhile, your credit card can impact the ability to qualify for the loan you are seeking because the required payments are added to the payments associated with the mortgage in determining how much you can afford. What is known as the "total expense ratio" is calculated by lenders and used in qualifying borrowers is the sum of the mortgage payment, property taxes, homeowners' insurance premium, and other debt service, including credit cards, all divided by the borrower's gross income. But if you are able to keep your total debt service payments under 8% of your gross income, it will not restrict the amount you can borrow.

In order to buy a house, you will need some cash for down payment and settlement costs. Usually, the larger the down payment the lower the cost of the mortgage. However, the relationship is tiered, not smooth. For example, if you from nothing down to 3% down, the cost of the mortgage will decline, but if you go from 3% to 4%, it won't. While there are exceptions, the major tier levels are 0%, 3%, 5%, 10%, 15%, and 20%.

In conclusion, credit card users looking to buy a home should make sure their card utilization ratios are below 50%, their total debt service payments are under 8% of their gross income, and their target down payment is in hand.