How Opening New Credit Cards Affects Your Credit Score

Whenever I mention that signing up for new credit cards to get account opening bonuses is a great way to make extra money and get frequent flyer miles and gift cards, I find that people are concerned about the impact this will have on their credit score. If you currently have excellent or very good credit, unless you are planning to finance a major purchase like a house or a car within the next six months, you will probably not see any meaningful ramifications from taking advantage of multiple offers.

If your credit score is marginally good or poor, however, the slight dings to your credit score that will result from opening new accounts might be enough to cause problems for you should you need to fill out a rental application, apply for a job, or do anything else where your credit score is important. Of course, if you are already having trouble with credit or have in the recent past, it is probably in your best interest to limit your temptations and not open any more cards.

There is a way to get around worrying about any of this, though. To open new credit cards without seeing any impact on your credit score, only apply for business credit cards. Did you know that anyone can apply for a business credit card? Where the application asks for your business name, put your name down. When it asks for the business type, check sole proprietorship. When it asks for your tax ID number, use your social security number. The credit card companies do not seem to care whether you actually operate a business or not; they just want more customers. Business cards often have annual fees, though, so pay attention to the card's terms before signing up.

Opening more personal credit cards does affect your credit rating, but it can have both negative and positive impacts. The more available credit you have and the less you've used of it, the higher your credit score. Having $10,000 of available credit but only using $1,000 of it at any given time gives you a credit-to-debt ratio of 10%, while having a card with a $1,000 limit which you routinely max out gives you a 100% credit-to-debt ratio. If you can open new cards without spending much on them, having more accounts can actually improve your credit score slightly.

The average ages of your accounts is another factor in determining your credit score, so adding new accounts can lower of your score. However, you can always close the new cards when you're done getting the bonus, and the average age of your accounts will go back to what it was before.

Also, your credit score gets dinged every time a lender does what is called a hard credit pull, meaning that they inquire about your credit in such a way that it shows up on your credit report. Lenders often do hard credit pulls when you apply for a new credit card, and this will show up regardless of whether you get approved for the card. These pulls affect your score for about six months.

There are a couple of online tools you can use to see how different factors affect your credit score. Bankrate's FICO score calculator will ask you a series of questions, then estimate the range that your credit score is likely to fall in. By seeing the types of questions they ask, you can get and idea of what factors affect your credit score. Also, while I have not used Credit karma myself, if you want to monitor the impact of opening new accounts on your credit score, you can use their free daily credit monitoring service. My Money Blog has written a post on credit karma and can also tell you five ways to get a free credit score.

To learn about the credit card opening bonuses available, see Five Cent Nickel's post on $1200 Worth of Deals.


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Eight Financial Tips For Young Adults

"Where do I start?" seems to be one of the most common questions I get from folks who have decided that it's time to take charge of their finances but are overwhelmed by the prospect of tackling a new subject for the first time.

My latest Investopedia article, Eight Financial Tips For Young Adults, is designed to answer that question. Check it out to learn the basics of managing your money effectively and protecting your wealth.

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Stimulus Checks Start Going Out Today - To Some

Today, the IRS started giving stimulus rebates to over 130 million qualified households. To be eligible, taxpayers must have had at least $3,000 of taxable income in 2007, must have filed a tax return, and must have a valid Social Security number.

According to the IRS, "The last two digits of your Social Security number and whether you opted for direct deposit" on your tax return "will determine when you receive your payment." If, like me, you didn't realize that including your direct deposit information on your tax return would vastly speed up the payment process, you may be stuck waiting until as late as July to get your check. Check out the payment schedule to see when you can expect your rebate. If you're not sure how much you'll be receiving, use this payment calculator.

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Get More Bang For Your Travel Buck: Stay at a B&B

Last year, I stayed in a bed and breakfast for the first time. I was a little worried about the experience ahead of time because of all the negative stereotypes about bed and breakfasts having horribly tacky decor and forced socialization with bizarre strangers (Gilmore Girls, anyone?) but the experience was wonderful. Maybe it was just beginner's luck, but I found that bed and breakfasts, despite sometimes being more expensive, can be a much better value than hotels. Here's why.

1. Insider information. When you stay at a bed and breakfast, you get access to one or more locals who can give you great tips on what to do and where to eat that you won't necessarily find in guidebooks. In our case, the B&B owner had pull with some of the local restaurants and was able to get us last-minute reservations at top-notch restaurants that otherwise would have been impossible to get into. This type of personalized service can be particularly indispensable in a foreign country where you don't know your way around things like the currency or metro systems, provided that the owner speaks your language.

2. Inability to rely on name recognition. While the Radisson or Marriott can rely on their names to maintain an overall good reputation and get your business in the future even if you have a bad experience at one location, bed and breakfasts don't have this luxury. They generally only have one location and one set of employees, meaning that they have a major incentive that hotel chains simply don't have to offer you great service and an overall great experience. If you have a bad experience at a B&B and tell 10,000 people about it on a site like Trip Advisor (no affiliation, though I am a fan of the site), the owners can be in serious trouble since they can't blame one bad employee or fall back on the revenue from their other 250 locations.

3. Quiet. Spring breakers, motorcycle gangs, and other folks who are likely to keep you awake late at night don't stay at B&B's. If you're looking to avoid screaming children, though, make sure to look for places that aren't family friendly. The place we stayed at only had a couple of rooms with one bed each, which made it highly unlikely that any families would be staying there.

4. Safety. Nothing is guaranteed, but when you're staying at a smaller place, you're more likely to know exactly who works there and who has access to your room, which greatly reduces the possibility of you playing the lead in Dateline's next hotel horror scandal.

5. Cleanliness. Again, with the greater level of personal responsibility that comes with running a B&B, the owners have a greater incentive to keep the place very clean. The B&B I stayed at was probably the cleanest place I have ever slept.

6. Homemade breakfasts. Forget stale apricot danishes and bran flakes. At many B&B's, a delicious homemade breakfast is included in the cost of your room. The meal we had would have cost us at least $15 a person in a restaurant. You might argue that you don't need to spend $15 on breakfast and you'd rather stay somewhere cheaper, and that's fine, but for me a flavorful, filling breakfast is a rare treat and an ideal way to get my energy up for a busy day of exploring. It can also save you money on your lunch bill when you aren't as hungry later on because you stuffed yourself silly with homemade french toast and fresh-squeezed orange juice that was actually freshly squeezed.

7. Meeting other travelers. Bed and breakfasts tend to have a sense of community that makes it easy to talk to other guests, if that's your thing, whereas in hotels it's an unwritten rule that you should keep to yourself. If you're the "keep to yourself" type, your usual tactics will still serve you just fine in a B&B, but if you're interested in finding some other people to do activities with or just learning from their experiences (i.e. whether you should try the restaurant they ate in last night and what to order), bed and breakfasts are ideal and can enhance your traveling experience.

8. Comfort. Where else can you get nice, soft bedding while you're traveling without staying in an overpriced four or five star hotel? If you hate the stiff generic comforters and funny foam blankets found in most affordable hotels, you'll love the bedding at a B&B, which is likely to feel a lot more plush and homey. I enjoyed an old-fashioned quilt, down comforter, and high thread count sheets during my recent stay.

The place I stayed recently cost $150 a night, which is more than I usually spend on a hotel room. B&B's can run the gamut, from under $100 to over $300, so they aren't categorically a better deal than hotels (I'd still pick a $100 hotel room over a $300 B&B). B&B's do have a lot of potential advantages that many people are unaware of, though, which in many cases can make them a better overall value, dollar for dollar.

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Making the Most of American Express Rewards Points

Last year, I signed up for an American Express Business Gold card thanks to word around the money blogosphere that I would get 25,000 points for signing up which I could redeem for a free airline ticket. I do a lot of flying, so that reward really appealed to me.

When I actually went to redeem the points, I found that the reward wasn't quite as good as I had anticipated. I could only redeem my 25,000 points for $250 towards a flight, and I couldn't find a flight that got me where I needed when I needed for $250. I didn't see the point in paying any amount of money for that plane ticket when I had plenty of other frequent flyer miles to redeem, so I redeemed some American Airlines miles and took my trip.

What to do with my Amex Gold miles, though? There are a dizzying array of options for redeeming miles. You can get any of the latest iPod models, a watch, a white gold ring, gift cards, travelers checks. While at first this selection might sound fantastic, it's actually not. The points have higher or lower values depending on what you redeem them for. For example, I could redeem about 20,000 points for a 4GB iPod Nano Video, which costs $140 at Amazon. Alternately, I could redeem 20,000 points for $200 worth of gift cards at the Gap, Barnes and Noble, FTD, Bloomingdales, Bath and Body Works, or a few other places. If I wanted a more flexible American Express gift card, though, my points would lose half their value: a $25 Amex gift card costs 5,000 points. Clearly, the best value was to go with one of the rewards where I received a value of $10 for every 1,000 points.

Or was it? I then discovered that I could transfer my Amex Gold points on a 1:1 basis into frequent flyer miles. My Frontier account was only 3,000 miles away from a free ticket. If I wanted to buy those miles, which I was strongly considering, it would have cost me $84. If I wanted to continue earning miles at a snail's pace through my Frontier credit card, I would have had to spend $6,000 on that card, which would take a long time.

My Delta frequent flyer miles also needed some help. I only had 2,400. I decided to get an extra 17,500 by applying for their credit card, which has no annual fee for the first year. I got another 2,500 miles by adding an authorized user to my account. That left me only 2,000 miles away from another frequent flyer ticket, so I transferred 2,000 Amex Gold points to my Delta account.

That still left me with a whopping 20,000 points to redeem, which I traded for some of the high value gift cards mentioned above.

Assuming that a free plane ticket is worth at least $250 (usually at least $300, in my experience), signing up for just two rewards credit cards is netting me $700+ in free stuff.

To summarize, here's what I did:
-applied for and got approved for a new Delta credit card: 20,000 miles (free)
-transferred 2,000 points to delta ($1.00 service charge) = $250+ free plane ticket
-transferred 3,000 to frontier ($1.50 service charge) = $250+ free plane ticket
-Redeemed 17,500 points=$175 at the gap
-2500 points=$25 at bath and body works

Talk about a steal. If you needed some inspiration to keep your eyes peeled and take advantage of the fantastic credit card bonuses that come along occasionally, this should motivate you. I made over $700 with very little effort. However, these deals are not for everyone: if you don't manage credit well or miss payment deadlines, steer clear. The fees and interest you might rack up will negate any rewards you earn.


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New Investopedia Articles

I've recently had two new articles published over at Investopedia. Check them out:

Budget Without Blowing Off Your Friends - Sometimes it's difficult to find ways to hang out with friends who spend more money than you want to or are able to. These tips will help you maintain your friendships without straining yourself financially.

Nine Reasons to Say "No" to Credit
- Speaking of not straining yourself financially, avoiding credit card debit is a great way to stay in the black. Here are nine things that should persuade you to put away the plastic.

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Travel Gadgets You Don't Need

If you're preparing for a major trip, you may find yourself pouring over catalogs of travel items admiring all the clever gadgets like noise canceling headphones and disposable underwear. You've gone through the catalog and circled everything you want, only to find that it all adds up to $500. What's a savvy budget traveler to do? Find a cheap alternative or do without. Here's a list of items you may be tempted to purchase and why you don't really need them.

1. $300 noise canceling headphones. Most noise canceling headphones only reduce sound by 16-17 decibels, which isn't very much. The bonus that you get from them is that while they reduce outside noise, they also let you listen to music, theoretically at a lower volume that spares your hearing since you aren't trying to compensate as much for outside noise. If you absolutely must have these headphones, which are usually bulky, heavy, hot, and uncomfortable, there are $60 pairs that will get the job done just as or almost as well as the $300 pairs. You can also opt for small, lightweight in-ear noise canceling headphones, which comes in a similar price range as the ear-covering version.

By far the best way to save money, weight, and space, however, is to simply buy a white noise CD or MP3 download and listen to it through your regular headphones (earbuds work best for this hack). An album that I think is highly effective is called 3D Rain for Sleep and can be downloaded from iTunes for $9.99. I've tested most of their white noise tracks, and this one blocks out the most sound without even needing to be turned up too loud. A major advantage of buying an MP3 online is being able to listen before you buy. You can further increase the effectiveness of these tracks by getting earbuds that go part way into the ear canal, which are a little pricey, but still cheaper than most noise canceling versions.

Another inexpensive, compact, and featherweight option for cutting down on noise while traveling is 3M earplugs, which reduce noise by 29 decibels (though you'll have to get used to the sound of your own breathing).

2. Toiletry kits. New FAA regulations limiting you to three-ounce containers that fit into a one-quart bag have rendered fancy organizational kits useless. If you're seeking a little more organization, a small, clear, zippered bag seems to make it through security just as well as a Ziplock bag.

3. Compressing packs. These are large, plastic zippered bags that you put your clothes in. When you roll the bags up, the excess air gets pushed out through special valves at the bottom, ostensibly saving space. I've used these in the past and I don't think they make packing easier, especially for backpackers. Their shape doesn't fit easily in a backpack, they don't seem to save much space, and, perhaps most importantly, your clothes will be horribly wrinkled when you take them out. If you're going to use these, you might as well just wad your clothes into a ball -- this saves space and wrinkles your clothing just as effectively, and it's a lot faster and cheaper.

4. Cotton shoe bags. These are for storing your dirty shoes so they don't get the rest of your stuff soiled when you pack up. What ever happened to cleaning your shoes (you'll have to do it sooner or later anyway), putting them in plastic bags from stores (which are free and take up almost no space), or wearing your dirty shoes and letting the dirt fall off naturally?

5. Fancy luggage tags. There are many ways to help your bag stand out that don't cost $5 - 10. I identify my suitcase by a piece of twine I tied around the handle. Strategically placed duct tape or colored yarn will also do the trick.

6. Disposable airport slippers. The idea behind these is that when you have to take off your shoes to get through airport security, you can put these on instead of exposing your bare feet to the grimy airport floor. Have the people who invented these ever heard of socks?

7. Passport wallet. I cringe every time I see one of these. When you carry your passport in a convenient and stylish case, you're just making yourself a convenient and stylish target for thieves. Your passport belongs in your money belt, where no one can see it and you're sure to notice anyone trying to swipe it. Most thieves won't bother getting under your pants to steal your belongings when they can grab someone else's off their arm.

8. Slashproof bags. Even if your bag is protected against being cut open by a knife and having your valuables snagged, it can still be snatched off your shoulder or disappear anytime you put it down. When you're traveling in certain areas, you just have to be hypervigilant of your bag at all times and store your valuables in your money belt. That's just how it is.

9. Disposable underwear. If your underwear doesn't fit in your bag, you might be trying to travel with too small a bag. If you really want to throw away your underwear every day, there's no need to go high-tech. Just get the cheapest stuff you can find at a notoriously inexpensive store like Target or Wal-Mart. You want to be comfortable when you're traveling though, and wearing cheap underwear that doesn't fit the way your usual stuff does is a great way to ruin your day.

10. Phrase books. In situations where you'll most need this, you probably won't be able to look up the phrases you need as quickly as you'll need to use them. You're better off learning a bit of the language before you go, getting good at gesturing, pointing, and smiling, carrying around a small notepad and pen so you can quickly sketch what you need, or getting an electronic translator that will not only be fast, but often work in multiple languages (which can be a great space saver if you're traveling through multiple countries). For better or worse, you can actually get by speaking English in many situations, but don't leave home expecting that everyone you need to communicate with will understand you. At least attempting to speak the local language will put you on better terms with locals and enhance your travel experience.

Travel is expensive enough as it is -- there's no need to add to that cost by purchasing a bunch of unnecessary gadgets. Save your money for things that will truly enhance your travel experience, like quality lodging or an authentic local meal.

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Why Highly Qualified Applicants Aren't Responding To Your Job Posting

Potential employers, listen up! Did you know that the way you write your job ads might be turning away potential job seekers, especially those you would consider the cream of the crop? Browse through the job postings on America's most popular online classified website, Craigslist, and you're likely to note some disturbing similarities in the postings. Here are some common mistakes companies make in their job postings (and their attitudes) when seeking new employees.

1. Providing shockingly little information about your company or the position you're seeking to fill. It's understandable if you don't want to give away your company's name so that your phone won't start ringing off the hook, but to ask someone to spend their precious job-seeking time creating a customized cover letter and resume for a position that's barely been explained is hardly fair. As a job candidate, I'm not interested in the opportunity to work for someone who wants to start wasting my time from the minute they introduce themselves to me.

2. You offer no pay. I don't care if you offer the "possibility of a full-time position." There is a "possibility" that if you do not pay me, I will not have the "possibility" of paying my rent, feeding myself, paying for health insurance, paying my electric bill, or paying for any of the other things that give me the "possibility" of working for anyone in the first place. If your company is a startup with no real money, at least show that you're willing to make some kind of effort towards treating your employees like human beings and offer minimum wage. If your business isn't making enough money for you to be paying people, you aren't at the employee stage, anyway. Having employees is a privilege afforded to those who are successful enough in their business pursuits to afford them. It is not a right.

3. You want me to already know exactly how to do the job you are hiring for. Here's the thing about a new job: it's new. You're going to have to train someone. Your job candidates may have known how to do everything perfectly at their last jobs, but every job is different. If someone has four years of accounts payable experience and you don't want to hire them because that experience doesn't include matching invoices to packing slips, you're being unreasonable. Do you think a previous employer would have kept someone for four years if they weren't capable of learning new tasks?

4. You only want to hire someone who is "outgoing." This is seriously insulting to introverts, whose desire to keep to themselves often results in very productive work habits because they aren't wasting hours talking to co-workers or gabbing on the phone. Even departments that seem to require extroversion, like sales, can benefit from having some introverted folks on their team. After all, some potential customers might be put off by a gregarious personality and might be more willing to listen to someone who doesn't scare them off.

5. The job you've advertised as part-time is described as "work up to full time." Most candidates are either looking for a full-time job or a part-time job. If someone wants to work full-time, they will probably not be looking in the part-time listings unless they are desperate for work, and desperate employees are usually not going to be the best match for your company.

No matter how much care you put into your online job posting, you will probably still receive plenty of offensively bad responses, but these tips will help you project a positive image of your company and attract the best and brightest candidates for the job you're looking to fill.

Photo by Stephanie Asher

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Paying Taxes with your Credit Card

It is generally accepted advice in the personal finance world that you shouldn't be getting a tax refund because if you are, you've been making an interest-free loan to Uncle Sam when you could have been the one earning interest on that money. Now there's another reason to owe tax rather than to get a refund: the ability to pay your tax bill with your credit card.

If you're responsible with credit and have a rewards credit card, owing taxes at the end of the year will allow you to accrue rewards like cash back or frequent flyer miles on your taxes. Of course, trying to pay all of your federal taxes by credit card is not a good idea, because if you haven't already paid 90% of the tax you owe by April 15, you'll have to pay a penalty. However, for that remaining 1-10%, paying your bill with your credit card could allow you to earn frequent flyer miles or get cash back...on your taxes! Some cards even offer an additional incentive. Last year, I saw this one: "Pay your taxes and earn double miles with United Chase Visa." Why not earn rewards on an expense you have to pay anyway?

Well, there are two potential drawbacks here. First, this plan is no good if you're not disciplined enough to set aside the extra money you'll need to pay your taxes in a high interest savings account so that the money will be there when its time to pay and earning interest for you until April. You don't want to go into credit card debt, or add to your existing credit card debt, to pay your taxes. That's just adding insult to injury. The second issue is that there is a convenience fee for paying with your credit card. The fee with most of the service providers who offer the convenience of letting you pay your tax bill by credit card is between 2.49 and 3.93% of the amount of your payment. This is a significant downside. If you're paying your taxes with a card that gives you 1% back on all of your purchases, you aren't really earning any cash back--you're just adding an unnecessary expense to your tax bill. You'd be better off paying by check, in this case. And speaking of unnecessary tax expenses, don't forget about that $15.95 fee to e-File if you don't qualify for Free File. There's nothing wrong with sending your return by mail. Even when you add registered mail and return receipt to the cost of a first class stamp, you're still saving about $11 over e-filing.

The ability to pay your taxes by credit card is not all bad, though. Let's say you owe $1000 and you want to pay with your United Chase Visa, which normally gives you one mile per dollar spent but is offering two miles per dollar spent to pay your taxes (I don't know if this deal is available this year, but it was last year). Because of the convenience fee, you're actually paying $24.90 to $39.30 for those 2,000 frequent flyer miles. Normally, if you wanted to buy miles from United, you'd have to pay $94.13 for 2,000 miles, so if you're looking to top off your account in order to get enough miles for a free ticket, you're actually getting the miles for about 25-33% of their usual price. If you're not topping off your account, though, there's really no reason to pay for miles when you can earn them for free with your usual travel and everyday purchases (at least, that's my philosophy on frequent flyer miles).

So should you pay your tax bill with your credit card? In most cases, no, but in certain situations, certain people can benefit from this option.


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