a question from a reader…

Q: Is credit card interest tax deductible?

A: Let’s be honest – the U.S. tax code is a messy nightmare and it’s not always obvious what’s deductible and what’s not. We all know mortgage interest can be deductible, but is credit card interest tax deductible too? Well unfortunately, the answer is usually no, but sometimes yes (I’ll discuss in a moment). However what’s shocking is that credit card interest payments were tax deductible in the past… then on Oct. 22, 1986 Reagan signed a bill that eliminated interest deductions for consumer loans, which included cars, credit cards, etc.

However here’s a possible exception for claiming credit card interest on taxes:

Qualified business expenses?

Do you work for yourself? Do you own a small company? If you have made interest payments on qualified business purchases, then you might be able to deduct the interest for those – check with a tax professional or your small business tax software for the answer.

When credit card interest is tax deductible, one of the problems is that some people are known to mingle both business and personal expenses on the same card. So how do you figure out which percentage of the interest payments correspond to solely your business expenses? Unfortunately that might be impossible to and then you won’t be able to write off any of the interest. That’s why it’s so important to have a credit card solely dedicated to business. Need one? Then check out our credit card reviews!

Last week a Credit Card Forum reader emailed this question:

Q: What is the best credit card for airline miles?

A: Airline credit cards just aren’t what they used to be. Here’s what you need to know about most of them today:

Annual fee vs. how much you spend
The truth is that for many people, paying a high annual fee just won’t make sense. For example, if you only spend a few hundred dollars per month, then a big chunk of those rewards you earn over the course of the year will just being going to balance out the cost of the annual fee you paid. Unfortunately, almost every airline miles credit cards charge an annual fee, making them illogical for smaller spending.

The airlines your miles can be used for
The problem with cards branded for a specific airline is that the miles are usually only good for their flights. But what happens if they don’t offer a flight to your destination, or even if they do, it’s an indirect flight with multiple layovers? So when you’re asking yourself what is the best credit card for miles, you need to also consider if you ever fly on more than one airline… and most people do.

How many miles you earn on spending
The biggest drawback with airline credit cards is you typically only earn one mile per dollar. If those miles are only worth around a penny each, then that’s basically the same as getting 1% back on spending… it just doesn’t make sense to pay an annual fee to get average reward value.

What is the best credit card for airline miles?
Your best bet is to go with a card not affiliated with a specific airline. That way you have the flexibility to book whatever flight is most convenient. Furthermore, you want a card that gives more than 1 mile per dollar.

Here are our two sponsored recommendations:

For no annual fee:
The Blue Sky gives rewards that are worth 33% more than the typical 1% card. Check out our American Express Blue Sky review to learn more.

For a $60 annual fee:
This is the best deal on the market- Discover Escape gives you 2 miles for every dollar spent (that’s double than most cards). To learn more and for a special signup bonus for our readers, check out our Discover Escape review

Q: My wife and I plan on taking a trip in a few months. I think I remember getting a mailing in the past for an American Express airline companion ticket and am interested in getting that for this trip. Which of their credit cards offer this?

A: You’re probably thinking of the Platinum charge card, which used to offer free companion airfare as a perk. However they stopped offering that benefit a few years ago, if I recall correctly 2007 was when they ended it.

However, there is an American Express companion ticket offer still included on one card. The Delta Reserve card gives cardmembers one free domestic companion ticket. It does have quite a few other useful benefits, like first checked bag flies free, complimentary access to Delta Skyclub lounge, etc.

The one drawback is the annual fee is $450. Yes, it seems pretty high and isn’t appropriate for everyone. But once you add up the value of the companion ticket and bonus miles, trying out the card for at least a year actually makes sense. To find out more check out our Delta Reserve card review which includes a sponsored signup offer.

So that’s the only American Express companion ticket offer available when it comes to their cards.

New credit card late fee laws went into effect this past week that significantly lowers how much you will have to pay. The Federal Reserve has issued its final ruling, placing a cap on the maximum amount a late fee can cost:

• For the first late payment the fee is capped at $25
• If there is more than one late payment in a 6-month period, the fee rises to $35 for every offense after the first
• The late fee can’t exceed the amount that is owed. For example, if the minimum payment due is $15, then the late fee can’t be more than $15.

The above rules also apply to fees for exceeding your credit limit. However on that note, for months now all credit card holders in the U.S. have a right to opt-out of the ability to spend past their credit limit (and therefore, making it impossible to go over the limit).

• Inactivity fees are not allowed. However credit cards can still have policies where an annual fee is levied if certain criteria isn’t met (i.e. having no account activity for more than 12 months).
• If a credit card raises your interest rate (i.e. for repeated late payments) they now must review that decision again after 6 months. That being said, there is no requirement for it to actually be lowered at that time.
• Multiple fees can no longer be given for a single violation. For example, a returned payment and late payment fee cannot both be given.

These laws go into effect on August 22, 2010.

We’ve all seen the commercials for the Chase cash back debit card that offers up to 3% cash back, but is there a catch to this offer? Well, here’s some important things to consider…

You have to pay an annual fee
Unfortunately, they’re charging an annual fee for this cash back debit card. It will cost you $25.00 per year, per card.

There is a cap on cashback
The Chase cash back debit card has a cap on rewards; a maximum of $500 in cashback can be earned in a year.

Purchases made using the PIN won’t count
In order to get cash back they are requiring the purchases to be rung up without a PIN. That means when paying for a purchase, it will be required to ring it up as a “credit” instead of a “debit” transaction.

Only certain categories earn cash back
Not every purchase made with a Chase cash back debit card will earn a rebate. Only the following categories will qualify: groceries, fast food/coffee, gas, drugstores. That means all other purchases will be earning you zero rewards.

There’s monthly tiered spending to qualify for 3% cash back
The Chase debit card with cash back doesn’t give 3% to everyone. In order to get 3%, the total spending across all purchases and merchants will need to meet a certain tier:

$0.01 to $499.99 per month = 1% cash back in above categories
$500.00 to $999.99 per month = 2% cash back in above categories
$1,000.00 and above per month = 3% cash back in above categories

Not always the same rights as a credit card
This is not specific to the Chase cash back debit card, but rather all debit cards in general, regardless of their issuer. There are certain rights (protected by federal law) that apply to credit cards, but not debit cards. Also something else to keep in mind is that if your debit card number is stolen, that could cause your checking account to be temporarily overdrawn (which in turn might cause your outstanding checks for rent, mortgage, car payment, etc. to bounce).

Should you apply for the Chase cash back debit card?
I think it’s great that they’re bringing rewards to debit cards, but when you think about it, paying an annual fee to only earn 3% on a few categories doesn’t make sense, being that there are free credit cards that offer similar programs. Another big drawback is that you are NOT getting 1% cashback on your other purchases (like most credit cards offer) and that means you would be missing out on a lot of cash back.

You can get a higher 5% cash back from Chase (sponsored)
Instead of the Chase cash back debit card, you should check out their new credit card rewards program. You can get a full 5% cash back and no annual fee – check out our Chase Freedom card review to find out how!

As you probably know, Upromise is a savings program that helps parents save for their kids’ college.  It’s a great concept, but they do have their critics. Check out this Upromise credit card review to find out the pros and cons:

For starters, here are the two different credit cards they offer:

(1) Upromise MasterCard w/ grocery and dining rewards
This card gives back 1% on all purchases (which are deposited into the 529 savings account) so essentially, it’s like a 1% cash back credit card.

On purchases from Upromise restaurants, the card gives a 10% extra. They do the same thing on participating grocery and drugstore items.

(2) Upromise MasterCard w/ grocery and gas rewards
This Upromise credit card also gives 1% on all purchases.

Like the card above, it also gives the 10% match on eligible grocery and drugstore items.

For gas purchased from Exxon or Mobil stations it does 2%. This is extremely disappointing for three reasons (1) you need to buy 20+ gallons per month (2) it only applies to Exxon and Mobil stations, which tend to cost a lot anyway, and (3) the standard rewards at these stations are only 1 penny per gallon.

Citi used to be involved with Upromise credit cards but Bank of America took over in 2009 and now issues/manages them.  This is a turnoff for many people, since we all know B of A isn’t exactly known for stellar service.

Are either of the Upromise cards worth it?
At first glance, the 10% sound exciting. But you have to realize that is only on eligible items. For most people only a small percentage of their shopping would qualify.
For example, let’s say you spent $100 at the grocery store and among that was $5 in eligible Upromise items (and those participating items gave 1%). Your total rewards would break down as follows:

1% back on all credit card purchases = $1
1% back on Upromise items = $0.05
10% extra on Upromise items = $0.50
Total Rewards: $1.55 for spending $100

As you can see the Upromise credit card rewards in actuality aren’t too exciting. Furthermore, since Upromise participating items are usually more expensive name brand items anyway, you almost always would be saving more simply buying a store or generic brand instead.

Is there a better option? (sponsored)
Of course you should use your Upromise account to rake up savings, but the added rewards from the Upromise credit card are far from impressive. A better option would be to get a higher cash back credit card and then deposit that money yourself into your 529 savings plan. But what’s the best card do to this? Check out our review of the new, re-vamped 5% cashback program on the Chase Freedom card

Each month the Federal Reserve issues the G.19 Consumer Credit report, composed of statistical data for credit usage. Today, they released their latest report for the month of April. The report includes information for many types of loans – like vehicle and college – these are installment loans. Meanwhile the revolving loan category is made up almost completely of credit card debt.

For the 19th month in a row, the revolving loan category debt has gone down. Right now the total stands at $838 billion, compared to $975.7 billion in September 2008. But even though consumers are carrying less debt on their credit cards, the data claims installment loan debt is going up.

Do you view this has a good thing, since the banks are lending more? Or do you view this as a bad thing because installment loan debt is growing?

Frontier Airlines has undergone quite a few changes over the past several years… a bankruptcy, new corporate ownership, and a merger with Midwest Airlines. Despite all this, they’re still a great low cost choice for certain destinations. But is the Frontier Airlines credit card also a great choice? Let’s take a look…

There are actually a four different Frontier Airlines credit cards available; two consumer versions and two business versions.

The consumer credit cards:

Frontier Airlines MasterCard (no annual fee version): This is their basic card for consumers. In a nutshell, the rewards are pretty dismal on this one; you only earn a half mile per dollar spent on regular purchases and 1 mile per dollar spent on Frontier Airlines ticket purchase.

Frontier Airlines MasterCard ($59.00 annual fee): This is there other consumer card, but you pay an annual fee to get better rewards. Unfortunately this Frontier Airlines credit card is nothing to write home about either. It gives 1 mile per dollar spent on normal purchases and 2 miles per dollar on Frontier Airlines tickets.

The business credit cards:

Frontier Airlines Business Card (no annual fee version: The rewards on this one are the same as the no annual fee consumer Frontier Airlines card.

Frontier Airlines Business Card ($49.00 annual fee): The rewards are the same as the consumer version Frontier Airlines MasterCard, but this one has an annual fee that’s $10 cheaper.

Should you apply for a Frontier Airlines credit card?
I think Frontier is a great airline, especially if you live near their main hub in Denver. However I’m having a very hard time justifying their credit cards. First of all, only getting half mile per dollar really bothers me because it’s below average for an airline rewards credit card. But even if you were to pay for the annual fee version, it’s still nothing extraordinary (and not worth paying for compared to what else is out there). So while I do think they’re a good company, I think applying for the Frontier Airlines credit card doesn’t make sense.

How to get 2 miles for every dollar you spend (sponsored)
Imagine getting 2 miles per dollar spent, not only on Frontier Airlines tickets, but on all your purchases! It may sound too good to be true, but there is a credit card on the market that gives a whopping 2 miles for every dollar spent. The accumulated miles can be redeemed for virtually any travel purchase, including your Frontier tickets! To learn more and for a special signup bonus, check out the Discover Escape card

Q: Why is my credit score so low? I have used my credit responsibly so why isn’t my FICO score higher?

Are you someone that always pays your bills on time? Do you have little to no debt? Are you responsible with your credit cards but still have a low to average credit score? Well, there are some common misconceptions about how to obtain a high score. Here are three possible answers to your question of why is my credit score low?

Charging more isn’t always better
Credit utilization is the percentage of your available credit that you use during a billing cycle. For example, if your credit card had a $5,000 credit limit and your billing cycle closed with a $1,000 balance, that would equal 20% credit utilization on that account.

One component of your FICO credit score is based on credit utilization. Because the FICO formula is proprietary and confidential, no one knows what the ideal credit utilization number or range is. But we do know is that using too much of the available limit on your credit cards is bad, but using too little won’t be helpful either.

The consensus among credit experts is that it’s best to use no more than 25 to 30% of your credit limit on a card at any given time. But if there are no charges (a 0% credit utilization) that could contribute to a low score because that would mean you’re not using the account.

Carrying a balance isn’t necessarily beneficial
Many people assume that in order to obtain a high credit score, they need to carry debt on their credit cards… nothing could be further from the truth.

Each month your credit card reports to the bureaus; the information reported includes things like your credit limit, your balance, if payments were made on time, etc. But your balance can change day by day, so which day do they base the information on? Well, it’s almost always based on the day your monthly statement closes.

So let’s say at the start of your monthly billing cycle the balance was $0. If you made a $1,000 in charges during that cycle, that $1,000 is almost always what’s being reported to the bureaus (assuming you didn’t make any payments before the cycle closed). Therefore you can go ahead and pay that balance in full after the billing statement is generated and that $1,000 should still show up on your credit report.

Having multiple lines of credit is important
Do you only have a couple credit cards and wonder “Why is my credit score so low?” Well part of the answer may be because you have enough lines of credit. It’s important to have revolving lines of credit (credit cards) as well as installment loans (such as a mortgage or car loan). If you only have one type and not the other, that will impact your credit score.

Additionally, credit experts recommend having a few different types for each. For example, that might consist of a mortgage, car loan, and student loan under the installment loan category, and several different credit cards from different issuers under the revolving credit category.

Need another card? (sponsored)
If you’re interested in getting another credit card, there’s one from Discover we strongly recommend. Check out our review of the no annual fee Discover More card

Q: What is the best credit card for first time users?

A: So you’re looking to get your first credit card? Well good for you, because that is one of the most important steps of building credit. There are a lot of great credit card deals out there for first-time users, but there are also a lot of unethical companies that may give you a bad deal. For your first credit card, here’s what you should look for:

No annual fee
Honestly the only cards that should be charging an annual fee are premium credit cards as well as some for travelers. Since you probably wouldn’t qualify for those right now anyway, there really is no reason you should have to pay an annual fee. Therefore, insist on a no annual fee credit card. Even as a first time user, there are plenty that you should qualify for.

Stay away from store cards
Many first timers apply for store cards because they’re so easy to get, but these won’t benefit you much. First of all, unless they are associated with Visa/MasterCard, then you will only be able to use them at the given store. You would be better off going with a traditional card that can be used everywhere instead – therefore the best credit card for first time users will be one associated with Visa or MasterCard (Discover and AmEx are harder to qualify for, otherwise we’d recommend those too).

Pay attention to the fine print
Fortunately since the credit card reform act has gone into effect, it’s much harder for creditors to screw their customers. No longer can they give you ridiculously short grace periods (that’s the amount of time to pay before interest starts). Now they all have to give you at least 21 days from the date the billing cycle closes (in the US). That being said, you should still be aware of APRs, late fees, etc. before you apply which currently are not capped.

After you fill out your first time credit card application, follow this important tip…
It’s best to make a habit of only charging what you can afford to pay in full each month. As a first time user, the last thing you want to do is pile up a balance from the start. Not to mention, your APR will probably be fairly high as a first timer anyway, so it would not be smart to pay in full!