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June 23, 2009

Smart Credit Cardholders Are Costing Credit Companies

Amidst all the shouting of credit cardholders over how they are being fleeced by credit card companies, it is sometimes difficult to see that credit card companies themselves are suffering in the current credit card crisis.

Smart Credit Cardholders Are Costing Credit Companies Credit cardholders, both good and bad, have a huge effect on how a credit card company flourishes or flounders in the current economy. In the case of bad credit cardholders, the cause and effect are quite obvious to see. Bad credit cardholders cost credit card companies a lot when they do not pay off their debts. It can be said that credit card companies are covering themselves from risks by increasing interest rates for riskier borrowers. However, when the borrower ultimately fails to pay the debt, it becomes a write off for the company, a loss in their books.

The effect of good credit cardholders are a bit more subtle to see. Good credit cardholders, by definition are good at maintaining their credit. This means that these cardholders rarely, if they ever do, carry any balance on their credit lines. They are also smart spenders and are well-versed in how to “game” the credit card system so that they get the best benefits without the risk of incurring high debts.

A favorite practice among good credit cardholders is to maintain two or more credit cards while actually using only one credit card. The one or two extra cards are used mainly to keep their available credit up so that they can maintain a high credit score. Since credit card companies will cancel cards that don’t have any activity on them, these cardholders will usually charge minimal amounts on these credit cards and pay them off completely every month. Maintaining a credit card this way can earn the credit card company very little while costing them a lot. Also, the one credit card that these credit cardholders are using constantly is, most probably the one with the best rewards offer. They will also be very punctual in paying any balances. This means that, while the credit company is spending on awards, they are earning little from interests.

When credit card companies lose profits, they will usually spread the cost around, increasing interest rates and other cost of service for their other customers. Bad and good credit cardholders are therefore a problem for both credit card companies and other credit cardholders because, by costing the companies more, they are inadvertently stifling the availability of credit for the average cardholder. Still, as credit cardholders get smarter about handling their credit and move further away from the traditional sources of profits for credit card companies, the companies themselves may have to look for a more profitable business model as the current one.

June 15, 2009

Survive The Economic Crisis, Keep Your Credit Score Healthy

Survive The Economic Crisis, Keep Your Credit Score HealthyYour credit score is one of the most important financial records that you have.

Survive The Economic Crisis, Keep Your Credit Score Healthy Your credit score serves as a check on how good of a credit owner you are. This is very important for loan and credit companies. By getting your credit score, they can determine if you are fit for getting a loan or credit or not. The better your credit score is, the better your chances are of getting a loan. Therefore, you should keep your credit score as healthy as possible.

To keep your credit score healthy, you first have to understand how your score is calculated. To put it simply, your credit score is the ration between your available credit and the balance you have. The larger your balance, the lower your score is. The lower your available credit, the lower your score is as well. Thus, if you have a large balance to your name, your credit score will be low. If you have little or no credit available your score will be low as well. Thus, to keep your credit score high, you must have as low a balance and as much credit as possible. It’s much easier said than done, though.

You need to be able to keep track of your credit score if you want to keep it healthy. You can get a free credit report easily from one of the three credit which are Experian, Equifax and Trans Union. These three credit bureaus can give you an annual credit report which you can use to trace your credit history. Through this, you can check out which credit lines are having a negative effect on your credit score and which are benefiting it. Your credit report will also have information on how you can contact your creditors which is very important because you can use it to have any problems that you find fixed.

Obviously, your credit score will be good if you keep your balances low. Therefore, try to pay off all your balances every month or, at least keep it as low as possible. However, you must also keep your credit lines open. This will keep your available credit high. So don’t close your credit card because you don’t use it that much. Instead, keep it active by charging minimal purchases on it and paying it off every month. A new problem cropping up for credit cardholders is the fact that credit card companies are cutting off available credit. With less credit available, even a little balance will already have a big impact on your credit score. It is therefore more important than ever to pay off your balances.

June 10, 2009

Smart Spending Means No Credit Card Woes

With the way the economy is going, you really don’t want to get yourself into credit card debt. That’s why, as much as possible, you should try to make smart choices whenever you use your credit card. If you are thinking that you are better off getting rid of your credit cards, don’t. Your credit cards are the primary link to your credit score and, if you surrender your credit cards, you will most definitely lose out on your credit score.

Smart Spending Means No Credit Card Woes One of the worst ways that you can get into credit card debt is when you fall for their aggressive marketing practices. Credit card companies are always looking to expand their customer base. More customers mean greater profit. Thus, you are always going to find some very attractive offers from credit card companies. Take this with a grain of salt. For instance, some companies offer credit cards with waived annual fees. Make sure that you know how many years that fee is waived. 0% interest rates are another common trap. With a deal like this, they are just waiting for you to miss one monthly payment. Once you do, you’ll see your interest rates rocket sky high.

Another thing to remember is to be smart with your monthly payments. Obviously, make every effort to zero out your monthly balance every month. That means charging your purchases smartly, making sure that you will have the money to cover your balance at the end of the month. You don’t want to be charged late fees. You should also make a point of reviewing your monthly statement carefully. Banks are notorious for charging you with unearned fees or with ghost purchases. Make sure that you are being billed fairly. If you have any doubt, call the bank immediately. This is also good practice for detecting credit card fraud.

As much as possible, use your credit card for credit purchases. Some credit cards offer a service wherein you can also withdraw cash from an ATM using your credit card. Don’t use this service. For one thing, the charges are way higher than a normal ATM card. Also, you don’t want to get used to this kind of practice. Small withdrawals have a way of ballooning over time so that you will realize only when it is too late that you’ve accumulated a huge debt.

If you are fond of the convenience of using credit cards, you should look into debit cards. Debit cards can be used just like how you use credit cards. The main difference is that, with a debit card, your purchases are taken against an existing balance, maybe in your bank account. That means that whatever you charged to your debit card, it is already paid the moment the transaction goes through. No need to worry about monthly bills.

June 9, 2009

Three Ways The Internet Can Help You Secure Your Finances

Three Ways The Internet Can Help You Secure Your FinancesFrom school research to booking vacations, when you go online, you can find a solution for them all. With the current economic climate, one particular use for the internet is growing fast: securing finances.

Three Ways The Internet Can Help You Secure Your Finances Here are three ways how the internet can help you secure your finances.

Making A Budget

If this sounds like a no-brainer to you, think again. Making a budget can be a very complicated task and most people don’t realize that there are many money drains that they have to plug without the help of experts.

Three of the most popular “online budget helpers” are Mint.com, Geezeo.com and Wesabe.com. These three companies can help you make a comprehensive budget to follow every month. They can track your spending for you and alert you when your balance is running low or you are nearing your credit limit. They can even tell you where most of your spending goes to. Even better is that they offer their services free.

Fraud Detection

Fraudulent transactions are one of the worst things that can happen to you. Unfortunately, fraud is very common and, if you are not careful, you could very well be the next victim. While being vigilant is always a plus in avoiding fraud, you can greatly increase your chances by checking out some important details about the deal you are interested in online.

In the internet, you can checkout Adviserinfo.sec.gov to see a listing of licenses, registrations and exams that a broker has accomplished to check for their legitimacy. The website is run by the Securities and Exchange Commission.

You can also visit Finra.org. They offer many services such as checking a broker’s professional background and other information. They also have a “Scam Meter” tool which asks you several questions and rates your answers to see if the deal you are interested in is a scam or not.

Credit Alerts

With the economy the way it is and the ongoing credit crunch, keeping track of your credit score is very important. If you have been thinking that your fall back financial plan is to get a loan in case you run into an emergency, you better make sure that your credit score is doing well.

Your credit score determines how easily you can take out a loan. The lower the score, the lower your chances of securing a loan. To keep track of your credit score, you can try CreditKarma.com

CreditKarma.com offers a free service which helps you keep track of your score and offers suggestions on how you can improve it. It can even show you demographics data so that you can see how well you are doing compared to other people.

June 9, 2009

Debt Consolidation Pros and Cons

Debt Consolidation Pros and Cons If you find yourself in heavy debt, panicking is probably the worst thing that you can do. So, first relax and take a deep breath. Remind yourself that it is not the end of the world and you can get over it, with a bit of luck and a lot of hard work. Now you’ve probably researched a lot on how to get out of debt and have run across these two words: “debt consolidation”. If you’re thinking about using this to help you get out of debt, then read on.

Because of the state of the economy and the increasing number of people going into heavy debt, debt consolidation has become very popular. Paying off debt is of utmost importance to most Americans because a large debt can have a negative effect on their credit card scores. And, as you know, a low credit score means low chances of getting loan approval.

Debt consolidation can be quite helpful for people with debt problems. Debt consolidation is essentially taking out one big loan to pay off all your other loans. By consolidating all their debts into one, they need only worry about the payments of one single debt. Most people with debt problems often find juggling between bills to be one of the most difficult parts of debt payment. With only one bill to pay every month, debt payment is much simpler.

If you plan on consolidating your debts into one you also get the advantage of having only one interest rate to keep track of. If you are smart, you can also get a debt consolidation loan that has a lower interest rate than all your other loans combined. If you are really in dire straits financially, you can also opt for a debt consolidation loan which offers low monthly payments to be paid over a longer period of time.

However, you must remember that, when you are taking out a debt consolidation loan, your debts do not decrease. Your debts are the same, only the payment scheme has changed. So you still must make sure to pay your debts every month. You must also discipline yourself to avoid getting into more loans outside of your debt consolidation loan as you are paying it off so that you don’t overextend your finances and worsen your debt situation. Constant monthly payments of your debt consolidation loan and avoiding other loans can help you keep your credit score healthy too.

If you are now considering applying for a debt consolidation program, make sure to research properly the debt consolidation company that you are going to use. While there are many reputable companies out there, there are also bad seeds which you should try to avoid. A good guide to remember is this: if a deal looks too good to be true, it is.

June 4, 2009

4 Tips To Keep Your Credit Card In Control

If you’ve followed the news, you’ll know that the credit card industry is in a state of turmoil nowadays. Defaults are up, debts are not falling and the credit card bill just got passed. The credit card industry, in a preemptive attempt to stem their foreseen profit losses are raising interest rates and cutting credit. You’d think that keeping your credit score good and having zero debt would save you from these. You’d be wrong.

4 Tips To Keep Your Credit Card In Control Still, the whole doom and gloom credit scenario does not mean that you should just stay home and not spend on anything, even the necessities. There is still some good things left, credit-wise and, as long as you are smart and careful, you can make the best out of them. Try out these tips to see how you can do that.

Pay Off Your Debts

It may seem common sense to you but this is actually what started this whole credit card problem in the first place. People were charging stuff they did not pay for immediately, or could not. It also follows that, whatever you charge on your credit card, make sure you can pay it off when the monthly bill comes. Also, be careful of the “minimum amount due”. It is a clever ploy which does not pay off your debts but only the interests.

Maximize Those 0% rates

If you just got a card with a 0% introductory offer, maximize its use but be sure you are able to pay off the monthly bills. It is very important that you always pay off your monthly bills because these 0% interest rate offers will usually jump to astronomical rates the moment you miss one payment. Don’t count on automatic payments too much, either. If you want to use automatic payments, make sure that your bill is paid off well before the due date.

Be Careful Of Your Credit Limits

Credit limits used to be a big thing way back when. Nowadays, you can charge beyond your credit limits with ease. Ostensibly, credit card companies allow this to save you from getting humiliated when your credit card is denied at the counter. However, the penalty fee that you will be paying if you go over your credit limits would make you prefer getting shamed instead. Credit card companies are known to charge high penalty fees for over the limit purchases. With the credit crunch on, that’s going to get higher.

Risk Based Pricing

If you are applying for a credit card or a loan because you like the interest rates that they are advertising, be careful. That may not be the rates that you will get. Credit companies call it risk based pricing. Basically, they adjust their interest rates based on how “risky” a borrower you are.

June 3, 2009

Get Your College Kids Credit Cards Now

If you have been following the news, you probably are probably worrying right now about your credit card and how it’s going to or is affecting your finances. If you are like the majority of American consumers, then you are probably thinking that credit cards are twice as dangerous as they are convenient. So why get your college kids credit cards?

Get Your College Kids Credit Cards Now College students and credit cards don’t mix very well, if recent survey figures from Sallie Mae are to be believed. According to the survey, more and more college students are going into deep debt and many are graduating with large debts to their name, making starting a career even more difficult.

However, like many things, credit cards are bad if you don’t use them right. While an overused and abused credit card inevitably spells financial doom, a properly managed one can help your credit score and can be very useful in times of emergencies. Your college student can get a lot of benefits from a credit card, just be sure to teach them how to use it well.

So why get a credit card right now? Why not when the “cardholder-friendly” credit card bill comes out? For one thing, if your college students get their credit cards now, it will be easier for them to do so than nine months down the road. When the credit card bill comes into effect, getting a credit card will be much more difficult for them. At the start of the school year, credit companies are going to be pushing their credit cards to college students. Make sure that you inform your kids on how to choose a right credit card and tell them to not be deceived by perks and bonuses that many credit card companies will offer along with their credit card applications.

If you are worrying that your college kids are going to go overboard with their credit card use, you can be assured by the low credit limit of credit cards. Most credit cards for college students have a credit limit of $500. You should encourage your kids to avoid overdraft protection. Overdraft fees can cost a lot. Also, colleges are already being encouraged to include financial literacy as part of their program for new enrollees. This will be a big help in educating your college students on how to use their credit cards responsibly.

Financial responsibility is one of the major requirements for success. There is no better and more effective way to teach this to your kids than by letting them try out managing credit cards while they are still in college.

May 31, 2009

Debt Settlement Programs are Hurting Rather than Helping

The credit card problem has reached an all time high and many cardholders are currently delinquent in their bill payments.

Debt Settlement Programs are Hurting Rather than Helping The figures get much worse when considering the current unemployment rate in the U.S, which is, according to Fitch Ratings, at 8.9%. It is the highest unemployment rate of the country since 1983. With little in the way of available cash, consumers are turning to credit cards. Unfortunately, many are not keeping up with their bills and the credit card crisis just gets worse and worse.

Most consumers mired in credit card debt would like to get out of it as quickly as possible. Inevitably, some are caught in the latest of scams to hit consumers, the debt settlement companies.

Debt settlement companies are not scams per se. However, a large number of companies are taking advantage of the desperation among credit cardholders so that those legit companies end up getting bad press as well. These unscrupulous debt settlement companies often charge high amounts, take advantage of people’s ignorance of credit card practices, and ultimately end up increasing the debtors’ debts rather than lowering them. The debtor’s credit score is also inevitably affected negatively by the debt settlement company’s actions.

The unscrupulous actions of debt settlement companies are not going unnoticed. There have been some media coverage about debt settlement companies that scammed their customers and Andre Cuomo, Attorney General of New York, launched a national investigation on debt settlement companies. He has also had two credit card companies sued for false advertising and fraud. Lisa Madigan, Attorney General of Illinois, has also had some debt settlement companies sued, alleging that the companies “do little or nothing to improve consumers’ financial standings” and “engage in deceptive marketing practices”. In Texas, Greg Abbott, Attorney General, filed a lawsuit in March against a debt settlement company, alleging that the company was involved in “deceptive and misleading acts”.

Legislative director of Association of Settlement Companies, Wesley Young says that estimates place the number of debt settlement company customers at around 500,000 spread across around 1,000 companies. This makes for a huge market for debt settlement companies and Young’s group is trying its best to maintain the credibility of the debt settlement industry. Their association requires total disclosure of credit score risks and payment plans from members upfront.

Lobbyists for the debt settlement industry are also pushing for legislation for the regulation of the industry. However, it will be some time before these actually have some effect. Meanwhile, credit cardholders are learning about the high risk of debt settlement companies and are avoiding them. Some have even gone as far as avoiding credit card use altogether.

May 27, 2009

FICO 08 And You

The credit industry has drastically changed over the years. Many would argue that the “good old days” were much simpler than today. Back then, a borrower’s chances of getting a loan depended basically on whether he had any debts and whether he could pay cash for them. Unfortunately, the simple system had a lot of loopholes and, as the credit industry evolved, it adapted several models to deal make itself much more resistant and reliable.

FICO 08 And You Nowadays, measuring scale that determines whether your loan is approved or not is your credit score. A credit score is a simple, three digit number that lenders rely on to calculate the probabilities that you can actually pay off the loan you are trying to take out. The better your score, the better your chances of getting that loan.

The most common formula that creditors use is the FICO score. FICO stands for Fair Isaac Corporation, owners of the proprietary software that the three major credit bureaus are using. Recently, a new version of the software was released, FICO 08. Adoption of the new version is gradual among credit card companies and, as the software gains wide use, consumers will have to begin taking into account how the new software will affect their loan applications.

Craig Watts, public relations director of FICO has explained that, “As consumers’ credit habits change, we adjust our scoring formula to more accurately reflect information found credit bureau records”.

The new FICO 08 will still use the 300 to 850 scoring metric of FICO. Unpaid debts and others under $100 will no longer affect your score. Credit setbacks of a one-time nature will have a lower effect on your credit score as long as most of your credit lines continue to be healthy. On the other hand, continuous late payments will have a bigger effect on your credit score. FICO 08 will stop the practice of piggybacking to the strong credit record of a stranger, a common practice of credit repair agencies. It will also be more sensitive to your available credit. So you need to be very careful when your credit company suddenly drops your available credit limit. This will severely affect your score.

Adoption of the FICO 08 system is gradual in the credit industry. As a borrower, you may not always be aware of what FICO system is applicable to you. However, there are a few things you can keep in mind to be sure that your FICO score is good such as staying below your credit card limits, avoiding late payments and overcharges or overdraws and always keeping an eye on your credit reports.

May 25, 2009

The Dilemma of Credit Card Balance Chasing

The passage of the credit card bill last Friday has the credit card industry all shook up. The legislation contained in the bill will change many of the fundamental practices of the credit industry, some of which were downright abusive. The bill will be implemented after nine months, giving credit card companies some time to adjust to the new legislation.

The Dilemma of Credit Card Balance Chasing Credit card industry practitioners have constantly been issuing warnings that the passage of the credit card bill would mean making less credit available for consumers. The credit card industry says that, when the bill passes, it will mean that introductory interest rates will increase and annual fees will once again be charged to credit cardholders, regardless of credit standing.

Another practice which experts are warning credit cardholders about is balance chasing.

Balance chasing is essentially when the credit card company lowers your credit line as you pay your balance. In the end, the cardholder gets a drastically lowered credit line even as he or she has paid off the balance of the credit card.

To illustrate, say for instance that a credit cardholder has a credit card with a limit of $10,000 and he has a balance on it of $8,900. Wanting to lower his debts and give himself some financial leeway, he makes a payment of $2,000. This leaves a balance of $6,900 and he would expect to have an available credit of $3,100. However, with balance chasing, the credit card company would actually lower the cardholder’s available credit. In this instance, from a credit limit of $10,000, it will drop to $7,000. This will continue to cycle until the credit cardholder’s credit limit will be far lower than the one that they started with.

Balance chasing has a very negative effect on the cardholder’s credit score. Since the credit limit constantly remains close to the credit balance, it would seem that the cardholder’s balance is always near his credit limit. It also makes the credit card essentially useless to the credit cardholder during times of emergencies because of the greatly lowered credit limit.

Although balance chasing is not widely spread for now, some industry observers see this as something that will soon become common practice. As the credit card industry continuous to try to limit their exposure, balance chasing becomes more and more appealing.

Obviously, balance chasing will it hurt most for those with a balance in their credit cards. It becomes more and more important for cardholders to payoff their balances as quickly as possible to make sure that they have credit available when they need it most. Consumers should turn away as much as they can from using their credit cards and either use cash or debit cards instead.

May 24, 2009

Last Minute Credit Card Bill Amendment Worrying Retailers

A last minute provision inserted into the credit card bill release by the Senate last Tuesday has major retailers in the country a bit worried.

Last Minute Credit Card Bill Amendment Worrying Retailers The last minute provision of Sen. Robert Menendez prohibits companies that issue credit cards from opening credit card accounts without first thoroughly considering the ability of the bower to meet the required payments. The rules on just how companies can comply with the provision will be left to the Federal Reserve.

The provision could have a debilitating effect for retailers, specifically those who issue store-branded credit cards.

Some major retailers issue their own credit cards which usually offer perks to customers, specifically aimed at encouraging customers to purchase big-ticket items. Major retailers put their sales from such credit cards as high as one third of all their sales. Store-branded credit cards are usually offered and approved immediately, based on the credit cardholder’s credit score. These cards also have special perks to entice consumers, such as a “no cash out” offers, discounts, and 0% interest offers that last for a period of several months. These cards usually have large interest rates that usually average at 20%.

With Sen. Menendez’s provision in place, retailers are worried that their ability to issue cards to consumers within minutes would end. A more thorough credit score check would take several days, as the company would have to examine the consumer’s income and debts or else get a complete credit report. The long wait, retailers say, would jeopardize their ability to complete more big-ticket sales as well as slow down their ability to market their credit cards to a large number of customers.

Sen. Menendez said during an interview that the provision was meant for application to all types of credit cards, which means that store-branded credit cards will be affected as well. However, the senator said that issuers may be able to meet the rule’s standards by relying on the self-reported income of borrowers.

“I think the overwhelming universe of those who apply, apply honestly”, the Senator said.

Senior Vice President of the National Retail Federation Mallory Duncan said, “It is a potentially problematic amendment”. However, he does concede that, should consumers find it inconvenient, lawmakers may revisit the provision at a later time.

Consumer Federation of America Leigislative Director Travis Plunkett also released a statement supporting the provision, saying that it supports the bill’s primary goal of encouraging sustainable credit. Plunket also clarified that his consumer group has no objections against deferred payment arrangements as long as the terms are fair and the consumers are well aware of the details of the agreement.

May 15, 2009

How to Keep Your Credit Rating Up

The economic downturn has gotten the entire country in an uproar. Prices of basic goods are soaring, employment is going down, and interest rates are jumping from as low as 1.7% to as high as 25%. One thing that the economic collapse has proven is how important good credit rating is.

Banks have upped their interest rates to astronomical heights since the economic crisis began. They have also drastically lowered the credit limits for most credit holders. In most cases, those who have bad credit ratings come out worse off than those with good ratings. This is only logical, as banks place more trust on people with good credit and are more willing to give them some leeway. They are also more anxious to keep the business of people with good credit rating.

For those who are in heavy debt, getting out of it in this economy can be very difficult. Paying off high interest rates with very little extra cash and with a bad job market only worsens the problem. Fortunately, people with bad debt can get their interest rates adjusted to more reasonable levels. Again, those who have good credit ratings get off lighter than those who do not.

The simplest way to get your credit score high is to make sure that you don’t have any debts in the first place. This means paying off your bills before the deadline. Usually, the more consistent you are at paying on time, the higher your score gets.

One of the biggest culprits in getting your credit score down is your credit card. Make sure to use it wisely. A good rule is to keep your balances low on all your credit cards. Keep in mind that the proportion between what you owe and what is available to you in your credit lines is what dictates your score. Another important issue related to this is closing unused credit cards. Unused credit cards mean unused credit available to you. If you close the card, you will lower your available credit, which will affect your credit score.

It is also not advisable to apply for too many credit cards. Although getting a lot of credit cards increase your available credit, which helps your credit score, you might be labeled as a risky borrower instead, which will lower your credit score.

In the event that you find it difficult to pay off your credit cards, make arrangements with your creditors for a lowered interest rate or some other plan to help you keep up with your payments as soon as you can.

It is important to remember that getting your credit score higher can take time. You will have to keep at it if you want your credit rating to improve.

May 7, 2009

The Credit Cardholder’s Bill of Rights Goes To the Senate

Later this week or earlier the next, the United States Senate will begin discussion over the controversial credit card legislation House bill sponsored by Rep. Carolyn Maloney.

964707_11065025 The bill aims to limit fees and rate hikes of credit cards in an effort to protect debt laden consumers. The bill was first pushed and approved in the House of Representatives at the end of last month. Support for the bill in the House of Representatives was impressive, passing with a vote of 357 to 70. Furthermore, the bill also seems to have the support of President Obama who expects to sign the bill into law by the end of May.

After passing through the House of Representatives, the bill is now in the Senate where it will be further deliberated and additional measures and changes in the details of the bill are expected to be made.

Old timers in Capitol Hill say that the Senate will probably pass a bill similar to what the House passed last week. However, many details still remain up for debate and the final form of the bill to be passed by the Senate will most probably depend on a few Senators who are pushing for a compromise between proposals of the bill and what they perceive to be the needs of the credit and banking industry.

Once the bill is signed, it is expected to pass into law several guidelines newly passed by the Federal Reserve which ensures that repayment balances of debtors are credited proportionally. This will hopefully give consumers the chance to whittle down their accrued debts at the highest interest rates.

The bill being made by the Senate has been described as being tougher than the bill that the House recently passed. However, some Republicans are voicing the concerns of the banking industry that too strict legislation may lead to a shortage of available credit cards, with those having poor credit history being hardest hit.

Peter Garuccio from the American Bankers Association had this to say: “Our concern is that as policymakers move forward, that they strive to find the right balance between enhancing consumer protection and ensuring that credit cards remain available.”

One of the most active Senators working for a compromise is Chris Dodd, the Chairman of the Senate Banking Committee. He is currently working on an effective compromise with Senator Richard Shelby, the Banking Committee’s top Republican representative. It is expected that Dodd’s bill would present some major changes to what the House passed earlier.

The Credit Card Holder’s Bill of Rights is certainly a hot topic in financial circles nowadays and the final form of the bill will depend greatly on the type of compromise that the Senate will settle on. When the final form of the bill is passed, it might just be the salvation that Americans swamped in debt are looking for.

April 23, 2009

President Obama and Banks Meet To Discuss Credit Card Practices

Credit card consumers may be relieved to hear that President Obama and top economic officials will meet with the credit-obama heads of 14 major banks to discuss unfair credit card practices. Since the beginning of the financial crisis credit card companies have implemented many practices to try to reduce their level of risk. Unfortunately most of these aggressive practices are putting Americans finances at higher risk as they continue to struggle with increased unemployment, loss of savings and other fallout associated with the recession.

With the possibility of tighter government regulation on the horizon administration officials would like bank executives to take action voluntarily but will point out that President Obama supports legislation to force regulations on unfair or predatory lending practices.

Here are a few of the issues that are likely to be addressed:

Increased Interest Rates- Many consumers are under the false impression that you are guaranteed your current interest rate unless you fail to meet your end of the credit card agreement. This is not the case, in fact many consumers have been caught off guard because credit card companies can raise the interest rate at any time for any reason. This is more frustrating when you consider the fact that the Federal government has brought short term interest rates close to 0% for banks who are borrowing money.

Slashing Credit Limits- In an effort to reduce the damage of customers defaulting on their credit card agreement, credit limits are being reduced- sometimes below the current balance on the consumers account. This can result in consumers being charged over the limit fees in addition to increasing the debt to credit ratio which accounts for 30% of your FICO credit score.

Closing Inactive Accounts- Consumers who have not used their credit card recently may be surprised to discover they no longer have that option at all. Credit card companies are closing inactive or unused accounts. Again, this increases the debt to credit ratio leaving many consumers taking a hit to their credit score.

Payment Allocation- Currently credit card companies apply consumer payments to low rate balances while higher rate balance continue to rack up interest charges which allows the balances to grow. New regulations would require any amount over the minimum payment to be applied to either higher interest rate balances or evenly distributed to all balances.

Targeting Students- Sallie Mae recently released survey results indicating more and more college students are using credit cards to pay for college expenses. As a result students are graduating college with not only student loans but also higher levels of debt which can make finding financial stability very difficult in post college years.

April 20, 2009

More Focus on Financial Knowledge

With so many consumers struggling with debt these days, there seems to be a major increase in the amount of credit-card-scan organizations that are working to improve the financial literacy of the country at large. April is dedicated to be Financial Literacy month, with National Credit Education week being observed April 20-26 so there are many launches of new educational programs to help with debt.

Research shows that many Americans are not fully prepared to deal with their own financial issues. Many of the new programs are targeted towards students who are already struggle to pay for their education while still struggling with debt. According to research done by Sallie Mae, the largest student loan provider, more that 84% of undergraduates have at least one credit card, with nearly have of all college students having 4 or more credit cards, each with a balance.

While consumer debt is on the rise, student debt is even more so and there are several program being established to help students prevent debt from taking over their lives as well as learn how to deal with debt they have already incurred.

Programs like Student Debt Alert was launched earlier this month. It promotes the improvement of student loan programs and educates students about Grant Aid. The American Bankers Association started the Teach Children to Save Campaign, which works with younger students in teaching them the importance of financial literacy, including advice on the importance of budgeting and depositing money into a savings account regularly.

Getting an early financial education is an important part of a student’s learning process and will serve young adults well in the future. For non-student consumers, there are websites like Ask Dr. Debt, which has been referred to as the “Dear Abby of Debt” and provides users with tools to help with credit card and debt questions. A database of frequently asked questions helps consumers seek answers to popular questions concerning debt. There are also calculators and other tools to provide help with personal financial management.

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