The Credit Card and Personal Finance News Blog

Credit limit

If you’re unfortunate enough to have had the credit limit on your credit card reduced without warning, you might be wondering how it will affect you and what on earth you can do about it. In these financially volatile times, a change like this can be worrisome. Perhaps the worst part of all is that a sudden credit limit drop can significantly affect your credit rating and thereby cause you all sorts of grief, both now and in the future.

Here’s how a credit limit reduction can impact your credit rating. Say you have a $900 credit card debt and a $10,000 credit limit. Because you’re only at 9% of your credit limit, your credit rating, if anything, will be boosted, as long as you keep on top of your repayments. You’ve got plenty of breathing space. Even at 30%, your credit limit shouldn’t be negatively affected. But if the credit limit is reduced to $1,100, you’re suddenly at nearly 90% of your credit limit. If you don’t get that debt down fast your credit score will start to make its way down the gurgler. This will impact on your ability to apply for credit cards and loans in the future. It could even affect your ability to get a rental property as many landlords run credit checks before handing the keys over. No-one will be giving cards or loans or housing to someone with a dodgy financial record. So you want to get this sorted!

What can you do? As unfair as it all seems, it comes down to you taking some smart and prompt actions to protect yourself and your credit rating. These include:

The first thing you want to do it if your credit limit has been cut, especially if the cut is putting you very near your limit, is act fast to make sure you keep well away from your limit. Cancel any auto payments that could take you close or over your limit and pay down as much of the debt as you can. It may be easier said than done but you want to do anything in your power to not let things get any worse. If you go over your limit you will be giving the credit card company a legal and legitimate reason to raise your interest rate. This will only make the downward spiral worse so whatever happens, don’t go over your limit!

Thankfully it will take a number of weeks for changes by your credit card to hit your credit report. Applying for a new card will increase your chances of getting your card approved before your credit score decreases. If you can get approved for a card with a high credit limit, this will give you access to credit. You can then transfer some balance from the old card to the new, again, keeping you away from your newly reduced limit and protecting your score. Having a new card that you keep on top of can also help your credit score. This is a smart move as your utilization ratio is now much lower now that you’ll have access to more credit, but using a lower percentage of the overall amount available.

Always check your statements and pay off as much of the balance as you can each month, promptly! Don’t get into the habit of just paying back the minimum monthly payments, unless you like the thought of being in debt indefinitely. Additionally, check your rating and work hard to keep it as near to perfect as you can.

Unfortunately, as consumers we are now at the mercy of increasingly desperate banks who are struggling, with the rest of us, in these desperate times. As a result it’s wise to plan for the worst and stay out of debt as much as possible. Keeping on top of your credit card accounts, paying down debt, and carefully defending your credit score are not luxuries, but necessities today. A credit limit cut in times like these is the last thing most of us want or need but smart, decisive action can help you avert the worse. Your credit rating is in your hands!

Minimum Payment

Credit cards are a powerful purchasing tool that must be managed correctly to prevent undue financial hardship. Most cardholders open a credit card account with the intention of paying the balance in full each month, but then an unexpected event occurs. The first time a balance is carried over, the debtor realizes that the minimum payment is an option that will leave some slack in the budget. A dangerous road lies ahead if the balance remains outstanding and minimum payments are made. Some of the most obvious perils include:

Paying the minimum required payment every month on a credit card balance does not provide a true assessment of the debt that is outstanding. Credit card statements reveal a remaining balance, but the next minimum payment will not be shown until more interest is added to the account. Every month the cardholder sees little progress and does not have an accurate picture of the entire obligation on the account.

One monthly credit card payment might be possible as long as the primary income remains stable and the family situation is unchanged. Multiple credit card payments begin to consume more of the budget and other bills begin to become a burden. The minimum payment method will obligate the cardholder for years of monthly payments with no return for the investment.

The strongest marketing gimmick used for selling merchandise is the enticement to “buy now and pay later.” Smart consumers realize that the money to buy the item must be present in the budget today, or their buying habits are placing a lien on their own future earnings. Financial obligations to credit card companies will last long after the purchased item has been used and discarded.

On-time monthly payments will prevent unwanted marks on the credit rating, but the habit of paying only the minimum amount on the credit card balance is visible by creditors. Managing debt is one of the factors for maintaining the credit scores in the highest brackets.

Credit card debt that remains unpaid over long periods of time is evaluated by every creditor when auto and home loans are sought. Creditors state that one of the most prevalent reasons for denying loans is because of the debt burden the applicant is under. Paying the minimum required payment on a credit card will interfere with larger financial goals.

The family budget may have enough margin to pay the minimum payment on one or more credit cards each month as long as both incomes are sustained. If an unexpected event causes the loss of one income, the first missed payment can cause a catastrophic cascade of missed monthly payments. Instead of paying off the balance quickly, the family will end up with damaged credit and unsustainable obligations that cause undue hardship.

Paying off the entire credit card balance can seem impossible if every other dollar in the monthly budget is committed. Habits must change to eliminate the use of the credit cards to reveal the true cycle of debt that has been established in the life of the family. If groceries and entertainment are automatically charged to the credit card, the cycle has reached the point that is very near default.

One of the first steps to breaking the cycle of paying only the minimum payment each month on each credit card is to take a hard look at the entire household budget. If there is absolutely no money to pay more than the minimum payment on one card, some expenses are going to have to be cut, and hard choices must be made. Financial advisers are available to assist with the steps that must be taken to correct the situation and eliminate the debt. Health financial habits can be learned, and the discipline to manage the family budget can be shared by every member.

Richard Cordray

Created by the 2010 Dodd-Frank financial oversight law, the Consumer Financial Protection Bureau is charged with policing markets for products like credit cards and mortgages. It has been heralded by consumer advocates but was opposed by the financial industry, which says it represents a regulatory overreach.

The Dodd-Frank law charges the agency with policing financial products offered outside the banking industry as well, but that power is on hold. Until this issue is resolved, the agency will only collect complaints on bank products and will refer other inquiries to agencies such as the Federal Trade Commission. The CFPB will not get its power over non-bank financial products until it has a leader, the director, confirmed by the Senate. Raj Date is running CFPB in the interim.

In its 90 days in operation, the U.S. consumer financial watchdog received more than 5,000 complaints from credit card customers, led by billing disputes and interest rate problems.

The agency on released the first batch of data collected on credit card complaints since it opened for business on July 21.

“When consumers contact us, we get a snapshot of how the consumer finance markets are working,” Raj Date, the Treasury Department adviser running the Consumer Financial Protection Bureau, said in a statement. “And we are learning that there is a lot of consumer confusion about credit card terms.”

So far the CFPB has only been collecting complaints on credit cards. But as soon as Thursday, it plans to open up the process to mortgage and home loan grievances.

Next year, possibly in March, it will start collecting complaints about other bank products such as checking and savings accounts.

The agency said that between July 21 and October 21 it received 5,074 complaints from credit card customers. The complaints varied but at the top of the list were billing disputes, interest rate problems and fraud concerns.

The CFPB said it forwarded 4,254 of the complaints to card issuers. According to the issuers, 74 percent of those cases have been at least partially resolved, and in 71 percent the customer did not disagree, the agency said.

Complaints previously went to other banking regulators, depending on which one had oversight of the institution in question. The CFPB’s goal is to create a centralized system to help resolve problems and collect data on complaints.

President Barack Obama in July selected former Ohio Attorney General Richard Cordray to lead the agency but his nomination has been caught in the crossfire of a political fight between Republicans and Democrats over how much authority the CFPB should have.

Senate Republicans are promising to block Cordray’s nomination until changes are made to the agency’s structure, such as having it run by a board rather than a director.

Senate Democrats and the Obama administration oppose the changes, arguing they would weaken the watchdog.

Planet Fitness

When it comes to your credit history, chances are that you aren’t thinking about your gym membership. But maybe you should be.  Just about anything you contract to pay can and will affect your credit rating. Make sure when you are signing contracts, memberships or agreements, that these are not contracts, or that you have a termination or resignation clause. While your monthly gym membership payments aren’t going to show up on a report with the three major credit bureaus, your failure to cancel your membership could, in fact, ruin your credit. This could go for other monthly services that you sign up for.

My sister found out the hard way that a gym membership could be ruinous to her credit. When Sue decided to stop visiting the gym, she simply instructed her bank to stop allowing the automatic debits from her checking account. She figured that was enough. What Sue didn’t realize, though, was that the agreement with the gym spelled out specific actions that needed to be taken in order cancel the membership. On top of that, she had to give 60 days’ notice to cancel the membership. Which meant that when the gym didn’t receive its payment, it started reporting her missed payments to a credit bureau?

My sister didn’t realize what was happening until the account was turned over to a collections agency a few months later, and she received a letter. By then, missed payments had been reported to the credit bureau, and it had been reported that her account had been turned over to collections. She obtained a copy of the membership agreement she had signed, and realized her huge mistake. Her credit had been trashed sufficiently to prevent her from getting the best interest rate on a car loan.

Before you agree to anything, you should know the terms of membership. Know how to cancel the right way, and make sure that you jump through those hoops when you are ready to terminate the relationship.

Many of us make the mistake of thinking that utilities payments, gym membership payments and other bills don’t matter on the credit report. This is because when you are paying on time, no one cares — but those payments aren’t reported to the three major credit bureaus. However, if you miss payments on a regular basis, non-credit billers can decide to report the delinquency to the credit bureaus. If the account goes to collections, the collection agency might and most likely will report to the credit agencies.

The information falls into the category of payment history — the most important factor of your FICO score. Since your credit score is based on information in your credit report, having these negative items in your report can lead to a lower credit score, and all of the consequences of a less than desirable credit history. This means that it is vital that you pay your non-credit obligations on time. The utility company may not report you after one or two late payments, but if you make it a habit, the company may decide to do something about it. And if you have enough missed payments, your account might be turned over to collections, which is another problem.

Remember, be a smart consumer, read and understand before you sign.

Credit Card Bill

It is very rare that credit cards bill you the wrong amounts, it is all computerized, most of the errors happen on the merchant side.

Some of the most common are:

Wrong Amount- This can happen if you did not check the amount on the receipt that you signed. If you placed an order on the phone, or you were only making a partial payment. Otherwise look for ID theft and fraud.

Did Not Purchase-This is most likely an ID theft or fraud; it is very difficult for the wrong number to simply be used in the process. This also sometimes happens by an input error the store clerk did not properly close the register sale before moving on to the next customer, or they hit some wrong keys.

Over Charge-This occurs when you give your credit card to a merchant for ongoing payments and you have stopped the service and they have not completed the process at their end. This is not the fault of the bank it is the problem with the merchant.

One way to avoid billing errors and unjustified fees is to carefully go through your monthly credit-card statement, making sure all the transactions are legitimate and that other charges — finance charges, late or over-the-limit charges — are justified.

The Fair Credit Billing Act applies to credit card and charge accounts and to overdraft checking (but not to checks or debit cards). You can use this act to defend against billing errors, unauthorized use of your account, goods or services charged to your account but not received or not provided as promised, and charges for which you request an explanation or written proof of purchase. Here are some important steps to take when you encounter one of these problems:

• Write to your card issuer or creditor within 60 days after the first bill containing the disputed charge is mailed to you. In the letter, give your name, account number, the date and amount of the disputed charge and a complete explanation of why you are disputing the charge.
• Send your letter to the address provided on the bill – do not send the letter with your payment.
• If you follow these steps, the creditor or card issuer must acknowledge your letter in writing within 30 days after receipt and must conduct an investigation within 90 days. While the bill is being investigated, you don’t have to pay the amount in dispute.
• If it is determined that there was an error or that you don’t owe the amount you’re being held responsible for, the card issuer must credit your account and remove any finance charges or late fees relating to the amount not owed. For any amount still owed, you have the right to an explanation and to copies of documents that prove you owe the money. If the bill is correct, you must be told in writing what you owe and why. You will owe the amount disputed plus any finance charges.

In today’s world of credit cards and ID theft and fraud the percentage of errors is small in relationship to the criminals trying to use your cards illegally. In general billing errors are usually easy to clear up. The first call should be to the merchant, in most cases, they have slower internal systems, and things just haven’t caught up. Many stores only issue credits after the merchandise has been returned and inspected. So you have to give it time to be returned and processed. Small stores only process credits every few days or a few times a month. Unless you actually took the merchandise back to the store. Many small businesses such as gyms, and tanning salons, who have you on a monthly charge, will process the data to stop your charges, but it takes time to get to their corporate office and be processed or some have monthly cycles as to when you can stop. Be aware, be smart.

Standard and Poor's

Most informed people are aware of rating agencies. We all know about the credit rating agencies, because they rate and report on each of us. There are also rating agencies that rate stocks and publicly traded companies. Everyone in a while you will read a headline that this agency or the other has rated a buy on a stock pushing it up to new levels. A lot of time we hear about these when it is involved in a criminal investigation for insider trading, such as the Enron scandal.

Most of us, know the names, but know very little about what they actually do or even who they are and what these rating mean.

In the past few years the names of these rating companies have been in the news almost on a daily basis, they were tied to the mortgage crisis, the housing crisis, the banking crisis and have been blamed for the partial failure of the economy. They are also to blame in many of the big scandals such as the Bernie Madoff and Allan Stanford. They were also blamed by investors for the AIG collapse and the Lehman Brothers disaster.

Standard & Poor’s (S&P), as the oldest, comes first. It was begun in 1860 by Henry Poor, who wrote a history of the finances of railroads and canals in the United States as a guide for investors. The ‘Standard’ part came into being in 1906, when the Standard Statistics Bureau was set up to examine finances of non-railroad companies. The two businesses joined forces in the 1940s.

Moody’s was started in 1909 by John Moody, who published an analysis of the tangled and uncertain world of railway finances, grading the value of its stocks and bonds. These are now mighty concerns – Moody’s operating income was $688m in 2010 and Standard & Poor’s made $762m.

They each have 40% apiece of the business of rating major companies and countries.

Fitch, with another major agency, John Fitch, was set up in 1913 and is a smaller version of the other two.

There are hosts of other ratings agencies, whose names rarely appear even within the darker corners of the financial pages – so why are these three businesses the ones everyone watches?

In 1975, the Securities and Exchange Commission acknowledged these three as Nationally Recognized Statistical Rating Organizations (NRSRO). An endorsement from an NRSRO makes life quicker and easier for countries and financial institutions wishing to issue bonds – it basically tells investors a firm has a track record and how likely it is to be able to pay back the money.

Further impetus for NRSROs comes from the fact that certain regulated investment funds are required by the SEC to hold only those bonds that have a very high rating from accredited agencies.

An insurance company’s strength is also judged by the ratings applied to the investment reserves it holds. A downgrade of an issuers’ rating pushes down the value of a bond and raises its interest rate.

How these companies actually determine a rating is confidential and they will not disclose the entire process. A spokesperson for Standard and Poor’s recently summed it up stating. “The reasons for ratings adjustments vary, and may be broadly related to overall shifts in the economy or business environment – or more narrowly focused on circumstances affecting a specific industry, entity, or individual debt issue”

Chase

Chase, now JPMorgan Chase is one of the largest banks in the US. Chase itself was a well established bank nationally and a major credit card issuer. During the banking crisis the two major players joined together to form this new company. Both companies shared global recognition and had good reputations.

When it comes to their credit card division they seemed to lag behind the other banks and financial institutions in card holders, by percentage, their own depositors had more cards issued by other banks then they did by Chase.

Many of Chase’s credit card programs were out of date, out of touch and lagged behind others in offers and rewards. These problems could easily be overcome with new promotions, new customers and new programs. This is simple marketing.

On the surface, the fix seemed easy. It is not until you step inside and look at the internal problems that were affecting the Chase program. Their foundation was faulty making it very difficult for Chase to be competitive.

When Chase began its credit card business, they developed a system called Paymentech which processes transactions for merchants, it does not run the Visa or MasterCard global networks that accept its cards and influence how much it can charge for credit card transactions. Chase’s system is a lot more costly and ineffective as compared to the global networks offered my most all of their competitors. Granted this does not affect the credit card user, but it effects Chase’s costs and therefore limits the programs that Chase can offer and also influences the interest rate they can charge as they need to make higher profits to process these charges.

Other cards have functioned on their own networks successfully in the past but they have all moved on, the only big player in the credit card industry that is independent is American Express and they have always operated with their own platform and technology. But it took them years to develop their system and to grow their business. American Express capitalized on this market when credit cards were in their prime, it grew a reputation of only offering their cards to the wealthy and they became so widely used that merchants had to back down and pay the cost of the American Express processing as they did not want to lose those sales.

But in today’s market this is not true, a VISA card is a VISA card and the merchant does not care who has issued the card, if it has the brand logo on it, he pays the same processing fees and costs. This means Chase has to absorb these cost.

Gordon Smith is the new head of credit card business at Chase and he is revamping their programs. And the model he is using resembles that of American Express Co. He built up the bank’s Paymentech unit, which processes card transactions for merchants. He created the Sapphire card for wealthier customers whose big spending earns him more processing fees.

He is also applying several lessons taken from the consumer finance industry’s handbook, improving customer service, combining many rewards programs into one and shedding cards that are not profitable enough. Move back and look at what Smith is building, and it looks a lot like American Express: a business that caters to rich clients and relies increasingly on processing fees to make money.

But this is not the case, he is offering better cards, better service and better plans but these improvements are offered to all Chase card holders. Look closely at Chase when you are looking for a new credit card.

Credit Card Rates

I am amazed how credit card rates and offers differ and vary so much week to week. The Federal Reserve has not changed the interest rate in a very long time and they have committed to maintaining this rate for the next 18 months, so why do interest rates continue to fluctuate.

The index showed that the Annual Percentage Rates for credit cards was 14.12% which was lower than 14.16% from last week. Ok, so this week’s interest rate fell, how do you take advantage of this? Most credit cards do not offer variable rates. You are locked into a rate at the time you apply.
In days gone by, credit cards were tied to the rate that the Federal Reserve would charge to the banks; this is known as Prime Rate. The interest charged on for using your credit card would be prime plus an add on factor, if prime went up so did you credit card rates, if prime moved down so did your credit cards. It was similar to an adjustable rate mortgage.

Most card companies would advertise a fixed rate as a promotional rate or the rate that it was currently offering based on prime. A big advertising point was Prime +. If you had good credit, you could find cards at prime plus 8%.

Today prime is close to zero but the rates are way higher even to the best rated customers. According to CNN Money, the average credit card interest rate was 14.72% in January 2011, which is the highest in four years. The reason for this increase is tighter lending standards and legislation that puts caps on the fees credit card companies can charge and how quickly they can raise interest rates. You should remember that a national average for a credit card interest rate may not be the same as the rate you have on your card.

Different rates are offered depending on the card and customer. For example, a rewards card like Chase Freedom has an interest rate that is 2 percentage points higher than Chase Slate. This is because Chase Freedom pays customers cash rewards, while Slate does not and the Slate card is designed for customers who carry balances. Customers are also given different rates depending on their personal credit. For example, the Chase Freedom card gives customers an interest ranging from prime plus 8.74% to 19.74% depending on their credit.

It is fair to say be a smart consumer, check out the programs and apply for the card that offers the lowest rate and look closely at the fine print.

Balance Transfer Credit Card

Now that the enactment of Credit Card Consumer ACT 2009 is in full effect, the banks are once again, pushing out credit card offers by the millions. Each one of us is flooded with pre-approved offers, promotions, balance transfer and special reward programs in the mail box each day. Our emails are full of offers, the banks and lenders are making a major push to find new customers, especially new card holders that are under the new terms and conditions that are in effect today. The banks know that a good deal of their profit comes from credit card revenue, either in the form of interest or in transaction fees.

The major financial institutions are betting that a lot of the credit problems and the job losses are behind us and that their new customers were able to maintain acceptable credit scores through the recession will turn out to be very good customers for the banks.

The banks are also betting those customers that lost their jobs and their homes, will once again be back to work and paying their bills, so a lot of new offers are coming out for subprime applicants.

For those customers with average to good credit scores, the banks are making a major push to add these customers to their roster and also to quickly add balances to their accounts. This is done successfully through balance transfer offers. As part of the application, the consumer can ask that the issuer pay down or off their balance on their existing credit card. In most cases you include this information on your application and the lender upon approval and within a specific period of time issue a payment to the old credit card company and pays down your balance. The new credit card company hopes that you close this account entirely and move all of your business to the new card.

The secret to making a successful balance transfer is to do some comparative shopping and look closely at the promotion being offered.

• Balance transfers are not free. They come with a balance transfer fee, usually 3% or 4% of the total amount you transfer. Before you apply for a balance transfer credit card, do the math to see if the amount of interest payments you save with the promotional offer is more than the balance transfer fee that has to be paid immediately. Look for promotions with free transfer and no fees
• If you feel you will be unable to pay off the entire balance during the promotional period, pay attention to the interest rate that you will pay after the promotional rate expires. In this case, a low APR for the long-term could be more important than the length of the promotional period.
• If you currently have a low credit score, you may not receive the promotional offer that is advertised. The ongoing APR you receive may be higher or your promotional period may be shorter. Or you may not be able to transfer your total balance.
• If you do transfer your balance, you must pay your credit card bill on time every month. If you have a late payment, your promotional period will likely end and you will be assessed the ongoing APR on the transferred balance.
• The promotional rate may only be applicable for the amount you transferred. Unless the promotional offer specifically includes new purchases, any purchase made with the new card will be at the ongoing interest rate.

Read all the fine print and make sure you are aware before you make the change. Be a smart consumer. See also, Balance Transfer Credit Cards and Balance Transfer Cards.

There are many ways to increase or as much as triple the travel rewards from your credit card company.

Travel Rewards Credit Card

Many sound almost illegal or at least you are abusing the system, but in truth you are not, your credit card company is very smart and they want you to take advantage of every means to increase your rewards. They want to build loyalty and they want you to use your card.

There are some simple steps you can take to maximize your rewards.

1. Make the Most of Bonus Periods

When you enroll for a new card, you may be provided with a promotional offer which gives you extra points for a specific period of time. Take advantage of this by using your card as much as possible before the offer expires. Use the bonus points offered by booking a trip during the introductory phase.  However, be sure to use your card responsibly instead of racking up debt for the sake of accumulating points.

2. Check your points

Each time you receive your credit card statement, check your point accumulation. By keeping track of your points, you not only know exactly when you can schedule your next holiday but also know when to redeem the points before they expire. Also the more you visit your online site the more you will learn about additional offers and promotions so that you can take full advantage.

3. Flexibility can earn more points

Being flexible will help you acquire more points quickly. For example, if you are willing to switch over to another car rental company or hotel provider that is partnered with your credit card provider, you can speed up your point accumulation. Look at your cards partners and promotions. In most cases you do not really care who you are renting a car from whether it is Hertz or Avis, as long as they are the same price and at the airport, but you will find many of these companies offer better prices to account holders

4. Get a supplementary card

If you sign up for a supplementary card to give to a family member, you can be awarded with additional points when both the principal and supplementary cards are used. Have all your family members use this card each month as much as possible. Make sure you can pay down the balance but the spouse and kids can use this for groceries and other purchases and just give you the money to pay the bill.

5. Use your rewards for any trip

Instead of saving to use your card for a big trip in the future, use it each time you make short trips to purchase a flight, rent a car or book a hotel. Use the points and accumulate more

6. Put cash towards a reward

Some programs allow you to purchase additional points for cash, and sometime figuring out the best solution is like a Chinese puzzle but in the long run you will come out way on top.

7. Always pay in full

The only way to effectively use your card to your advantage is to pay your monthly bills in full. This is because rewards credit cards typically come with higher interest rates than non-reward credit cards. If you carry a balance each month, you will end up with having to pay more for interest charges than accruing as many rewards. You can place your car payment, your utility bills, and your mobile phone bill all on your card and then just pay your card each month.

8. Use mobile social media

Facebook and other social media are becoming more and more important to the card issuers. They offer many extra rewards if you enroll or friend them in their social media programs. Earn extra rewards easily.