Category: Credit Cards

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In July, consumers increased their credit card debt 4.8%, lower than the 7% growth rate of last year. Consumers owe $970 billion, which is $3,180 of credit card debt per person, or $8,255 per household. (Source: Federal Reserve, G.19 Release, August 7, 2008)

The Federal Reserve’s G-19 Consumer Credit report also stated that non-revolving debt, like mortgages and auto loans, only grew .5%, an indication that credit restrictions are tightening again. Non-revolving debt is still $1.618 trillion, or $5,304 per person or $13,793 per household. Note: This estimate is based on 305 million people in the U.S., an average of 2.6 persons per household, and 117 million households. (Source: U.S. Census, Population Clock; Average Household Size)

The declining housing market has caused many families to switch from home equity loans to credit cards to finance purchases. In addition, the Bankruptcy Abuse Prevention Act of October 2005 has prevented many indebted families from filing for bankruptcy, further inflating the debt figures. The availability of credit for personal consumption drives 70% of the U.S. economy. Now that it seems credit is returning to normal, this will support GDP growth.

By Joan Goldwasser
Kiplinger’s Personal Finance
Sunday, September 7, 2008; Page F03

Q. I received a notice from Capital One that it is closing my credit card account because of inactivity. If the company closes the account, will it hurt my credit score?

A. Whether you or the issuer cancels an account, the effect on your credit score is the same — and it’s not good. Fair Isaac, the firm that created FICO credit scores, calculates your score based on five criteria: your payment history, the amount owed (which includes the percentage of total available credit you are using), length of credit history, new credit and types of credit used.

The “amount owed” makes up nearly one-third of your score. So if an account is closed, your total available credit is reduced by the amount of that card’s credit limit. If you have only one or two cards, that can mean a significant increase in the percentage of available credit you are using. If the percentage rises to more than 50 percent, your score will drop.

In today’s tough economic times, banks are looking to limit their potential losses by examining inactive accounts after 12 months instead of waiting 18 months or two years, says John Hall of the American Bankers Association.

Your best bet, recommends Barry Paperno, credit operations manager at Fair Isaac, is to use your card every six months — or quarterly to be safe — so it isn’t canceled.

Your score won’t raise overnight after you pay off bad debt

By Todd Ossenfort
The Credit Guy

The Credit Guy, Todd Ossenfort, is a credit expert and answers readers’ questions about credit, counseling and debt issues.

Dear Credit Guy,
I have paid off all my credit cards except one, which I brought up to date and will have it paid off in a couple of weeks. But the ones I paid off still show up paid in full and show a bad credit history on my credit report. Also, I have not seen my score go up at all. So what’s their problem? When someone makes good on a debt, they still whack on us for seven years or more, while some people don’t ever pay their debt and it comes off in seven years anyway. So, why when a person pays the debt they made in full — no settlement — are they punished right along with the people who just ride out their seven years? — Patricia

Dear Patricia,
Congratulations for paying off your credit card debt! I hope that you have learned from the experience of having too much debt and have put a spending plan in place to avoid unwanted credit card debt in the future. Moving forward, the best way to avoid adding to credit card balances is to have an emergency savings fund in place to help cover unexpected expenses, such as needing to replace an old appliance or some other emergency that all families experience. An account with a minimum of three months’ worth of living expenses is usually sufficient.

From your letter it seems you are upset that your credit score did not increase when you paid off your balances. Although I agree that it is great that you have made good on your promises to your creditors, the fact remains that you did not pay your accounts as agreed. Your accounts will continue to show the negative information regarding your accounts for seven years from the time the accounts became delinquent. When it comes to getting an increase on your credit score, it takes patience and a fair amount of time. Remember that for the well-known FICO score, 35 percent of your score is calculated based on past payment history.

One thing I believe you have overlooked is that from the time you brought them current and paid off what you owed moving forward, those accounts that are still active and open will be reported each month as a positive or paid as agreed notation on your credit report, thus helping to increase your score. All you need is a little patience to give the positive information on your accounts some time to outweigh the older negative information. As your credit history continues to have positive information added, with new accounts paid on time, etc., your credit score will improve.

Another thing to keep in mind is that while what you say about negative information falling off your credit report even if it is never paid is true; people who take that route don’t have it easy. In fact, most experience harassment from bill collectors and many that owe large amounts of money are taken to court where the creditor can be issued a judgment that can be used to place a lien on property or even garnish your wages.

In addition, those who choose not to pay off their past due accounts are much less likely to qualify for a mortgage, car loan or other needed credit while the accounts are still listed on their reports, particularly in this current economic cycle. Even if they are able to qualify for a loan, the interest rate charged will be significantly higher than it could have been if they had paid their balances as agreed. By contrast, even though your score has not yet improved as much as you would like, you will likely qualify for a loan because you have shown you were willing to meet your obligations, albeit not as quickly as you should have. Hang in there, your credit score didn’t decrease overnight, and at the same time, it won’t increase overnight either. Patience and time, Patricia; patience and time.

Take care of your credit!

Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.

The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week. Send your question to The Credit Guy.

Published: September 2, 2008

Fairfax Station

By Edward Johnson
Friday, August 29, 2008

Sending a child off into the world of higher learning can be an apprehensive time for all concerned. For students and parents alike, it is bittersweet. It is every parent’s hope that with the new found independence, their child will embrace academia, learn, grow and put into practice the everyday life skills they have been taught. As the days draw closer to an empty nest, parents often impart words of wisdom. Some financial advice may also be in order.

Last year alone, approximately 2 million students graduated from high school and headed to college. While most were equipped with bedding and books, many were ill equipped on the subject of financial literacy. According to a 2007 survey by Charles Schwab, fewer than half of teens considered themselves knowledgeable on how to budget money (41 percent), how to pay bills (34 percent) or how credit card interest and fees work (26 percent).

To help build a foundation of sound financial habits, the Better Business Bureau (BBB) offers the following advice for parents to bestow on their college bound children:

* Be responsible with credit cards.
According to a U.S. Public Interest Research Group (U.S. PIRG) survey, two out of three college students report having a credit card, of which about two-thirds are responsible for paying their monthly bill. Overall, freshmen responsible for their own cards had average credit card balances of $1,301. While having a credit card is an important first step for a college student to start building a credit history, parents need to stress the importance of using credit responsibly. This includes having a minimal number of credit cards, paying off the balances every month and keeping a reign on spending.

* Start saving money now, even if it’s just a small amount every month.

Developing good saving habits early on will help a college student reap the benefits throughout his or her life. Aside from the inherent benefits of saving money, starting early means taking advantage of what Albert Einstein described as one of the most powerful forces in the universe: compound interest. For example, if a freshman saves $50 every month and puts it into a high interest savings account or money market account that earns 5 percent interest, by graduation they will have saved more than $2,660 including dividends.

* Pay your bills on time.

U.S. PIRG found that more that 40 percent of college students who managed their own credit cards had paid bills late or paid at least one over-the-limit fee. Credit card companies often charge late fees as high as $40. Add to that any accruing interest, which can be upwards of 30 percent, and college students will quickly see how much can be lost by not paying a bill on time and in full. Aside from the immediate benefits of paying bills on time — specifically, reducing needless spending on fees and interest charges — it is an important way for college students to begin building a healthy credit report.

* Guard your personal information.

When comparing the age demographics of ID theft victims in the U.S., young adults between the ages of 18 and 24 were the second highest age group at risk for fraud according to an annual survey by Javelin Strategy and Research. Javelin also found that, in cases where the victims knew how their ID was stolen, 79 percent of the time it was stolen by someone they had contact with. Therefore, preventing ID theft is important both online and offline. Parents should encourage their students to shred unnecessary documents that include personal information such as social security or bank account numbers and keep a close watch over credit and debit cards and checkbooks.

Edward Johnson is president and CEO of the Better Business Bureau serving the greater Metro Washington, D.C. region

KOHN2

By Kirk Matthews

Information from the three main credit reporting agencies can have a tremendous impact.

“It affects so many aspects of your life. It’s going to affect possibly if you get a job, if you can rent a home or buy a home, when you try to buy a car, they’re going to get a credit report,” said CPB Loans VP Diance Chong.

Paying on a home or a car represents just a portion of your credit report. Many people get in financial trouble with credit cards - - spending up to their credit limit.

“So keep your balance at pretty much fifty percent of your credit limit. Because if you are always at the max, then they’re going to assume that you’re being stretched and you may not be able to pay all your bills,” said Chong.

Chong advises it’s wise to pay more than the minimum balance.

“You’re going to be paying that debt for years and it’s going to look like that debt’s going to be there for a long time. And if you only pay the minimum, it’s going to appear to lenders that you’re struggling and you can’t even make more than the minimum payment.”

Chong says recovering from bad debt can be a long process and requires discipline. You need to start with three steps - pay bills on time, get rid of excess, unnecessary credit cards and, perhaps see a debt counselor.

“So those three steps I think will help you get out of bad credit. But you have to remember that it’s not going to happen overnight. You just have to be diligent, keep a budget and keep your spending to a minimum.”

One more thing - making the minimum payment is costly. Minimum payments on a five thousand dollar debt at 15 percent interest would take 14 years to repay.

“If you’re paying only the minimum, you’re probably paying now for a dinner that you had five years ago. That’s an expensive dinner.”

How To Improve Your Credit Score

Star-Telegram

Several banks are closing dormant credit-card accounts, which can hurt your credit score, since the scoring system takes into account whether you’re maxed out on your limits. But there are some easy ways to protect yourself:

It’s generally best to keep your oldest and highest-limit credit accounts open, in part because payments on your accounts and the length of your personal credit history typically account for about one-half of your total score.

A bank’s decision to close the account for nonuse could indeed trigger a slight decline in your rating, but it should rebound within a few months if you continue meeting all of your other payment deadlines.

Several banks are now closing unused accounts to trim their expenses. Banks and other creditors say that it takes a lot of money to send out monthly statements to each of their customers, or even to operate Web sites for those who choose to pay their bills electronically.

Perhaps the best way to keep your credit score intact, and maybe even improve it, is to put minor charges on each of your remaining credit cards every month and then pay the bills when they come due.

To reduce the time and hassle of writing checks to each of those credit-card issuers, consider enrolling in the free auto-pay systems that most banks now offer to their customers. Such plans automatically debit your checking or savings account when a payment is required and can help ensure that your bills are paid on time. — Cowles Syndicate

New York Times

Your Money
By RON LIEBER
Published: August 29, 2008

A few months ago, in my first column for this newspaper, I extolled the virtues of automated bill payments: Set them up once, let your utilities, phone and credit card companies pull what you owe from your bank account each month and never sit through the drudgery of a bill-paying session again.

Aaron Houston for The New York Times

Terry Perkins of Morristown, N.J., used a credit card to pay her Verizon bill each month. When her card expired, her phone service was nearly cut off.

And boy, did you let me have it. I heard from a number of readers who thought I was out of my mind for suggesting that they send money out automatically each month or give billers unfettered access to their credit cards and bank accounts. Horror stories poured in, as well as several specific questions and concerns.

So this week, we’ll look at five reasons that people are wary of automating their financial lives this way. But first let’s back up and define precisely what we’re talking about.

Until the 1990s, most of us were stuck writing a whole bunch of checks each month to pay our various bills. Then came the early Web-based bill payment systems, where we’d go to a bank or biller’s Web site and push a few buttons to move money to the right places.

Only more recently, however, has it become possible to pay each bill every month without lifting a finger. There are three basic ways to do this. You can give each biller permission to pull the full amount from your bank account. You can use the online bill system at your bank to push payments out automatically each month. Or you can charge every bill to your credit card and give only that card company permission to pull money from your bank account when the credit card bill is due.

Each of these methods has its potential shortcomings, which will become clear as we march through the hiccups that can occur when automating your payments.

ERRORS Some people fear giving companies the ability to draw money from their bank accounts because they worry about mistakes. If a biller takes thousands of dollars more from their account than they should, it could lead to overdraft fees and a huge hassle trying to get the money back.

So how often does this happen? Nacha — the Electronic Payments Association, a nonprofit association that oversees the network that automated payments travel on, says the error rate is 38 for every 100,000 bill payments. This figure counts mistakes that banks report but doesn’t include problems that consumers solve directly through the billers. (Nacha once stood for National Automated Clearing House Association; automated bill payments are one of many kinds of A.C.H. transactions.)

If an error occurs, according to Elliott C. McEntee, Nacha’s chief executive, the association’s rules, which all banks that deal in A.C.H. payments follow, require banks to automatically credit customer accounts for the mistake.

Consumers get the credit as long as they inform the bank of the problem within 15 days of receiving the bank statement with the error on it. People who miss that deadline still have recourse under federal rules, which give consumers 60 days to report the error, but the credit could be provisional at that point until the bank determines who’s responsible for the error.

Are customers quickly made whole all of the time? Probably not, because banks may neglect to follow the rules and their customers may not read their bank statements quickly or carefully. But if there’s a problem, go to your bank first and request a credit before you complain to the biller. Mr. McEntee suggests calling your bank rather than talking to a teller, because phone representatives should have scripts that prompt them to issue the credit.

If you’re charging every possible bill to your credit card, you’ll have an opportunity to catch the mistakes on the monthly card statement before you pay the bill. Then, you’re vulnerable only to the card company itself pulling the wrong amount of money out of your bank account. Also, you can earn lots of rewards from the card company. Just be sure to pay the bill in full each month, lest interest wipe out the value of the freebies.

One other thing to keep in mind: While billers make plenty of errors, consumers probably make even more. People forget to pay, pay late or pay the wrong amount. Part of the point of automation is to protect the mistake-prone from themselves.

SERVICE THAT WON’T END For months after John Wald, now a finance professor at the University of Texas, San Antonio, moved, his local phone company in Pennsylvania kept drawing money out of his bank account, even though he had canceled the service.

His bank was able to put a stop to the withdrawals but did not issue any temporary credit for the money that was already gone. It took a year to get the money back from the phone company, and now he steers clear of automated payments.

Stopping the automated payment, at least, may be easier if you’ve set it up through your bank’s online bill-paying system.

“Rather than authorizing a biller to take money out and losing total control, we give you that control back,” said Mary Beth Lawson, director of product management for CheckFree, a provider of online bill payment systems. Customers sign up on the bank’s Web site, not CheckFree’s. CheckFree sometimes handles customer service for banks, too, and can get the biller on a conference call with a customer to try to resolve refund requests and other mix-ups.

EXPIRED CREDIT CARDS One potential problem with using credit cards to pay your bills each month is that they expire. Terry Perkins, an information technology consultant in Morristown, N.J., ran into this problem with Verizon two years ago. She said that she hadn’t noticed the lack of a charge on her credit card statement and that the company hadn’t sent any bill, warning or reminder that it needed the new date until a notice turned up in the mail saying her phone was about to be cut off.

“You get this really cold, intemperate letter where you can just infer from it that you must be a dirtbag,” she said. “I finally just said forget it, you guys are never going to have this privilege again, where you have access to my credit card.”

Bob Elek, a Verizon spokesman, said he couldn’t comment on Ms. Perkins’ situation but that the company can now get the new expiration date without a customer’s help 90 percent of the time. Otherwise, the company calls the person’s home and sends e-mail messages to try to get it.

Indeed, Visa and MasterCard have programs that allow participating card companies and merchants to get new expiration dates automatically so they can continue customers’ automatic bill payments. Here’s hoping that becomes standard operating procedure. Until it does, you should put in a round of calls to billers around expiration time to make sure they have the new expiration date.

SECURITY Are you risking identity theft or other problems by giving so many companies access to your credit card numbers or bank accounts each month? Some people still think so.

But Bruce Cundiff, director of payments research and consulting for Javelin Strategy and Research, says the nonautomated approach is more problematic. If you’re paying bills one by one each month via your bank’s Web site, you need to worry about whether anyone has installed software on your computer that would capture user names and passwords. And not having paper statements and checks floating around that could be stolen from the mail is a plus as well.

COMPLACENCY If you’re not careful, automated bill paying can easily lull you into believing that everything is taken care of and no vigilance is needed. Scott Cole, a television editor for CBS who lives in Jersey City, said that his almost daily ritual of checking Quicken and then pushing the button to pay the bills once each month keeps him aware of each payment. It also forces him to think about whether the cost for any particular service has gotten unreasonably high.

Mr. McEntee, of Nacha, does have 17 automatic deductions taken from his bank account each month, but he keeps a list of them handy and then checks them off one by one with his bank statement each month.

I still think it’s possible to achieve Mr. Cole’s level of awareness while having Mr. McEntee’s volume of automated payments. Keep a cushion of cash in your checking account if at all possible to avoid unexpected overdrafts and jump on any errors if you’re unlucky enough to experience them.

In essence, the first principle of the automated payment is this: If you simply set it and forget it, you’ll probably regret it.

UPDATE In last week’s column on socially responsible investing, I mentioned an exchange-traded fund called the HealthShares Emerging Cancer Fund. What I failed to notice, because the company hadn’t bothered informing potential investors on the fund’s own home page, was that the day before my deadline the company announced it was shutting down the fund in September.

I apologize for any confusion, and the fund’s demise speaks to the fact that many niche exchange-traded funds don’t end up drawing enough investor interest to stay open for long.

CNBC

More and more teens and college students have credit cards. Like the population at large, some have good deals and some don’t.

Credit card companies target these groups because they are a fast-growing segment of the population and they have money to spend. So it’s no surprise when a high schooler or a college freshman receives piles of offers.

If you’re a college student, or the parent of a college student, Bankrate.com can help you find the best credit card deals. Just go to our student credit card survey.

You’ll see rates that are generally higher than normal cards. Look carefully, because while these cards are easy to get, the card companies commonly offer them with heftier fees and interest rates, as well as smaller credit limits.

Parental responsibility

Student credit cards are easy to get because parents are often obliged to back up their children in the event the child runs a little short. Even if they aren’t legally obligated to, parents commonly come to the rescue and pay those bills. So parents, make sure you read all the terms, especially with co-signed cards. You’ll probably be there for the children, but it’s nice to know the rules beforehand.

Which brings up another golden rule: Students should use the cards only for emergencies. (Pizza is not an emergency.) Otherwise they’re paying high premiums for everyday purchases, running the risk of damaged credit and learning some bad credit habits at an early age.

Consider voluntary limits

Consider putting a voluntary limit of less than the card company will allow. After all, if the card is used for emergencies only, you don’t need all those thousands of credit dollars out there tempting you.

If a young person has a credit history and can qualify for a regular credit card, it may work out to be a better deal. (Pizza still is not an emergency.)

All students and teens should remember that credit cards are a stepping-stone to a solid credit history — something of major importance to their futures. Misused, they can add a mark on their credit records that will take years to erase.

Security with secured credit cards

Secured cards are another option for teens and students. Banks commonly offer these products, which are cards where the cardholder puts money in the bank as security. That money guarantees the card issuer will be paid if the cardholder fails to pay the bills. The credit limit is determined by how much is secured in the bank as collateral.

There are also cards available that allow parents to link a child’s card to the parents’ accounts, or let them keep refilling the teen’s or student’s accounts as they go along. It’s a way to keep up with what’s going on and limit spending, but still provide the freedom and convenience of a card.

Parents also need to be careful in case teens apply for and receive credit cards without the parents’ knowledge. It’s not supposed to happen to anyone under 18, but there is ample anecdotal evidence of people far younger filling out forms and getting their cards.

Business Week

First Data’s GO-Tags are electronic sensors small enough to transform any device into a payment card
By Steve Hamm

After Kohlberg Kravis Roberts bought First Data for $26 billion last year in one of the largest LBOs ever, the firm approached Michael Capellas about taking the helm. At first, the former MCI and Compaq CEO wasn’t so sure he wanted the job. The low-profile First Data was in the unsexy business of authorizing credit- and debit-card transactions for banks and retailers. But when Capellas did his homework, he began to see the offer in a different light: First Data could be a pioneer in the next wave of electronic commerce. Since he took over as chief executive last September, he has been focused on turning that vision into reality.

The strongest outward sign of Capellas’ efforts surfaced this week at the Democratic National Convention in Denver, where First Data is based. The company demonstrated its newest technology, called GO-Tag, by distributing small buttons to 5,000 journalists and delegates. When they tapped the buttons on electronic sensors at concession stands in Denver’s Pepsi (PEP) Center, they got free snacks and drinks.

With GO-Tag, First Data is placing a major bet on the fast-emerging world of mobile e-commerce. These pea-sized chips, each with a radio transmitter inside, can be stuck on a cell phone or ID badge to make paying for purchases fast and easy. The transactions are handled on the networks that First Data uses for traditional debit and credit cards. In recent weeks it has landed several major customers, including Blockbuster (BBI). GO-Tag takes about a second to complete a sale—much faster than using a traditional credit card or cash. “The ultimate goal is to eliminate the need for cash in our stores,” says Blockbuster Chief Executive James W. Keys.

The GO-Tag project is one of five new ventures that Capellas has launched since he took over at First Data. The others are information analysis, customer-loyalty programs, fraud detection, and consumer- behavior prediction. They’re adjacent markets to the company’s transaction processing business, where revenues increased 14% last year, to $8.1 billion. Capellas is counting on the new ventures to boost growth. As it does with its core business, First Data makes money with GO-Tag by collecting transaction fees. Capellas believes mobile commerce could add more than a $100 million to First Data’s revenues next year.

Not everybody thinks this is a great time to spend big bucks on product development in the hobbled financial-services industry. “I’m all for innovation, but it’s tough when your customers don’t have the money to pay for it,” says Linda Gridley, president of Gridley & Co., a mergers and acquisitions advisory firm in New York. Capellas concedes he is concerned about the economy but says that, so far, First Data’s primary revenue stream is holding up—growing 10% overall in the second quarter in spite of a 1% drop in fees from banks.

Analysts predict rapid adoption in the U.S. over the next few years for GO-Tag and similar devices, which are already widely used in Japan and Korea. After a slow start in the U.S., the scanners are reaching critical mass because merchants see it as a much needed way to trim costs and boost sales. “This is a strong beginning,” says analyst George Peabody at market researcher Mercator Advisory Group.

Capellas feels like he’s in a good spot. He’s trying to turn First Data into a cutting-edge technology company, but he doesn’t have to do it overnight. “This is the great thing about being private,” he says. “You can ride out the storm. We’re going to keep investing aggressively right through it.”

Associated Press
7:09 PM EDT, August 28, 2008

As New Yorkers fill up their tanks before driving out of town Labor Day weekend, they should be wary of running across greedy gas station owners, who are ripping off credit card customers, state Attorney General Andrew Cuomo said Thursday.

“Our investigation revealed that New York City is rife with gas stations that engage in deceptive practices where they display one price as a way to lure customers — and then charge them more at the pump,” Cuomo said in a statement.

The investigation looked at some 130 gas stations around the city and found that 25 percent engaged in a “bait and switch” con with large street signs displaying prices that applied only to cash purchases. Customers could not see the higher credit cards prices until they parked at the pump.

The “cash-only” notice was often in tiny print and the credit card prices displayed on the other side of the sign faced away from the street,” the investigation found. The deceptive pumps charged about 10 cents more per gallon for credit card purchases at a time when more people are likely charging at the pump because of the rising cost of gasoline.

Gas prices are about 32 percent higher than they were last summer, Cuomo’s office said.

Although it is illegal for the gas stations to add a surcharge for credit card purchases, they can offer a cash discount. The different prices have to be clearly displayed however, otherwise it can be considered false advertising. Cease and desist letters were sent to the offending gas station, the AG’s office said.

Meanwhile, State Comptroller Thomas DiNapoli is auditing the gas station prices along the New York Thruway to check for price gouging and wants the Thruway Authority to post prices at all its rest stops.