Credit Card Quick

How the Downgrade in Nation’s Credit Rating may Affect You

News

Although it may not seem, at first, that the recent Standard & Poor credit downgrade will have a big impact on your life – after all, what exactly does that mean?  But, in reality, a downgrade could mean you will soon be paying higher interest on your favorite credit cards.

In fact, many experts say that the S&P downgrade could result in interest rate increases in as soon as three to six months. How much? Some experts estimate as much as two to three percent.

So, what can you do about these changes that most certainly will take place?

• The CARD Act of 2009 protects us, somewhat, from interest rate hikes. For example, credit card companies cannot hike up your card’s APR on your existing credit card balances unless you fail to pay on time. In other words, NEVER miss a credit card payment or your credit card company!
• Under the CARD Act, credit card companies also cannot raise your credit card’s interest rate on future purchases unless they give you a 45-day notice. It is therefore important to keep a close eye on any information sent to you by your credit card company. In other words, now is not the time to ignore any correspondence you receive from your credit card company.
• If you do receive a notice from your credit card company in the upcoming months regarding a hike in your interest rate, you do have the ability to cancel the card and continue paying off your balance with your current interest rate (provided you pay on time, without fail). If you are a good customer and have a strong history with your credit card company, you may also be able to negotiate a lower rate.
• Beware of signing up for a new credit card in the upcoming months, as the credit card company may try to sneak around many of the CARD Act’s provisions by handing out variable-interest credit cards that don’t have the same rules and regulations as their fixed-rate counterparts. In general, it is best to stay away from credit cards unless they have fixed rates.

Credit Card Companies Absent from College Campuses

News

They used to be a common sight at college campuses across the country: creditors parked along corridors and in common areas, hawking their credit cards. From freebies to easy credit, college students used to have their pick of credit cards, simply by strolling along at their college campus. Today, however, the atmosphere is decidedly different, with the government pulling in the reigns of the credit card companies when it comes to extending credit to college students.

In fact, the number of new accounts opened through colleges or other such higher learning institutions dropped 17 percent in 2010, according to the Federal Reserve Board. In addition, agreements between colleges and credit card companies were down, too.

The CARD Act Consequences

The drop-off in activity was, no doubt, brought on by the Credit Card Accountability Responsibility and Disclosure (CARD) Act. In particular, the CARD Act included language that limited the ability for credit card companies to market to college students. The CARD Act also limits credit card companies from passing out gifts to college students for opening accounts.

Restrictions through the CARD Act

In addition, the CARD Act also requires credit card companies to disclose, on an annual basis, the agreements they made with colleges and related groups. As a result of these new rules spelled out in the CARD Act, many colleges have canceled their agreements with credit card companies who use aggressive marketing tactics. In fact, over the years, many colleges kept this information quiet, as they were getting paid by credit card companies to provide information about their undergraduates. Now, with advent of the CARD Act and better transparency, colleges are rethinking their relationships with credit card companies.

Linda Sherry, national priorities director for the nonprofit group Consumer Actions says, “Just the ‘sunshine’ on the card agreements called for with the public reports is a great way to shame the universities from profiting off of making students debtors, and it seems to be working.”

The CARD Act, although it has cut down on the rate at which credit card companies market to college students, has yet to keep many college students from taking on credit card debt. It appears that the effects of the recession and the fact that credit card companies are simply being more particular when it comes to approving individuals for credit may have more of an impact on college students and credit than a decreased rate of marketing through college campuses.

Credit Card Hotline Goes into Effect

News

Do you have credit card, mortgage or bank problems? Have you experienced problems that cannot (or will not) be handled by your financial institution? Do you feel like your complaints have gone unnoticed or unheard? If so, you now have a watchdog in your corner. The Consumer Financial Protection Bureau just launched a few weeks ago and is a result of last year’s financial reform legislation. In short, it may be just what many consumers have been hoping for.

You can report a problem with any number of financial institutions by contacting the Consumer Financial Protection Bureau at (855) 411-2372 or by visiting them at www.consumerfinance.gov.

Richard Cordray, Ohio’s former attorney general, is set to serve as the director for the Consumer Financial Protection Bureau, although the confirmation is currently awaiting Congressional confirmation. Republicans in the House are still in the process of negotiating the overall structure of the Bureau, which is creating the delay of confirmation. In the meantime, Associate Director Raj Date will take on the duty of overseeing the Bureau’s daily activities.

The Consumer Financial Protection Bureau will be responsible for, among other things:

• Receiving consumer complaints about financial institutions and the financial industry as a whole
• Learning how Americans use financial products
• Restricting deceptive behaviors by the financial industry
• Promoting financial education
• Enforcing consumer financial protection laws

The Bureau is said to serve as an “EPA for money” and will “leverage the latest technology to analyze consumer data and to support Americans in their fight for responsible financial products and services.”

The Bureau may assist credit bureaus when monitoring cash transfers through MoneyGram, Western Union and similar companies; it may educate consumers about credit scores and credit scoring models; and it may encourage credit card companies to exceed the transparency laws recently in place through the CARD Act.

In addition to providing consumers with education and information resources, they will also have a Twitter feed and will be active through several social media sites, thereby making it easier than ever for consumers to report problems or issues with financial institutions.

What You Need to Know About Credit Card Inactivity Fees

News

With the advent of the CARD Act, many credit card companies had to put on the brakes when it came to over-the-top fees and charges. However, like any other legislation, credit card companies found their share of loopholes and are, once again, hitting customers with new and quite inventive charges. Enter the inactivity fee.

What is an inactivity fee?

An inactivity fee is a new fee that many credit card companies are employing to encourage customers to either start spending or risk losing their account. In short, the CARD Act put a serious dent in the wallets of the credit card companies; in response, they began cutting the dead weight, so to speak. In other words, they are now looking to cut ties with those customers who held a credit card, but did very little spending on it.

Why are credit card companies charging this fee?

Because of the CARD Act, and the poor economy of the last, few years, fewer people have been using charge cards. As a result, credit card companies began imposing inactivity fees to: (a) encourage consumers to start spending on their credit cards again; and (b) generate revenue lost by the legislation of the CARD Act.

How do I know if my credit card company is charging an inactivity fee?

The inactivity fee must be detailed in your card’s terms and conditions, so read them closely. Each credit card will have its own rules regarding inactivity fee – mainly the time that elapses before you are charged this fee – and some cards do not even charge this fee. If in doubt, give your credit card company a call to verify whether they are imposing an inactivity fee.

How can I avoid paying an inactivity fee?

If you have a credit card, but you relegate it to the back of your wallet for use only in emergencies, you could be facing an inactivity fee from your credit card company. Unfortunately, most credit card companies are not willing to negotiate this fee. So to avoid this charge, simply make a point of spending on the card a couple times a year.

Consequences of the CARD Act You May not Have Considered

News

The CARD Act, in many consumers and CARD Act proponents’ eyes, has been a major success. This federal legislation, in essence, was enacted to protect the rights of credit card holders. Just some of the protections afforded to consumers under the CARD Act include: no unannounced interest rate hikes; a limit on student credit cards; and better transparency regarding credit card terms and conditions.

Although the CARD Act was created and enacted to protect the rights of consumers, it has also had some unexpected consequences:

• Higher interest rates – As soon as word spread that the CARD Act was underway, credit card interest rates began to climb. Whether or not the rising interest rates had anything to do with the CARD Act is uncertain, but it seem rather coincidental that these two things occurred around the same time. Consider that the average interest rate is above 16 percent, up from 14 percent in the first part of 2009.
• More fees – Because the CARD Act placed limitations on the fees that credit card companies could charge consumers, the credit card companies have found new and interest fees to charge to make up for the lost revenue. Expect such things as “minimum finance charges” and “inactivity fees” to be commonplace with credit cards now as a result of the CARD Act.
• Lower credit limits – The struggling economy and the CARD Act likely worked together to cause credit card companies to steadily lower credit limits on consumers. In fact, you may have been one of those consumers who were shocked to find your credit card limit had been slashed by your credit card company.
• Less credit card approvals – Perhaps one of the biggest changes to come about as a result of the CARD Act is that credit card companies are no longer willing to offer credit to those individuals with questionable credit histories. Of course, the flailing housing market over the last two years, combined with the poor economy, also played a part in credit card companies pulling back when it comes to approvals, but the CARD Act has definitely played a part in this new era of tighter credit standards.

Five Signs your College Student may be Ready for a Credit Card

Introduction

Your baby is headed to college, and you wonder if it may be time to arm him with a credit card. Because banks are now held to higher standards when it comes to approving college-age adults with credit cards under the CARD legislation, chances are that you will need to co-sign for a credit card for your college-age child. So, the question is: Is it time to help your college-age child obtain his or her first credit card?

Well, that depends. Although you want to be able to help your child begin to establish good credit, you are also putting your credit on the line if you co-sign. With that said, you should carefully examine your college student’s habits and financial maturity. Here’s what to look for:

1. He has a steady job – A steady job is a must if your child expects to pay off his or her monthly expenditures on a credit card. Arming your college-age child with a credit card only for you to pay it off each month teaches him or her little to nothing about responsible spending, so wait until your child actually has steady employment to be able to pay off the bill each month.
2. He has an active checking and savings account – A checking and/or savings account is a fantastic first step in the world of financial responsibility, so before any credit cards are applied for, make sure your child has an open and active checking account and learns the basics of checks and balances.
3. He pays his other bills on time – A great indication of your child’s ability to handle the responsibility of a credit card is whether he or she has bills and pays them on time, without fail.
4. He understands the value of money – Does your child save any money each month? Does your child save up for things he or she wants? Does your child have a clear understanding of living within his or her means?
5. He understands the importance of a strong credit score – Before co-signing for your college student’s first credit card, have a long talk about the importance of a strong credit score, the advantages to having a strong credit score, and the many downsides to a weak credit score.

Study Ranks the Best and Worst Banks for Small Business Credit Cards

Choosing Credit Card

A recent study by Card Hub ranked the best and worst credit cards for small business. The study, which ranked the top 10 credit card companies according to their transparency and the extent to which they extended the new CARD Act protections to their business credit card customers, showed that not all credit card companies were fair and forthright to their business cardholders.

Because the CARD Act, which was enacted in 2009, does not apply to business credit cards, not all credit card companies extended the protections of the law to their business credit card customers. There were a few exceptions, though. Bank of America, in particular, was the only major credit card company to extend all of the protections of the CARD Act to its business customers.

Although many suspect that small business owners will soon be given the same protections under the CARD Act that individuals consumers are now afforded, the fact of the matter is that, at the current time, it can be quite tricky to be a small business owner with a business credit card.

Some of the results of the Card Hub study include:

• Wells Fargo, HSBC and U.S. Bank failed to provide any of the CARD protections to small business owners, and they also failed to provide transparency to small business owners about their policies.
• Citi, Chase and Discover ranked slightly higher than Wells Fargo, HSBC and U.S. Bank because they were upfront when it came to informing small business owners that the protections afforded to individuals consumers under the CARD Act did not apply to their small business credit cards.
• American Express and Capital One extended many (but not all) of the CARD Act protections to their small business credit card owners. It is important to research these credit cards before opening an account so you fully understand the card’s terms and conditions.
• Bank of America was the only credit card issuer to give its small business customers an important part of the CARD Act: They do not increase interest rates on its small business cards until the account is 60 days delinquent.

The Consequences of Missed Payments and How to Avoid Them

Credit Card Debt

As much as we try to remain organized when it comes to our finances, sometimes the inevitable happens: we forget to pay a bill.

But when it comes to our credit cards, paying a bill late can result in serious consequences. If you think because you’ve made payments on time for what seems like forever, and you have a good credit score, that you don’t need to worry about a missed payment or two, you couldn’t be more wrong.

In fact, credit card companies are now coming down hard on individuals who miss even one payment.

Late Payment Fee

Failing to pay your credit card bill can result in a missed or late payment fee (which can range anywhere from $15 to $35), accrued interest charges, and even a higher interest rate.

Penalty APRs

Although the CARD Act has made credit card companies provide customers with 45 days’ notice of a rate increase, it doesn’t stop them from raising interest rates and penalizing you with the penalty APR – which could be as high as 29.99 percent.

Lower Credit Score

In addition to putting a damper on your interest rate, a missed payment could mean a lower credit score. A credit card issuer can report your missed or late payment to the credit reporting agencies, thereby bruising your credit score.

Lost Points

If you have a rewards credit card and you fail to pay the minimum payment, you could lose any points or rewards you earned during that billing cycle.

How to Avoid the Pitfalls of Late Payments

If you want to avoid a late or missed payment you can set up automatic bill payments with your credit card or bank. This feature will automatically make a payment each month on your chosen date, thereby preventing a missed or late payment. In addition, you may also choose to pay your credit card bill as soon as the bill arrives, thereby eliminating the chance that you might forget about it. Finally, you can set up reminders through your smart phone or other electronic organizer.

How the Credit Card Industry Stays Profitable

Introduction

All of the hoopla surrounding the credit card industry and the CARD Act legislation has left many consumers wondering why credit card companies were panicking over the new legislation. In short, it is because, although the legislation was designed to protect consumers, many credit card companies lost money because of it.

Credit card companies and the issuing banks get paid every time credit card customers make purchases. Here is a breakdown of how the process works:

• Credit cards are typically offered by banks, who lend money to consumers via loans and credit cards. The interest earned is their payment. But it doesn’t stop there.
• The first part of this equation occurs when you walk into a store and make a purchase using your credit card. The card is swiped through a credit card reader, which sends the purchase information to the bank that issued your credit card. The bank will then give the retailer the OK to pay the purchase.
• The retailer’s bank makes a small amount of money from this transaction. The money made by the bank is split between the credit card company and the bank that issued the credit card. Fees charged by banks vary between credit card companies and retailers.
• The money made by credit card companies doesn’t end at the transaction, though. The fees charged by credit card companies to consumers for late payments, going over the credit card’s limit and annual fees are also sources of income. In addition, most banks must pay money to the credit card company for the luxury of being a part of the Visa or MasterCard networks.
• The issuing bank and the credit card company share a percentage of the money they receive from every purchase made using a credit card. The credit card company and the issuing bank usually negotiate the percentage received by both parties.
• Card issuers and banks, before the CARD Act, also had a number of opportunities to make additional money from credit card customers. They would often sell customer names and addresses for direct mail marketing purposes, and they would also sell advertising space to other companies on the statements sent to customers each month.

What you Need to Know about Small Business Credit Cards

Choosing Credit Card

If you are a small business owner you’ve no doubt witnessed the flood of business credit card offers as of late. Many banks, in an attempt to lure back their small business owners, are now offering small business credit cards with attractive promotions and rewards programs.

Many small business owners, however, are unsure whether to apply for a small business credit card, and for good reason; these credit cards are not protected under the CARD Act. So, is it a financially smart idea to apply for a small business credit card if you are a small business owner?

Here are a few factors to take into consideration:

• Small business owners who use small business credit cards are not protected by the CARD Act. In short, all those “transparency” regulations afforded to consumers are not afforded to small business owners, so those fantastic offers and promotions may not all they’re cracked up to be.  A good example of this is creditors can issue rate increases at any time and for any reason when it comes to business credit cards. For example, if you fail to make a payment on an unrelated loan, your creditor can raise the interest rate on your business credit card.
• Small business credit cards are not superior when it comes to taxes. In other words, if you charge a business expense to a personal credit card you can still claim it as a business expense on your taxes. A business deduction is a business deduction, regardless of how you pay for it.
• Business credit cards do not protect business owners when their employees overspend. Remember that you are responsible for the expenses charged by your employees if you provide them with their own business credit card. In other words, you can’t ask the credit card to reverse the charges if your employee overspends or charges unapproved purchases. It is ultimately your responsibility to cover any purchases charged by your employees.
• Business credit cards are always personally guaranteed by the business owner. In other words, if your business fails or if you fall behind on your credit card payments on your business credit card, your personal credit history will suffer. The notion that business credit cards do not affect business owners on a personal level is a common misconception.