Credit Card Quick

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.

Congress Seeks to Limit Credit Card Interest Rates

News

If Congress has its way, there may be yet another change to the credit card industry.

In short, Congress has introduced a bill that will limit the amount of interest a creditor can charge you. Called the Interest Rate Reduction Act, this legislation will limit the interest rate on credit cards to just 15 percent, thereby making it, perhaps, the biggest change in the credit card industry to date.

Authored by U.S. Representative Maurice Hinchey, the Interest Rate Reduction Act is a way to help American better make ends meet in this challenging economy. Hinchey states that “credit card companies are finding new ways to squeeze the middle class despite significant reforms in the last Congress.”

In other words, it is clear that many members of Congress are dismayed that creditors have found a number of loopholes in the credit card legislation that was enacted last year. The only exception to the 15-percent rule, under this new legislation, is the ability for a creditor to raise interest rates if they would be “in dire financial straits otherwise.”

Although this new legislation has only been introduced, it is a distinct possibility that Congress can get it passed. In the meantime, however, it is important to pay close attention to your credit card’s interest rate so you can be sure you are getting the lowest, most competitive rate. Here’s what you need to do:

• Pay attention to all literature sent by your credit card company. Because the CARD Act requires credit card companies to inform consumers, in advance, of changes to their credit card accounts, you may find that your creditor is sending quite a bit of literature to you, either by itself or with your credit card statement. Although it may seem quite inconvenient to read this literature, it may detail changes in your credit card’s interest rate. In other words, take the time to read any and all information you receive from your creditor.
• Beware of introductory and balance transfer rates on your credit card accounts. Although introductory rates can be quite attractive, the creditor may raise your rates significantly once this special period has ended. In short, pay close attention to the default interest rate on a credit card if you are accepting an introductory rate.

The Credit Card Trends of 2011

News

What can you expect from the credit card industry in 2011?

Just a few of the trends predicted for the credit card industry for the upcoming year include: tighter credit card regulations, plenty of new credit card offers, and loads of rewards programs and balance transfer offers.

It’s all about the Prime Credit Card Customers

If your mailbox is stuffed with credit card offers as of late, you know you must have good credit. Those consumers with excellent credit scores are being tracked down by credit card companies. Although the credit card industry is still in its recovery stage, it has begun loosening the reins on credit card offers. However, don’t expect to receive credit card offers unless you have the credit score to back it up. In short, creditors and banks are vying for the business of prime credit card consumers, and they are pulling out all the stops in terms of rewards to get their business.

Rewards Programs Soar

Which brings us to rewards programs…If you have great credit, expect many of the credit cards you receive to come with attractive rewards programs. The bottom line is that credit card regulations and interest rates remain fairly high, so it is up to the credit card companies to lure consumers in with another catch; and that is rewards programs. Because there are so many credit card rewards programs floating around out there, take the time to find a rewards program that best fits your lifestyle. You’re sure to find one!

Balance Transfer Offers on the Rise

In addition to attractive rewards programs, most creditors want the best consumers to transfer their balances to their cards, so along come attractive balance transfer offers. Although you may still get a low, promotional interest rate on a balance transfer offer, expect the promotional period to be much shorter than you’re accustomed. In particular, you can expect promotional periods of about three to six months instead of the usual 12 months. It pays to note, however, that great balance transfer offers do still exist, so take the time and find one that best fits your needs and your budget. Again, if you have the good credit score to back it up, it is now quite easy to find competitive credit card offers!

2011: The Return of the Credit Card?

News

Consumers, in general, have gone through a couple of rough years. First, the downfall of the biggest banks, and then the downfall of the housing market and then finally, the tightening of the credit card industry belt.

It’s no wonder, then, that many consumers put their credit cards away. From high unemployment to lenders simply cutting some consumers off, millions of consumers had no choice but to find other ways of paying.

However, some industry analysts see 2011 as a year of change for the credit card industry and consumer spending, in general. In short, it looks as if credit card spending will, once again, see a resurgence, and the debit card industry, which has reigned supreme over the last, couple years, will begin to shrink.

Let’s take a look at a few factors that may change the way we spend in the upcoming year:

• With a stabilizing economy comes consumer confidence. A stabilizing economy, in addition to new jobs, typically spells consumer relief. In other words, if consumers think the economy is getting better, chances are they will begin spending again. And, because there are many indications that employment levels will see a surge in 2011 — Wells Fargo’s Annual Economic Outlook for 2011 shows that employment reports will be positive by the middle of the year and TransUnion reports that that both credit card and mortgage loan delinquencies will experience double-digit free falls — it only makes sense that credit card spending will increase as a result.

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• Competition has begun gaining momentum in the credit card industry, once again. Proof of this is probably sitting in your mailbox right now. If you think you’ve been receiving a lot of credit cards as of late, that is because you probably are. In particular, consumers with good credit are now being bombarded by attractive credit card offers. In fact, according to the marketing research firm, Mintel Compermedia, consumers received about 1.2 billion credit card offers during the third week of 2010, compared with 391 million offers from the same time a year prior.

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• Creditors are upping the stakes when it comes to rewards. In short, expect to see plenty of great rewards programs, provided you have the credit that attracts the attention of the credit card companies. In fact, eight out of every 10 credit cards being offered today comes with some type of rewards program.

Is a Credit Card-Free Lifestyle for you?

Introduction

Has the entire credit card industry got you down? Does the constant fight between creditors and the government have you confused regarding your rights as a consumer?

Many consumers, particularly over the past year and a half when creditors tightened their belts and denied credit to millions of consumers, have become jaded towards the credit card industry. Combine that with the new credit card legislation and the ways in which many credit card companies have found a way to skirt the current legislation, and it’s no wonder why so many consumers are now heading toward a “cash only” philosophy.

Although this can certainly eliminate much of the hassle and grief associated with credit cards, it does make establishing a good credit score very difficult to achieve.

The bottom line is that, in order to obtain a loan for anything from a car and home to a student loan, you must have a credit score. Often times, no credit is as often as detrimental as bad credit.

With that said, there are ways in which you can enjoy a relatively credit card-free lifestyle without jeopardizing your credit score in the process:

• Find one, great credit card with a low, fixed interest rate – Avoid dealing with low, promotional rates that will expire. Instead, do your research and find a card that has a low, fixed interest rate.
• Make regular purchases and pay them off each month – You must make purchases on your credit card in order to establish a strong credit history. You can simply make one or two purchases each month and then pay those purchases off when the bill arrives to begin building your credit score.
• Consider rewards to make your credit card purchases work for you –Credit cards can end up saving you big, provided you understand how reward credit cards work. Making purchases – and paying them off each month – may allow you to earn anything from cash back to airline points, so consider the advantages of credit cards instead of just the disadvantages.

Your Guide to a Responsible Credit Card Plan

Credit Repair

Using credit cards is much like any other financial decision. You should go into it with a good, working knowledge of how the industry operates; how your credit card works, including the terms and conditions of the credit card; and what is expected of you as the customer.

If you take the time to educate yourself about all aspects of the credit card industry and your credit card, in particular, then you will be better prepared to become a fiscally responsible credit card customer. This will allow you the opportunity to enjoy the benefits of credit cards without the associated risks of irresponsible overspending.

Here is your quick guide to developing a responsible credit card plan:

• Credit cards are often a necessary part of building a credit history – You may be inclined to dump credit cards altogether; particularly if you’ve been privy to all of the negative press attention given to credit card companies. However, this may not be the best decision, as your credit card purchases can go a long way to building a strong credit history so you will be able to make larger purchases, such as vehicles and homes, without a problem. The best rule of thumb when building a credit history is to charge at least a few things every month and then pay them off in full when the credit card bill arrives.
• Never begin spending until you are fully aware of the card’s terms and conditions – What you don’t know can hurt you! Make it a point to always read and reread a card’s terms and conditions before accepting it; otherwise, you could find yourself paying exorbitant interest rates and fees and potentially damaging your credit. Carefully read the card’s fine print, and if there’s something you don’t understand, call the credit card company to explain it to you.
• Don’t break the 30 percent rule – One of the best rules of thumb when dealing with credit cards is to never charge more than 30 percent of the card’s credit limit; otherwise, creditors may view your spending as irresponsible and your credit score can suffer as a result. Plus, keeping your balance to a minimum prevents you from overspending and being caught in a situation where you can’t pay your bill.

A Useful Website for Cardholders

Credit Card Types

The Federal government has a great website that could provide you with plenty of useful information regarding credit cards.

This new site (found at www.federalreserve.gov/creditcard), which is maintained by the Federal Reserve Board, has been launched to provide consumers with a basic guide to understanding the credit card industry.

Some of the useful features on this new website include:

• An Interactive Tools and Features section, which includes an area about learning more about a credit card offer you may have received. Located in an easy-to-open PDF file, this handy link allows you to better understand the terms and features of any credit card offer. Also located in this section is a guide to understanding your statement.

We think this section is particularly useful, as it breaks down all of the legal credit card terms into easily understandable language so that you can better navigate your monthly credit card statement.

Finally, the last section of this Interactive Tools and Features section is a Pay it Off calculator, which allows you get an estimate of how long it will take to pay off your credit card balance, given your interest rates and monthly payments.

• The Federal Reserve also has a great section on their website that allows credit card customers to watch their PSA; this video essentially teaches consumers how to navigate the credit card process and get the most out of their credit cards.
• The What you Need to Know: Credit Card Rules section is designed to educate and inform consumers on the new credit card legislation and how it can change the way your credit card company handles your credit card account.
• A small section called 5 Tips for… on the Federal Reserve website provides easy-to-follow steps for doing a number of things, such as “Improving your Credit Score” and “Getting the Most from your Credit Card.”
• The Federal Reserve credit card website also features additional sections that allow you to learn more about: options, interest rates, fees, lost or stolen credit card, billing errors, general complaints and managing your credit.

Why it may Pay to Stick with your Current Credit

Credit Card Types

For many of us, the great credit card balance transfer offers over the years have tempted us to transfer our credit card balances from card to card. However, given the dramatic shift in the credit card industry, what once was commonplace now becomes a liability.

This holds true for many aspects of the credit card industry, including the length of time in which we keep our credit cards. Maintaining and developing a relationship with a trusted creditor is often worth much more than the short-terms savings you may experience from balance transfer offers or introductory offers.

Here are some of the reasons why it may pay to hold onto your current creditor:

• Best rates – It’s simply a fact that long-term customers get the best rates. Most credit card companies offer great interest rates to their valued customers because they have a credit history on which to draw from. In other words, if you have proven yourself to be a trustworthy customer, your credit card company will likely reward you with a competitive interest rate. You will likely also have more room to negotiate if you feel that you creditor could offer you a lower interest rate.
• Positive impact on credit score – Your FICO score, although determined using many factors, may be influenced by your history with the same creditor. In other words, you may have an excellent payment history, but another individual with the same history that has not switched credit cards every year or so will probably enjoy a higher FICO score in this area.
• Higher credit limit – Along with a better interest rate, you will likely enjoy a higher credit limit as a loyal customer. Many times, your creditor will gradually increase your credit limit as you prove your credit worthiness to them.
• Late payment forgiveness – Good customers who almost always pay their credit card bills on time will likely enjoy leniency from their credit card company if they slipped one month and paid their credit card bill after the due date. In fact, many credit card companies will remove late payment fees for loyal customers who failed to pay their credit card bill on time just once or twice.

Reasons Why You Should Not let Your Credit Card Become Inactive

News

There are many changes taking place in the credit card industry; most of which are in your favor. However, there are a number of new regulations taking place, courtesy of the credit card companies, that may not be in your favor.

One of the most important new rules to consider is that not using your credit card can cost you. Most consumers were always under the assumption that having a credit card and using it only for emergency purposes was the best way to go. However, credit card companies are now changing up the rules and either charging you an inactivity fee or canceling your credit card if you don’t use it enough.

This may prove to be quite confusing, especially for consumers who were told to never cancel their credit card accounts in fear of lowering their credit score. Now, financial advisers are recommending canceling credit cards that you no longer want to use or need, as you could be facing inactivity fees if you keep these inactive accounts open,

Inactivity fees are no doubt a ploy by credit card companies to get you to start using that credit card that has been taking up room in your wallet. After a year of recession woes and credit card regulations, creditors are now finding new ways to once again encourage their credit card customers to start spending on their credit cards.

What you can do to avoid inactivity fees:

• Make a point to charge a purchase at least every six months. This will prevent the credit card company from charging you an inactivity fee. Check your card’s terms and conditions regarding inactivity fees for specific details.
• If you are charged an inactivity fee on a credit card you no longer want or need, cancel the card and ask that the inactivity fee be removed.
• If you are considering a large purchase in the near future, don’t cancel the credit card, as this could lower your FICO score. Instead, simply make a purchase or two – and pay them off before interest can accrue.

0% Credit Cards: What’s the Catch?

Introduction

With all of the doom and gloom surrounding the credit card industry, a credit card boasting a 0% interest rate sure sounds good, doesn’t it?

But is there a catch to this impressive rate?

A so-called “free” credit card may not be free after all. You may have to pay a yearly membership fee; you may have to pay interest on charges that you carry from month to month; or your interest rate may only be promotional.

Good and Bad 0% Credit Cards

Whatever the catch, it is important to understand that all 0% interest rate credit cards are not created equal. There are some 0% interest rate credit cards that aren’t worth your time, but there are also others that are able to offer fairly attractive terms and conditions.

In order to qualify for a 0% credit card you must have excellent credit. Bottom line: there are no free rides when it comes to great interest rates. If you have paid your dues and maintained an excellent credit score then you may be eligible for some of the lowest interest rates going at any given time.

0% Promotional Rate Credit Cards

There are some 0% credit cards that offer this low rate for a promotional period of time. In other words, the 0% is not forever; just until the promotional rate ends, which is typically about six to 12 months. Although this may sound like a bum deal, the reality is that you could transfer a higher interest rate credit card onto a 0% promotional rate card and save hundreds of dollars in interest over a six month period.

Pay close attention to balance transfer fees and do the math: consider whether it will still benefit you financially to transfer your higher interest rate balances onto a 0% interest rate credit card after you pay the balance transfer fee.

Another common fee charged to individuals with low interest rate credit cards is an annual fee. Although you certainly should not have to pay an annual fee to have a credit card, paying a small annual fee may very well be worth your time if you are able to snag a super-low interest rate.

Finding a credit card with a 0% interest rate is possible; you just simply must realize that it may come with its share of terms and conditions. Often times, these terms and conditions are well worth it, so always weigh your options when shopping for a new credit card.