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Nov 5, 2009

New Credit Laws – Tactics the Credit Card Companies are Using to Charge You More

When the new credit card laws went into effect in late August, it was seen as a good first step to creating fair credit terms for all consumers. While this is still the case, many individuals may be facing higher payments than they were under the old laws. This is due to changes the credit card companies have made in an effort to reduce potential losses due to the new regulations. If you’ve been hit with any of the following tactics, there are a few things you can do to help improve or maintain your credit scores.

Last Minute Interest Rate Hikes – Many credit card companies sent out notifications detailing higher interest rates and other terms in advance of the new credit card laws. Some of these notifications may be confusing to consumers, due to the fact that the listed changes may not take effect for several months. Here’s the bottom line: if you received a notice of a change to your credit card’s terms before August 20th, you only have 15 days to opt out, even if the proposed changes don’t take effect until months later. Don’t wait to take action, and be sure to read the fine print in order to avoid having your account closed, or assessed additional fees.

Changes to Minimum Payments – Some credit card companies are also raising the amount you have to pay each month if you carry a balance – up to 5% from the typical 2-2.5% seen in years past. While you can’t always opt out of these changes, in some cases you may have the option to write in and retain your old rates. Be careful with this option, however, as some companies will close your account if you opt out of their new terms.

Increased Penalties for Late-fees and Over-limit Fees – While these types of penalties are easy to avoid if you pay your bills on time and stay within budget, credit card companies are also reducing consumers’ credit limits without providing any notice. Because the credit card companies aren’t required to inform you about changes to your credit limit, you could rack up over-the-limit fees without realizing it until your statement arrives in the mail. Your best defense against this is to sign up for alerts that will let you know when you are approaching your limit, coupled with regular vigilance through online access or customer service, so that you always know your limit before you go shopping.

Another way to avoid paying extra: Opt out of over-limit purchasing altogether.  Companies are now required to allow you to do this, but you will have your credit card declined for any purchase if that purchase would take you over the limit. If you typically keep your balances low, but aren’t sure about your credit limit, this is one way to avoid getting hit with additional fees.

Most credit card companies allow for automatic payment of your bill, either in full or the minimum balance, monthly. By taking advantage of these programs, you can eliminate the chance that you’ll be charged a late-payment fee on your accounts as well. Just keep track of your due dates and be certain that you have the funds readily available to cover the automatic bank draft, or you could wind up paying just as much, or more, in overdraft fees from your bank.

Posted in credit card companies, credit card laws, credit scores, interest rates, late fees, overlimit fees | No Comments »



Oct 27, 2009

Credit Cutbacks – Has Your Limit Been Slashed?

In an effort to minimize potential losses as a result of the new credit card laws that went into effect on August 20th, many credit card companies are slashing credit limits for customers who carry a balance from month to month. This can be true even if you’ve never missed a payment, and have been responsible in paying your other bills on time.

While changes in interest rates require a notice, these reductions to your credit limit can come without warning, leaving many uninformed about the reduced limits until they receive their monthly statement. Reductions of hundreds or thousands of dollars are not uncommon, and can really put a dent in your credit score, regardless of how responsible you are when it comes to making on-time payments each month. What’s worse, you may be hit with over-the-limit fees on newly reduced balances, when your original spending was well-within your old credit limit.

Many consumers are surprised to realize that unlike interest rate changes, changes made to the credit limit can be done at any time, without informing the consumer. This means that even if you have a $1000 credit limit today, there is nothing stopping the credit card company from lowering that limit to $800, or even $500 tomorrow. The only way to stay informed is to check your account information regularly. If your credit card company offers online access to your account, it may be helpful to check your credit limit in this way.

Another option is to set up an alert that will send you an email or text message when you are approaching your credit limit, but this may not be as helpful in terms of saving your credit. Why? The ratio of how much you spend on your cards, versus your available credit limit is a factor in calculating your credit scores. If you wait until you are only a few hundred dollars away from your limit to set an alert, the damage to your credit score may already be done. While you will avoid any sneaky over-limit fees, you won’t be able to prevent the hit to your credit score that comes from over-utilization of available credit.

If one credit card company reduces your balance, others may follow suit as your available-credit-to-debt ratios will now categorize you as a higher risk. While the logical option would seem to be avoiding the use of your credit cards altogether, this choice can backfire, as many credit card companies are actively closing accounts that do not have any activity after a few months. Your best option is to continue using your cards, and pay off the balances each month if at all possible. This will keep you from having an account closed for inactivity, and it will also keep you from being targeted for credit limit reductions due to carrying a balance each month.

While there is no law that requires your credit card company to keep you informed about your credit limit, you can remain informed by keeping a close eye on your balances, either online or via customer service. Don’t let surprise credit limit reductions derail your good credit – set up alerts, check your balance regularly, and pay off as much as you can to avoid unpleasant repercussions.

Posted in credit card companies, credit card laws, credit scores, overlimit fees | No Comments »



Oct 12, 2009

Why You Need a Credit Card

If you are trying to rebuild your credit, you may think that your best option is to get rid of all your credit cards, or to avoid buying items on credit in the future. However, nothing could be further from the truth; in fact, if you don’t have any credit cards at all, you might find that it takes longer to repair your credit. Even if you’re getting out of debt and paying other bills on time, without a credit card, rebuilding a positive credit history can be difficult at best.

Your credit score is not determined by any one type of credit. Loans, credit cards, and other financial obligations all play a role. In general, credit cards are an important aspect in boosting credit scores because credit cards are an ongoing gauge of how well you pay back your debts, how you manage debt, and how responsible you are when it comes to spending. If you can maintain low balances, pay your credit card bills on time each month, and maintain a solid history of repayment, your credit scores will rise.

Getting rid of credit cards in an attempt to boost your credit scores will backfire. A better option is to choose one or two cards with a decent interest rate, and keep those accounts open and current. You don’t need to charge much – it’s actually better if you keep your purchases anywhere from 10% – 30% of your overall credit card limit. This demonstrates to creditors that you can be responsible with the credit you are given. It also makes it easier for you to pay off the credit card in full each month, which is another way to rebuild your credit scores.

If you have several credit cards, you may wonder which cards are best to keep, and which accounts (if any) you should close. In general, keep your credit card account open if:

You’ve had the card for several years. Having a long credit history is more beneficial than having a short one.

You have a balance on the card. Canceling an account while you still have a balance can wreck havoc on your available-credit-to-debt ratio.

The interest rates are low. Lower interest rate cards can not only save you money, but they can make it easier for you to stick to your repayment goals as well.

When should you cancel a credit card? In general, if the interest rate is high, or if the credit card company uses double-billing, it’s probably a good idea to get rid of that card as soon as the balance is paid off. The only exception to this is if the credit card is one with a long credit history. You don’t want to cancel your oldest cards, so in this instance, your best option would be to charge a very small amount on the card each month, and then pay it off again as soon as possible to avoid the extra interest hit.

If you are trying to rebuild your credit, you don’t currently have a credit card, and don’t think you can qualify to get one, try a secured credit card instead. With a secured card, you put down a deposit for a specified amount (usually anywhere from $200-$500) and in exchange you receive a credit card with a limit equal to the deposit. Charge only a small amount on the card, and then pay it off each month – this will let you build your credit, even if you don’t initially qualify for a regular credit card.

Regardless of which route you choose, getting and maintaining a credit card account is an essential part of any credit repair plan. Don’t assume that all credit is “bad” credit. If you want to be successful in increasing your credit scores, you’ll definitely need a credit card – just be sure to pick one that’s easy to manage, and don’t let the balances get out of hand.

Posted in available credit to debt ratio, credit cards, credit history, rebuild credit, repair your credit | No Comments »



Oct 5, 2009

Credit and Charge-offs: Three Possible Solutions to Increase Your Credit

A charge-off occurs when you are so far past due on payments that your creditor feels that they will not receive any payment. A charge-off means that the creditor has written off the account as a bad debt, but it does not relieve you of the obligation to pay the debt. Charge-offs have a severe negative impact on your credit, but once the account has been closed, you may find it difficult to get it reopened in order to continue making payments. However, there are some options when it comes to getting rid of charge-offs on your credit report, provided you have the means to pay at least a portion of the debt.

Your first and likely best option is to write your creditor and request a pay-for-deletion arrangement. In the letter, offer to pay a percentage of what you owe provided that the creditor agrees to remove the charge-off from your credit report. If the debt is fairly recent, you may need to offer the full amount as payment in order to get the creditor to agree. Not all creditors will agree to this type of arrangement, but if they do, be certain you have the pay-for-deletion agreement in writing before you send in your payment. You will have to use certified funds in this type of an arrangement, so be prepared take the extra step of purchasing a money order or cashier’s check. This option works best, because the derogatory credit history will be gone from your report as if it never existed.

Your second option is to arrange for the debt to be listed as ‘Paid in Full’ on the credit report, in exchange for payment. Just as with a pay-for-deletion agreement, you must be certain to get this in writing, especially if you work out a payment arrangement that is less than what you owe. The ‘Paid in Full’ listing will improve your credit score, but not as much as having the derogatory information removed entirely. What you do not want is a listing of ‘Settled’ on the account, as it indicates to other creditors that you do not fully meet your credit obligations.

Your last option, if you cannot work with your creditors in any other way, is to pay off the debt in full, with appropriate account numbers, reference numbers and any other necessary information included with the payment. Make copies of everything, and once the payment clears, you can dispute the listing on the credit report to have it updated as ‘Paid in Full’. Keep in mind that you must provide proof that the debt was entirely satisfied in order for this method to work, so you won’t be able to make a payment that is less than the full amount owed if you want this to be successful.

One final note: charge-offs remain on your credit report for up to 7 years. If the date for the charge-off to be removed from your credit report is close, you may wish to wait for it to be removed from your credit report entirely. This is true whether or not you ultimately decide to repay the debt, because repaying older debts can cause your credit scores to drop temporarily.

Getting your credit repaired can take some time if you have several charge-offs. Be patient, wait for the written agreement, and make the payments in certified funds in order to obtain the best results.

Posted in charge offs, charge-off, credit history, credit report, pay for deletion | No Comments »



Sep 26, 2009

Troubled Economy Leads to Increased Credit Repair Fraud

The current market places some unique burdens on the responsible consumer today. Many people who had no prior difficulties in obtaining loans or financing are finding that their credit scores are no longer sufficient to get the type of financing they are used to receiving from lenders. As the troubled economic situation lingers, you may discover that what was once a perfectly acceptable credit score will no longer qualify you for an affordable loan, or you may find that your credit card interest rate has increased, despite your repayment history on that account. Because of these new difficulties in obtaining credit, more and more individuals are turning to credit repair companies for assistance. And just as quickly, scammers and fraudsters are trying to take advantage. The FTC has recently sued several credit repair companies for violating criminal law, and scamming their customers out of thousands of dollars.

While the warning signs of a scam haven’t changed, individuals who may be not be used to the concept of credit repair services may be more vulnerable as fraudulent credit repair companies target the middle class workers who are the hardest hit in the current financial meltdown. These scam artists charge hundreds, even thousands of dollars in advance, while taking little or no action to help consumers who have contacted them for assistance. How can you make sure that you aren’t taken in by credit repair fraud? Dealing with only reputable credit repair agencies is essential, but if you are looking around for a good credit repair company, there are a few things to avoid:

Large upfront fees – these are a clear warning sign. Be especially wary of any company that wants the money up front, before discussing your particular situation.

Company makes broad guarantees – any company that promises a specific credit score is lying to you. There is no way for a company to be certain that you will go from a 620 to a 700, and no way for them to guarantee that the credit bureaus will increase your scores by a certain amount. Again, be especially wary if they make these types of claims regardless of your actual credit score and/or your current financial situation.

Company suggests fraudulent means of credit repair – some companies try to get their clients to create a new, blank credit card file, using an Employer Identification Number (EIN) or other means. These types of credit repair are fraud, and if you follow their advice, not only will you lose money to scam, but you may also be arrested for breaking the law.

Your credit score directly impacts several facets of your life. Don’t trust credit repair to just anyone – do your homework, ask questions, and avoid high-pressure sales tactics. When you do choose a credit repair company, check them out with the Better Business Bureau, and make certain you are getting exactly what you’re paying for.

Posted in credit repair, credit repair fraud, credit repair scams, credit scores | No Comments »



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