Dec 22, 2009

Loopholes in the New Credit Card Law: Why the New Regulations Could End Up Costing You More

As the new credit card laws are phased in between now and February of 2010, credit card companies across the board are making changes that could end up costing you more for the credit you already have. These changes can also have a detrimental effect on your credit scores, making it more difficult for you to obtain new credit, even if you have a solid payment history.

Under the new credit card regulations, companies are forbidden to change interest rates on pre-existing balances for fixed-rate credit cards. However, many credit card companies are switching to variable rate cards for most of their customers. This means that as the prime interest rate rises, so will the amount of interest you pay on your credit cards. This ultimately leads to higher balances which are harder to pay off, and in turn can damage your credit score by causing you to utilize more of your available credit limit than you normally would.

If your credit card company switches you from a fixed-rate credit card to one with a variable interest rate, you can reject the change. However, in most cases this means that your credit card will be canceled at the end of the current agreement cycle. When this happens, if you’re still carrying a balance on the credit card your credit scores will drop due to the fact that your credit report will show a balance higher than your available limit on that card.

When dealing with a credit card that has been switched to a variable interest rate, it’s generally in your best interest to continue making payments until you have paid the balance of that credit card entirely. Then, if you decide to cancel the card you can do so without having as much of a negative effect on your credit report. Currently, because interest rates are generally low, you may even be able to save money versus your fixed interest rate, assuming you can pay the card off in only a few months.

Another option which may help you to keep your credit scores healthy is to pay off the variable rate card, and then use it for purchases that you can pay in full each month. This will help to prevent any reduction in your credit limits, as well as avoid ‘inactivity’ penalties that some banks have begun to assess. If you have credit cards that you haven’t used in several months, now is the time to do so. Make a small charge to keep the account active, and pay it off as soon as possible. Otherwise, you run the risk of owing fees due to inactivity, which can pile up and cause late payments and higher interest rates overall.

Regardless of whether you decide to keep the account or close it, the important thing to remember is to keep the account open until the entire balance is paid off. In this way, you’ll avoid a major hit to your credit scores, which will save you money on any new credit that you apply for.

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Dec 14, 2009

Credit Repair and Identity Theft – How to Protect Yourself

When most people think of credit repair scams, what comes to mind are the fraudulent companies that take people’s money and provide little or no service in exchange. While it’s true that there are numerous credit repair scammers out there who thrive on this practice, consumers should also be aware of the threat of identity theft when it comes to fraudulent credit repair companies.  These companies not only take your money, but they take over your identity as well – months or even years down the line, when you’ve finally gotten your credit back on track, they can resurface to wreck havoc on your finances and destroy what you’ve worked to carefully rebuild.

Protecting Your Identity

Because credit repair companies must handle sensitive information in order to help you improve your credit scores, it pays to find out exactly how they secure your information, and what type of policies they have in place to protect your identity. Stay away from credit repair companies that don’t have a clearly visible privacy policy, and/or don’t have any method of contact other than email. Ideally, you want to be able to contact the company via telephone and an actual physical address – not just a P.O. Box. By establishing a physical presence that is easily located, a reputable credit repair company is one that will be around for the long-term.

Online Precautions

You should be able to get answers about the methods used to secure your data, about encryption on the company’s website (if they have one) and who has access to your data, and when. You should also be able to revoke access to this data at any time, if you choose to end your business relationship with the company. Check the security certificates of the website – they should be current, and they should match the name of the website and the credit repair company. Be wary of any company that has an invalid or expired security certificate – without a valid certificate, your information is not safe.

Company Policies

Different credit repair companies will have different policies when it comes to how your information is handled. You should find out who will have access to that information before you sign up for service. While the credit repair company may take appropriate security steps, third-party vendors with access to your information may not, and this can cause troubles with identity theft down the line, if unauthorized people are able to view your information.

The Final Choice

When deciding on which credit repair company to use, always factor in the security of your personal information. Credit repair can benefit you in many ways, including improved credit scores, lower interest rates and better rates on insurance to name a few. Always make sure that your final choice for credit repair is one that protects these benefits by protecting your identity as well.

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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.

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Nov 1, 2008

Holiday Financing and Your Credit

It’s almost that time of year again, and with the economy in an uncertain state, many holiday shoppers may be looking to cut back on large expenditures for the holiday season. Holiday financing can help save money and your credit, if you’re smart about how much you spend and set realistic limits from the start.

Buy Now, Pay Later – At What Cost?

Traditional holiday credit in the form of 90 days of no payments and no interest is common in many stores, and it can help you to improve your credit standings as well, if you’re smart about how you spend. The key is to only purchase what you know you will be able to pay off within the timeframe of the special offer. This will allow you to save money in two key ways – by avoiding the interest payments if you’d charged your purchases to a credit card, and by keeping the balances on your credit cards low during the holiday season.

Where many people fail to shop wisely is by taking advantage of the deferred payment options in addition to spending on their credit cards. This is often a costly mistake – people end up over-extended, and then they are hit with compound interest charges that accrue from the moment of the initial purchase. That’s three months of interest charges added into the initial purchases, and many times, the interest rate is several times higher than that of a typical credit card. So how can you take advantage of holiday financing without breaking the bank? It’s simple if you plan ahead:

  • Make a budget: Plan out your purchases now, before the holiday rush, and get a cost estimate of how much you’re likely to spend before you start your shopping, whether online or in retail stores.

  • Make a plan: Big ticket items can often take advantage of special financing directly from the store so shop around and find the one that makes the most sense for your budget.

  • Stick to the plan: When it’s time to shop, keep your price range in mind – don’t give in to the temptation to use your credit cards to finance your holiday if you’re using deferred payment options as well. You want to be able to pay off all of your holiday shopping before those high interest rates set in.

  • Read the fine print: Make sure that any deferred payment plans you agree to spell out the exact date that payment is due in order to take advantage of the special financing. Be aware that if you miss the initial payment date, the interest rate may default to a much higher percentage – so shop wisely.

One word of caution when it comes to deferred financing – while it can help your credit score to maintain reasonable balances on your credit cards throughout the holiday season, if you default on the deferred payment arrangement, it will undo all of your careful planning and hard work. These finance companies will report any late payments the same as your credit card company, so be certain to budget wisely and don’t overspend. If handled properly, buy now, pay later can pay off not only in interest savings, but in saving you the holiday credit crunch as well.

Posted in budgeting, credit, deferred financing, finance, financing, interest rates | No Comments »