Most children are not trained in how to handle credit by their families other than with vague platitudes like 'pay your bills on time' and 'live below your means.'
Practical knowledge about interest rates, revolving credit and credit scores was often not taught or even understood well by most parents. Instead, we grow up being taught to be consumers, watching our parents struggle with the same concepts we now struggle with. Most people discover these mistakes by making them.
So here is a list of seven common credit mistakes most often made:
7. Closing your paid off credit card accounts
Paid off credit cards are like gold to your credit score. Resist the urge to cut up the plastic and close the account. The unused 'credit available' on that card will contribute to your credit worthiness. Put the cards in a block of ice in your freezer if you need help not using them and keep the accounts open.
6. Lowering your credit limits
Many people have fallen into this dilemma, thinking they are making themselves look more responsible by keeping the range of what they can actually borrow within their ability to pay. This will lower your 'credit available' ratio and lower your overall credit score. Whatever you can show as 'available' should stay available. Meaning, don't use it and don't get rid of it.
5. Applying for multiple cards
Maybe you thought you would juggle credit cards to take advantage of the 0% interest debt transfer. You get these offers in the mail and think, 'Wow, I can transfer my debt off that high interest card to this one and not pay interest for X number of months.' But are you looking for a 1-time way to make headway on paying off your debt? Or are you looking for a way to juggle your debt? Applying for multiple credit cards will lower your credit worthiness, and raise your interest rate. You will pay more in the long run.
4. Using your home equity for living expenses
If you are taking out equity to pay off credit cards and then running them up again, you are in a losing cycle that will eventually leave you with nothing but debt. First, if you can not afford your living expenses, you need to cut somewhere; or earn more to get in balance. If you are using home equity it should be for something that ads value to your home like a new kitchen, roof or bathroom; or to your earning ability, like a college degree. Otherwise you are literally spending the home right out from under yourself.
3. Missing payments
When you don't pay an account for 30 days, 60 days, 90 days, it gets reported as a missed payment to the credit agencies. These can severely lower your credit score and stay on your record for seven years. Get on a schedule and pay the bills on time. Pay automatically online if you can, but check to be sure the payments went through.
2. Not checking your credit reports for errors
Creditors make errors and can falsely report a negative item on your credit that really belongs to someone else. Additionally, identity theft is on the rise and you never know who may be using and ruining your credit. One of the best ways to protect yourself from this is to check your credit report regularly and look for any errors or open accounts you didn't authorize. Dispute the errors and notify authorities if your identity has been stolen!
1. Disputing charges and not paying the creditor
Never stop paying and ignore the creditor no matter now small the amount owed. Your credit score will drop 100 points if you do this. Instead, request an investigation and go through the dispute process. Keep written proof and go to small claims court if you have to but don't fail to pay. This is death to your credit score.
Friday
Sunday
Living Life WITHOUT Credit Can Be Done
And believe it or not, you can be happy.
In a world where credit is painted as the life blood of our society how does one survive without it? Surely our parents didn't have a pocket full of the buy now and pay later little plastic cards to enslave them with a life of debt and now that your credit lines are being reduced or even closed how is one supposed to react? There are no easy answers, especially since we now seem so addicted to the, but there are some suggestions.
There is no doubt the first adjustment you have to make is your mind set. If you are living on this "buy now pay later" system you may very well be heading for financial difficulties. Why not prepare ahead of time before it gets to bad.
I won't bore you with all the budget talk, that comes later in a different article, (you know full well that yoou need one) but you will have to know what condition your assets and liabilities are in and the sooner the better. Why not do it now? Stop procrastinating and take a few minutes - face your fears - and DO IT RIGHT NOW!
Use a debit card for purchases, it has the visa features and it's a good way to convert from credit to cash.
Allocate a fixed amount each week for expenses and slowly try to adjust your lifestyle to that budget. There's that filthy "B" word again.
Take the time to really consider the ramifications that can occur if you don't change and what you might lose. It is human nature to pull away from things that may be painful, so think of how painful bankruptcy or any other debt management program could be.
With a negative savings rate the past (at least) two years and the soft job market many families are not prepared for a cash system. The day of reckoning for the housing market is definitely here, credit cards and other installment debt is right around the corner.
The quicker you can change to cash the better. It is never too late and the best thing to do in these cases is to get all the information you can. This will prepare you when it comes time to make choices and making the right choice will be critical.
Financial problems creates emotional times and thinking clearly is a difficult task when this occurs. In America, the divorce rate is over 50%. Can you believe it? Out of the divorcing couples asked, they cite financial difficulties as the number source of their problems and a major cause of their divorce.
Hmmmmmmmmmmmmmmmmmmmm......................
In a world where credit is painted as the life blood of our society how does one survive without it? Surely our parents didn't have a pocket full of the buy now and pay later little plastic cards to enslave them with a life of debt and now that your credit lines are being reduced or even closed how is one supposed to react? There are no easy answers, especially since we now seem so addicted to the, but there are some suggestions.
There is no doubt the first adjustment you have to make is your mind set. If you are living on this "buy now pay later" system you may very well be heading for financial difficulties. Why not prepare ahead of time before it gets to bad.
I won't bore you with all the budget talk, that comes later in a different article, (you know full well that yoou need one) but you will have to know what condition your assets and liabilities are in and the sooner the better. Why not do it now? Stop procrastinating and take a few minutes - face your fears - and DO IT RIGHT NOW!
Use a debit card for purchases, it has the visa features and it's a good way to convert from credit to cash.
Allocate a fixed amount each week for expenses and slowly try to adjust your lifestyle to that budget. There's that filthy "B" word again.
Take the time to really consider the ramifications that can occur if you don't change and what you might lose. It is human nature to pull away from things that may be painful, so think of how painful bankruptcy or any other debt management program could be.
With a negative savings rate the past (at least) two years and the soft job market many families are not prepared for a cash system. The day of reckoning for the housing market is definitely here, credit cards and other installment debt is right around the corner.
The quicker you can change to cash the better. It is never too late and the best thing to do in these cases is to get all the information you can. This will prepare you when it comes time to make choices and making the right choice will be critical.
Financial problems creates emotional times and thinking clearly is a difficult task when this occurs. In America, the divorce rate is over 50%. Can you believe it? Out of the divorcing couples asked, they cite financial difficulties as the number source of their problems and a major cause of their divorce.
Hmmmmmmmmmmmmmmmmmmmm......................
Friday
Some FACT'S
FACT: It is more difficult now than it was six months to a year ago to qualify for new credit in the form of a credit card.
FACT: It is also way more difficult to obtain a home mortgage or a home equity loan. The days of a 0 percent down payment and a low FICO score qualifying for a home mortgage are gone. That ship has left the dock.
The credit cycle has been tightening for quite some time and the recent activity on Wall Street and the uncertain terms of the bank's bailout has increased it to close their issuing new credit lines.
They have become miserly and scrooge-like in their lending, which doesn't really make sense since THAT is their business.
If you really feel you need access to additional credit with a credit card, I would recommend that you review your finances carefully and ensure that you are protected as much as possible from any negative consequences of this current credit cycle.
Here are some things to consider:
Credit card agreements can be changed by the card issuer for many different reasons. Be aware that many issuers may decide to lower credit limits in an effort to minimize their exposure. What this means for a cardholder is that you will have less access to available credit and your credit score may decrease due to an increase in your credit used versus credit available ratio.
A possible decrease in available credit means you are more vulnerable if you rely on credit for emergencies. If you have not started an emergency savings account, now would be a great time to start. The goal is to have three to six months of living expenses available for unexpected expenses.
If you are using credit to extend your income, stop immediately. Your credit supply may soon run dry and adding to a debt load right now could be disastrous. Create a spending plan and bring your expenses in line with your income. If you need help doing so, contact a reputable credit counseling agency that can review your finances and assist you with creating a workable spending plan.
My advice to anyone would be to tighten your belt and weather the storm. I hope you will refrain from obtaining any new credit cards for the time being.
FACT: It is also way more difficult to obtain a home mortgage or a home equity loan. The days of a 0 percent down payment and a low FICO score qualifying for a home mortgage are gone. That ship has left the dock.
The credit cycle has been tightening for quite some time and the recent activity on Wall Street and the uncertain terms of the bank's bailout has increased it to close their issuing new credit lines.
They have become miserly and scrooge-like in their lending, which doesn't really make sense since THAT is their business.
If you really feel you need access to additional credit with a credit card, I would recommend that you review your finances carefully and ensure that you are protected as much as possible from any negative consequences of this current credit cycle.
Here are some things to consider:
Credit card agreements can be changed by the card issuer for many different reasons. Be aware that many issuers may decide to lower credit limits in an effort to minimize their exposure. What this means for a cardholder is that you will have less access to available credit and your credit score may decrease due to an increase in your credit used versus credit available ratio.
A possible decrease in available credit means you are more vulnerable if you rely on credit for emergencies. If you have not started an emergency savings account, now would be a great time to start. The goal is to have three to six months of living expenses available for unexpected expenses.
If you are using credit to extend your income, stop immediately. Your credit supply may soon run dry and adding to a debt load right now could be disastrous. Create a spending plan and bring your expenses in line with your income. If you need help doing so, contact a reputable credit counseling agency that can review your finances and assist you with creating a workable spending plan.
My advice to anyone would be to tighten your belt and weather the storm. I hope you will refrain from obtaining any new credit cards for the time being.
Thursday
The Pursuit Of Happiness
It’s so American that it’s in our Declaration of Independence, where it’s listed alongside life and liberty as an inalienable right.
But how successful have we been in that pursuit? And now that the global finance system is imploding, how likely is it that we’ll be happy in the coming months and years?
Since roughly the 1970s, Americans have been buying things madly, whether we could afford them or not. We were promised that a bigger car, a more trendy purse, or a flat-screen television would bring us happiness, and we’ve been acting accordingly. We were promised that an ever-growing economy would make us all rich. But while our gross domestic product increased more or less steadily from the 1970s until the onset of the current financial crisis, most of us did not see a rise in our standard of living or our wellbeing. Wages stagnated, while the costs of basic needs -- like homes, medical care, food, and energy -- climbed rapidly. Those in the top 20 percent increased their net worth by 80 percent over the last 25 years, while the bottom 40 percent actually lost ground.
Few families today can make it on a single wage-earner’s income, and a health problem or a job loss can send a middle-class family into poverty or even homelessness.
Yet we continue to buy the products that are supposed to make us happy, driving many of us deeply into debt. Families are carrying an average credit card debt of $5,100, with interest rates that often make payoff nearly impossible. In recent years, home equity reached record lows as people borrowed against the value of their homes. In 2004, the most recent year for which Federal Reserve figures are available, debt secured by real property exceeded $290,000 per household, almost three times what it was only 15 years before.
All this debt makes life more precarious. It also increases our dependence on long work hours, which -- if we can find work at all -- combines with long commutes to eat up the time we might otherwise have for things that research shows actually would make us happy.
It’s easy to fall into the trap of believing that having more stuff will lead to happiness, because there’s an element of truth in the advertiser’s promise. We do need a certain amount of food to live, after all. Shelter is good. We need clothes, tools -- a bit beyond the bare necessities can be nice. And having stuff has always been a way to show that you are successful and entitled to respect. But after the novelty of a new outfit or laptop wears off, we’re left with a hole in our wallets and an empty feeling, which -- advertisers tell us -- we should fill by shopping for yet more new and improved stuff.
Following this advice may keep the corporate economy humming, but has it made us happy?
But how successful have we been in that pursuit? And now that the global finance system is imploding, how likely is it that we’ll be happy in the coming months and years?
Since roughly the 1970s, Americans have been buying things madly, whether we could afford them or not. We were promised that a bigger car, a more trendy purse, or a flat-screen television would bring us happiness, and we’ve been acting accordingly. We were promised that an ever-growing economy would make us all rich. But while our gross domestic product increased more or less steadily from the 1970s until the onset of the current financial crisis, most of us did not see a rise in our standard of living or our wellbeing. Wages stagnated, while the costs of basic needs -- like homes, medical care, food, and energy -- climbed rapidly. Those in the top 20 percent increased their net worth by 80 percent over the last 25 years, while the bottom 40 percent actually lost ground.
Few families today can make it on a single wage-earner’s income, and a health problem or a job loss can send a middle-class family into poverty or even homelessness.
Yet we continue to buy the products that are supposed to make us happy, driving many of us deeply into debt. Families are carrying an average credit card debt of $5,100, with interest rates that often make payoff nearly impossible. In recent years, home equity reached record lows as people borrowed against the value of their homes. In 2004, the most recent year for which Federal Reserve figures are available, debt secured by real property exceeded $290,000 per household, almost three times what it was only 15 years before.
All this debt makes life more precarious. It also increases our dependence on long work hours, which -- if we can find work at all -- combines with long commutes to eat up the time we might otherwise have for things that research shows actually would make us happy.
It’s easy to fall into the trap of believing that having more stuff will lead to happiness, because there’s an element of truth in the advertiser’s promise. We do need a certain amount of food to live, after all. Shelter is good. We need clothes, tools -- a bit beyond the bare necessities can be nice. And having stuff has always been a way to show that you are successful and entitled to respect. But after the novelty of a new outfit or laptop wears off, we’re left with a hole in our wallets and an empty feeling, which -- advertisers tell us -- we should fill by shopping for yet more new and improved stuff.
Following this advice may keep the corporate economy humming, but has it made us happy?
Wednesday
This Is War
In this economy, we don't need the big financial institutions looking to our credit cards to make up for their losses. But right now, the credit card companies hold all the "cards," and they can hike interest rates on our balances or charge us higher fees for no reason whatsoever.
The Senate may vote on a bill that will rein in these abuses. The House has already passed its bill, so real reform is within reach. I just sent my Senators an email in support of this bill. Would you take a moment to do the same?
Among other things, the bill would prohibit credit card companies from arbitrarily hiking interest rates on your card balances, and stop 'bait and switch' clauses that let them charge fees and change interest rates for any reason whatsoever.
The bill will help level the playing field for consumers and help ensure that a deal is a deal when it comes to your credit card company. The more consumers the Senate hears from, the better chance we have at putting Main Street (and the side streets), not just Wall Street, first.
http://www.debtsmart.com/cgi-pl/go/081210_en.cgi?32&22031
The Senate may vote on a bill that will rein in these abuses. The House has already passed its bill, so real reform is within reach. I just sent my Senators an email in support of this bill. Would you take a moment to do the same?
Among other things, the bill would prohibit credit card companies from arbitrarily hiking interest rates on your card balances, and stop 'bait and switch' clauses that let them charge fees and change interest rates for any reason whatsoever.
The bill will help level the playing field for consumers and help ensure that a deal is a deal when it comes to your credit card company. The more consumers the Senate hears from, the better chance we have at putting Main Street (and the side streets), not just Wall Street, first.
http://www.debtsmart.com/cgi-pl/go/081210_en.cgi?32&22031
Tuesday
5 Steps To Successful Budgeting - Your Key To Financial Success In An Uncertain Economy
1. Teamwork
Unless you're Single, then your spouse should be on board with the budget. You both need to have a clear understanding of what the monthly expenses are, where the money flow is headed (to the bills, to your favorite restaurant or bar every Friday night!), as well as who is responsible for physically paying the bills, (writing the checks, clicking the online bill pay, etc).
2. Put it in Writing
Sit down together and make two columns on plain piece of paper. In one column, list all of your expenses, don't forget things like pet care, daycare, even magazine subscriptions. In the other column list all sources of income.
3. Understand Your Income
This sounds relatively easy, but in my experience many folks just don't know what their income truly is. If you get paid on a weekly basis, grab your check stubs, take a look at how many deductions are being withdrawn weekly, insurance expenses, 401K (find out if your work is matching your 401K!) This is an avenue of free money that you could be missing out on. Sometimes, viewing your expenses vs your income in a percentage point of view makes a difference in your spending habits.
For example, If you make $2,000 a month and you want a new truck with payments of $500 a month than 25% of your income is going to your vehicle- and that's not including insurance, excise or personal property taxes, title & registration fees.If you are self-employed and your income is a bit dodgy, figure out how much income you average per month and use that as your guideline for your budget.
4. Prioritize
This is a serious Must-Do. Once you have written down all of your expenses on paper- get a clean sheet of paper and rewrite them in order of Priority. If your house is your biggest priority, put your mortgage at the top. Use a program, such as Quicken, to track your expenses but be sure to print out a copy of your budget once it's completed, tack it up in a place where you AND your spouse can take a look at it everyday. No, this isn't to worry you and make you wonder where you're going to get enough money to pay the bills, this is to remind you of what your expenses are, where your money Needs to go and what your goals are.
5. List your Goals
Most couples don't plan to fail, but many fail to plan. If you haven't discussed with your significant other what your goals are and you are not both in agreement of those goals, you will not reach them. On the bottom of your Budget, Write your Goals down. If your goal is to have your house paid off and be entirely debt free, write it on there. If your goal is to Retire at age 55, put it down on paper.
If you follow these key points, you will be well on your way to creating a successful family budget.
Unless you're Single, then your spouse should be on board with the budget. You both need to have a clear understanding of what the monthly expenses are, where the money flow is headed (to the bills, to your favorite restaurant or bar every Friday night!), as well as who is responsible for physically paying the bills, (writing the checks, clicking the online bill pay, etc).
2. Put it in Writing
Sit down together and make two columns on plain piece of paper. In one column, list all of your expenses, don't forget things like pet care, daycare, even magazine subscriptions. In the other column list all sources of income.
3. Understand Your Income
This sounds relatively easy, but in my experience many folks just don't know what their income truly is. If you get paid on a weekly basis, grab your check stubs, take a look at how many deductions are being withdrawn weekly, insurance expenses, 401K (find out if your work is matching your 401K!) This is an avenue of free money that you could be missing out on. Sometimes, viewing your expenses vs your income in a percentage point of view makes a difference in your spending habits.
For example, If you make $2,000 a month and you want a new truck with payments of $500 a month than 25% of your income is going to your vehicle- and that's not including insurance, excise or personal property taxes, title & registration fees.If you are self-employed and your income is a bit dodgy, figure out how much income you average per month and use that as your guideline for your budget.
4. Prioritize
This is a serious Must-Do. Once you have written down all of your expenses on paper- get a clean sheet of paper and rewrite them in order of Priority. If your house is your biggest priority, put your mortgage at the top. Use a program, such as Quicken, to track your expenses but be sure to print out a copy of your budget once it's completed, tack it up in a place where you AND your spouse can take a look at it everyday. No, this isn't to worry you and make you wonder where you're going to get enough money to pay the bills, this is to remind you of what your expenses are, where your money Needs to go and what your goals are.
5. List your Goals
Most couples don't plan to fail, but many fail to plan. If you haven't discussed with your significant other what your goals are and you are not both in agreement of those goals, you will not reach them. On the bottom of your Budget, Write your Goals down. If your goal is to have your house paid off and be entirely debt free, write it on there. If your goal is to Retire at age 55, put it down on paper.
If you follow these key points, you will be well on your way to creating a successful family budget.
Friday
Motivational Monday's
My internet radio show has been getting some great ratings so I have decided to do a half hour show every Monday to set the tone for the following days during the week. Audio from success coaches like Tony Robbins, Brian Tracy and an army of others will be played, featured, discussed
Getting your head right will make a huge in difference in how your little hunk of the world will be. Do you want to focus on solutions or the problems? A positive mental attitude is contagious, so if you really want to change the world, start with your own.
I hope everyone had a great Thanksgiving and I ask that, as we find ourselves in the middle of the holiday season, the groundwork we lay today will be the foundation of our future. The time for change is now.
So listen in this Monday and every Monday afterwards to The Debtonator Radio Show's Motivational Monday!
Getting your head right will make a huge in difference in how your little hunk of the world will be. Do you want to focus on solutions or the problems? A positive mental attitude is contagious, so if you really want to change the world, start with your own.
I hope everyone had a great Thanksgiving and I ask that, as we find ourselves in the middle of the holiday season, the groundwork we lay today will be the foundation of our future. The time for change is now.
So listen in this Monday and every Monday afterwards to The Debtonator Radio Show's Motivational Monday!
Monday mornings at 9AM CST
www.blogtalkradio.com/thedebtonator
Saturday
Monday
Surviving The American Dream
“We have an unchallenged, open, panoramic opportunity on a global scale to demonstrate the finest aspects of what we know in this country: peace, freedom, democracy, human rights, benevolent sharing, love, the easing of human suffering. Is that going to be our priority or not” - Jimmy CarterIt has always been a fact that the majority of small businesses that open their doors find themselves closing them shortly thereafter. This is attributed to many different variables and is even more truthful in today’s struggling economy. So a savvy business owner needs more than ever to develop a survival instinct and associate themselves with other successful business survivalists.
So in the spirit of entrepreneurism, let us embrace the old adage of find a need and fill it by becoming an expert on how to survive in business during the hard times that we currently find ourselves in.
As a small business owner, we must be able to compete with the big box mega marts and not just maximize the profits and money we bring in, but we must minimize the money going out, money that is spent everyday that is the cost of operating our business. If something is not done now, the American dream of owning our own business and making a living from it might not exist.
It’s a sad and scary trend that we, as American business owners, are experiencing.
But before we can come up with a solution, we must first determine what the small to medium sized business needs to stay competitive, maximizing profits and minimizing expenditures.
First and foremost, today’s business owner needs to stay educated and informed on available resources available to help them achieve their business goals. What a person learned yesterday might not be the best strategy for the business practice of today. A source of up-to-date information on what’s going on in the business world today is an invaluable tool that will be utilized time and time again.
Next, the small business owner should concentrate on bringing a steady flow of customers or clients through their doors. This is done through marketing techniques that are unique and makes your business stand out from your competition. Keeping a steady cash flow of money coming into your company is crucial to your success.
At the same time however, minimizing and controlling the flow of money leaving your business is equally, if not more important. This can be accomplished through taking advantage of discounts by association with other, like-minded, business owners.
The bottom line here is if you, as a small business owner, doesn’t start thinking outside the box, you will wind up like 90% of the new businesses started during these turbulent economic times and find yourselves looking for jobs a McDonalds.
America's Best Companies is a small business organization dedicated to providing the tools, resources, guidance and information small business owners need to start their business, stay in business, and grow their business while maintaining a competitive edge in the marketplace and is presented by Dave Capra “The Debtonator.” For more information call 630-433-0303
Make Money In Real Estate Today!
"In the middle of every difficulty lies opportunity"
- Albert Einstein
Banks are in the money business. The are doomed to failure if they do not lend money and, yes, they are becoming more choosy these days but if you are thinking about becoming a real estate investor or borrower with a good track record, your options today are better than any other time in the last several decades.
More and more deeply discounted cash flow properties are becoming available and while some may be paralyzed with fear to take advantage of them, the smart and savvy real estate investor stands to become a millionaire.
So how do you put yourself in this position?
It's fairly simple. You partner up with people who have that kind of track record of success to make it happen. People who have done it all before and have spent years successfully doing what you’re trying to do. People that are in the position you want to one day be in.
You can do the same thing they have done - no matter how old you are, no matter your level of experience, your credit or your cash situation. And when you do, you'll be part of a team that has the financial wherewithal to act and get the financing to close deals in this opportunity laden real estate market.
Here are some rules to follow in finding and connecting with the right partner/investor:
Determine the type of deals you want to do. Do you want to fix and flip or would you rather buy and hold properties? Are you looking to make a quick buck or are you more concerned with a long-term investment?
Educate yourself by going to the right meetings for your type of property. Go to real estate investor groups for residential. Go to industry meetings or groups like your local Building Owners and Managers Association if you're interested in larger commercial deals. Surround yourself with and become the type of investor that you desire.
Network with professionals (i.e. bankers, mortgage brokers, real estate lawyers, and title agents) They know who are closing the deals in today's difficult market. A good word from them may help start a very profitable mutual relationship.
Get your name out there and brand yourself as a real estate investment professional. Look for buyers of your properties even if you don’t have the properties yet. This will attract lenders as well as sellers of property available.
Build up your bank of private lenders by developing the right strategic partnership with an experienced investor. Build a relationship that will help you become part of a qualified buying team during one of the best buyer's markets in decades.
Profitable real estate opportunities are in abundance even in today's market. Once you discover how to find the best real estate deals in the best markets, you can make an absolute fortune for yourself, your family and your investors.
Could you use an extra $500 before the holidays?
How about $1,000?
$5,000?
Contact Dave Capra "The Debtonator" for details!
(630) 433-0303
Thursday
There is a steady upward trend that more people are now using debit cards to make their purchase than ever before. Another indication is that many of the banks are providing their customers with a check card that is branded by a card association. They are also looking to provide them with ones that are backed by a debit network, which will provide customers with more flexibility with regard to payment options.
A debit card does not work the same way as a credit card with regard to payment. When a debit card is used for any purchase, the full amount of money spent is deducted from the bank account of the cardholder immediately. In some cases, the deduction may occur within a few days after the transaction is completed.
Debit cards are being processed using the chip and pin service. This is being used in many countries today and is strongly encouraged by many banks as a method of reducing cloned card fraud. In fact, in some countries, no longer will a customer be able to make a purchase without the use of a PIN. The Point of Sale terminal in use is also unable to read the chip on the debit card if a PIN is not entered prior to usage. In this respect, it is actually safer to use a debit card than credit card for your purchases.
There are many reasons today why so many merchants are looking for reliable companies which can provide them with secure debit card processing. In fact, there are plenty of companies offering this type of service at reasonable cost now. There are plenty of benefits to be had from using a secure debit card and below are just a few of them.
1. They will monitor and track any fraudulent transactions in order to minimize any potential losses to your business.
2. They provide assistance to resolve any disputed transactions.
3. Reputable and reliable debit card issuers will provide you with details of their fees and agreement terms.
4. They provide a business with clear and simple monthly statements of all debit card processing transactions made. These statements will be sorted by date or card type to enable a business owner to review them online.
5. They will provide chargeback and retrieval activity so that you can have a complete history of all your business past and current financial activities.
6. They provide concise information regarding deposits including both summaries and details, which will contain the date, debit and credit numbers as well as the amounts paid.
In summary, a debit card will enable the cardholder to make purchase in the same way as a credit card but the cost of purchase is charged directly to the holder's bank account. It provides the same convenience of a credit card without the risk of accumulating credit card debt.
A debit card does not work the same way as a credit card with regard to payment. When a debit card is used for any purchase, the full amount of money spent is deducted from the bank account of the cardholder immediately. In some cases, the deduction may occur within a few days after the transaction is completed.
Debit cards are being processed using the chip and pin service. This is being used in many countries today and is strongly encouraged by many banks as a method of reducing cloned card fraud. In fact, in some countries, no longer will a customer be able to make a purchase without the use of a PIN. The Point of Sale terminal in use is also unable to read the chip on the debit card if a PIN is not entered prior to usage. In this respect, it is actually safer to use a debit card than credit card for your purchases.
There are many reasons today why so many merchants are looking for reliable companies which can provide them with secure debit card processing. In fact, there are plenty of companies offering this type of service at reasonable cost now. There are plenty of benefits to be had from using a secure debit card and below are just a few of them.
1. They will monitor and track any fraudulent transactions in order to minimize any potential losses to your business.
2. They provide assistance to resolve any disputed transactions.
3. Reputable and reliable debit card issuers will provide you with details of their fees and agreement terms.
4. They provide a business with clear and simple monthly statements of all debit card processing transactions made. These statements will be sorted by date or card type to enable a business owner to review them online.
5. They will provide chargeback and retrieval activity so that you can have a complete history of all your business past and current financial activities.
6. They provide concise information regarding deposits including both summaries and details, which will contain the date, debit and credit numbers as well as the amounts paid.
In summary, a debit card will enable the cardholder to make purchase in the same way as a credit card but the cost of purchase is charged directly to the holder's bank account. It provides the same convenience of a credit card without the risk of accumulating credit card debt.
Friday
There are plenty of ways to get a credit card, even if you have declared bankruptcy. While your credit score might be low, you can take some simple steps to get a credit card.
First of all, decide what kind of credit card you would like to have. An unsecured card is more difficult to acquire than a secured credit card. Once you have decided what kind of card you are seeking, I would first try to get a second job for a few hours a week to boost your take home pay. Credit card companies want to know your debt to income ratio before they will issue a credit card to you. The higher the take home pay, the more free cash you have, and the less likely you are to default in the eyes of an underwriter.
If you find that your extra take home pay is not enough, then you can open a savings or checking account at a bank. Take as much extra money as you can spare from each paycheck and put it into the account and let it accumulate. Next, ask the bank what the minimum deposit required would be to open a Certificate of Deposit. If it is low enough, say $250 or $500, move your cash from your bank account to the CD.
Next, ask the bank if you can have a loan in the amount of the CD and pledge the CD as collateral for the loan. Your bank won't refuse this; they have the CD if you default. Begin paying on the loan and pay ahead of schedule; pay off the loan early. Now, ask your bank for another loan of $500, but without the CD as collateral.
If they will not grant the loan, you can call a credit card company at this point and ask for an unsecured credit card. If they still won't give you credit, you can take the money out of the bank account and send it to open a secured credit card. Secured credit cards will want to see that you can send some money to open the credit card before they put any of their credit in.
As you make timely payments on the secured credit card, you are issued more and more credit. You can either keep the credit card at this point and gradually up the limit to your liking, or you can call for an unsecured credit card showing that you have made timely payments on your secured credit card.
Tuesday
Reading, Writing and Credit Card Ripoff's
It's that time of year when the credit card companies are tabling on campus, offering "not-really-free-if-you-think-about-it" food and gifts to students who will impulsively sign up for a credit card without really thinking about it.
Kara Spak of the Chicago Sun-Times has a story Helping students avoid debt, which also discusses state legislative efforts to ban "freebies" on campus.
Kara Spak of the Chicago Sun-Times has a story Helping students avoid debt, which also discusses state legislative efforts to ban "freebies" on campus.
Monday
Zombie Debt
If you've ever watched Night of the Living Dead, then you know about zombies.They're impossible to kill and continue to haunt you despite your best efforts to stop them. Shooting them doesn't work, tearing off their limbs doesn't work, blowing them up doesn't work. Zombie debt is sort of like that.Zombie debt refers to old debt purchased by debt collectors hoping to intimidate consumers into paying the debt. If you're contacted by a collection agency about an old debt, don't give in immediately. You have several tools you can use to fight back.
Debt Validation
The Fair Debt Collection Practices Act, FDCPA, gives you the right to verify debts from debt collectors. Within 35 days of being contacted by a debt collector, you can send a letter requesting the collector validate your debt. This validation needs to include some documents from the original creditor proving you owe the debt, the amount you owe is valid, and the agency is allowed to collect the debt from you. Your request for validation must be made in writing and should be sent via certified mail with return receipt requested.
Statute of Limitations
The statute of limitations on debt is the maximum time the debt collector can use the courts to collect a debt from you. Even though the statute of limitations has expired, the collector may still call you or may even file suit against you in court. To stop calls, send a cease and desist letter to the collector. If the collector files suit against you, attend the hearing prepared with evidence that the statute of limitations on the debt has indeed expired.
Cease and Desist
You have the right to request the collector to stop contacting you. By sending a written cease and desist letter to the debt collector you can have the collector stop communicating with you about the debt altogether, regardless of the legitimacy of the debt. Such a letter should be sent via certified mail with return receipt requested. If the collector violates this request, you can take legal action.
Credit Report Dispute
If you’ve requested validation of the debt and the debt is still in the 30 day validation period or the collector has failed to respond to the request altogether, the collector cannot legally add the debt to your credit report. In either of these cases, you can have the account deleted from your credit by submitting a credit report dispute. The case for the dispute is stronger if you include a copy of your debt validation letter along with the certified and return receipt requests.
Thursday
Dirty Tricks Used By Credit Card Companies
Credit card companies have imposed 'astonishing' interest rate rises as families head for their holidays.
It's a very dirty card to play, but the big companies know that with the state of the economy at the moment many British families will be funding some, if not most if their holiday with a credit card.
Brits are expected to spend £22billion on credit cards during this summer. With 13.8million customers regularly failing to pay off their balances each month, the rate increases will bring a cash bonanza for the card companies.
Not only have credit cards increased the APR but there are extra charges for using your credit and debit cards abroad along with withdrawing cash from an ATM.
Despite the fact that the Bank of England has dropped the base rate to 5%, some credit cards have hiked the APR to a staggering 34.9%. That's effectively double the original amount some customers were expecting to pay. Customers with outstanding balances may well find this unmanageable.
With APR's not being shown on statements, just the monthly rate which can be confusing in its self, customers may not be unaware of the amount they are now being charged.
Research by the UK's largest online comparison site, shows that 31 per cent of cardholders have had their APR raised in the past year. Egg, Capital One, Lloyds-TSB and Barclaycard have all raised rates.
The biggest shock will come to those coming off an introductory 0% deal and expecting to pay 15.9% you may now find that you will actually be paying an outrages 27.9%
My advice when wanting to find out what credit cards are available, do your homework. Use comparison sites to see what is on offer and to weigh up whether 0% credit cards, interest free credit cards, cash back cards or others are best for you.
It's a very dirty card to play, but the big companies know that with the state of the economy at the moment many British families will be funding some, if not most if their holiday with a credit card.
Brits are expected to spend £22billion on credit cards during this summer. With 13.8million customers regularly failing to pay off their balances each month, the rate increases will bring a cash bonanza for the card companies.
Not only have credit cards increased the APR but there are extra charges for using your credit and debit cards abroad along with withdrawing cash from an ATM.
Despite the fact that the Bank of England has dropped the base rate to 5%, some credit cards have hiked the APR to a staggering 34.9%. That's effectively double the original amount some customers were expecting to pay. Customers with outstanding balances may well find this unmanageable.
With APR's not being shown on statements, just the monthly rate which can be confusing in its self, customers may not be unaware of the amount they are now being charged.
Research by the UK's largest online comparison site, shows that 31 per cent of cardholders have had their APR raised in the past year. Egg, Capital One, Lloyds-TSB and Barclaycard have all raised rates.
The biggest shock will come to those coming off an introductory 0% deal and expecting to pay 15.9% you may now find that you will actually be paying an outrages 27.9%
My advice when wanting to find out what credit cards are available, do your homework. Use comparison sites to see what is on offer and to weigh up whether 0% credit cards, interest free credit cards, cash back cards or others are best for you.
Wednesday
Credit Life After Foreclosure
Credit after foreclosure can be reinstated sooner than you might think.
Once your property is foreclosed on, you will not only lose your home but have to face serious damage to your credit.
You can quickly achieve credit after foreclosure if you will re-examine your finances and make you prioritize your financial obligations. You must examine your spending habits and put yourself on a strict budget.
For example, start with necessary fixed expenses such as a home mortgage, and work down from the list to less important expenses in your household that can be eliminated. Once you deal with the problem of expenses head on and re-organize then you will know precisely how much money is coming into your household and how much is leaving your household.
Repair Credit after Foreclosure Steps:
How do you repair credit after a foreclosure? The first step should be to call every credit card company and try to get either a secured credit card or a prepaid credit card where you would have to put in a deposit. These credit cards are at higher interest rates in the beginning but you wouldn't care about that since your objective should be to re-establish credit quickly without carrying any long term balances.
The second step is a simple and very important, one which most people overlook; make sure you pay any outstanding debt balance before, not on or after, the due date.
The third step, if you can afford it, pay an extra mortgage annually, or pay off credit cards or other debts completely before one month. This shows creditors that you are gaining financial strength and are a good credit candidate.
The foreclosure process on anyone or family can be frightening, but there are things you can do to re-establish your credit back quickly
Once your property is foreclosed on, you will not only lose your home but have to face serious damage to your credit.
You can quickly achieve credit after foreclosure if you will re-examine your finances and make you prioritize your financial obligations. You must examine your spending habits and put yourself on a strict budget.
For example, start with necessary fixed expenses such as a home mortgage, and work down from the list to less important expenses in your household that can be eliminated. Once you deal with the problem of expenses head on and re-organize then you will know precisely how much money is coming into your household and how much is leaving your household.
Repair Credit after Foreclosure Steps:
How do you repair credit after a foreclosure? The first step should be to call every credit card company and try to get either a secured credit card or a prepaid credit card where you would have to put in a deposit. These credit cards are at higher interest rates in the beginning but you wouldn't care about that since your objective should be to re-establish credit quickly without carrying any long term balances.
The second step is a simple and very important, one which most people overlook; make sure you pay any outstanding debt balance before, not on or after, the due date.
The third step, if you can afford it, pay an extra mortgage annually, or pay off credit cards or other debts completely before one month. This shows creditors that you are gaining financial strength and are a good credit candidate.
The foreclosure process on anyone or family can be frightening, but there are things you can do to re-establish your credit back quickly
Friday
If You Use A Credit Card
The reason why people obtain a credit card is for the convenience of making instant payment when making any type purchase.
When you buy something on credit, the credit card firm is loaning you the money until you pay them back. You have the option to pay either the minimum balance or the complete balance. You may only deposit a little part; you will have to continue to pay an interest rate on that balance. The key rule is to pay off the balance every month; this is the finest way to take advantage of your credit card.
Credit cards offer many additional benefits and card issuers only add these extra due to the competitive market place. They benefit you by charging you less to have a credit card. This maybe cards with no annual fee, a low APR or 0% APR for a certain amount of time. Even though it is not as good as cash back or rewards, a vast majority of savings can be made.
Nearly every credit card company has its reward programs. Programs which reward a point or more for a certain amount you spend. Rewards then can be used for travel, takeaways, cards, gas, electricity and other purchases. The more you spend the more points you receive.
There a number of cards that give you a certain cash back percentage on all purchases such as 1% or 2%. Some cards give a higher percentage on certain goods or services.
Just remember, none of these bonuses will help you if you do not use your credit responsibly, in simple terms pay back what is owed or forget obtaining a credit card.
When you buy something on credit, the credit card firm is loaning you the money until you pay them back. You have the option to pay either the minimum balance or the complete balance. You may only deposit a little part; you will have to continue to pay an interest rate on that balance. The key rule is to pay off the balance every month; this is the finest way to take advantage of your credit card.
Credit cards offer many additional benefits and card issuers only add these extra due to the competitive market place. They benefit you by charging you less to have a credit card. This maybe cards with no annual fee, a low APR or 0% APR for a certain amount of time. Even though it is not as good as cash back or rewards, a vast majority of savings can be made.
Nearly every credit card company has its reward programs. Programs which reward a point or more for a certain amount you spend. Rewards then can be used for travel, takeaways, cards, gas, electricity and other purchases. The more you spend the more points you receive.
There a number of cards that give you a certain cash back percentage on all purchases such as 1% or 2%. Some cards give a higher percentage on certain goods or services.
Just remember, none of these bonuses will help you if you do not use your credit responsibly, in simple terms pay back what is owed or forget obtaining a credit card.
Thursday
Be A Deadbeat
Merriam-Webster dictionary defines a deadbeat as someone "one who persistently fails to pay personal debts or expenses." So by definition, you'd think a credit card deadbeat was someone who didn't pay their credit card bills each month, whose accounts end up getting sent to collections or charged-off or both. Not so in the credit card industry.
The credit card industry, infamous for making up their own rules, says that a credit card deadbeat is someone who doesn't pay their credit card bills on time each month. That definition is nothing the complete opposite of the one from Merriam-Webster. So who which are you going to trust? Here's why you don't want to listen to what the credit card industry says.
Why the Credit Card Industry Uses "Deadbeat?"
Credit card companies make a large portion of their money from interest and fees paid by cardholders. You only get charged interest when you let your balance revolve - you carry it from one month to the next getting assessed a finance charge each time. Credit card companies love these cardholders because people who pay interest help increase the credit card companies' profits.
When you pay your balance in full each month, the credit card company doesn't make any money off you. If it weren't for merchant fees paid by the stores where you use your card, your credit card would be a waste of 16-digits. You're not a profitable cardholder, so, to the credit industry, you are a deadbeat.
Why You Want to Be a Deadbeat
The reason you don't want to be a credit card deadbeat is simple - because not being a deadbeat is costly. Being a deadbeat allows you to escape potentially expensive finance charges on your credit card balance.
Let's say you have a credit card balance of $5,000. Rather than pay the balance in full each month, you send $200 payments. If you don't charge anything else on the credit card and continue making $200 payments to the account, you will pay $855 in interest by the time you pay off the balance in two and a half years. That's 17% of the original balance. If you'd continued making charges on the credit card rather than pay off the balance, your interest charges would be a lot higher.
Paying your balance in full is a much more responsible way of managing your credit. Not only do you not worry about interest charges, you keep your credit utilization low, boosting your credit score - the number many creditors and lenders use to approve your applications.
Forget about what the credit card industry says about credit card deadbeats. It's more important to save money than to empty your pockets for the multi-billion dollar credit card industry.
The credit card industry, infamous for making up their own rules, says that a credit card deadbeat is someone who doesn't pay their credit card bills on time each month. That definition is nothing the complete opposite of the one from Merriam-Webster. So who which are you going to trust? Here's why you don't want to listen to what the credit card industry says.
Why the Credit Card Industry Uses "Deadbeat?"
Credit card companies make a large portion of their money from interest and fees paid by cardholders. You only get charged interest when you let your balance revolve - you carry it from one month to the next getting assessed a finance charge each time. Credit card companies love these cardholders because people who pay interest help increase the credit card companies' profits.
When you pay your balance in full each month, the credit card company doesn't make any money off you. If it weren't for merchant fees paid by the stores where you use your card, your credit card would be a waste of 16-digits. You're not a profitable cardholder, so, to the credit industry, you are a deadbeat.
Why You Want to Be a Deadbeat
The reason you don't want to be a credit card deadbeat is simple - because not being a deadbeat is costly. Being a deadbeat allows you to escape potentially expensive finance charges on your credit card balance.
Let's say you have a credit card balance of $5,000. Rather than pay the balance in full each month, you send $200 payments. If you don't charge anything else on the credit card and continue making $200 payments to the account, you will pay $855 in interest by the time you pay off the balance in two and a half years. That's 17% of the original balance. If you'd continued making charges on the credit card rather than pay off the balance, your interest charges would be a lot higher.
Paying your balance in full is a much more responsible way of managing your credit. Not only do you not worry about interest charges, you keep your credit utilization low, boosting your credit score - the number many creditors and lenders use to approve your applications.
Forget about what the credit card industry says about credit card deadbeats. It's more important to save money than to empty your pockets for the multi-billion dollar credit card industry.
Wednesday
Escalting Payments
Most everyone is aware that credit scores generally determine whether an application for credit will be approved or denied. Credit decisions are made on car loans, credit cards, mortgages and most other forms of credit based on an applicants credit score. But, the affect of your credit score is not limited to what happens on the corner of approval or denial. If you are sent down the road of approval, your credit score will also determine the tolls you'll pay.
On November 20, 2007 Fannie Mae and Freddie Mac announced loan price increases for borrowers with credit scores below 680 on loans with loan-to-values above 70%. Simply put that means that if you don't have a 30% down payment and your credit score is below 680 you are going to pay higher closing costs and/or higher rates on your home mortgage.
Unfortunately, higher mortgage rates are just one of the ways your credit score can affect the prices you pay. When it comes to credit card debt an average borrower can easily pay twice as much or more interest as someone with an exceptionally high score. Understandably, borrowers whose credit scores identify them as low risk are offered the lowest interest rates available.
What other bills are you paying that are affected by your credit score?
Recent studies have shown that 92% of the largest automobile insurers use credit data in underwriting new business. It has been estimated that a consumer with bad credit is going to pay 20 to 50% more in auto premiums than a person who has good credit.
An Insurance Credit Score is also used to determine whether or not you will get homeowner's insurance and how much you will pay for it! This is based on the belief that the lower your score, the higher the chance that you will file a claim, inflate a claim or commit fraud.
Clearly anyone whose credit report doesn't identify them as a perfect credit risk is a target to pay more for all the most expensive things in their life. How much would an average family save if they could cut their mortgage and credit card payments as well as their auto and homeowner's insurance by 20-50% or more? Is it fair that the people who may afford it least have to pay more?
That is something open to debate, BUT...
It's also been determined that 79% of credit reports contained errors of some kind. Twenty-five percent of credit reports contained serious errors that could result in the denial of credit.
In other words, many people are paying the toll because the information on their credit report is grossly inaccurate. If you don't know what's on your credit report, how to analyze the information or how to raise your credit scores you may be woefully overpaying for some of the biggest items in your families budget. Be proactive, make sure your score is as high as it can be and realize the savings you deserve.
On November 20, 2007 Fannie Mae and Freddie Mac announced loan price increases for borrowers with credit scores below 680 on loans with loan-to-values above 70%. Simply put that means that if you don't have a 30% down payment and your credit score is below 680 you are going to pay higher closing costs and/or higher rates on your home mortgage.
Unfortunately, higher mortgage rates are just one of the ways your credit score can affect the prices you pay. When it comes to credit card debt an average borrower can easily pay twice as much or more interest as someone with an exceptionally high score. Understandably, borrowers whose credit scores identify them as low risk are offered the lowest interest rates available.
What other bills are you paying that are affected by your credit score?
Recent studies have shown that 92% of the largest automobile insurers use credit data in underwriting new business. It has been estimated that a consumer with bad credit is going to pay 20 to 50% more in auto premiums than a person who has good credit.
An Insurance Credit Score is also used to determine whether or not you will get homeowner's insurance and how much you will pay for it! This is based on the belief that the lower your score, the higher the chance that you will file a claim, inflate a claim or commit fraud.
Clearly anyone whose credit report doesn't identify them as a perfect credit risk is a target to pay more for all the most expensive things in their life. How much would an average family save if they could cut their mortgage and credit card payments as well as their auto and homeowner's insurance by 20-50% or more? Is it fair that the people who may afford it least have to pay more?
That is something open to debate, BUT...
It's also been determined that 79% of credit reports contained errors of some kind. Twenty-five percent of credit reports contained serious errors that could result in the denial of credit.
In other words, many people are paying the toll because the information on their credit report is grossly inaccurate. If you don't know what's on your credit report, how to analyze the information or how to raise your credit scores you may be woefully overpaying for some of the biggest items in your families budget. Be proactive, make sure your score is as high as it can be and realize the savings you deserve.
Monday
Credit Cards For Students
If you had started assisting to a college, or will be assisting soon, surely you have already evaluated all financial aids that could be helpful to your new, and a little more complicated, economical situation.
We have all been there, I can tell you now that it is possible to go through college, finance your education and left with any or just a small debt, and also with a good credit record.
A good credit history is, after your education of course, the best thing you can get while you are still a student. Doing this you will open the door to credit. If a house, a car, a boat or a long trip around the world are some of the things you will want to have in your future, your credit score will be the magic wand that will help you to convert these desires into real things.
The better your score, the higher the credit you will have access to, so do not miss any chance to improve it. Even if you have already made any mistakes and you have a not so good credit record, it is possible to revert that situation by doing some wise moves and student credit cards are a fast and accessible tool.
What Credit Card Suits You Best?
There are three kinds of credit cards. They can be prepaid, secured or unsecured. Even when student cards are meant for students, they work the same as normal credit cards, so these groups apply as well for both, normal and student credit cards.
With prepaid credit cards you buy a credit card with a predetermined amount of money that will be available to use for a limited period. This amount will be your card's limit. After you use it, you can either charge money again to the card and continue with using it or just wait to the card's due date, and then it will be canceled.
These credit cards can be used anywhere a credit card is accepted, but you will not be able to buy within monthly installments with these kinds of credit cards, your purchases will have to be done in one payment.
Secured credit cards require you to deposit a certain amount of money into an account. This amount works as your credit limit and also as a secure for the financial company, just in case you do not accomplish with the payments.
Both, prepaid and secured credit cards are a good option to enter in the financial world if you never had a credit card, or if you do not feel sure enough with doing payments and managing credit.
An unsecured credit card is a common credit card product, in which the financial company sets an amount of money as your credit limit, and you just have to make sure to accomplish the monthly payments.
Make Use, But Do Not Abuse!
As a student, you will have the possibility to access any of these cards, since student credit cards have less requirements than regular credit cards and financial companies know that young people are both a good market and loyal customers. Most of people keep their first credit card for many years.
So, if you are one of those people who feel tempted to complete every form that is presented to you, try to refrain from doing it. Keep your credit cards' number as low as possible, one or two will be perfect to finance your education expenses and to stay out of the possible debt that will surely come with more credit cards in your hands.
Go Ahead And Start Your Credit Record
Once you have decided which kind of credit card is better for you, use them wisely. Remember that the fact that you have a high amount of available credit, does not mean that you actually own that money. You will have to pay back every cent of that credit limit that you use.
Always be careful with your expenses and try to accomplish with your credit card's payments. Secured and unsecured credit cards will impact directly in your credit score. On the other hand, prepaid cards do not have any importance to your credit records.
We have all been there, I can tell you now that it is possible to go through college, finance your education and left with any or just a small debt, and also with a good credit record.
A good credit history is, after your education of course, the best thing you can get while you are still a student. Doing this you will open the door to credit. If a house, a car, a boat or a long trip around the world are some of the things you will want to have in your future, your credit score will be the magic wand that will help you to convert these desires into real things.
The better your score, the higher the credit you will have access to, so do not miss any chance to improve it. Even if you have already made any mistakes and you have a not so good credit record, it is possible to revert that situation by doing some wise moves and student credit cards are a fast and accessible tool.
What Credit Card Suits You Best?
There are three kinds of credit cards. They can be prepaid, secured or unsecured. Even when student cards are meant for students, they work the same as normal credit cards, so these groups apply as well for both, normal and student credit cards.
With prepaid credit cards you buy a credit card with a predetermined amount of money that will be available to use for a limited period. This amount will be your card's limit. After you use it, you can either charge money again to the card and continue with using it or just wait to the card's due date, and then it will be canceled.
These credit cards can be used anywhere a credit card is accepted, but you will not be able to buy within monthly installments with these kinds of credit cards, your purchases will have to be done in one payment.
Secured credit cards require you to deposit a certain amount of money into an account. This amount works as your credit limit and also as a secure for the financial company, just in case you do not accomplish with the payments.
Both, prepaid and secured credit cards are a good option to enter in the financial world if you never had a credit card, or if you do not feel sure enough with doing payments and managing credit.
An unsecured credit card is a common credit card product, in which the financial company sets an amount of money as your credit limit, and you just have to make sure to accomplish the monthly payments.
Make Use, But Do Not Abuse!
As a student, you will have the possibility to access any of these cards, since student credit cards have less requirements than regular credit cards and financial companies know that young people are both a good market and loyal customers. Most of people keep their first credit card for many years.
So, if you are one of those people who feel tempted to complete every form that is presented to you, try to refrain from doing it. Keep your credit cards' number as low as possible, one or two will be perfect to finance your education expenses and to stay out of the possible debt that will surely come with more credit cards in your hands.
Go Ahead And Start Your Credit Record
Once you have decided which kind of credit card is better for you, use them wisely. Remember that the fact that you have a high amount of available credit, does not mean that you actually own that money. You will have to pay back every cent of that credit limit that you use.
Always be careful with your expenses and try to accomplish with your credit card's payments. Secured and unsecured credit cards will impact directly in your credit score. On the other hand, prepaid cards do not have any importance to your credit records.
Little White Lies
"You don't look a day over 29."
"The check's in the mail."
"It was the dog."
We all occasionally stretch the truth, but did you know your financial provider tells fibs, too?
No need to rat anyone out just yet -- some of those little white lies may actually be boosting your credit score. Let's see whether any are hiding in your credit file.
Sins of omission
Many lenders fail to fully report to the credit bureaus. They may leave out payment information or even the existence of an account.
That's not necessarily an oversight you want to fix. If you've been a little lackadaisical about paying your bills on time, count your blessings and vow to pay all future bills on time, just in case the lender decides to kiss and tell.
If, on the other hand, your payment history with a particular lender is stellar, you might want to pipe up about invisible accounts and missing payment data. The lack of information can make you look lame to lenders. If most of your accounts have no payment reporting information and you're a stickler about on-time payments, a potential creditor can't tell whether you're a good or a bad bet.
If your credit file is thin, call your nonreporting lenders and ask them to communicate more information about your account, if possible. And remember, just because information doesn't appear on one of your credit reports, that doesn't mean that it's not included on another. Reporting companies aren't required to share information with all three major credit bureaus (Equifax, Experian, or TransUnion) -- or any of them, for that matter.
Hibernating accounts
Remember that Discover card you opened to get those airline miles you needed for your Hawaii trip back in 1999? After you earned your miles and stopped using the card, your lender may have forgotten about you, dear customer, as well.
When you shove a card in your sock drawer and stop using it, it may go into a deep sleep in your credit file. With no payment information to report (and when you stop using a card, there's not much to say), your bank will simply stop reporting anything to the credit bureaus. (The time frame varies from lender to lender, but it can happen in as little as three months.)
For those who have trouble keeping track of multiple bills and paying them on time, an account in hibernation may help keep your record clean, since after several months a late-payment ding will have less of an affect on your score. Still, remember that hibernation does not mean "disappearance." Unused accounts are still listed as open lines of credit on your report until you or your lender formally cancels the card. (After that it will be reported as "closed.")
Don't assume that all's well on an old, unused account. Check up on it occasionally -- make sure you don't owe some annual fee, or that the card isn't being used fraudulently and the bills sent elsewhere. If you truly doubt that you'll ever use the card and it's not one of your oldest accounts, consider closing it. But beware of canceling credit cards willy-nilly. Doing so may actually hurt your credit score. (See our advice on which credit cards you should cancel and which you should keep.)
Covert credit limits
A surprising number of lenders simply do not report consumer credit limits. Keeping this information out of your file is not necessarily an innocent oversight. Without that key piece of data, competitors are less likely to poach clients with preapproved offers.
Capital One caused a stir when its credit-limit reporting tactics became public knowledge: Instead of reporting customers' credit limits, it reported the highest balance carried, which gave the appearance that customers were much closer to maxing out their cards (a no-no for a stellar credit score) than they really were. (FICO scores no longer use this piece of Capital One data when computing consumer credit scores.)
You may want your credit card company to keep mum about how much it trusts you to spend, particularly if the spending limits on your cards are really low. Potential lenders see low limits as an indication that you haven't earned a lot of leeway and that banks don't want to give you too much slack in the leash, since they'll be left with greater losses if you ran off without paying your bills.
If you want your lender to report your limits, and it's not Capital One, call and ask. Sometimes, it's company policy not to report, but at least you can try.
Innocent oversights
Finally, let's all give thanks to the banks that occasionally turn a blind eye or -- intentionally or not -- say something that's maybe not exactly true. For example, did a lender forget to report a late payment or two? Is some business claiming you've been its stellar customer for longer than you actually have been? Has a past creditor forgotten to mention to the credit bureaus that you're no longer doing business with one another? Such mistakes can actually improve your credit standing by overstating how good of a borrower you are. Start composing a heartfelt thank-you note to MasterCard when you get a sec.
You can keep mum and pretend you didn't see any of your lenders' errors -- just smile and nod. But don't be surprised when a company finally sets your record straight. After all, little white lies can't get you out of every pickle.
"The check's in the mail."
"It was the dog."
We all occasionally stretch the truth, but did you know your financial provider tells fibs, too?
No need to rat anyone out just yet -- some of those little white lies may actually be boosting your credit score. Let's see whether any are hiding in your credit file.
Sins of omission
Many lenders fail to fully report to the credit bureaus. They may leave out payment information or even the existence of an account.
That's not necessarily an oversight you want to fix. If you've been a little lackadaisical about paying your bills on time, count your blessings and vow to pay all future bills on time, just in case the lender decides to kiss and tell.
If, on the other hand, your payment history with a particular lender is stellar, you might want to pipe up about invisible accounts and missing payment data. The lack of information can make you look lame to lenders. If most of your accounts have no payment reporting information and you're a stickler about on-time payments, a potential creditor can't tell whether you're a good or a bad bet.
If your credit file is thin, call your nonreporting lenders and ask them to communicate more information about your account, if possible. And remember, just because information doesn't appear on one of your credit reports, that doesn't mean that it's not included on another. Reporting companies aren't required to share information with all three major credit bureaus (Equifax, Experian, or TransUnion) -- or any of them, for that matter.
Hibernating accounts
Remember that Discover card you opened to get those airline miles you needed for your Hawaii trip back in 1999? After you earned your miles and stopped using the card, your lender may have forgotten about you, dear customer, as well.
When you shove a card in your sock drawer and stop using it, it may go into a deep sleep in your credit file. With no payment information to report (and when you stop using a card, there's not much to say), your bank will simply stop reporting anything to the credit bureaus. (The time frame varies from lender to lender, but it can happen in as little as three months.)
For those who have trouble keeping track of multiple bills and paying them on time, an account in hibernation may help keep your record clean, since after several months a late-payment ding will have less of an affect on your score. Still, remember that hibernation does not mean "disappearance." Unused accounts are still listed as open lines of credit on your report until you or your lender formally cancels the card. (After that it will be reported as "closed.")
Don't assume that all's well on an old, unused account. Check up on it occasionally -- make sure you don't owe some annual fee, or that the card isn't being used fraudulently and the bills sent elsewhere. If you truly doubt that you'll ever use the card and it's not one of your oldest accounts, consider closing it. But beware of canceling credit cards willy-nilly. Doing so may actually hurt your credit score. (See our advice on which credit cards you should cancel and which you should keep.)
Covert credit limits
A surprising number of lenders simply do not report consumer credit limits. Keeping this information out of your file is not necessarily an innocent oversight. Without that key piece of data, competitors are less likely to poach clients with preapproved offers.
Capital One caused a stir when its credit-limit reporting tactics became public knowledge: Instead of reporting customers' credit limits, it reported the highest balance carried, which gave the appearance that customers were much closer to maxing out their cards (a no-no for a stellar credit score) than they really were. (FICO scores no longer use this piece of Capital One data when computing consumer credit scores.)
You may want your credit card company to keep mum about how much it trusts you to spend, particularly if the spending limits on your cards are really low. Potential lenders see low limits as an indication that you haven't earned a lot of leeway and that banks don't want to give you too much slack in the leash, since they'll be left with greater losses if you ran off without paying your bills.
If you want your lender to report your limits, and it's not Capital One, call and ask. Sometimes, it's company policy not to report, but at least you can try.
Innocent oversights
Finally, let's all give thanks to the banks that occasionally turn a blind eye or -- intentionally or not -- say something that's maybe not exactly true. For example, did a lender forget to report a late payment or two? Is some business claiming you've been its stellar customer for longer than you actually have been? Has a past creditor forgotten to mention to the credit bureaus that you're no longer doing business with one another? Such mistakes can actually improve your credit standing by overstating how good of a borrower you are. Start composing a heartfelt thank-you note to MasterCard when you get a sec.
You can keep mum and pretend you didn't see any of your lenders' errors -- just smile and nod. But don't be surprised when a company finally sets your record straight. After all, little white lies can't get you out of every pickle.
Sunday
When The Credit Card Bubble Pops
Let me try a few words out on you: "Charge It," "Swipe It" and "Priceless."
You know exactly what I am talking about. We all have credit and debit cards. We all use them, and many of us keep our lives going because of them.
That is, until the bill becomes due.
The sad truth is that we are all complicit in our own economic servitude even if, at bottom, it's not our fault because we live in a consumption society, and don't feel we could live without them.
While many eyes are focusing on the housing meltdown and its hugely negative effect on an economy clearly moving into recession, few are paying attention to the next bubble expected to burst: credit cards. You would never know it by watching those slick VISA card ads on the Olympic TV broadcasts.
Combined with the subprime losses, such a credit card nightmare has the potential, experts say, of bringing down the entire financial system and global economy.
You and your credit card have become key players in the highly unstable financial crunch. Mortgage lender cupidity and bank credit card greed wedded to financial institution deregulation supported by both political parties, have been made manifestly worse by Bush administration support-the-rich policies. It has brought us to a brink not seen since just before the Great Depression.
While campaigning in Edinburg, Texas, in February, Barack Obama met with students at the University of Texas-Pan American. "Just be careful about those credit cards, all right? Don't eat out as much," he said. After the foreclosure crisis, he warned, "the credit cards are next in line."
The coupling of home equity debt and credit card debt has gone hand in glove for years. The homeowners at risk can no longer use their homes as ATM machines, thanks to their prior re-financings and equity loans, often used in the past to pay off their credit cards. Indeed, homeowners cashed out $1.2 trillion from their home equity from 2002 to 2007 to pay down credit card debts and to cover other costs of living, according to the public policy research organization Demos.
To compound the problem, fewer people are paying their credit card bills on time. And, to flip the old paradigm, more are using high-interest credit card cash to pay at least part of their mortgages instead of the other way around.
Younger people are being crushed by this debt burden as college students and new consumers. Emma Johnson of MSN Money reports that "Generation Y" is broke.
"The democratization of credit has really generated a competitive spending culture, and plastic has allowed for material goods not had in the previous generation," says Bob Manning, author of Credit Card Nation. "Most of us grew up in a home with just one or two bathrooms for the whole family, he points out; today, new homes usually have at least one bathroom per bedroom."That change has happened so fast," Manning says.
"This generation feels that somehow or another they're going to figure out some technological advancement that's going to get them out of their financial troubles and outsmart the market," says Manning, who served as adviser to the documentary In Debt We Trust. The documentary paints a picture of national financial crisis stemming from the personal-debt burden. (See InDebtWeTrust.com)
Happily, this issue is finally being addressed by Congress and the Federal Reserve Bank. When asked for comments, the public overloaded the Fed's website as the New York Times commented:
When the Federal Reserve asked for comments on its proposed rules on abusive credit card practices, an astonishing 56,000 poured in. Most were from outraged consumers. They told of interest rates skyrocketing when they paid an unrelated bill late. They complained of unwarranted late fees and pushed-up due dates. One Pennsylvania customer fumed: "I'm fed up with credit card company tricks that drive us deeper in debt."
This anguished deluge should send a clear message to leaders in Washington. The Federal Reserve should swiftly adopt its proposed rules against unfair or deceptive credit card practices. But the real burden to curb these abuses falls on Congress.
This discontent is being organized to press Congress to act by groups like the Consumer Federation of America and the Center for Responsible Lending. And Congress is listening:
WASHINGTON (Reuters) - Legislation aimed at curbing credit card billing practices that surprise borrowers with unexpected interest rate increases and fees was approved on Thursday by a U.S. House of Representatives committee.
The bill approved by Financial Services Committee mirrors Federal Reserve proposals that would effectively end double-cycle billing -- in which card companies reach back to prior billing cycles to help calculate the interest charged in the current cycle.
These reforms are a start but much more needs to be done because it's not just billing practices that is at issue -- it's high interest changes, deceptive marketing, and arbitrary rules. On top of that, there are other loans that need scrutiny including payday lenders and student loans. And of course our own addiction to shop until we drop.
You know exactly what I am talking about. We all have credit and debit cards. We all use them, and many of us keep our lives going because of them.
That is, until the bill becomes due.
The sad truth is that we are all complicit in our own economic servitude even if, at bottom, it's not our fault because we live in a consumption society, and don't feel we could live without them.
While many eyes are focusing on the housing meltdown and its hugely negative effect on an economy clearly moving into recession, few are paying attention to the next bubble expected to burst: credit cards. You would never know it by watching those slick VISA card ads on the Olympic TV broadcasts.
Combined with the subprime losses, such a credit card nightmare has the potential, experts say, of bringing down the entire financial system and global economy.
You and your credit card have become key players in the highly unstable financial crunch. Mortgage lender cupidity and bank credit card greed wedded to financial institution deregulation supported by both political parties, have been made manifestly worse by Bush administration support-the-rich policies. It has brought us to a brink not seen since just before the Great Depression.
While campaigning in Edinburg, Texas, in February, Barack Obama met with students at the University of Texas-Pan American. "Just be careful about those credit cards, all right? Don't eat out as much," he said. After the foreclosure crisis, he warned, "the credit cards are next in line."
The coupling of home equity debt and credit card debt has gone hand in glove for years. The homeowners at risk can no longer use their homes as ATM machines, thanks to their prior re-financings and equity loans, often used in the past to pay off their credit cards. Indeed, homeowners cashed out $1.2 trillion from their home equity from 2002 to 2007 to pay down credit card debts and to cover other costs of living, according to the public policy research organization Demos.
To compound the problem, fewer people are paying their credit card bills on time. And, to flip the old paradigm, more are using high-interest credit card cash to pay at least part of their mortgages instead of the other way around.
Younger people are being crushed by this debt burden as college students and new consumers. Emma Johnson of MSN Money reports that "Generation Y" is broke.
"The democratization of credit has really generated a competitive spending culture, and plastic has allowed for material goods not had in the previous generation," says Bob Manning, author of Credit Card Nation. "Most of us grew up in a home with just one or two bathrooms for the whole family, he points out; today, new homes usually have at least one bathroom per bedroom."That change has happened so fast," Manning says.
"This generation feels that somehow or another they're going to figure out some technological advancement that's going to get them out of their financial troubles and outsmart the market," says Manning, who served as adviser to the documentary In Debt We Trust. The documentary paints a picture of national financial crisis stemming from the personal-debt burden. (See InDebtWeTrust.com)
Happily, this issue is finally being addressed by Congress and the Federal Reserve Bank. When asked for comments, the public overloaded the Fed's website as the New York Times commented:
When the Federal Reserve asked for comments on its proposed rules on abusive credit card practices, an astonishing 56,000 poured in. Most were from outraged consumers. They told of interest rates skyrocketing when they paid an unrelated bill late. They complained of unwarranted late fees and pushed-up due dates. One Pennsylvania customer fumed: "I'm fed up with credit card company tricks that drive us deeper in debt."
This anguished deluge should send a clear message to leaders in Washington. The Federal Reserve should swiftly adopt its proposed rules against unfair or deceptive credit card practices. But the real burden to curb these abuses falls on Congress.
This discontent is being organized to press Congress to act by groups like the Consumer Federation of America and the Center for Responsible Lending. And Congress is listening:
WASHINGTON (Reuters) - Legislation aimed at curbing credit card billing practices that surprise borrowers with unexpected interest rate increases and fees was approved on Thursday by a U.S. House of Representatives committee.
The bill approved by Financial Services Committee mirrors Federal Reserve proposals that would effectively end double-cycle billing -- in which card companies reach back to prior billing cycles to help calculate the interest charged in the current cycle.
These reforms are a start but much more needs to be done because it's not just billing practices that is at issue -- it's high interest changes, deceptive marketing, and arbitrary rules. On top of that, there are other loans that need scrutiny including payday lenders and student loans. And of course our own addiction to shop until we drop.
Wednesday
Some Truths About Credit Card Debt
Conventional wisdom is that were all hooked and struggling. The reality is, in
fact, quite different and less frightening.
By Liz Pulliam Weston
Youve probably heard that the average American carries more than $8,000 in credit card debt.
Its a figure frequently cited by politicians, journalists and pundits as a sure sign of impending economic collapse. They argue that consumers, already struggling under this massive burden of debt, soon will have to stop spending like drunken sailors. The economic recovery, therefore, is doomed!
The surprising thing about this statistic isnt that its so widely known. Rather, its that the statistic paints a picture thats just plain wrong.
In reality, most Americans owe nothing to credit card companies.
Most households that carry balances owe $2,000 or less.
Only about 1 in 20 American households owes $8,000 or more on credit cards.
These figures are from the Federal Reserves 2001 Survey of Consumer Finances, one of the most comprehensive assessments of what Americans own and owe. (The survey is updated every three years; a summary of 2004's results will be published in early 2006.)
Averages dont tell the tale
Most of the people citing the $8,000 figure credit it to CardWeb.com, a service that tracks credit card trends.Find a loan that's
right for you at the
Loan Center
CardWeb, however, doesnt contend that the average American owes more than $8,000 on cards. Their statistics show that the average debt per American household with at least one credit card was $8,940 in 2002, the last year for which figures are available.
To get that number, CardWeb simply divided the total outstanding credit card debt at the end of 2002 -- $750.9 billion -- by the 84 million American households that it says have at least one credit card. (CardWeb uses a slightly different definition of household than the Fed does. And the company contends that 80% of households, rather than the Feds 76.2%, have at least one credit card.)
Now, by CardWebs measure and definition, the average debt in households with at least one credit card is growing.
If you know anything about statistics, however, you know that averages dont really tell the tale.
Consider what would happen if you and 17 of your friends and family were in a room with Bill Gates and Warren Buffett. The average net worth of a person in that room would be north of $4 billion. The fact that everybody elses personal net worth was just $100,000, or $1 million, or even $10 million, wouldnt affect the average that much because the big boys are sooooo much wealthier than you.
Take heart: Were actually frugal
In much the same way, a relatively small population with huge credit card balances can skew the average to make it look like the typical American is carrying a much bigger debt load than he or she actually is. Consider:
23.8% of American households have no credit cards at all -- no bank cards, no retail cards, nothing.
Another 31.2% of the households the Fed surveyed paid off their most recent credit card bills in full.
So together, the households that owed nothing on credit cards equaled 55% of the total.
Heres some better news: Paying off balances actually became more common between 1998 and 2001. The proportion of households that had bank cards (Visa, MasterCard, etc.) who reported that they regularly paid off their balances in full rose 1.5 percentage points to 55.3%.
We dont carry that much debt
Of the households that did carry a balance, the median amount owed was $1,900. That means half of the households with a balance owed more, and half owed less. (Medians are less subject to the skewing phenomenon that plagues averages; thats why economists tend to favor them.)
Bill Whitt at the VIP Forum, a Washington D.C. research firm, helped me dig even deeper. By analyzing the credit card debts of all the households the Fed surveyed, Whitt discovered:
Only 29% of households owe $1,000 or more on their cards.
21% owe $2,000 or more.
6% owe $8,000 or more.
4% owe $10,500 or more.
1% owe $21,400 or more.
The Fed statistics pretty much gibe with what Fair Isaac, the creator of the FICO credit score, discovered when it reviewed millions of credit reports.
There are a few differences between the universe the Fed examined and the one looked at by Fair Isaac. For one thing, credit reports are individual -- theres no such thing as a household or even a joint credit report. Also, you have to have and use credit to have a credit report. Finally, credit reports dont typically distinguish between balances you pay off and those you carry each month.
But again, Fair Isaacs statistics show a world in which most people are light to moderate users of credit:
About 48% of credit card holders owed less than $1,000
About 10% of card holders had total card balances in excess of $10,000.
More than half of all people with credit cards use less than 30% of their total credit card limit.
Just over 1 in 8 people use 80% or more of their credit card limit.
Theres still plenty of trouble out there
Does this mean all the hand-wringing over consumer debt is so much noise? Hardly. Although most Americans seem to be avoiding the credit card trap, there are still plenty of people on the financial edge:
More than a third -- 36% -- of those who owe more than $10,000 on their cards have household incomes under $50,000, according to the VIP Forum analysis.
13% who owe that much have household incomes under $30,000.
The percentage of disposable income used to pay debts is still near record highs.
The median value of total outstanding debt owed by households rose 9.6% between 1998 and 2001.
Bankruptcies set another record in 2003, with 1.6 million personal filings, the American Bankruptcy Institute reports.
All of that is more than enough evidence to suggest that a large number of people are overdosing on debt. The average American, though, seems to be doing just fine.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money.
Monday
FICO 08
There is a much needed change in the way your FICO score will be calculated by Fair Isaac Corp., which calculates credit report scores for millions of Americans.
Fair Isaac claims its new credit scoring formula will be able to signal more accurately borrowers who are likely to default or get behind on payments. The new formula, called FICO 08, will be less stringent on consumers who rarely have late payments, but will more strict on consumers who are repeatedly late. Lenders expect this new scoring system to reduce defaults by consumers from 5% to 15%
A consumers FICO score, is a tool estimated to be utilized by a significantly large portion of the banking industry. Banks and financial institutions use them to analyze if a consumer is worthy of receiving lines of credit, home loans, auto loans, opening a checking account, insurance, mobile phone, getting hired, turning on utilities and more.
The new FICO 08 will not look or feel new to either consumers or creditors. The scores will still range from 300 to 850. The new system will continue to look at the same determining factors, including payment histories, large or small debts, length of credit histories, quantity of credit inquiries, and the credit type, to determine consumers scores.
The difference in the new FICO 08 system is it will work harder to separate the creditors who are a good risk from the creditors who looks like a bad risk. It targets those borrowers with sub-prime credit; people who are just starting to get credit; and consumers who are inquiring for new credit.
A benefit is that consumers who are categorized as less likely to default on loans or "low risk" will receive better scoring using the new FICO system, and people who have had past or recent credit problems will score lower than today's system. The consumers who are in the center with less-risky profiles will begin to see better offers from lenders.
Normally, most credit scoring formulas categorized people with sub-prime credit into one large bowl. According to Fair Isaac's new model, a borrower who is behind on payments on one account along with having other credit accounts in good standing will receive a higher score than before. On the other hand, an individual's score could drop significantly more if they have numerous delinquent accounts.
Despite the new scoring model, people will still have to confirm the information in their credit reports to be accurate, error-free. If there's inaccuracies, or unauthorized use, you may be a victim of the ever rising problem called identity theft. To combat identity theft, there is a new company called LifeLock that backs their product with a $1 million dollar guarantee that your identity will not be stolen under their watch. Their boss is even so bold as to give out their social security number without any fear. For normal check-up on your credit, you can contact the credit bureaus directly, Experian,TransUnion, and Equifax., to request a credit report copy. If there are any errors, misinformation, or ID theft be sure to contact the credit bureaus or the financial creditors.
FICO 08 is also targeting the growing half-truth business of permitting consumers to raise their credit scores by becoming an authorized user on another person's good credit account. Recently, and even discussed on popular radio personal finance shows, credit repair companies are selling people with bad credit a chance to boost their scores by becoming authorized users on accounts held by strangers with better credit. The new FICO 08 will not award higher scores on credit card accounts for authorized users. In addition, it hurts the primary user who opened the account. This even applies to a child or a spouse. Now, you must stand on your own to raise your credit score which can certainly be done if you follow the principles.
Fair Isaac claims its new credit scoring formula will be able to signal more accurately borrowers who are likely to default or get behind on payments. The new formula, called FICO 08, will be less stringent on consumers who rarely have late payments, but will more strict on consumers who are repeatedly late. Lenders expect this new scoring system to reduce defaults by consumers from 5% to 15%
A consumers FICO score, is a tool estimated to be utilized by a significantly large portion of the banking industry. Banks and financial institutions use them to analyze if a consumer is worthy of receiving lines of credit, home loans, auto loans, opening a checking account, insurance, mobile phone, getting hired, turning on utilities and more.
The new FICO 08 will not look or feel new to either consumers or creditors. The scores will still range from 300 to 850. The new system will continue to look at the same determining factors, including payment histories, large or small debts, length of credit histories, quantity of credit inquiries, and the credit type, to determine consumers scores.
The difference in the new FICO 08 system is it will work harder to separate the creditors who are a good risk from the creditors who looks like a bad risk. It targets those borrowers with sub-prime credit; people who are just starting to get credit; and consumers who are inquiring for new credit.
A benefit is that consumers who are categorized as less likely to default on loans or "low risk" will receive better scoring using the new FICO system, and people who have had past or recent credit problems will score lower than today's system. The consumers who are in the center with less-risky profiles will begin to see better offers from lenders.
Normally, most credit scoring formulas categorized people with sub-prime credit into one large bowl. According to Fair Isaac's new model, a borrower who is behind on payments on one account along with having other credit accounts in good standing will receive a higher score than before. On the other hand, an individual's score could drop significantly more if they have numerous delinquent accounts.
Despite the new scoring model, people will still have to confirm the information in their credit reports to be accurate, error-free. If there's inaccuracies, or unauthorized use, you may be a victim of the ever rising problem called identity theft. To combat identity theft, there is a new company called LifeLock that backs their product with a $1 million dollar guarantee that your identity will not be stolen under their watch. Their boss is even so bold as to give out their social security number without any fear. For normal check-up on your credit, you can contact the credit bureaus directly, Experian,TransUnion, and Equifax., to request a credit report copy. If there are any errors, misinformation, or ID theft be sure to contact the credit bureaus or the financial creditors.
FICO 08 is also targeting the growing half-truth business of permitting consumers to raise their credit scores by becoming an authorized user on another person's good credit account. Recently, and even discussed on popular radio personal finance shows, credit repair companies are selling people with bad credit a chance to boost their scores by becoming authorized users on accounts held by strangers with better credit. The new FICO 08 will not award higher scores on credit card accounts for authorized users. In addition, it hurts the primary user who opened the account. This even applies to a child or a spouse. Now, you must stand on your own to raise your credit score which can certainly be done if you follow the principles.
Frank Collins is knowledegable in the area of Mortgage Loans and Improving Credit Scores.
Saturday
Card Tricks
Americans are struggling with a very rocky economy while they are also holding almost $1 trillion in credit card debt. In most cases, those cards provide a little flexibility with the monthly bills. But an increasing number of people are defaulting because of the “tricks and traps” — soaring interest rates and hidden fees — in the credit card business.
Before more Americans get in so deep that they cannot dig out, Washington needs to change the way these companies do business to ensure that consumers are treated fairly.
The stories about deceptive practices are harrowing. At a recent news briefing in Washington, a Chicago man told about what happened when he charged a $12,000 home repair bill in 2000 on a card with an introductory interest rate of 4.25 percent. Despite his steady, on-time payments, the rate is now nearly 25 percent. And despite paying at least $15,360, he said that he had only paid off about $800 of his original debt.
The Federal Reserve is focused mainly on making it easier for consumers to understand credit card contracts — some go as high as 30 pages of nearly unreadable fine print. Clarity, however, is not enough. One bank contract stated baldly: “We reserve the right to change the terms at any time for any reason.”
Congress needs to address numerous unfair practices, including interest rates that skyrocket for no apparent reason and due dates that suddenly shift — forward — so that an unwary consumer pays late. Late fees are a big profit center in some banks. Some raise interest rates when consumers get close to their credit limits. In other cases, a late payment on one company’s card raises the rates on other cards in your wallet.
Americans deserve better. Senator Carl Levin, Democrat of Michigan, has been pushing hard for more consumer protections. Representative Carolyn Maloney, Democrat of New York, has put together an excellent first step with a cardholder’s bill of rights. It would require such reasonable changes as a ban on collection of interest on amounts already paid. It would require that cardholders get timely notices of changes in their rates and be able to cancel their cards if the rates suddenly skyrocket — and pay off the balances at the old rates.
Monday
The Struggling American Economy
I spent most of last week at a banking conference in Chicago. It was one of the better industry events I’ve attended in the past couple of years. The panel of speakers included representation from every sector of the financial services market, from a key analyst at Goldman Sachs to a former President’s chief economic advisor.
From the perspective of a casual observer, what’s going on in our economy is really interesting - we’re seeing unprecedented lending standards result in unprecedented charge-offs. No one knows how bad it’s going to get, but everyone I visited with over the course event agreed that the economy is going to get worse before it gets better.
So, how is this going to impact the average bank customer? Here are my best guesses on how the next couple of years are going to shape up for bank customers.
1. Mortgage underwriting standards are going to get more stringent
This isn’t a surprise. Expect it to become much more difficult to get into a home. Individuals with low debt-to-income ratios and credit scores over 740 will still have access to credit of all kinds, including mortgages, but those with less-than-perfect credit, no down payment, and high consumer debt are going to have a hard time getting into a traditional 30-year fixed mortgage at the best rates.
New trend: banks will begin to market savings accounts targeted to those that have been asked by their lenders to make a 10% down payment on The American Dream
2. Banks will continue to come up with creative savings account service bundles
Banks of all sizes are experiencing record losses and write-downs, and liquidity problems are running rampant. Banks need low-cost deposits more than ever.
Look for more checking/savings bundles like Bank of America’s “Keep the Change” and Wachovia’s “Way to Save.” Small banks are getting into the innovative savings game as well - check out this article at netbanker about a new product called “Smarty Pig” - it’s a savings account with a social networking element currently in beta at West Bank.
Also expect to see ‘creative positioning’ of existing bank products. Banks will create an offshoot of a traditional money market account or high-yield savings and call it a “risk-free CD” - a savings product that has a guaranteed rate of return but can be withdrawn at any time, without penalty.
3. Student loans will be the next victim of the sub-prime fallout
50 of the 2700 current student lenders have announced plans to discontinue their student lending programs. Expect rates on non-federal student loans to climb into the double digits.
4. Long-term CD rates will rise
The only piece of really good news I have is that the yield curve is positively sloping for the first time in a few years. Expect to see more CD specials locking in decent rates for 2-5 year money.
5. Household pricing will be next big thing in deposits
Banks are doing a lot more household (also called “relationship”) pricing. We’re going to see banks wave “buh-bye” to unprofitable accounts by dropping rates on expensive single-relationship account holders and high-touch customers with small balances.
Only a handful of the largest US Banks have the technology and analytics in place to do this today, but eventually most banks will set account interest rates and run specials on a customer-by-customer basis - much the same way airlines price airfare.
Parting Thoughts
The experts that addressed my group couldn’t tell us how long this “economic downturn” will last - we heard everything from 18 months to five years - but they did agree that deposits are going to see a lot of action as banks try to improve their cash positions. If the Fed would just be a bit more concerned about inflation and stop lowering target interest rates - it would be a great time to be a saver!
Saturday
I Hate To Say "I Told You So..."
The problem the the US is facing has to do with consumer debt being too high.People can't go on borrowing and borrowing and not saving anything, forever. Meanwhile a huge amount of wealth is being created in Asia. They are financing our debts, and what they are gaining is real power over us, to the extent that when they actually grow to be bigger than us, we are going to be second-world nations.
A second straight month of job losses all but ended the debate over whether the U.S. economy has slipped into recession. Now the question is how to get out.
"Turn out the lights. The party's over. We are in a recession," said Joseph Brusuelas, chief U.S. economist at IDEAglobal in New York.
Don't count on debt-laden households to spend their way back to growth. As for banks, they are preoccupied with cleaning up their balance sheets after seven months of credit turmoil, which means they are unlikely to throw open the cash spigots. The federal government is mired in debt as well.
All that adds up to a protracted period of deleveraging -- a fancy word for paring debt -- and perhaps an equally long period of subpar U.S. economic growth.
While most economists still believe that the economy will rebound in the second half of this year as U.S. Federal Reserve interest rate cuts and government tax rebates kick in, some are starting to push back the recovery date into 2009.
U.S. employers cut 63,000 jobs last month, according to Labor Department data released on Friday. That followed a loss of 22,000 jobs in January. December's job growth was only half as big as the government had earlier reported.
Economists even found bad news in the fact that the unemployment rate fell to 4.8 percent from 4.9 percent, noting that this was merely the result of a steep drop in the size of the work force because more people gave up looking for jobs.
Employment holds the key to the U.S. economy because jobs mean paychecks, paychecks mean consumer spending, and spending accounts for about 70 percent of the economy.Consumers were already under strain from the slumping housing market and rising costs for food and energy. A report on Thursday showed that household net wealth fell for the first time in five years. The savings rate has hovered around zero for several months.
With credit market turmoil prompting banks to tighten lending standards, consumers have had a tougher time qualifying for cheap mortgages, auto loans and home equity lines.
That suggests households will cut spending.
Friday
Economic Stimulus?
Most of you are jumping with joy that you're probably going to be getting a big, fat check from the government.
You may be thinking, "FREE MONEY, BABY!!!"
"Letting Americans keep more of their own money should increase consumer spending, and lift our economy at a time when people otherwise might spend less," President Bush said. The idea in theory sounds like it will work smoothly, but I have a much better idea that will eventually increase consumer spending, and in turn, cause the economy to flourish: encourage freedom from debt! Reign in the credit card companies and strive for entrepreneurism.
But most of all "Know the rules before you play the game!"
Don't try to re-invent the wheel all the time. Take full advantage of existing laws that allow you to virtually eliminate your tax liabilities.
But I digress...
The last time a stimulus rebate like this was issued was in 2001. A recent study revealed consumers spent two-thirds of those rebates within 6 months of receiving them.
Do you have a game plan already for what you'll do with your rebate this time around?
Make the Money Work For You
Don't wait until it comes in the mail to formulate a plan, and whatever you do, do NOT spend this money before it gets to your hands! Here are a handful of ways I recommend making your tax rebate work for you;
1. Pay off debt.
This may sound like a no-brainer, but I already expect that few people will actually do it! There's really no reason NOT to throw this "free" money toward your debt snowball. It will get you one step closer to being debt free.
2. Invest it.
If you put this big chunk of change into a mutual fund for a few years, you'll actually receive TONS more money than just the initial $600 or $1,200 check this summer.
Say you get back $600 and put it automatically into a mutual fund averaging 12%. In 2018, that one-time investment will grow to approximately $2,000! If left in for 20 years, it will be worth about $6,500!
3. Have some fun.
I'm not a total buzz kill. I actually do like to have some fun with my money, and I encourage you to do the same! There's nothing wrong with taking your spouse out for a nice dinner or buying that new pair of jeans with some of this money you could be getting. Just stick within your boundaries, and remember that the quicker you get out of debt, the more fun things you can do and the more money you can give away to bless others.
You may be thinking, "FREE MONEY, BABY!!!"
"Letting Americans keep more of their own money should increase consumer spending, and lift our economy at a time when people otherwise might spend less," President Bush said. The idea in theory sounds like it will work smoothly, but I have a much better idea that will eventually increase consumer spending, and in turn, cause the economy to flourish: encourage freedom from debt! Reign in the credit card companies and strive for entrepreneurism.
But most of all "Know the rules before you play the game!"
Don't try to re-invent the wheel all the time. Take full advantage of existing laws that allow you to virtually eliminate your tax liabilities.
But I digress...
The last time a stimulus rebate like this was issued was in 2001. A recent study revealed consumers spent two-thirds of those rebates within 6 months of receiving them.
Do you have a game plan already for what you'll do with your rebate this time around?
Make the Money Work For You
Don't wait until it comes in the mail to formulate a plan, and whatever you do, do NOT spend this money before it gets to your hands! Here are a handful of ways I recommend making your tax rebate work for you;
1. Pay off debt.
This may sound like a no-brainer, but I already expect that few people will actually do it! There's really no reason NOT to throw this "free" money toward your debt snowball. It will get you one step closer to being debt free.
2. Invest it.
If you put this big chunk of change into a mutual fund for a few years, you'll actually receive TONS more money than just the initial $600 or $1,200 check this summer.
Say you get back $600 and put it automatically into a mutual fund averaging 12%. In 2018, that one-time investment will grow to approximately $2,000! If left in for 20 years, it will be worth about $6,500!
3. Have some fun.
I'm not a total buzz kill. I actually do like to have some fun with my money, and I encourage you to do the same! There's nothing wrong with taking your spouse out for a nice dinner or buying that new pair of jeans with some of this money you could be getting. Just stick within your boundaries, and remember that the quicker you get out of debt, the more fun things you can do and the more money you can give away to bless others.
Thursday
Face Facts And Pay The Piper
Most of us wish we could save more money.
So why don't we?
You say you've heard it all, but here you are in the same spot as last year.
This boils down to two things. The first is that most of us don't have a good handle on what our expenses are in relation to our income. The second reason we don't save more is because we're not aware of our money-sucking habits. Here are a few steps you can take to gain control and save more money. They take less time than you think. So why not get started today?
Gaining Control
1. Write Down Why You Want to Save. Write down all the reasons you want to save more money. The obvious things are for retirement, to buy a house, for college education, for travel, and for that special toy you want (car, boat, etc). Other reasons might be to have financial security, peace of mind, the ability to help others, to feel in control, and other non-tangible reasons. By being clear about why you want to save more, you'll be more likely to stick with it. Write these reasons down at the top of your budget and carry this around with you in your wallet.
2. Know Your Income. Know what your exact monthly income is by looking at your net pay. Sometimes we just mentally think of our gross income because it makes us feel better, but we need to look at the actual net number after taxes are deducted.
3. Do an Expense Inventory. Write down all your expenses for the month or type them into an excel spreadsheet. If you have time take a look at a few months to get an accurate average.
4. Calculate Your Monthly Net Income or Loss. Take your net income and subtract your net monthly expenses. That's the amount you are either saving or losing monthly. Congratulations. Now that you know the number, now you can do something about it.
5. Set a Budget. The easiest way is to use this free online budget service, The Beehive. Alternatively, you could use software such as Quicken or Microsoft Money. Or if you like to keep it very simple, use an excel spreadsheet with a column for income sources and a column for expenses (including savings). The goal here is to allocate your monthly income to a monthly maximum for each expense type and a minimum for your savings goal.
6. Free Up Some Money (Cut Your Expenses). After you've tallied your expenses, review each one. Where can you make cuts? For instance do you use all the minutes on your cell phone plan? Could you downgrade? How about your home phone? Could you do without it? Do you watch enough TV to justify all the cable channels you have? Call the cable company to find out how you could downgrade. $20 here, $40 there, another $60, and suddenly you've freed up $100/month that could go towards savings or debt reduction.
7. Pay Off Credit Cards First. If you have credit card debt that charges more than your savings account pays, then the most sensible decision is to pay down your debt first. Switch to the lowest rate you can while you pay it off. After you have paid off your credit cards, only buy what you can pay off at the end of each month. If you have trouble controlling spending, then close your credit card accounts and use cash.
Wednesday
9 Tips To Survive A Recession
1. Eliminate the nonessentials.
One way to avoid putting spending on automatic pilot: Write down everything you buy and the price. Better yet, get receipts fo r everything you buy. Then go through the list and see where your money is going. A stark look at reality can be quite humbling.
In todays unstable economy, you need to make sure you're not spending any money that doesn't absolutely, positively need to be spent.
2. Start a go-to fund for emergencies.
The average family will face up to $2,000 a year in unexpected bills. For families already stretching to pay the bills, those surprises can trigger long-term financial problems. While you can't plan what or when, you can have money set aside just in case.
You need to really boost your cash reserves.
A good goal is six months to one year's living expenses in an assortment of liquid vehicles, like a bank account, money market account and short-term CDs.
3. Consider cutting back, rather than cutting out, some expenses.
It's much more effective if people cut back rather than cut out because it's the change in behavior that's so tough."
Examine services you're paying for and not fully using, like the cell phone plan with unlimited texting or the premium cable package. Are there less expensive options that would make you just as happy?
4. Safeguard your current job.
Remain engaged and enthusiastic, keep a high profile and network, network, network.
5. ALWAYS be on the lookout for your next job.
Just like a corporation, you have to ensure your own financial survival, says Yate. If you believe that your company or job is in jeopardy, update that resume, reach out to your network, hit the job boards (anonymously) and ignite your job search.
6. Keep your debt load light.
Use credit only if you are paying off balances in full every month. Otherwise, switch to cash, checks or debit cards. That way when the money's gone, the spending stops.
7. Adjust your withholding allowance.
The average refund is well over $2,000, And most people could use an extra $200 every month.
8. Reward yourself.
Hold out a little discretionary money that you can use for fun.
9. Money From Nothing
You have an unexpected windfall, like a raise, bonus or tax refund
At the end of the day put your pocket change in a big jar. At the end of the month, you'll have $20 or $30, and you'll never miss the money."
One way to avoid putting spending on automatic pilot: Write down everything you buy and the price. Better yet, get receipts fo r everything you buy. Then go through the list and see where your money is going. A stark look at reality can be quite humbling.
In todays unstable economy, you need to make sure you're not spending any money that doesn't absolutely, positively need to be spent.
2. Start a go-to fund for emergencies.
The average family will face up to $2,000 a year in unexpected bills. For families already stretching to pay the bills, those surprises can trigger long-term financial problems. While you can't plan what or when, you can have money set aside just in case.
You need to really boost your cash reserves.
A good goal is six months to one year's living expenses in an assortment of liquid vehicles, like a bank account, money market account and short-term CDs.
- Pay yourself first. It is recommended to save 10 percent of your take-home pay every time you get a check.
- Keep it liquid and make saving automatic.
- Look for a money market account that pays the highest rate you can find.
3. Consider cutting back, rather than cutting out, some expenses.
It's much more effective if people cut back rather than cut out because it's the change in behavior that's so tough."
Examine services you're paying for and not fully using, like the cell phone plan with unlimited texting or the premium cable package. Are there less expensive options that would make you just as happy?
4. Safeguard your current job.
Remain engaged and enthusiastic, keep a high profile and network, network, network.
5. ALWAYS be on the lookout for your next job.
Just like a corporation, you have to ensure your own financial survival, says Yate. If you believe that your company or job is in jeopardy, update that resume, reach out to your network, hit the job boards (anonymously) and ignite your job search.
6. Keep your debt load light.
Use credit only if you are paying off balances in full every month. Otherwise, switch to cash, checks or debit cards. That way when the money's gone, the spending stops.
7. Adjust your withholding allowance.
The average refund is well over $2,000, And most people could use an extra $200 every month.
8. Reward yourself.
Hold out a little discretionary money that you can use for fun.
9. Money From Nothing
You have an unexpected windfall, like a raise, bonus or tax refund
At the end of the day put your pocket change in a big jar. At the end of the month, you'll have $20 or $30, and you'll never miss the money."
Predator Credit Card Companies
Candace Angus is not one to break the rules.
When she served on the Chicago police force for 25 years, it was her duty to maintain order. And as a longtime credit card user, she was never late on a payment and never in debt. So when she found interest on her Capital One balance considerably higher than she anticipated, she was irked.
When she served on the Chicago police force for 25 years, it was her duty to maintain order. And as a longtime credit card user, she was never late on a payment and never in debt. So when she found interest on her Capital One balance considerably higher than she anticipated, she was irked.
A customer service representative explained that the charge was "residual interest" from two months prior that had not yet been applied. Although she didn't grasp the concept fully, Angus swallowed the news and paid her next bill in full. Thirty days later, residual interest was still on the statement, and higher than the month before. "[Capital One] caught me entirely by surprise," she says. "I'd never heard of that practice before."
What was this mysterious charge? Essentially, the payoff balance was obsolete by the time it reached Angus' mailbox because interest continued to build as her bill slid its way through the mail system. If her check took a week to reach the processing center, seven days worth of interest was eventually tacked on. And this caveat was hidden in the contract's fine print.
"It should be clear to the consumer that interest is being held up for a few months," Angus fumes. "Is it to the benefit of the consumer or is it to the benefit of the credit card company?" While she acknowledges that others have it worse than her-because her problem didn't lead to default or loads of debt-Angus' experience typifies those of many. "All the cards don't use that practice," she says, "but they all catch you somehow."
In the last quarter century, an unstable financial relationship was forged between Americans-grasping for an increasingly elusive middle-class lifestyle-and credit card companies that offer strapped consumers a lifeboat. But without adequate regulation, the industry has used deceptive techniques to hoodwink consumers and accumulate more than $30 billion in profits per year. Now, if legislators at the national level don't step in, some analysts fear American's affection for credit may widen the existing credit crisis.
Bearing the debt burden
First, the facts. Americans own almost 700 million credit cards and hold $915 billion in consumer debt, with the average borrower owing more than $9,000, according to Cardtrak.com, a top financial information website. For a rough comparison, the world's 54 poorest countries owe a nudge under $400 billion in total foreign debt. In 1970, 49 percent of Americans didn't have a credit card. Today, only 7 percent don't.
Coinciding with this rapid growth, the Supreme Court ruled in 1978 that banks could charge the maximum interest rate determined by state legislatures in the banks' home states, not the interest rate of the states in which they do business. Unsurprisingly, credit card businesses moved to Delaware and South Dakota-two states with virtually no interest caps-thus rendering state usury laws worthless.
Twelve years ago, the court applied the same logic to the size of fees a bank can charge. Congress has refused to step in at the federal level, enabling the industry's thorough deregulation.
With the freedom to act on their own accord, banks have implemented an array of confusing and punitive measures that bilk cash from clients.
"It's pretty extraordinary to see how the industry has essentially created a diluted regulatory environment, where they can basically do what they want to consumers," says Robert Manning, author of Credit Card Nation and a professor of finance at the Rochester Institute of Technology.
Before the '90s, most credit cards had one annual fee and a fixed rate. Today, they carry an assortment of charges that oscillate with the market and the cardholder's credit risk. If a borrower overdraws, instead of just declining the transaction from the outset, companies tack on a fee of $30 or more, on top of a 29.99 percent penalty rate on interest. If a payment is missed, an average late fee of $34 is levied. That's a $21 hike since 1995, according to a 2006 Government Accountability Office report.
Late fees are endless, as well. Banks charge the borrower until he or she breaks, as opposed to canceling a delinquent card, which was once an established procedure. Vanity is the banks' justification, claiming the practice allows customers to evade the humiliation of rejection.
Universal default is another vicious innovation. If applied, one lender can raise the terms of a loan to the default rate (27 percent, on average) when a customer fails to pay another lender, even if the customer's record is perfect with the original bank. In theory, a technical error or fraud could trigger rate hikes on every card someone owns, a scary thought considering the average American has seven credit cards in his or her wallet. Roughly half of the banks that issue credit cards have universal default language in their contracts.
For people with substandard credit scores or limited credit histories, often low-income people of color, intensely marketed subprime or "fee-harvester" cards present a huge danger. These carry substantially higher interest rates and lower credit limits than cards granted to prime borrowers, and are laden with fees. In fact, it's possible for subprime fees to absorb a borrower's entire limit, leaving him or her with nothing to spend.
"The issue is how you make credit card loans to people with bad credit, and how you make money off of that," says Jim Campen, executive director of Americans for Fairness in Lending (AFFIL). "And the solution is basically, give them a credit card but don't give them credit, and charge them a lot of fees for doing it."
Even highly responsible customers are at risk. In some circumstances, borrowers are subject to retroactive price hikes, meaning banks can enforce higher rates on old balances as well as new ones, even if none of the original payments were late. Two-cycle billing, a practice some banks use, calculates interest payments based on the average daily balance over two billing cycles as opposed to one, harming borrowers with divergent monthly balances, even if they pay promptly.
And the list goes on.
While it's unlikely that sensible consumers would ever agree to these outrageous terms, many opt in unknowingly. In 2004, the Wall Street Journal found that a standard contract in the '80s was one-page long. But weak disclosure requirements now allow banks to dole out 30-page contracts in six-point font, often burying important stipulations, such as nonbinding legal arbitration, or omitting basic terms of credit.
Consumer advocates like Campen argue that credit card companies are counting on people to misunderstand the total cost of swiping a card. "[The contracts] are hard to understand if you do read them," he says. "You don't know at the time ... that you're signing your rights away."
Angus agrees. "Once you start getting a little risky, a little in debt ... they treat you completely differently," she says. "It's like they want to push you into dangerous waters."
And it has worked. Exploiting this asymmetry of information, credit card companies have reaped enormous earnings. R.K. Hammer, a California firm that evaluates credit card portfolios, found that the industry raked in $36.8 billion in net pretax profits during 2006. Meanwhile, credit card debt has more than tripled since 1990.
Plastic safeguard
If credit cards are a trap, why don't people abandon them entirely? Because, experts say, people must have their basic needs met, which credit cards make possible.
"The perception ... is that credit cards are used for frivolous spending, that it's just easy money for people to use to buy their nice sneakers," says José Garcia, a senior researcher at the think tank Demos and author of a new study called "Borrowing to Make Ends Meet." "But they're not seen as a way that people have been dealing with economic shock."
Despite strong growth in labor productivity, hourly wages for most workers are not keeping up with inflation. In the last 20 years, incomes for the bottom 60 percent of households rose only 5 percent to 15 percent, according to the Bureau of Labor Statistics. Meanwhile, the average cost of living shot up 88 percent in that time.
Healthcare costs are a major contributor to this trend. A 2005 Commonwealth Fund study found that 77 million Americans age 19 and older "have difficulty paying medical bills, have accrued medical debt or both." A Harvard review of 1,771 bankruptcy filings found that illness or medical bills were the cause of half of such filings, and that 75 percent of those who defaulted were initially insured.
But the problem extends further. As legislators disinvest from education, the average cost of college increased 165 percent between 1970 and 2005. In 2006 alone, it rose 6 percent, outpacing wages, inflation or financial aid.
What's more, the housing bubble pushed prices through the roof, leading to the doubling of median mortgage debt from 1989 to 2004.
Childcare, transportation and food cause concerns, as well. And as personal savings are drained-Garcia estimates they are at the lowest levels since 1934-folks must choose between their plastic safety nets or financial ruin.
These facts were largely ignored when Congress passed the infamous bankruptcy bill of 2005. Restructuring the bankruptcy code was a major priority for credit card companies, as they claimed hundreds of thousands of debtors were frivolously filing for bankruptcy-thus discharging the debts they owed to the banks-when they had the means to cover the unpaid sum. In reality, this was a crisis entirely invented by the banks. The nonpartisan American Bankruptcy Institute estimates that only 3 percent of filers are able to discharge debts they can actually afford.
Mere facts didn't stop the creditors. In 1997, lobbyists wrote the core of a bill that pushed more people from Chapter 7 bankruptcy into the less forgiving Chapter 13 bankruptcy, which forces households to accept three-year to five-year repayment plans on secured and unsecured debts. Although it stalled in the Senate numerous times, credit card companies and commercial banks pushed hard, donating $25 million and $75 million, respectively, to federal candidates and the political parties between 1999 and 2005. (See graph on page 28.) All that effort paid off in 2005 with so-called reforms that made it increasingly difficult for working households to crawl out from under their arrears.
Continuing crisis?
Although the current debt levels are foreboding enough on their own, last summer's credit crunch elicits new, more unsettling fears. Like mortgages, credit card debt is often carved up and sold on global debt markets as securities. Since borrowers generally pay back what they owe, that debt has been profitable and safe for traders, which explains the $40 billion increase in securitized credit card debt from September 2005 to 2006.
However, credit cards are showing new signs of stress. When debt was cheap and housing prices were sky-high, many Americans used their homes as piggy banks, borrowing against them to finance both their debts and once-unattainable goods. Now, with the home-equity faucet forcibly shut off, over-leveraged borrowers are forced to find alternative ways to keep up with their bills, often ratcheting up credit card use to compensate.
New data from the Federal Reserve sheds light on this trend. In November 2007, credit card debt surged at an annual rate of 11.3 percent, a six-month high. For a comparison, credit card debt jumped 6.1 percent in 2006, and only 3.1 percent in 2005. Delinquency rates are also on the rise, albeit more slowly. For vulnerable working people, this new debt can be tough to cover.
These developments are problematic because credit card debt is unsecured, meaning no portion of defaults can be salvaged. Yet broader dangers lurk on a macro scale. If those bundled securities of debt decline in value, as mortgage-backed securities did last summer, banks and institutional investors (pensions, mutual funds, hedge funds) could all take a major hit, which could cause comparable damage to the broader economy.
England offers a disturbing precedent. The real estate market there buckled about 18 months ahead of the U.S. collapse. As banks tightened their lending criteria at the end of 2005, credit card delinquencies jumped as much as 50 percent. The British online publication Finance Markets reported that between March and November 2007, at least 10 percent of Britons were denied at least one credit card. The result? The total number of personal bankruptcies is expected to jump to at least 120,000 this year, estimates Grant Thornton, an accounting firm. That's triple the number in 2004. In a recent poll by the U.K.-based price comparison website uSwitch.com, 23 percent of Brits called their current debt level "unmanageable."
Like their counterparts overseas, U.S. credit card companies have been dealing with the lack of liquidity in self-interested ways. "Certain banks ... don't have any financial room," says Manning, "which means they are going to have to squeeze their credit card divisions for even more cash flow to help underwrite the loss of mortgage fees and underwriting fees."
Consequently, analysts have witnessed interest rates rising, credit limits falling and low teaser rates disappearing-decisions that may add durable stability but will squeeze strapped borrowers in the short term.
"This is affecting people across the board." says Garcia. "As people feel the subprime crisis, credit card companies are putting additional strain [by raising their] credit card interest rates, which also will increase the amount of economic instability in households."
Regulatory roadblocks
With the threat of a recession looming, grassroots pressure is building to protect borrowers from the credit card industry's worst abuses. The most encouraging effort is the formation of Americans for Fairness in Lending AFFIL. Founded in August 2006, AFFIL is an umbrella organization that develops public messaging campaigns for its 18 consumer rights allies, which are free to focus on the nuts and bolts of lobbying and mobilizing. "Our role is to publicize and get out the message," says Campen, "and hopefully that will lead people to get engaged."
Some labor unions have stepped up, as well. The Service Employees International Union (SEIU), as part of an initiative targeting banking practices that damage the financial security of working people, is taking aim at Bank of America. According to the union, the bank is creeping up against the federal regulation that prohibits any single bank from controlling more than 10 percent of the country's deposits.
To counter, SEIU released reform measures for holding Bank of America accountable to consumers. The union also collected reports of racial discrimination in lending, tax evasion and merger-related job cuts as leverage.
Even Congress, which to this point has largely overlooked the consumer debt crisis, is beginning to take action.
Headed by Sen. Carl Levin, (D-Mich.), the Permanent Subcommittee on Investigations had bank officials testify in April and December 2007 to investigate excessive fees and the arbitrary increases in consumers' interest rates.
In January 2007, the Senate Banking Committee, chaired by Christopher Dodd (D-Conn.), challenged credit card executives to defend rising late fees and predatory marketing.
Two bills have been proposed: a Levin-sponsored Senate bill that would make it harder for creditors to charge hidden fees and bump rates without notice, and a House bill authored by Rep. Mark Udall (D-Colo.) that would amend the Consumer Credit Protection Act to enhance consumer disclosures and protect underage consumers.
Yet neither bill has gotten off the ground, and the prospects aren't encouraging. Part of the reason is timing: addressing the mortgage mess has preoccupied lawmakers who monitor the financial services industry. The overrepresentation of moneyed interests on the Hill is important, too. The American Bankers Association recently commissioned Jonathan Orszag, co-founder of economics consulting firm Competition Policy Associates and a former economic adviser to President Clinton, to issue a report arguing that federal oversight would be counterproductive.
In the 2006 election cycle, credit companies-JPMorgan Chase, Bank of America, Citibank, Capital One and HSBC-made $7 million in congressional campaign contributions. And it doesn't help that two leading Senate Democrats, Dodd and Hillary Clinton (D-N.Y.), represent large consumer-banking constituencies.
These roadblocks won't keep angry borrowers and their advocates from fighting.
But until adequate regulations are put in place to safeguard consumers from their cards, and the need for borrowing is minimized by boosting earnings for working people, Americans will keep answering those mail solicitations.
"Why should anybody be allowed to put out unfair products," asks AFFIL's Campen, "which are simply designed to trap the unaware. In theory, we regulate toys, water, food, drugs, and we don't want to have toxic products in any of those areas. We shouldn't have toxic credit products either."
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