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Study: Credit Card Application Disclosures Improving

Here’s some good news from the world of credit: according to a study conducted by the web site CardHub.com, the language on applications for credit cards has improved in clarity in recent years. Specifically, the transparency and completeness of disclosure of a credit card’s terms in the large print has gotten better.

The study looked at several elements of a credit card agreement, including these:

• Clarity on rewards: This category rated how easy it was to interpret and apply rewards points.
• Clarity on annual fee: Here, the study looked at whether issuers displayed the annual fee prominently or hid it among other pricing details.
• Clarity on cost of carrying a balance for new purchases: This section looked at the clarity of introductory interest rates and APRs for new purchases made with the card (i.e. not balance transfers).
• Clarity on cost of making a balance transfer: Here, the study examined the ease of finding how much it would cost to transfer balances from one credit card to another.

The study based its clarity ratings on whether or not the researchers had to click to various pages before finding the information they wanted, whether they had to sift through fine print and whether information was clearly visible on the page.

The Findings

If you’re interested in applying for a new credit card, the study may be worth checking out, as it includes detailed scores for cards put out by the top ten issuers in the U.S. Overall, the study found these trends:

• Transparency is improving on annual fee disclosure: Whether because of new regulations introduced by the Credit CARD Act or other motivations, it seems that most card issuers have improved the clarity with which they explain the annual fees associated with their cards. Annual fees have apparently become more popular since the passage of the CARD Act, which limits overdraft fees.
• Transparency is still poor for balance transfers: One area in which many cards reportedly need improvement is information about transferring balances from one credit card to another. While balance transfers can be used to lower interest rates and thus help pay down debt, they often come with fees and unclear terms, which can make them more trouble than they’re worth.
• Cash-based rewards are easiest to understand: Another area where card issuers fell short of the transparency mark was on disclosing how rewards points and miles work and what exactly they’re worth. Because of this lack of clarity, the researchers recommend cash-back rewards as the most effective kind to use.

What might all of this mean? Hopefully, it will mean people are better informed about using their credit cards and able to manage their finances more effectively—and possibly reverse the trend of unmanageable credit card debt and filing bankruptcy that the country has seen for decades.

Additional Resources

The Credit CARD Act of 2009

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Dealing with Debt Collectors: What Not to Do

As the Great Recession continues to take its toll on the economy and employment landscape, millions of Americans are finding themselves struggling to manage and eliminate their debt. But that’s rarely an easy task, especially during high-stress interactions like contact from a debt collector.

It’s important to remember that, even though you owe someone money, you still have rights: you can and should expect to be treated respectfully by collectors and, no matter how much pressure one puts on you, there are a few things that analysts suggest you should avoid.

Here’s a look at some of those no-nos, adapted from this article:

• Sending a post-dated check: While it may be tempting to get a debt collector off your back by sending a post-dated check to cover what you owe, sources indicate that it’s generally not a good idea. Why? Some collectors, it seems, have been known to deposit such checks early, and most banks permit them to do so. This could leave you with bounced check fees and other unpleasant matters to deal with if you don’t have sufficient funds in your account.
• Divulging your bank account number: No matter how much money you owe, debt collectors are not legally entitled to your bank account number or other sensitive financial data. Even if you decide to make regular payments from a certain account, opt for a money order or a cashier’s check from a bank other than your own. If you’ve already given out an account number, keep a careful eye on the activity in that account and be prepared to challenge any withdrawals you haven’t approved.
• Indicating that you’ll be applying for a loan: Sometimes, before applying for a loan, consumers attempt to clean up their credit reports by paying old debts and trying to get rid of other negative information. But letting a collector know what your goals are can work against you—instead, if you choose to contact a creditor, ask him to verify a debt in writing. Then, ask for written proof that he will remove the negative information from your credit report after you’ve paid; once you receive that proof, you can repay the debt.

The difficult economy has meant that more Americans than ever are struggling with day-to-day expenses, and the FTC noted that complaints about debt collectors rose by 12 percent in 2009 and outnumbered all other complaint types.

For a more detailed look at what you can expect, check out this page on your consumer rights with debt collectors. Further, know that debt collectors cannot legally contact you:

• To collect debts whose statute of limitations has passed;
• To collect debts that have been discharged in bankruptcy; or
• To collect debts while bankruptcy’s automatic stay is in place.

Posted in Credit and Bankruptcy, Creditor Harassment, Creditors, automatic stay, collections | Comments Off

CARD Act Review: Debit Card Rules

The Credit CARD Act, passed last year, will take full effect later this month (August 22), so there’s no better time to review the changes you can expect to see when that deadline arrives. Here’s what to look out for from your debit card and bank.

The New Normal: No Overdraft Coverage

Thanks to provisions in the CARD Act, banks must now offer overdraft protection (also known as abusive overdraft loans) to consumers on an opt-in basis, meaning that you won’t get this “service” unless you specifically sign up for it. Specifically:

• Old way = Over-limit purchases go through, cost money. Before the new restrictions, most banks charged overdraft fees automatically for transactions that exceeded a customer’s limit. A customer could easily rack up hundreds of dollars in fees in a single day without realizing it, because every over-limit purchase would trigger a separate fee.
• New way = Customers choose what protection they want. Now, you can decide whether or not you want banks to “cover” you on over-limit purchases and hit you with a fee for that “service.” For many customers, it makes more sense to have a transaction declined and avoid the fee.

But, as this Consumerist.com article points out, some banks are pushing hard for consumers to sign up for overdraft protection—and it’s no wonder, since banks make billions of dollars in fees from such “services.”

So how can you avoid paying fees for a service you may not want? Try these tips, which can help you keep track of your money (and avoid costly overdraft loans).

• Carry some cash: Some analysts suggest paying cash for any purchase under $10. That way, even if you opt in to overdraft protection, you won’t get dinged with a hefty fee for a tiny purchase.
• Pay with your credit card: If you’re not the cash-toting type, choose credit instead of debit. But treat your credit card like a debit card—pay the balance in full each month, or you’ll end up paying so much in interest any overdraft savings might be canceled out.
• Know the loopholes: The overdraft protection opt-in does not apply to all transactions—checks and recurring debit card deductions (like automatic bill payments) may still be subject to overdraft fees, depending on your bank’s policy. If you aren’t sure what that policy is, call your bank’s customer service department to find out.
• Keep track of your account: Whether you use a checkbook registry or log on to view your account information online daily, perhaps the best way to make sure you don’t go over your limits is to keep tabs on your money so you don’t forget about purchases and spend money you don’t actually have.

For a more detailed look at the new debit card rules, check out the Federal Reserve’s summary.

Posted in Credit and Bankruptcy, abusive overdraft loans, credit CARD act, debit cards | Comments Off

Save on Medical Bills (and Other Pesky Expenses)

Considering that a significant number of Americans who seek bankruptcy protection do so at least in part because of overwhelming medical bills, there's a little-known trick that could prove financially amazing for some individuals. A recent article from the New York Times suggests a very simple technique for saving money on doctor’s bills.

The Trick

Luckily, this “trick” for knocking as much as 25 percent off your medical bills isn’t complicated or difficult. Here’s what you have to do:

• Call the hospital or doctor you visited when you have a copy of your bill.
• Ask if you can have a 25 percent discount if you agree to pay in full over the phone (which usually means giving a credit or debit card number).
• Wait for results.

The caveat here is that you actually have to have 75 percent of the bill available in cash; otherwise, the strategy won’t work. But, if you’ve developed a savings account for emergencies or even for routine medical costs, you’re probably in a good position to give this a whirl.

Why It Works

So why would hospitals and doctors agree to accept less than the amount they charged you, often without any sort of negotiation? Because, according to sources, many are accustomed to patients who cannot pay, refuse to pay, have their debts discharged in bankruptcy or otherwise avoid payment in full.

After all, medical debts are dischargeable in bankruptcy and emergency procedures can cost a pretty penny, especially if you’re not insured or insured well.

Where Else You Can (And Can’t) Try It

The good news (if you’re willing to start saving some money to try this trick elsewhere) is that the medical world isn’t the only one that might accept an offer for immediate, partial payment.

Consider trying it for one of your credit cards: if you have a significant balance on one card but have saved up a portion of what you owe, try calling your company and asking to make a lump payment for that portion, in exchange for their excusing the rest.

It’s a good idea to get such an agreement in writing, so if your issuer consents, be sure to include your agreement in writing when you send payment. Like medical bills, credit card debt can be discharged in bankruptcy, and many issuers will be happy to accept a guaranteed portion rather than risk losing all of it if you file.

The trick probably won’t work, though, for student loans. Because these are not usually dischargeable in bankruptcy court, student lenders have little incentive to settle for less than what you owe.

Posted in Credit Card Debt, Credit and Bankruptcy, Medical Bills, Negotiating With Creditors, Student Loans | Comments Off

Look Out for More (Legal) Credit Card Fees

With the Credit CARD Act set to take full effect on August 22, many credit card issuers are reportedly already altering their policies to come into compliance with the law. And, because that law seriously limits some of the fees issuers can charge (including overdraft fees), many banks are also, according to this article, introducing new fees.

What You Might Notice

Make sure you’re reading your credit card statements closely in the coming months, as any new fees will be mentioned there. Here are some you might encounter:

• Annual Fee: This isn’t a new one, but many issuers have abandoned annual fees in favor of inactivity fees, charging customers who don’t use their cards often enough. Because the CARD Act outlaws inactivity fees, sources note that you should expect the annual fee to work much the same way: if you make enough purchases, your issuer might waive the expense, but if you don’t spend a minimum amount of money (i.e. if your account is too inactive), expect to pay.
• Foreign Transaction Fee: This is for when you make purchases in another country (regardless of currency) and is often charged in addition to a currency conversion fee. You can apparently expect this one to come to one to three percent of each purchase you make—to minimize the amount you pay, taking large amounts of cash out of ATMs and making cash-only transactions is often the best plan.
• Cash Advance Fee: Again, this one is already company standard, but sources report that you can expect your cash advance fee to rise in the coming months. Remember: cash advance may be convenient, but it’s expensive, as card issuers charge both a flat transaction fee and a steep interest rate (usually higher than your overall interest rate).
• Paper Statement Fee: Like receiving your monthly statement in the mail? It seems many banks have begun charging fees (ranging from $1 to $9 per month) to those who want paper statements. If you’ve got an email address and a printer (or digital storage space), you might want to opt out of this.
• Setup Fee: This is reportedly already common practice on most secured credit cards, which essentially work like debit cards: the transactions you make are secured by money you pay to the credit card company ahead of time. While secured credit cards can be useful as credit rebuilding tools to those with weak credit (including those recovering from bankruptcy filings), they’re expensive and often come laden with fees, so that you might have to pay a couple hundred dollars just to activate your account.
• Reward fees: Whether you want to redeem your rewards points or get them back after an issuer takes them as a penalty (maybe for a late payment), you’ll have to pay, usually between $20 and $50, according to the article mentioned earlier.

Posted in Credit Cards, Credit and Bankruptcy, credit CARD act, credit card fees | Comments Off

Credit Card Delinquencies Down in First Quarter

As many people who have filed for bankruptcy know, one of the main causes of filing bankruptcy is unmanageable credit card debt. Often, a bankruptcy filing comes after months of missed payments.

Recent data from the American Bankers Association (ABA) shows that, as a nation, we’re improving our on-time payment rate for our credit cards. In fact, we’ve improved in a variety of areas:

• Bank card delinquencies reportedly fell to 3.88 percent of all accounts, down from 4.39 percent in the fourth quarter of 2009. The current rate is also apparently below the 15-year average of 3.93 percent and stands as the lowest rate recorded since 2002.
• Auto loan delinquencies fell in both the direct category (from 1.94 percent to 1.79 percent) and the indirect category (from 3.15 percent to 3.04 percent).
• Home equity loan delinquencies dropped from 4.32 percent to 4.12 percent, marking the first dip in two years, according to the ABA.
• Personal loan delinquencies decreased slightly, from 3.63 to 3.61 percent.
• Property improvement loan delinquencies inched downward, from 1.63 percent to 1.40 percent.
• Home equity lines of credit delinquencies dropped from 2.04 percent to 1.81 percent.

The ABA considers loans delinquent when payments are thirty days or more overdue, so the decrease in delinquency rates suggests that more Americans are making a concerted effort to make payments on time, on a variety of loan types.

But not all of the ABA’s findings were rosy: the group also noted that several categories saw increased delinquency in the first quarter of 2010:

Marine loan delinquencies: Up to 1.93 percent from 1.63 percent
• Mobile home loan delinquencies: Up to 3.65 percent from 3.41 percent
• RV loan delinquencies: Up to 1.58 percent from 1.44 percent
• Non-card revolving loan delinquencies: Up to 1.63 percent from 1.46 percent

While some analysts point to the overall decrease in consumer delinquencies as evidence to support the theory that the economy is on the upswing, others looking at the financial landscape aren’t so sure.

Numbers from the Federal Reserve released earlier this month indicate that, overall, consumer credit decreased in May 2010, which can be read as a positive sign (because people are borrowing less and so are accumulating less debt) or as a negative sign. After all, one of the main reasons we’re taking out fewer loans and opening fewer credit cards as a nation is that lenders have tightened their standards and are less willing to offer us money.

The Fed’s numbers are especially telling when broken into their categories: while consumer debt overall decreased at an annual rate of 4.5 percent in May, revolving credit (which encompasses the vast majority of credit cards) decreased at a rate of 10.5 percent, and non-revolving credit decreased only at a rate of 1.5 percent.

The jury may be out on whether these numbers are good for the larger economy, but if you’re part of the trend of paying loans on time, keep up the good work.

Additional Resources

Credit Card Borrowing, Delinquency, and Personal Bankruptcy

Debt, Delinquency, and Consumer Spending

Posted in Credit Card Debt, Credit and Bankruptcy, delinquency rate, economic trends | Comments Off

Credit Scores in the U.S. at Record Lows

A recent report from the Associated Press notes that Americans’ credit scores have dropped to all-time lows, with 25.5 percent of the country scoring below 600. Here’s a closer look at that figure and what it might mean for future borrowing.

Credit Scores & Borrowing

When you apply for a loan, most lenders review your FICO credit score, which can range from 300 to 850 and is based on the information in your credit report (available to view at www.annualcreditreport.com). Higher scores qualify borrowers for larger loans and loans with more attractive terms (like lower interest rates); lower scores indicate that a borrower might be a greater risk to a lender, and so qualify borrowers for smaller loans and ones with higher interest rates.

The recently released data on credit scores reportedly show the following figures:

• Scores of 599 and below: The number of people in the “low” range of credit scores has apparently jumped since the Great Recession hit—while a typical year finds that about 15 percent of those with active credit (about 25.5 million people) fall into this category, currently 25.5 percent (about 43.4 million people) reportedly score in this range.
• Scores in the middle range (650 – 699): Sources indicate that this group traditionally comprises about 15 percent of active credit users, but has fallen to 11.9 percent in recent years. The shift suggests that those most likely to take out home and car loans might now be deterred from doing so because of lowered credit scores and thus more costly loans.
• Scores in the high range (800 and above): The good news, it seems, is that the number of people with very high credit scores have increased: while the typical average hovers close to 13 percent, recent research found the group to comprise 17.9 percent of credit users.

So what does this mean for individual consumers and the larger economy?

A Slow Recovery?

Sources note that much of the economic growth in the boom years before the Great Recession was fueled by borrowing—also known as debt. While Americans were spending plenty of money, much of it was money they didn’t actually have (in the form of credit cards, mortgages, car loans, etc.).

The sky-high foreclosure rate and steadily climbing number of personal bankruptcy filings suggests that we’ve learned a lesson or two about debt as a nation, which may mean two things: first, that lenders will be a bit more discerning when issuing loans; and second, that borrowers will be a little more cautious when applying for them.

This could translate to a slow recovery, as we pare back our spending in favor of building up safety nets.

Posted in Bankruptcy, Credit Score, Credit and Bankruptcy, borrowing, recession | Comments Off

Credit Cards After Bankruptcy

After a bankruptcy filing, many people are reluctant to wade back into the world of credit, often because too much credit allowed them to build up the kind of debt that pushed them into filing for bankruptcy in the first place.

But, as many financial analysts note, rebuilding credit is an important part of recovering from personal bankruptcy. Here’s an outline of why and how to know if you’re ready to apply for a new credit card. For a more detailed look, check out this article from BankRate.com.

Credit after Bankruptcy?

Put simply, you need credit because in contemporary American life, your credit history plays a major role. Specifically:

• Housing: Many landlords check a person’s credit report before determining whether to rent to her. Theoretically, because a credit report includes a history of payment of various debts, it can give a landlord an idea of what kind of renter you’ll be (i.e. whether or not you’ll pay rent on time).
• Employment: It’s also common for employers to check the credit report of a potential employee. Some lawmakers are trying to see this practice changed, but for now you can expect a job application to include someone peeking at your credit report.
• Loans: This is perhaps the most important reason to reestablish credit. Whenever you apply for a loan (whether it’s a credit card, a mortgage or something between), the lender will check your credit. The terms of your loan will generally be based in large part on your credit score and the information in your credit report. Those with a strong history of paying loans on time are decent risks for lenders and so can be offered lower interest rates. And the reverse is also true.

But having no credit history at all means that potential landlords, employers or lenders would have no way to gauge what kind of risk you’d be to them, and so might deny you whatever it is you want.

When to Apply for a Credit Card

This depends largely on you and your financial habits. The BankRate.com article suggests considering these factors:

• How you’ll use it: The best way to use a credit card is to use it like cash. In other words, only buy with a card what you could afford with cash. That way, you can pay your bill in full at the end of each month. Cards grant you certain conveniences (like online shopping), not a license to spend.
• Why you filed for bankruptcy: If something unexpected like a divorce, death, illness or job loss led you to file, consider saving up about two months’ expenses before applying for a card. That way, if another emergency crops up, you won’t be tempted to run up a balance on your card.
• What card you’ll get: There are a lot of credit cards out there. Do plenty of research and find one that suits your needs. And if you can’t qualify for anything but cards with outlandish fees, wait a bit longer and try again.

Posted in Credit After Bankruptcy, Credit Cards, Credit and Bankruptcy, after bankruptcy | Comments Off

Choosing Your Card Wisely to Protect Yourself from Fraud

Odysseas Papadimitriou is founder and chief executive officer of Evolution Finance, which is the parent company for Wallet Blog and Card Hub—an online marketplace for credit card offers.

‘Credit or Debit?’ You’re used to hearing this question when checking out at the grocery store, but have you ever stopped to think about what your choice means in terms of your financial security?

Using a credit or debit card makes you vulnerable to fraud, but 62 percent of purchases in 2009 made using electronic payment methods* suggests that this fact is not stopping consumers from using their cards. Cash may be safer in terms of fraud, but it is simply not a practical option for our day-to-day needs. So this begs the question, ‘credit or debit?’ when it comes to fraud protection.

Fortunately, the major credit and debit card networks (i.e. VISA and MasterCard) adhere to a strict 0 percent liability policy for victims of fraud. That means that whatever money is stolen from you via your debit or credit card will be returned to you in full. That does not mean, however, that you will have the same experience getting your money back with both your debit and credit card.

Your debit card, as we all know, is tied to your checking account. This is your actual money – the money you use to pay for groceries, gas, utilities, and major expenses like your mortgage payment. If someone wipes out your checking account, you have a serious cash flow problem. You won’t have access to the money you need to make these important purchases or payments until your debit card issuer is able to sort out the fraud claim. While you’ll get your money back eventually, that doesn’t mean you’ll get it before you bounce your rent check or need to do your weekly grocery shopping.

Your credit card, on the other hand, isn’t tied to real money at all. If someone maxes out your credit card, you’re not out anything that you’ve earned. Simply dispute the charge and your credit will be restored. In most cases, you won’t even become responsible for the debt for one to two months after the fraudulent charges have been made. This is more than enough time for your credit card company to sort out the fraud claim before the debt becomes your responsibility.

Because of these factors, it is my recommendation that you use a credit card for day-to-day purchases. Not only are you risking less in terms of fraud, but if you have a rewards credit card you also have the opportunity to earn extra cash or airline miles on your purchases. Your debit card is simply withdrawing your money and giving you nothing in return.

I also recommend signing up for ACH to have your credit card payments automatically withdrawn from your checking account every month. This way you won’t have to worry about paying your credit card bill on time and your bill will be paid in full.

Of course, a credit card is not a good option for a person who is not capable of managing their credit responsibly. For everyone else, though, a credit card can offer less hassle and more peace of mind when it comes to protecting your money.

* Source: CSCU, The Nilson Report, VISA

The views and opinions expressed in this post are those of the author only, and do not reflect the views and opinions of Total Bankruptcy. If you are struggling with credit card debt, you can explore your bankruptcy options with a local attorney.

Posted in Credit Cards, Credit and Bankruptcy, Fraud, credit vs debit, debit cards | Comments Off

The Latest Credit Card Regulations from the Federal Reserve

Certain provisions of the Credit Card Accountability and Responsibility and Disclosure Act (Credit CARD Act) that President Obama signed into law last year will go into effect on August 22, 2010. As that date approaches, the Federal Reserve has been announcing adjustments and modifications to prepare consumers.

A few such adjustments were announced this week. The final rule issued by the Fed (which amends Regulation Z, also known as the Truth in Lending Act) includes these provisions:

• Credit card issuers cannot charge more than $25 for late payments or other violations of an account’s terms unless a user has incurred prior fines or a higher fee constitutes a reasonable percentage of the transaction that caused the violation.
• Card issuers cannot charge fines or fees that exceed a card user’s payment. For transactions less than $25, the fee can equal up to the purchase amount.
• Issuers are no longer permitted to charge “inactivity” fees to penalize customers who do not use their accounts for a certain amount of time.
• Issuers can no longer charge multiple fines or fees for a single violation of the terms of the account (such as a late payment).
• Issuers that have increased rates since the beginning of 2009 must reevaluate whether the reason for the rate increase (such as a drop in credit score) still exists, and, if the reason no longer exists, to lower the interest rate.

A detailed, step-by-step look at the new regulations can be found at the Federal Reserve’s consumers page.

Other Changes to Note

The Fed also offers explanations of those changes that took effect on February 22 of this year. If you haven’t already noticed, these changes include:

• Advance notice of fee or interest rate increases: Card issuers are required to inform consumers at least 45 days in advance of such changes.
• Length of time to pay off a balance: This is a handy feature, since it clearly states how long it would take to pay off your debt making only the minimum payment. Your statement should also identify how much you need to pay each month in order to pay off your debt in three years.
• Application of increased interest rates: Should your credit card issuer increase your interest rate, it cannot apply the new rate to existing debt; only new purchases can be charged at that rate.

For a full examination of the changes, be sure to check out the Fed’s site. How are these changes affecting you? Leave your thoughts in the comments below.

Posted in Credit Cards, Credit and Bankruptcy, credit CARD act, fees, interest | Comments Off