When Edward Miller recently applied for a Charles Schwab Corp. credit card, a company representative asked him to fax in copies of his bank-account statements to verify his net worth.
It was “a bit of a hassle,” says the 64-year-old retired economics and finance professor from Bethesda, Md. He complied and was eventually approved for the card with a $5,000 limit.
After years of mailing cards out to just about anybody, banks are suddenly freezing out all but the most creditworthy customers. Those who do get cards have to jump through more hoops, such as sending in copies of their pay stubs. And they’re being hit with higher rates and fees.
Banks always tighten credit standards in an economic slowdown. But the recently passed Credit Card Act of 2009 is forcing the industry to rewrite the play book it has used for years. The new legislation aims to limit fluctuating interest rates, ban some controversial practices and arm consumers with more information on their debts.
Banks have until February 2010 to comply with the act’s key provisions, although some parts of the law have earlier deadlines. Beginning in August, for example, issuers have to mail bills at least 21 days before the due date and provide at least 45 days’ notice before changing any significant terms on a card.
The result: Many banks are tightening things up now before many of the restrictions go into effect.
For consumers, the tougher underwriting standards by banks may seem like a pendulum shift back to an earlier era when credit cards sported annual fees and double-digit interest rates.
In recent years, issuers cast as wide a net as possible by offering credit to millions of customers, knowing they could always raise rates on those who turned out to be bad bets. That pricing flexibility helped firms rapidly expand their operations, as those with less-than-stellar credit many of whom carried a balance or paid late fees and penalty rates generated millions of dollars in revenue.
Now, the industry is scrambling to figure out who its new profitable customer is. “Without the ability to reprice customers, raise fees or rates, the old profitability calculation won’t apply,” says Alan Mattei, managing director at Novantas LLC, a bank consulting firm.
In recent months, banks including Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co., have raised interest rates and fees, switched customers with fixed rates to variable ones, and dropped credit lines and closed accounts. Credit Suisse Group’s Moshe Orenbuch expects credit-card balances could shrink by 10% to 15% through 2012 as banks drop their teaser-rate offers and cut back on offering credit to riskier customers.
Charles Crawford of Grand Prairie, Texas, says that Bank of America raised the interest rate on his $19,000 balance to 23.2% from 12.2% starting with his June statement, citing his high balances. Mr. Crawford says the move nearly doubled his monthly finance charges to about $420 from about $220. “I feel so upset with them that I was thinking about not paying them,” says the 58-year-old engineer.
Excerpt from:
Banks Get Picky in Doling Out Credit Cards
Academics are not the only thing you should worry about as you grind through the horrendous prison that is college — parties, booze, spring break — oh, the horror!
According to a recent study by Sallie Mae, the average college student will graduate with $4,100 worth of credit card debt, a staggering amount in addition to what they’re already owing from their student loan and other college related expenses.
If starting a new life after graduation with unnecessary debt isn’t your idea of awesomeness, here’s a list of 11 ways you can fail financially while you’re in college: avoid the actions listed below and you just might come out financially ahead when you graduate!
Taking an Excessive Long Time to Finish School
“I’m on the special six-years program,†my friend will often say as people ask him whether if he was a junior or senior in college. While some people will often joke about being a “super senior,†many times there are negative financial consequences if you prolong your stay in college.
Although its perfectly reasonable to switch major as you discover your true passion, lingering while in college can increase your overall tuition cost and prevent you from stepping into your “wage earning years.â€Â For those that are juggling multiple projects or part/full-time jobs while in college, this can especially be a problem as you try and balance between work and academics.
Signing Up for Unnecessary Credit Card Accounts
The Sallie Mae study revealed that on average, college students have 4.6 credit cards, and half of college students had four or more credit cards. The number of cards a student carry also dramatically increases as a student progress through the years in college.
Keep it simple and avoid tackling on additional debts by sticking with one credit card through your college years. If you’re unsure of your ability to properly and wisely use credit, consider opting for a debit card instead — you get the same conveniences, and if your debit/check card is from a major national bank, you get the same level of fraud protection from a credit card.
Doing a Poor Job in Managing Your Financial Accounts
One reason to avoid carrying an excessive amount of credit cards — beyond the risk of increasing your credit card debt — is that managing financial accounts are simply not one of the major priorities for most college students. You can keep the organization simple by using online account access that are provided by most major banking institutions. Many of these online accounts offer bill alerts via email or SMS; they also offer online bill pay along with automatic bill payment — two modern conveniences that should make paying your bill late obsolete.  The more you avoid overdue bills, the less late fees you’ll pay, the more reasonable your interest rate will stay and the better your credit history will look.
Letting Your Vices Consume Your Money and Time
Beyond alcohols and other nefarious substances, your vices can be anything that consumes an unhealthy amount of your money or time: massive multiplayer online games, gambling — heck, maybe even your significant other (yeah we said it). Your college life certainly doesn’t have to be 100% about school work, but when 90% of your time is spent solely on one particular activity, you may be doing yourself a disservice that not only threatens your financial outlook but potentially your very own well-being.
Failing Academically While on Scholarship
Although looking like a stash of colorful curtain when you graduate will certainly make your parents proud, not everyone needs to graduate cum laude. You should, however, do well academically especially if you’re on scholarship or grants. Remember that you’ve earned the scholarship or grants due to hard work — don’t let the free money slip away by neglecting your studies. Even if you’re not on an academic scholarship of sorts, you should still keep academic probation at bay, simply because it will eat up more of your time and money.
Choosing Expensive Out-of-Campus / Away-from-Home Housing
Fact is, some college dorm rooms are just out right horrible. We understand that. But college is also a time where you need to keep the belt tight and the wallet even tighter. Many people make the mistake of taking out additional student loans in order to live in more upscale neighborhoods or housings. Some even move out of the house even though the school may be less than an hour drive away. Being able to find independence is all fine and well, but having to go back to your parents to help with your loans because of your college housing choice probably won’t be a good first step toward independence.
Opting for a Brand New Car Instead of Cheaper Alternatives
Everyone loves a new ride. The soothing chemicals from a new car smell… ahhh. Problem is, new cars are a known depreciating asset. The minute you drive it off the lot, a good percentage of its value disappears into the misty air. Many time it will be practical just to purchase a reliable use car over a brand new car. You can do one step better by grabbing an out-right beater or skipping a vehicle altogether if you attend a college with plenty of public transportations.
Attempt to Keep Up with Peers on Materialistic Possessions
It can get easy to get carried away when you get in the “Keeping up with the Joneses†mentality, especially in our younger years when image may be important. But spending the time and money in order to keep up with your peers on materialistic possessions will only rack up the credit card debt. If you find yourself constantly feeling like you need to buy certain products or apparel just to feel like you belong to a crowd, it may be time to start seeking friends that value you beyond your possessions!
Using Your Student Loans Excessively on Other Purposes
The majority of your student loans should be spent on your tuition and tution related expenses: housing for college, books, transportation and food. Your student loan shouldn’t be spent on a lavish spring break trip to the carribeans, nor should it be spent on a set of snowboard along with snowboard racks for the car. The minute you start allocating your student loan for purchases that are far from daily necessity, you will head down a slippery slope of debt accumulation.
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Living it Up (Beyond the Means of a College Student)
Everyone can probably agree that college life is more than just academics; after all, if you subject yourself to hours and hours of studies without taking the occasional break to enjoy life, college can quickly become a tiresome experience. But enjoying life should be met with some sensible amount of balance. Just because you know an acquaintance that frequently take trips to Europe during spring break doesn’t mean you should do the same. Living beyond your means is always a bad idea, living beyond your means when you’re a poor college student? Even worse of an idea.
Borrowing Too Much in Student Loans
It is a known fact that the cost of college tutition has been increasing at a rapid pace in recent years. A problem many college student face today when graduating is that they grossly overestimate their expected starting salary, often finding themselves not earning enough to pay their costly student loans. Here’s a good rule of thumb: if your total student loan debt exceeds your expected starting salary for your first year in your career, you’re borrowing too much. Be realistic with your expected salary and plan ahead on how you’ll cover the cost of college.
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11 Ways to Fail Financially While in College
The new credit card reform law is full of good consumer protections, but here’s one you might not know about: It’s going to require companies like FreeCreditReport.com (owned by credit bureau Experian) to clearly state that their services aren’t actually free.
Who doesn’t love those FreeCreditReport.com commercials? You know, the ones featuring the lovable 20-something singing about his credit troubles in a variety of musical genres? In the first, he’s dressed in pirate gear and crooning about how he has to work in a seafood restaurant because his identity was stolen (it works best if you don’t think too hard about it). My favorite jingle is the one that has him singing about how he married his dream girl, only to find out that her credit was bad, too. You can see all the commercials here:
The only problem, of course, is that FreeCreditReport.com is not really free. In order to get your report through the site, you must sign up for a trial membership in the site’s “Triple Advantage Credit Monitoring†program. If you don’t cancel your membership within a 7-day trial period, you’re billed $14.95 a month. And plenty of people have fallen for the site’s promise without realizing they were going to be billed. The Better Business Bureau has received 9,865 complaints about the site in the last 36 months, with some complainants saying that they kept being billed even after canceling membership.
But now, thanks to the Credit Card Accountability, Responsibility and Disclosure Act, companies touting free credit report services must disclose in their ads that consumers are entitled by law to receive a free credit report from each of the three credit bureaus, and that the official web site to obtain them is AnnualCreditReport.com. And radio and TV ads must clearly state, in both the audio and the video, “This is not the free credit report provided for by federal law.â€
That’s good news, since the web-only public service commercials the Federal Trade Commission created in response to FreeCreditReport.com’s ads need all the help they can get:
Excerpted from:
Free credit report ads: Stop the music!
It’s being touted as a big win for consumers — but the new credit card legislation that President Obama is expected to sign into law hardly means that cardholders can start swiping that plastic worry-free.
In fact, as the new rules kick in (most will go into effect nine months after the president signs the bill, while others will kick in as early as 90 days afterward) and banks start curtailing the abusive practices this legislation reins in, other practices will likely emerge that can hurt consumers just as badly. “The pendulum may have swung in the wrong directionâ€, says Dennis Moroney, research director and senior analyst for TowerGroup, a research and advisory-services firm focused exclusively on the financial-services industry. “The banks now have to respond to these changes.â€
You may not like that response. Whether you use your credit cards as a tool to rack up free rewards points or you carry debt that you’re hoping to repay one day, you should watch out for new fees, higher interest rates, less generous rewards and fewer promotional offers. Here’s what you need to know.
Watch out for new kinds of fees
The new law prohibits over-limit fees (unless the cardholder agrees to allow transactions that exceed their limits). To make up for that lost revenue, banks will likely introduce other fees. “You will see a re-emergence of fees for all kinds of other services,†says Robert McKinley, founder of CardWeb.com, which provides industry research and analysis. Among the fees cardholders should watch out for: fees for rewards programs and possibly even fees for checking your balance, he says.
Also, expect annual fees to make a comeback, says Moroney. In the 1980s, annual fees were standard, but were dropped as competition among card issuers heated up. Moroney predicts that some issuers will slap annual fees on all their credit cards, while others will tie the fee to spending thresholds, so that only big spenders get a free ride.
What cardholders should do: To protect against unpleasant surprises, examine credit-card statements and change-in-terms letters carefully. For now, card issuers can change terms at any time with 15 days’ notice, but once the new law is in effect, they will have to give 45 days’ notice.
Prepare for higher rates
Universal default allows card issuers to hike rates if a cardholder’s credit score drops or if they make late payments on other accounts. Once the new legislation is in place, issuers will lose this powerful risk-management tool. Without the ability to hike rates if a cardholder’s perceived risk level rises, card issuers will just start charging higher rates across the board, says Moroney.
“We’re going back to the kind of marketplace we had in the 1980s,†McKinley says. “You’ll see interest rates go back to the 19% to 20% range for most people.†The average variable-rate credit card today charges a 10.79% APR, according to Bankrate.com.
What cardholders should do: To avoid higher interest charges, consumers who carry a balance will have to shop around for lower rates — perhaps in exchange for paying an annual fee, says Linda Sherry, a spokeswoman for Consumer Action, a nonprofit education and advocacy organization. Those who pay their balances in full each month shouldn’t be affected, she says. To compare credit-card interest rates on new-card offers, use sites like CreditCards.com, CardRatings.com or CardTrak.com.
The end of grace periods?
The new legislation requires card companies to give consumers at least 21 days to pay their bills. But it doesn’t require them to offer a grace period, which isn’t the same as the cardholder’s due date — though the two usually coincide, says Chi Chi Wu, staff attorney with the National Consumer Law Center. While the due date designates the day by which a payment must be received for the cardholder to avoid a late-payment fee, the grace period is the time during which the cardholder isn’t charged interest.
McKinley says card issuers may get rid of grace periods altogether, so that cardholders who pay their balances off each month will start paying interest immediately after making a purchase. “The industry has for many years wanted to get rid of the grace period on convenience users,†he says.
What consumers should do: The only way to avoid interest charges if this happens is to stop using credit cards altogether, says Wu.
Say goodbye to 0% APR promotions
Low or 0% introductory APR offers have been a boon to diligent card users who played the balance-transfer game. Banks were able to offer those deals thanks to the card users who made a late payment before the offer expired, triggering the bank’s penalty rate of 20% or more. Now that banks won’t be allowed to increase interest rates on existing balances — and all promotional offers have to last for at least six months — these promotions will likely disappear, McKinley says. At best, consumers with excellent credit may receive introductory rates in the 6% range.
What cardholders should do: If you have a low-APR offer right now, be on your best behavior: Send payments on time and don’t do anything to trigger a penalty rate such as exceeding your credit limit .
Rewards programs will be less rewarding
Credit-card companies have already been scaling back on rewards programs. Once the new legislation kicks in and they feel the squeeze of lower revenue from penalty fees and interest charges, they’ll become even less generous. Spending thresholds will likely go up, Moroney says, so you’ll have to spend more to earn miles, points or cash back. Banks may also adopt more stringent rules, such as wiping out your rewards balance if you make a late payment.
What cardholders should do: If you’ve accumulated a sizable amount of miles, points or cash back and worry that your card may scale back its program, it may be smart to redeem your rewards now — while the free lunch is still available.
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Credit-Card Traps You Still Need to Watch For
Late payments can turn an otherwise normal credit card balance into an unbearable burden.
Some credit cards charge incredibly high amounts as punitive fees when you fail to pay on time.  Thus, you should avoid such situations as the road to bankruptcy is a one way path and late payments are the first steps.
You may think it somewhat overstated but the truth is that most people who end up defaulting and ruining their credit score for many years start by missing payments and paying late.  Fees pill up, interest rates grow and before you know you can’t even pay the minimum.  Believe me when I say, if action is not taken, that’s the beginning of the end.
The advice would be then: Avoid paying late and NEVER miss a payment.
If your financial situation is complicated you may find the following guidelines useful to avoid penalties and bad notes on your credit report that may compromise your ability to get finance in the future:
Don’t just pay, pay in time.
Lawyers have a saying “he who pays wrong, pays twiceâ€. Pay before payment is due, if possible a week before or more.  Otherwise, if something comes up you won’t have enough time to solve it and you’ll get penalized.
What you may think justifies your late payment surely doesn’t make it for the credit card issuer. Within your credit card bill you’ll find all the instructions regarding payment. Follow them accurately; pay where you are supposed to pay, how you are supposed to pay and when you are supposed to pay.
Can’t pay full? Always pay the minimum!
If you don’t have money to pay the whole balance, don’t worry. But you should always pay the minimum.
In fact even if you’ll be able to pay more in a week or two, pay the minimum amount required first. You can always add up to it by sending additional payments. As soon as your credit card bill arrives you should have the minimum set aside and you should pay it immediately.
Once you are sure you won’t be charged a late fee, you can always consider paying a higher amount. But you’ll rest assured that no additional fees will be added to your next bill.
Skip-a-payment services
Make sure your credit card issuer offers this service. A Skip a payment service let’s you request a waiver on your payment that month when something unexpected happens and you can’t pay on time or in full.
Use this service wisely as it usually can be used only once a year. So make sure the current situation is really an emergency and you have no other means to solve your problem. Obviously this service has a cost and you’ll have to pay it the following month so ensure that the fee for such a service is not larger than the amount you’ll be saving for not paying late fees.
Change your due date
Finally, if your credit card bill arrives at a time on the month you don’t have enough money to cover it and the due date is just too close to your payment date, just contact your credit card issuer and ask them to move the due date to a more comfortable day on the month so you can be sure you’ll have time to arrange payment if there is any problem.
Bryan Quinn is a financial advisor with more than thirty years of experience in the field of finance who aids people undergoing financial problems and helps them obtain personal loans, home loans, student loans and grants, consolidation loans, car loans and many other financial products regardless of their credit situation. For more smart tips on Credit Cards and Bankruptcy you can visit www.badcreditloanservices.com
Original post:
Avoid Credit Card Late Fees!
