Credit Card Blog

The Federal Reserve is proposing that “unfair and deceptive” lending practices by credit card companies come to an end – and consumers have until August 4th to make comments or complaints regarding this issue.  (Visit the Federal Reserve website to comment).

Changes to policies would put a stop to some of the more common, and perhaps most abused credit card practices by credit card lenders, like raising interest rates on debt you already have, calculating finance charges on two months of credit card activity instead of a single month, and applying consumer payments to the lower-interest-rate balances first.

While changes to these policies will be welcomed by most cardholders, hopefully the Federal Reserve will also deal with a common practice of credit card companies mailing statements out so that it’s impossible to get your payment back before the due date.  Have you ever received your credit card statement two or three days before the due date?  Even if you ran out to the mailbox that day with your statement and check to be mailed, you would stand little chance of it being received and processed before the due date… many times a late payment results in an interest rate hike and/or a late fee of $39 or more.

If you want to be heard on these issues, visit the Federal Reserve before August 4th and let them know what you think.

Most lenders rely on the FICO credit score to determine a borrowers eligibility for lending.  Changing to the FICO score calculation, called FICO 08, will make consumers score less sensitive to an isolated incident of late payment or late payment(s) that were a few years back, and more sensitive to multiple late payments in the present, according to Craig Watts, Public Affairs Manager, for Fair Isaac Corporation, the creator of the credit scoring system, as posted on The Seattle Medium.

Some of the changes will help consumers credit scores… for example, if you happen to be more than 90 days late on one account, but everything else is being paid up to date – your score won’t be affected as much as it would have been previous to changes in the FICO scoring formula.

Ideally, and in the perfect world, you would never have to miss a credit card payment.  Knowing that’s not the case for most families though, if you absolutely have to miss a credit card payment, is there anything you can do to minimize the financial effects missing a payment will cause?

First- make sure you really have to miss it!  Sometimes money is tight but you could steal sneak out the minimum payment for your credit card.  Sending the minimum on time is better than nothing at all and will keep you from getting a late fee or interest rate hike.

If sending the minimum is just not possible, then call your credit card company immediately to ask if there is something they can do to help you.  If you feel it’s only going to be a problem for one month, they may be able to waive the late fee and let you make a larger payment the following month.  If on the other hand, you feel your money situation is going to be tight for awhile, they may work with you to make your payment more manageable- perhaps by lowering your interest rate so your payments are lower and more of your money is going to pay off the principal balance.

Whatever you do, don’t just skip the payment.  You will see a late fee and probably an interest rate increase the following month.  What’s more- often an interest rate increase will occur on ALL OF YOUR credit cards, not just the one you were late on.

Two democrates from Missouri are proposing that credit card companies make it harder for students to get approved for credit cards.  As it is right now, students have an easy time getting approved for credit cards – most card lenders aren’t checking their credit reports or to see whether or not they have income.

If the proposal is passed as a bill, students under the age of 21 will be required to have their own income and/or parental signatures as co-signers and who will be responsible for paying the bill if the students fail to keep up with payments.

Visa Inc is the largest payment processing network in the US, is working to get debit card authorizations to clear faster.  Right now, when you pay for gas at the pump using your debit card, the gas station has the right to hold $75.  They send the $75 pending authorization to your bank to make sure your account is real and has the necessary funds to handle the filling of your gas tank- but when you’re only putting in $40-50, it can be annoying for $75 to be held for five days or more from your account – especially if you’re someone who doesn’t have a lot of extra breathing room in the checking account for the extra funds to be placed on hold!

If Visa Inc manages to set up the system they’re talking about, the gas stations will be able to put a larger hold on your funds; more in line with the amount people are actually using to fill their tanks these days with gas prices up over $4 per gallon, but the held funds will clear in a matter of hours- meaning consumers are not left waiting for the unused money to be returned to their accounts for a week after they fill up.

The debate is raging over 401K debit cards. A bill is being introduced to the US Senate which would ban these cards entirely. Some customers maintain that they should be able to do what they want with their money. Proponents of the bill agree, but point out that there are some serious and little-known drawbacks to putting one’s 401K savings to use on a regular basis.

Those in favor of pushing the bill into a law cite various reasons for their disapproval. The mechanics behind the debit cards are a little disturbing. For example, each time a 401K debit card is used to pay for a transaction, a separate loan is taken out against the customer’s retirement savings. These different loans can be subject to different repayment terms. Typically, 401K debit card loans must be repaid within five years. With dwindling resources, customers are more likely to default on these loans.

Also, customers face ten-to-one losses when they withdraw money from their 401K. That is, a withdrawal of $1,000 leads to $10,000 in lost retirement funds. The 401K debit cards facilitate these losses by making it easier than ever to withdraw from the account.

If you’re like many Americans, you might be using credit cards to make ends meet. It’s certainly understandable. Soaring gas and food prices make credit cards a necessary resource for many of us. How much do we actually rely on credit cards, and how well are we handling our debt? Dara Duguay of Citigroup Inc shared this snapshot of American cardholders:

• Most cardholders carry a balance from month to month.
• The average credit card payment is only 3-4% of the customer’s total balance.
• The average customer has nine credit cards.
• Subprime credit card applications rose 30% this year.

It sounds like we’re relying heavily on our cards and not doing much to eradicate the debt.

Experts recommend making more than the minimum payment on your credit card balances. Look for lower-interest cards, or transfer existing balances to 0% interest cards. Monitor your expenses for two weeks and set a budget that will allow you to get out of debt faster. Get rid of cards you don’t need, unless you can refrain from using them to get yourself back into debt. A good debt-to-credit ratio will improve your credit score. That, in turn, will get you the best deals on credit cards and other financial services.

Air travel can be a hassle. The little amenities that used to be free or very low-cost are rising in price as airlines struggle to remain profitable. It’s rare indeed to find an airline that provides free meals and headphones. But there’s good news – the airlines that charge for these amenities are moving toward the idea of a “cashless cabin”. That is, they’re taking more and more debit and credit card payments. Some don’t even accept cash on board.

Which airlines are the most plastic-friendly? Don’t bother bringing cash on your JetBlue, AirTran, Spirit, or Virgin America flights. They only take debit or credit cards for on-board purchases. On August 5th, Alaska Airlines will join their ranks. (They’re promoting this venture by rewarding Alaska Airlines Visa cardholders with 10 miles for every dollar charged until October 31st.)

Delta, Continental, and American Airlines give fliers the choice of paper or plastic. US Airways trails behind the pack; they only accept cash in the cabin.

It seems that airlines are trying to make it easier for patrons to spend their money. Now, if only we could do something about those long airport security lines…

A florist in Idaho is the latest business to fall prey to a new credit card scam that has the Better Business Bureau warning, “Watch out.”

In this particular case, a customer called and placed an order for hundreds of single roses to be sent to an orphanage in Ghana. The customer asked for the roses to be charged to a credit card, and requested to make additional charges to cover the costs of third party shipping. They then requested that the florist wire the extra money to a shipper chosen by the customer.

Luckily, the florist caught on before any money was wired. The credit card turned out to be stolen, and there was no such shipper. Unfortunately, the scam wasn’t detected until the order for the roses had been filled. Now the florist hopes to donate the flowers to a local charity.

If you’re a merchant who frequently deals with unknown parties, there are steps you can take to make your credit cards transactions as safe as possible. First, get all of customer’s information and verify it yourself. Get a valid name, phone number, and address for everyone who pays with credit. Remember that banks might validate a transaction even if the credit card is stolen. Sometimes stolen cards aren’t reported right away. Finally, never accept payment for more than the price of the actual goods or services being sold – especially if the customer wants you to wire the extra money to a third party.

The Federal Reserve wants your comments regarding proposed legislation that targets unfair lending practices. These proposals take aim at two-cycle billing, raising interest rates on existing debts, and other practices that some card companies engage in.

This topic has already attracted plenty of comments. The Federal Reserve normally gets about 1,000 comments on issues such as this one. At the time of this writing, the credit industry overhaul topic already had 9,300 comments. It seems like everyone has something to say about the credit reform bills. Consumer advocates praise the reform, while the credit card industry says that stricter laws will result in less competition – and higher prices for card holders.

The Fed expects to make a final ruling on these proposed laws by the end of the year. You can comment on the credit card reform bills until August 4th. Other bills concerning credit disclosures can receive comments until July 18th.

To express your opinion about the proposed changes, go to www.federalreserve.gov. Click on “Consumer Information”, then on “Proposed Rules for Credit Cards and Overdraft Services”. Scroll down until you see “Regulation AA”, and click on “Submit Comment”. Just remember that any comment you leave will be visible to the public.