Credit Card Blog

American travelers in Europe and other countries which have adopted the use of “chip-and-PIN” smart cards might find it hard to make a purchase. It seems that the smart cards can be used to buy everything from gas to train rides sold from vending machines. But if you try to pay for these purchases with an old-fashioned swipe-only credit card, you might have to endure long waits – or worse.

Jason Cochran, a blogger for Wallet Pop, recently lamented his own European experience with an American credit card. Said Cochran: “There was never a transaction in which I didn’t have to announce to the clerk that my credit card was American and so it couldn’t be dipped into the chip-reading hand-held unit on the counter; it had to be swiped at their register keyboard. “

Why hasn’t America moved to a smart card standard? Europe, Brazil, Turkey, and many other nations have done so. Canada is preparing to put such a system in place. But here in America, we still have to swipe when we pay. Plus, the smart cards have reduced credit card fraud in the nations where they are commonly used.

The American Express Blue card has a chip-and-PIN system, but so few merchants have the necessary card reader that even this smart card is usually swiped for purchases. Unfortunately, until we can agree on a standardized system, the USA’s outdated swipe transactions will continue.

After meeting with more than a dozen execs from leading credit card companies, the President has laid out his vision of credit card reform. He wants to quickly get new laws in place which put an end to what many people consider to be abuses by the credit card industry.

President Obama’s proposals include:

- A swift end to arbitrary rate increases. President Obama wants secure consumer protection that does not permit rate hikes ‘at any time, for any reason’. He also opposes what he termed ‘late fee traps’.

- A clear, concise explanation of all fees associated with a credit card. The fees should also be printed ‘in plain site’ on the credit card statement so that they’re easy for consumers to find.

- Freedom of choice. President Obama wants every credit card issuer to post their terms online so that potential card holders can comparison shop for the best deal.

- More oversight and stricter enforecement of credit card industry laws.

President Obama ultimately wants the credit card industry to be balanced anf fair, not tipped too far in favor of the card issuers. He maintains that credit card companies should be able to earn a reasonable profit.

If these rules go into effect, card holders should demonstrate more responsibility to go with their new rights. By living within their means, charging only what they can afford, and paying off their balances each month, card holders will enjoy higher credit scores and more financial freedom down the road.

We’ve got government programs to back up home purchases (Freddie Mac and Fannie Mae), and now there is a possibility that a government-sponsored agency will be created to back credit card debt. Before you say “no way”, consider that this is nothing unusual for many other countries. For example, Germany, India, Iceland and France all offer credit cards from state-owned banking institutions.

First of all, a state-backed credit card would offer lower rates than the typical credit card interest rate of 18% or more. A state-backed credit card might have an interest rate of 8% or so, and still be able to turn a profit. There wouldn’t be a need for the surprise hidden fees or notifications that your interest rate is increasing to two or three times the amount you had been paying.

Of course, you’d have to have really good credit scores to qualify for a state-backed credit cards but really, that’s the way it should have been from the beginning. When banks started lending credit to college students and people who had bad credit scores, (not to mention the number of mortgages that were given out to people who clearly wouldn’t be able to afford them) the economy as a whole began to decline. Now millions of people are debt-ridden and with the increased interest rates, they have very little hope of every climbing out of debt by making payments.

A benefit of state-backed credit cards would be similar to affinity or charity based cards. For example, with every purchase you make using your card, you could be giving a small percentage to wind-farm construction, green living, school equipment needs, or government research. Maybe a small percentage of credit card purchases could help fund the Social Security funds and balance the government budgets.

People are concerned that the government is sticking it’s “nose” in places it doesn’t belong, but the benefits of having government-backed credit cards are too good to ignore completely.

As an increasing number of credit card companies are agreeing to settle cardholder debts, it’s important that individuals recognize that there may be minor tax consequences associated with the settlement. A debt settlement is when the creditor allows the account holder to pay less than what is owed and consider the account paid in full.

A partially or fully forgiven debt through a settlement is sometimes considered as taxable income by the IRS and must be reported on your tax return if you saved more than $600 during the settlement. So if you owed $5000 on your credit card, and settled for $2,500 you would have to report $1,900 as income ($2,500 minus $600). The credit card company that settles the debt will send you and the IRS a Form 1099-C reporting the forgiven amount.

There are exceptions to having to count the forgiven debt as income, for individuals who are insolvent at the time of the settlement. Insolvent means you owed more than the fair market value of your assets.

A settled debt typically is marked as such on your credit report as well, which is better than a bankruptcy, but not as good as “paid in full” or “paid as agreed”.

If you do end up having to pay taxes on the amount of debt forgiven, chances are you will still come out ahead than if you continued to struggle and repay that debt with 27% interest and credit card late fees.

Yesterday, the House Financial Services Committee passed a bill that seeks to reign in unfair practices by the credit card industry. Among other things, the new legislation would ban excessive fees and arbitrary interest rate hikes. The bill could be up for a House vote as early as next week.

But President Obama wants more reform, and he’s meeting with executives from 14 credit card companies today in an attempt to press the issue of cardholder rights and protection.

Obama adviser Valerie Jarrett says that the administration is striving to “promote simplicity, require transparency, demand fairness, and ensure accountability – so that we can strengthen consumer protections against abusive and deceptive practices,”

Approved Federal Reserve laws which, among other things, do away with universal default, won’t take effect until 2010. The new bills in the House and Senate could be passed into law before then.

If the weight of your credit cards is becoming too much to bear, here are some tips to shedding some fo that excess weight from credit counselors and financial experts:

Stop Using Plastic: One of the most common sense approaches to losing weight is to eat less. Losing credit card debt starts by putting a stop to using them. Use cash instead of plastic and as research has proven, you’ll spend less money. Pay off your existing credit card debt as quickly as possible, and when you are debt free – use a single card for a few small purchases a month to maintain your credit score since eliminating them completely can lower your score and make it difficult to borrow money in the future.

Consider a Debt Settlement: Settling your debt can allow you to pay much less than you owe on your credit cards but keep in mind that anything forgiven over $600 must be reported on your tax return as income. You pay taxes on the difference even though it was “interest income”, but in the long run it may be a good strategy for getting out from underneath credit card debt. If you settle with the card issuer. Also – request that it be noted on your credit report as “paid in full” or “paid as agreed”, some credit counselors claim creditors will do this and save you the credit damage that comes with a “settled” notation on your credit report.

Because there are so many scams out there that claim to help individuals deal with credit card debt but only end up making the situation worse, look for free credit counseling from a HUD-approved counseling agency.

If your credit card account has gone to collections, you’re already dealing with dings on your credit score. To make matters worse, you might be hounded by debt collectors. And to add insult to unjury, once you’ve agreed on a debt repayment schedule, you might find hundreds or even thousands of dollars tacked on to your tab as a ‘debt collection fee.’

Debt collectors are entitled to charge a reasonable fee for the time and money they spent collecting your debt. However, their idea of a reasonable fee might be vastly different from yours. For example, one agency maintained that it cost them $240,000 to collect a $1,000 debt. That’s sketchy math at its best! Few collectors can actually prove in court that they spent large sums tracking you down, especially if you were easy to find and responded in a cooperative manner.

If a debt collector comes calling, send them a written ‘verification of debt request’, asking them for an itemized list of their expenses. Chances are, you might not hear from them again. If they persist in their efforts, take them to court. The burden of proof will be on the agency to explain why it cost them so much to collect a debt.

It’s easy to forget among all the negative reports of the credit card industry these days that they do sometimes give a little something back to cardholders. If you use the cards responsibly, which means you don’t spend more than you can afford to pay back and avoid carrying balances from month to month, your credit card gives you benefits that you probably didn’t even realize.

Check into your credit card agreement and features to see if your card comes with any of the following – and if so, don’t forget to take advantage of these benefits!

Car Insurance for Rentals: many credit cards give you complimentary rental insurance coverage when you rent a vehicle with your credit card. You don’t need to pay extra to the car rental insurance company for coverage when your card has this benefit.

Extra Receipt: have you ever needed to return an item only to find that you have no idea where the receipt went? If you paid with a credit card, your credit card statement serves as a proof of purchase and should work as a receipt in the store in order to exchange or get a refund for an item.

Extended Warranties: sometimes credit cards give you an extra 90 days to a year warranty on items you buy using the credit card. This is warranty coverage that begins after the standard store or manufacturer warranty runs out.

In the midst of a global financial meltdown, fear reigns supreme. But the thing that Americans fear the most isn’t terrorism, virus outbreaks, or even threats to their own personal safety: it’s credit and debit card fraud.

IT company Unisys conducted their fear poll in February 2009 and released the results in March. The data shows that Americans fear more than just foreclosures and unemployment. They are truly afraid of someone gaining access to their private information and using it for financial gain.

The fear of credit and debit card fraud barely edged out the fear of identity theft. 65% of respondents said they were very concerned or extremely concerned about fraud, and 66% said the same of identity theft. 58% were most concerned about national security, and 41% feared a health epidemic most of all.

As of April 10th, 2009, Capital One will no longer offer health care credit or modify existing loans. This decision comes after a long period of evaluation. In the end, Capital One decided to move away from health care credit due to the current economy and a desire to refocus on their primary business objective: credit card lending.

Since 2001, Capital One has been financing orthodontics, cosmetic surgery, fertility treatments, and other procedures not typically covered by insurance plans. Doctors would often send their patients to Capital One’s web site for more information about health care financing.

But there’s still plenty of competition in the health care credit field. Those who hope to use health care credit to finance a procedure can still choose the Citi Health Card, the Chase Health Advantage loan, or Care Credit from GE Money. These cards and others offer financing for everything from veterinary services to hair restoration and laser vision correction.

Health care credit cards can be useful in the event of medical emergencies, especially since so many Americans lack medical coverage or access to affordable health care procedures. Still, experts warn against opening a line of credit during a time of emotional stress. Sadly, medical debt is one of the primary causes of personal bankruptcy in America.