JoeTaxpayer

Last week’s assignment was to track your expenses, to the penny. I’ll revisit that next week. Today, I’d like to talk about finding some quick savings if you carry a balance on your credit card. It’s very simple, call each lender and ask them to lower your rate. With the average card holder carrying nearly $10,000 in credit card debt, each percent you are able to save is $100 in your pocket. If you have any recent card offers in the mail, having one handy may help. Use it to tell the old bank that you have the offer in hand but would rather just stay with them. The worst case is the bank might say no, but the chance at saving as much as $500 per year should be enough to spend the 20 minutes or so on the phone. Good luck, let me know how it goes.
Joe

After Tuesday’s Credit Card Reform post, I received a number of emails asking how to get one’s credit score for free. I had written about this over a year ago, telling my readers how a WAMU (Washington Mutual) credit card offered free access to your credit score as a benefit. Sure enough, WAMU was taken over by Chase Bank, and that little perk was canceled. Now, another company offering free access to one’s score is Credit Karma. This is currently the only free credit score (with no 30 day trial to some monitoring service) that I’m aware of. A credit score doesn’t tell the whole story, but as in can have an impact on the rate you’ll pay for a mortgage, car loan, or credit card, it’s a good idea to know your score and maybe heko inch it up a bit before applying for new credit.

This would also be a good time to recap how your credit score is calculated:

By the way, the above is from a PBS special, “Secret History of the Credit Card.”
FICO formulas are still a bit of a secret, but the above is a good start. As I’ve read more about each of these criteria, I understand that ‘amounts owed’ are a ‘percent available credit used’ more than total dollars. So accepting a new card and instantly using the entire line may have a bit of an impact, but this is where unused credit on other cards actually helps bring down the total percent used. Of course, applying for too many cards in a short timespan also will impact your score. Canceling cards can hurt you in two ways, raising the ‘percent credit used’, and reducing average age of accounts, so you are correct, these are concerns.
I’d also suggest an article “Five Mistakes That Hurt Your Credit Score” by Jeffrey Strain of TheStreet.com which adds to the thoughts I presented here.
Last, you can go to annualcreditreport.com and request to view your credit report from each of the three nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. Since each one permits you you view your report annually, you are able to view a different one every four months. I’ve not seen the value in paying for credit protection since your credit cards’ liability limits you to $50 so long as you repost a card stolen soon after you are aware it’s missing. Keep in mind – Credit Report is a list of all your current debts, including open accounts along with their available credit as well as recently closed accounts, Credit Score is one number ranging from 300-850. Neither shows your income but only reflects how you’ve handled the credit you have. The credit report will show late payments and that will impact your credit score. I believe the changes in our banks’ behavior will impact all of us, and result in undeserved lower scores.
JOE

President Obama signed the Credit Card Reform act (officially called the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009) last week and I’d like to offer my thoughts. First, let’s review the rules that will be put into place under this legislation:

1. Institutions would be prohibited from treating a payment as late unless the consumer has been given a reasonable amount of time to make that payment. A safe harbor provision suggests that statements must be mailed 21 days in advance of the account’s due date. If the due date occurs on a day the postal service doesn’t operate, the payment may not be considered late if received on the next business day.
2. When different interest rates apply to different balances, payments must be allocated according to a new method. The bank wil no longer be permitted to apply the entire payment only to the lowest interest balance.
3. Banks would be prohibited from increasing the interest rate on existing balances. This doesn’t apply in the case of a variable rate tied to an index, nor the expiration of a teaser rate.
4. Banks may not assess an over the limit fee due solely to a hold placed on available credit.
5. Banks would be prohibited from double-cycle billing, i.e. calculating interest due based on prior months’ balance.
6. Banks would be prohibited from financing security deposits or fees for the issuance or availability of credit if those deposits or fees ulitize the majority of available credit on the account.
7. Banks making firm offers of credit advertising multiple annual percentage rates or credit limits would be required to disclose in the solicitation the factors that determine whether a consumer will qualify for the lowest annual percentage rate and highest credit limit advertised.

These are the major points contained in the 269 page pdf, available from the treasury web site (Note – The document may not open in some vbrowsers, right-click if you wish to download and read it). Now, let’s look at what isn’t addressed and the unintended consequences of this legislation:

1. Grace periods – there is nothing here to stop banks from charging on one’s daily balance (as banks do with HELOCs.) As banks feel the squeeze on their bottom line, it would be simple to do away with grace periods entirely, and any use of one’s card would accrue interest.
2. Annual Fees – I have a number of credit cards, all of which I pay in full each month, so the interest rate is of little concern so long as the grace period is in effect. The only card that carries an annual fee is the one that offers me airline miles. I suspect that moving forward, few cards will offer no annual fee.
3. Reduced rewards – One card I carry offers a 2% rebate into a 529 (college saving) account. With no fee, this card is a no brainer to use. I’ll expect a letter soon that the reward percentage is being reduced.
4. Reduced/Canceled credit lines. Self-explanatory, but perhaps the worst of the potential results. Remember, as I discussed some time ago, your Credit Score (FICO) is made of of multiple factors, one of which is credit utilization (the percent of your outstanding line used). So, you may only owe $3000 on a card with a credit line of $10000, and think all is well. But the bank then reduces your available limit to $5000, and now your percent used has doubled, possibly impacting your credit score.

This is one story I am certainly going to follow, as we all have an interest (pun intended) in its outcome.

Joe

On our family trip two weeks back to California to see our friend graduate, we spent an afternoon on the boardwalk on Venice Beach. A couple dozen yards or so away I saw a man holding something up with one hand and holding his his other hand out as people just passed him by. I’m in the habit of handing a dollar or two to people who appear to be homeless, and I reached down to see that I had some singles at the ready. As he came near me, I saw he was wearing dog tags, and the thing he was holding up was some kind of veteran’s ID card. He asked for $2, telling me that it was all he needed to go buy lunch, and said that he was a Vietnam vet. Almost at a loss for words, I handed him the $2, and said, “thanks for serving.” He kindly responded, “you’re the first person ever to say that to me.” This seemed an appropriate story to share with you today.
Joe