The Credit Card Game is Changing

by Galia Gichon on September 11, 2007

With the recent stock market volatility and mortgage crisis, credit cards are being affected as well. I am supposed to be on a major website giving suggestions about how to deal with the new fees and actions credit card companies are implementing. As a result, I wanted to share my findings with you. If your cash flow is being squeezed, first, stop using your cards!!!! This is especially important if you have a balance.

* WHERE DO YOU LIVE? The banks and credit card companies have really tightened and increased their standards. They are especially doing this to people who live in high risk states such as: California, Florida and Colorado.

* WHAT IS YOUR CREDIT SCORE? USAA Savings bank is reportedly increasing credit-score guidelines for credit cards, and auto and personal loans. This is a big deal because they are one of the largest consumer finance organization in the market and work with so many government employees, veterans and their families. Credit card companies might get more selective about their target customers. In the past, they would have wanted a customer with at least a 680 FICO credit score and today the score should be at least 700. They are also turning down more people for new cards based on their credit score.

* DO YOU HAVE AN INTRODUCTORY RATE? Many credit card companies are reducing their introductory rate periods – six months to one year – down to something safer for the company, such as three months. If you are transferring your balance, look out for high transfer fees. This is a game many people play that can not pay off their balance. Those fees used to be capped at $75 but now can be as high as hundreds of dollars or a percentage of your balance.

* WHAT IS YOUR INTEREST RATE? Credit card companies are increasing the interest rate on cardholders without the cardholder doing anything wrong (such as paying late) because it is usually written in the fine print that they are permitted to do this. One reason for them increasing the interest rate is that they are seeing more cardholders default on their credit cards and they need to increase their cash flow where ever they can. If this happens to you, you are supposed to get a letter in the mail stating the rate increase within 15 days. Pay attention to the fine print!

* WHAT IS YOUR CREDIT LIMIT? Another change is with reducing credit limits. Average credit limit is $6,000 but many will see it reduced to $5,500 or $5,000. Automatic extensions of credit limits are seen less often.

* ARE YOU APPLYING FOR A NEW CARD? Banks have increased the cash savings applicants need to have to qualify for loans for home-equity loans, mortgages and credit cards. Since credit cards are becoming harder to get and rates go up, people might be tapping their home equity loans more. This can become a vicious cycle because their home equity loans interest rate are going up as well (because most of them are floating rate loans) and then their cash flow is really squeezed. Fixed payment loans from credit card companies. I have a few clients that have not been able to get them recently because credit card companies have been more strict with their standards, handing out less offers and declining more people.

* NEED A MORTGAGE? It is harder for consumers to get mortgage loans with no money down.

* MAKE SURE YOUR CREDIT CARD DOESN’T HAVE….. Things to look for on your credit cards to make sure you don’t have. This is especially important if you carry a balance. You can find this information on http://www.cardratings.com/survey_home.html, a NY State Government Site.
1) Universal default which allows your credit card company to raise your interest rate if you are late paying another bill such as your mortgage payment
2) Double billing when your credit card company charges you interest on your full purchase even if you paid part of it off.

Credit Card Tips:
* It’s obvious but go with a name that you know or a large company.
* If you get an offer in the mail from a company you don’t know, look it up on the website below: http://www.cardratings.com/survey_home.html, a NY State Government Site. It lists an easy to read table with items to look for such as over the limit fee, cash advance rates etc.
* 3 things to look for when choosing a card:
1) What is the interest rate? Is it fixed, will it go up after a certain time period?
2) What is the grace period? 25 days is typical, you don’t want it shorter.
3) What is the annual fee? If there is a fee, you should expect some sort of rewards (frequent flier miles, cash back etc.).
* To look for a new credit card, visit www.bankrate.com, a great website for consumer finance.
* Make sure you read the fine print on all materials they send you!
* What is late fee? If you paid late, call the company immediately! They will usually waive the fee if it is your first time.
* Pay your credit card bills online through your bank. They get there faster. Plus, it is easier to manage your money by doing online banking. Your bank should not charge for this service. If it does, switch banks.
* Don’t take cash advances! But if you do, be aware of the fees, they are very high.
* When traveling international, it is helpful to use a credit card for your purchases abroad. However, check with the company what their currency conversion rate is and what their fees are.

Helpful Sites:
www.CreditBoards.com Tips and advice on improving your credit score
www.solvency.org/ The website for Debtors Anonymous

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