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Saturday, July 10th, 2010

Credit Cards After Bankruptcy

After a bankruptcy filing, many people are reluctant to wade back into the world of credit, often because too much credit allowed them to build up the kind of debt that pushed them into filing for bankruptcy in the first place.

But, as many financial analysts note, rebuilding credit is an important part of recovering from personal bankruptcy. Here’s an outline of why and how to know if you’re ready to apply for a new credit card.

Credit after Bankruptcy?

Put simply, you need credit because in contemporary American life, your credit history plays a major role. Specifically:

  • Housing: Many landlords check a person’s credit report before determining whether to rent to her. Theoretically, because a credit report includes a history of payment of various debts, it can give a landlord an idea of what kind of renter you’ll be (i.e. whether or not you’ll pay rent on time).
  • Employment: It’s also common for employers to check the credit report of a potential employee. Some lawmakers are trying to see this practice changed, but for now you can expect a job application to include someone peeking at your credit report.
  • Loans: This is perhaps the most important reason to reestablish credit. Whenever you apply for a loan (whether it’s a credit card, a mortgage or something between), the lender will check your credit. The terms of your loan will generally be based in large part on your credit score and the information in your credit report. Those with a strong history of paying loans on time are decent risks for lenders and so can be offered lower interest rates. And the reverse is also true.

But having no credit history at all means that potential landlords, employers or lenders would have no way to gauge what kind of risk you’d be to them, and so might deny you whatever it is you want.

When to Apply for a Credit Card

This depends largely on you and your financial habits. The BankRate.com article suggests considering these factors:

  • How you’ll use it: The best way to use a credit card is to use it like cash. In other words, only buy with a card what you could afford with cash. That way, you can pay your bill in full at the end of each month. Cards grant you certain conveniences (like online shopping), not a license to spend.
  • Why you filed for bankruptcy: If something unexpected like a divorce, death, illness or job loss led you to file, consider saving up about two months’ expenses before applying for a card. That way, if another emergency crops up, you won’t be tempted to run up a balance on your card.
  • What card you’ll get: There are a lot of credit cards out there. Do plenty of research and find one that suits your needs. And if you can’t qualify for anything but cards with outlandish fees, wait a bit longer and try again.

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Wednesday, June 30th, 2010

Choosing Your Card Wisely to Protect Yourself from Fraud

Odysseas Papadimitriou is founder and chief executive officer of Evolution Finance, which is the parent company for Wallet Blog and Card Hub—an online marketplace for credit card offers.

‘Credit or Debit?’ You’re used to hearing this question when checking out at the grocery store, but have you ever stopped to think about what your choice means in terms of your financial security?

Using a credit or debit card makes you vulnerable to fraud, but 62 percent of purchases in 2009 made using electronic payment methods* suggests that this fact is not stopping consumers from using their cards. Cash may be safer in terms of fraud, but it is simply not a practical option for our day-to-day needs. So this begs the question, ‘credit or debit?’ when it comes to fraud protection.

Fortunately, the major credit and debit card networks (i.e. VISA and MasterCard) adhere to a strict 0 percent liability policy for victims of fraud. That means that whatever money is stolen from you via your debit or credit card will be returned to you in full. That does not mean, however, that you will have the same experience getting your money back with both your debit and credit card.

Your debit card, as we all know, is tied to your checking account. This is your actual money – the money you use to pay for groceries, gas, utilities, and major expenses like your mortgage payment. If someone wipes out your checking account, you have a serious cash flow problem. You won’t have access to the money you need to make these important purchases or payments until your debit card issuer is able to sort out the fraud claim. While you’ll get your money back eventually, that doesn’t mean you’ll get it before you bounce your rent check or need to do your weekly grocery shopping.

Your credit card, on the other hand, isn’t tied to real money at all. If someone maxes out your credit card, you’re not out anything that you’ve earned. Simply dispute the charge and your credit will be restored. In most cases, you won’t even become responsible for the debt for one to two months after the fraudulent charges have been made. This is more than enough time for your credit card company to sort out the fraud claim before the debt becomes your responsibility.

Because of these factors, it is my recommendation that you use a credit card for day-to-day purchases. Not only are you risking less in terms of fraud, but if you have a rewards credit card you also have the opportunity to earn extra cash or airline miles on your purchases. Your debit card is simply withdrawing your money and giving you nothing in return.

I also recommend signing up for ACH to have your credit card payments automatically withdrawn from your checking account every month. This way you won’t have to worry about paying your credit card bill on time and your bill will be paid in full.

Of course, a credit card is not a good option for a person who is not capable of managing their credit responsibly. For everyone else, though, a credit card can offer less hassle and more peace of mind when it comes to protecting your money.

* Source: CSCU, The Nilson Report, VISA

The views and opinions expressed in this post are those of the author only, and do not reflect the views and opinions of Total Bankruptcy. If you are struggling with credit card debt, you can explore your bankruptcy options with a local attorney.

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Tuesday, June 22nd, 2010

The Latest Credit Card Regulations from the Federal Reserve

Certain provisions of the Credit Card Accountability and Responsibility and Disclosure Act (Credit CARD Act) that President Obama signed into law last year will go into effect on August 22, 2010. As that date approaches, the Federal Reserve has been announcing adjustments and modifications to prepare consumers.

A few such adjustments were announced this week. The final rule issued by the Fed (which amends Regulation Z, also known as the Truth in Lending Act) includes these provisions:

  • Credit card issuers cannot charge more than $25 for late payments or other violations of an account’s terms unless a user has incurred prior fines or a higher fee constitutes a reasonable percentage of the transaction that caused the violation.
  • Card issuers cannot charge fines or fees that exceed a card user’s payment. For transactions less than $25, the fee can equal up to the purchase amount.
  • Issuers are no longer permitted to charge “inactivity” fees to penalize customers who do not use their accounts for a certain amount of time.
  • Issuers can no longer charge multiple fines or fees for a single violation of the terms of the account (such as a late payment).
  • Issuers that have increased rates since the beginning of 2009 must reevaluate whether the reason for the rate increase (such as a drop in credit score) still exists, and, if the reason no longer exists, to lower the interest rate.

A detailed, step-by-step look at the new regulations can be found at the Federal Reserve’s consumers page.

Other Changes to Note

The Fed also offers explanations of those changes that took effect on February 22 of this year. If you haven’t already noticed, these changes include:

  • Advance notice of fee or interest rate increases: Card issuers are required to inform consumers at least 45 days in advance of such changes.
  • Length of time to pay off a balance: This is a handy feature, since it clearly states how long it would take to pay off your debt making only the minimum payment. Your statement should also identify how much you need to pay each month in order to pay off your debt in three years.
  • Application of increased interest rates: Should your credit card issuer increase your interest rate, it cannot apply the new rate to existing debt; only new purchases can be charged at that rate.

For a full examination of the changes, be sure to check out the Fed’s site. How are these changes affecting you? Leave your thoughts in the comments below.

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Friday, May 14th, 2010

Credit Card Offers Begin to Crowd Mailboxes Again

As the economy begins to sputter back to life, various indicators are offering encouraging recovery signs. And, according to an article from msnbc.com, the first quarter of 2010 had one more such indicator: an uptick in the number of credit card offers sent to American households through the mail.

Reasons for the Increase

A combination of factors led to the serious drop-off in mailed credit card offers during the last several months: first, the recession meant card issuers were writing off billions of dollars in debt and none too keen to take on new customers; second, the Obama Administration’s Credit CARD Act tightened many rules governing the way the industry ran.

So what can you expect from the latest batch of credit card offers in your mailbox?

  • Targeted to those with strong credit: Sources indicate that the majority of credit card offers are geared toward those with good repayment histories, which isn’t surprising, since issuers are likely eager to issue loans they can expect to see repaid.
  • Easier to decode: Part of the Credit CARD Act requires all card offers to have a shortcut box that indicates interest rates, fees and other specifics about the offer to make your decision easier and less confusing.
  • More common annual fees: Because new laws restrict some of card issuers’ revenue sources, more cards are likely to come with a yearly fee attached.
  • Greater rewards offers: Apparently, rewards cards users tend to be good customers for credit card companies, so sources are expecting more of this type of card available.
  • Adjustable interest rates: Again, to make up for lost revenue in other areas, more card issuers are expected to issue credit cards whose rates can fluctuate. For this reason, it’s important to read your entire credit card agreement before committing to it.
  • Increased fees for balance transfers: Gone are the days of no-cost transfers from one credit card to another. In order to guarantee income, many issuers will be charging transaction fees and immediate interest for those looking to move balances from one card to another.

Dealing with more credit card debt than you can handle? Find out if filing bankruptcy might be right for you.

If You’re Looking for a New Credit Card

This may be good news for people looking to increase their total available credit, but remember: the best offer for you may not arrive at your doorstep, so before selecting your next piece of plastic, be sure to do plenty of online research to make sure you’ve explored all available offers.

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Saturday, May 1st, 2010

Visa Cuts One Sneaky Credit Card Trick

In a recent press release, Visa announced that it will stop an online practice apparently dubbed a form of “aggressive” abuse by members of Congress. This is good news for online shoppers. Here are the details.

  • Data passing: Several credit card issuers have introduced what’s called a "data pass" feature to customers during online purchases. After paying for merchandise online, customers are prompted to visit another website and accept a temporary membership for some type of reward.
  • Shared information: Once customers accept such offers, they’re directed away from the web site on which the original transaction was made. At the second site, they may need to opt into some sort of free trial membership or subscription—but they do not need to reenter credit card information.
  • Unexpected charges: Though consumers themselves don’t give their information to these secondary sites, the credit card companies do (or did, in Visa’s case), and "free" trials quickly defaulted into costly monthly subscriptions or memberships. When customers began to see unfamiliar items on their bills, they apparently complained about the behavior.

Last fall, the Senate's Commerce Committee issued a report (see below) on these activities: it seems that the companies Affinion, Vertue and WebLoyalty sold $1.4 billion dollars in online memberships in such transactions and paid $792 million to the online retailers that participated.

While several online retailers apparently responded to initial complaints from Congress about the angry consumer complaints that began pouring in and canceled their participation, Visa is the first credit card company to announce a halt to the practice.

According to the press release, Visa's "priority is protecting our cardholders and the integrity of the electronic payments system. Consumers who shop online using their Visa cards should be confident that they will only be charged for the products and services they legitimately intend to purchase—not those that are foisted on them through deceptive data pass schemes."

Sources indicate that "rewards" offers may still appear when you make online purchases, but you’ll have to reenter your credit card information for a transaction to go through.

Protect yourself: In general, when shopping online, be very careful if you navigate away from the page on which you made your initial transaction. That's when the danger of unwanted and unexpected purchases mounts. Without strong knowledge of your credit card situation, you can easily find yourself taking on more debt than you can manage and end up filing bankruptcy.

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Wednesday, April 7th, 2010

Convenience Checks: A Convenient Disaster

You may have noticed something called "convenience checks" in your credit card bills or other mail from your cardholder. When you get these, be very careful about what you decide to do with them.

These checks do not work like regular credit card transactions—in fact, they can end up costing you much more than you intended to spend. So read up on why these sources of credit are a bad idea for anyone trying to stay away from debt.

The Dangers of Convenience

  • High, instant interest: You’ll have to read the fine print to determine exactly what the interest rate is on a convenience check you receive, but don’t assume it’s the same as your credit card—they’re usually higher than 20 percent. As if that weren’t bad enough, interest begins accruing immediately on purchases made with these checks. Normal credit card purchases don’t accumulate interest until the end of the billing cycle.
  • Transaction fees: Simply using these checks will cost you money. We all know that convenience comes at a price, and in the case of these checks it’s generally around five percent of the purchase made, which can be a shockingly high number if you’re paying a large bill with one.
  • Decreased credit availability (and score): Receiving one of these checks does not mean you’re cleared to use it—the amount you spend will count toward your credit limit. Because credit card companies have been slashing credit amounts lately for even strong customers, you should probably check with yours if you aren't sure about your limit. Oh, and available credit is one of the factors that affects your credit score, so using too much could lower yours.
  • Limited protection: While the Fair Credit Billing Act protects you from certain purchasing mishaps that occur when you use your credit card (like buying damaged goods), it does not protect purchases made with these checks.
  • Identity theft risk: If you opt not to use these checks (which is probably the smartest financial move), make sure you shred or otherwise destroy them to eliminate the chance of a thief using one and costing you serious money (and even stealing your identity).

Remember: these checks do not act as a cash gift or "extra money." They are high-interest loans that could throw you for a financial loop, and if you're already struggling with high credit card balances, could throw you into bankruptcy.

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Thursday, March 4th, 2010

Credit Cards 101: Visa

If you're a Visa cardholder, you probably received a packet of updated policies and terms of use for your card, related to the new credit card laws. However, even if you did read all the fine print, you still may be curious of the intricacies of how your Visa card works.

An interesting post from FiveCentNickel.com offers a look at Visa’s rules that merchants must follow if they accept Visa cards. Here’s a summary.

  • What to take: Vendors can choose whether to accept credit and business cards, debit cards and gift cards, or both.
  • No price limits: If a merchant accepts Visa cards, it is required to accept the cards for any transaction, regardless of its dollar amount. However, many merchants ignore this policy and set a minimum purchase amount to encourage spending. If you’re irritated by a specific vendor’s policy, consider speaking to a manager.
  • Near equality: Items bought with Visa cards cannot be subjected to any special charge, but vendors can offer customers discounts for paying with cash (you may notice this especially at gas stations).
  • Convenience fees: Online and over-the-phone transactions may be subject to extra charges, so long as they’re disclosed and not applied to any in-person transactions.
  • No cash tax: Sellers cannot collect taxes from Visa transactions in cash.
  • Tip not included: When you pay with a Visa card and intend to add a tip, vendors can only authorize your account for the amount of the service minus tip.
  • No cash returns: If you buy something with a Visa card, sellers cannot give you cash should you return it.
  • Time crunch: Merchants have to report Visa sales receipts within five days of purchase.
  • Privacy limits: Receipts for Visa transactions should only show the final four digits of your card number and should not show your card’s expiration date. Further, sellers have to keep all account number information private.
  • Policy disclosure: Vendors must explain (or make available) return and exchange policies before a customer makes a purchase.
  • Signature required: Unsigned cards are considered invalid. If a cashier encounters one, she is supposed to make the customer sign the card and compare the signature to one on an ID card. Writing “ask for ID card” in lieu of a signature is considered an invalid substitute.
  • ID optional: Merchants may ask for a photo ID, but cannot require buyers to have one in order to complete a transaction.

It’s always a good idea to make sure you know the rules of your debit or credit card, so if you don’t have a Visa, check out your cardholder’s website!

If you're overwhelmed by unmanageable credit card debt, filing bankruptcy may be able to give you the financial fresh start you need to begin rebuilding credit.

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Saturday, February 27th, 2010

Shortcomings of the Credit CARD Act

This week saw the much-anticipated date (February 22) on which the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act) took full effect. And, while it theoretically introduces many new consumer protections, it leaves plenty room for “creativity” from card issuers.

Center for Responsibility Lending Responds

The Center for Responsible Lending released a humorous (though cynical) animated video that highlights some of the areas not addressed by the new act—and illustrates ways in which credit card issuers have adapted their policies to maintain profit levels. These include:

  • Interest rate hikes: To compensate for lost revenue, some card issuers have already raised users’ interest rates. Even users in good standing may be “forcibly eligible” for this, as the video claims.
  • Over-limit fees: If you accidentally exceed your credit limit, your cardholder likely charges a fee. And, with new restrictions in place on other charges they can assess, you might see this fee jump.
  • Inactivity fees: On the other hand, if you use your card too infrequently, you might see a fee for that, as well, because that means you’re less profitable for the company.
  • Increased minimum payments: Another technique some card issuers are using is to up the minimum amount you can pay each month. This could be profitable for those who won’t be able to afford the increased payments and can be charged an under-payment fee.

The Regulation-Creativity Relationship

As the video illustrates with a graph, more consumer protection may seem like a good thing, but in practice, it often means that card issuers just get more “creative” with fees they charge reasons they charge them.

If you’re thinking now is a good time to get out of credit cards altogether, you’re not alone, but, before you cancel your cards, consider this:

  • Your credit score: Part of your credit score is based on age of accounts (older ones are better); another part is based on diversity of credit (so eliminating one type entirely would hurt you).
  • Your reentry: If, at some future time, you decide you want a credit card again, you’ll likely have to contend with uber-high interest rates (above 70 percent) because you won’t have any recent credit card history.

The video exaggerates a little (by mentioning, for example, a “legibility fee” for left-handed users), but by doing so draws attention to the more serious matter of how significantly your credit card could change.

Be sure to read all correspondence from your card issuer, even mailings that seem like junk: some of them might contain important details about the new rates and fees you may have to pay. These statements will also come in handy if mounting fees and interest force you into bankruptcy.

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Monday, February 22nd, 2010

New Consumer Credit Card Rules Take Effect

Good news for credit card holders—the final set of provisions under the Credit Card Act of 2009 take effect today, offering some important consumer protections.

For those who use credit cards responsibly, the new laws will provide more time to pay bills and less likelihood for fees, penalties and interest rate changes. For those struggling with credit cards or facing bankruptcy, the laws may prevent fees from adding up and provide a little breathing room.

Here's a look at some of the key provisions that are now in effect:

  • Expanded Statements: Your monthly card statement will have a few new features, including broken down fees and penalties and a chart showing how long it will take to pay off the charges making only the minimum payment (and how much it will cost). Your statement will also arrive at least 21 days before the due date, a full week earlier.
  • 45 Day Notices: Your credit card issuer must give advance warning of any changes to your account, particularly interest rate changes. This will give you more time to consider the changes, negotiate with the credit card company, or, if necessary, pay off the balance and close the account.
  • No Rate Increases for 1 Year: The new law prohibits "arbitrary" rate increases for the first year you hold an account. Lawmakers hope this will curb "universal defaults", in which one card issuer raises interest rates due to late payment on a card issued by a different bank. Some actions could still trigger a rate increase, such as being more than 60 days delinquent.
  • Over-Limit Opt-in: You will only be charged over-limit fees if you agree to it. While this may seem like a blessing, it also means more transactions may be declined.

While these changes went into effect, many cardholders have seen changes to their account over the past year, since the law was introduced. Credit card companies have been preparing for the law to go into effect, and in many cases have not been acting in consumers' best interest.

Many credit card companies have been raising interest rates and introducing new annual fess (which are permitted in the new law) in order to prepare for the revenue losses that could come under the Credit CARD Act.

For more information, visit the Federal Reserve's credit card site.

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Tuesday, January 5th, 2010

A Time for Credit Cards?

For most Americans, the allure of credit cards can lead to a financial trap. Credit cards make purchasing easier—but can make responsibility harder.

Credit card spending often brings freedom today while impacting your future. Whenever you buy with credit, you're promising your future income today. And if you're buying things that don't increase in value, that can be a poor investment.

If you're considering filing bankruptcy, using a credit card may be twice as bad—bankruptcy laws may prevent you from discharging recently racked-up credit card bills.

However, for those who have learned to use credit wisely, the purchasing power of credit cards can bring peace of mind, and even some added perks, while building credit.

Benefits of Purchasing with Credit

  • Protect your money: Identity theft and credit card fraud can be a huge financial set-back. Luckily, most credit card issuers consider users liable for no more than $50 of purchases that turn out to be fraudulent. This protection is generally not available with debit cards, probably because credit cards involve a loan of the company’s money, and debit cards involve only the user’s money.
  • Guarantee your gadgets: A lot of credit card issuers provide warranties for items purchased on credit—another reason that many store-offered warranty packages are a bad investment.
  • Protect your purchases: A significant number of credit cards include clauses that offer refunds for items that are lost, stolen or damaged recently after being purchased on credit.
  • Get reimbursements: Some cards offer users reimbursements if they find a price lower than what they paid for an item; others offer refunds even if they’re against store policy.
  • Milk the rewards: Cash-back bonuses, airline miles and other bonuses can be extremely rewarding, as long as you pay off your balance in a reasonable amount of time.
  • Travel smarter: Some cards provide insurance for car rentals, air travel, cancellations and accidents, which can cost lots of cash to buy during every trip.

The Golden Rules

Before whipping out your wallet and charging up a storm, though, keep in mind the two most important ingredients in making sure your credit card use doesn’t turn into a recipe for disaster:

  • Know the cost. Don’t assume your card offers any of these benefits—read the details of your contract and ask an attorney, trusted friend, or call the company to clarify any muddling points BEFORE using any credit cards.
  • Check your budget. Running up a high balance is never a good idea if you cannot pay it off. Remember that credit cards do not offer additional income; they merely offer an alternative way of purchasing with your existing finances.

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