Credit Gumbo

Bank of America Halting Interest Rate Increases

2009-10-06T19:10:00.008-04:00

On Tuesday afternoon, Bank of America announced that it would not increase customers' interest rates due to "risk or economic-based factors" or make other changes in the terms of customer agreements in anticipation of the effective date of the new Credit CARD Act.

The new law goes into effect in February 2010 and bans many practices, including increasing interest rates on existing balances, a practice that was the bread and butter for many credit card companies.

Critics of the new law have cited the fact that there was an eight month period between the time the act was signed into law and the effective date. This gave the banks plenty of time to increase interest rates before the law went into effect.

It seems as though Bank of America is the first major bank to take this action. However, it doesn't seem that they did it purely out of concern for their customers. It's more likely a reaction the public outcry against the recent spate of interest rate increases to good customers. The fact that House Financial Services Committee Chairman Barney Frank (D-Mass.) is having a hearing to evaluate the possibility of moving the effective date of certain portions of the new law up to December 1, 2009 may also have something to do with it. (The hearing is scheduled for October 8th.)

Regardless of their reasons, in taking this action, Bank of America is doing something that is good for many of their customers. As the second largest credit card bank in America, I'd expect that other banks may quickly follow suit.

For many more details on the provisions of the Credit CARD Act, please visit our CreditGumbo.com blog.

ATM Fraud - Skimming

2009-09-22T07:24:00.007-04:00

Imagine walking up to a familiar Automated Teller Machine - perhaps on your way to work or while shopping, and apparently conducting a transaction just as you have hundreds of times before, only to find that you have unwittingly given thieves information that will allow them to empty your checking or savings account. It is a scary thought, yet one that is becoming increasingly real.

Here is how the scam works. The thieves install a skimming device over top of the existing card slot at the targeted ATM. The false card slot is made to match the color and texture of the ATM and is very thin so it does not change the profile of the machine in a noticeable way once installed. The device actually contains an additional card reader to copy your card information from the magnetic strip on the card.

The skimmer does not interfere with you successfully completing a transaction, e.g. withdrawing cash, or checking your account balance. So you will not necessarily be aware that your account information has been stolen.

Additionally, a micro-camera is installed on the ATM in a position that will allow it to monitor the keypad, capturing your PIN as it is entered, and transmit that data to the thief.
Micro cameras have been found in false mirrors positioned over the keypad. Also, fraudulent pamphlet holders with a camera inside, have been found attached to the ATM machine.

With the stolen account information and PIN this form of identity theft allows your card to be duplicated and your account to be accessed by the criminals.

The Secret Service and other law enforcement agencies are investigating ATM skimming scams in New York, Virginia, Washington DC, Pennsylvania and Maryland. Given the level of sophistication of these criminals, it is likely spreading and may become a problem nationwide. An executive at an identity theft protection firm indicates that ATM skimming is growing and may be reaching the proportions of a billion dollar problem.

Here is what you can do to reduce the likelihood of having your identity and account information stolen:

• Pay attention to the front of machines. If it looks different from others in the area (for example, it has an extra mirror on the face), has sticky residue on it (potentially from a device attached to it) or extra signage, use a different machine and notify bank management with your concerns.
• Notice how it feels when inserting your card. If it's difficult or you feel resistance, it could mean that a skimming device is present
• If you think the area around the card entry slot looks peculiar, pull on it. If it comes off or loosens, alert bank management but try to leave the machine as you found it. Leaving the evidence in place could help authorities track down the criminals.
• Notice how it feels to type in your PIN code. If it's difficult to punch the keys, it could mean that a keypad overlay is present.
• Cover your hand as you type in your PIN. If a camera is present or someone is trying to look over your shoulder, this will obstruct their view.

Your greatest protection simply comes with being aware of your surroundings at all times. ATM skimming devices have been found attached to machines at branch bank locations. So, whether at a familiar ATM, at a gas pump, or a local convenience store ... anywhere where the device requires you to insert your card allowing the magnetic strip to be scanned ... it pays to be attentive.

Good News from My Credit Card Company?

2009-08-20T19:46:00.002-04:00

As banks continue to grapple with the economic crisis and brace for the implementation of the new Credit CARD Law, it is hard to miss the onslaught of news stories about credit card customers receiving notification that their rates are being increased or their accounts are being closed.

The letter I received from my credit card company this afternoon is not likely to get much coverage, but as a self-proclaimed “credit geek” I think it deserves a few words. Why? It is the first notification I have received that I believe is a direct reaction to the recently passed Credit CARD Law.

First, a little background on the account:
This is an account I’ve had with a major credit card issuer for well over a decade. I have paid off my purchases in full each month. Over the years, I’ve seen the amount of time I have between the time I receive my statement and the due date decrease from maybe 22 days to somewhere around 17 days. Shortening this window makes sense from the credit card company’s perspective since they are in essence lending me money, at no cost, each time I make a purchase and have a few weeks before I receive the bill and pay off the charge. Thus, the shorter the term, the lower their cost. (After the first late fee, I was quickly conditioned to pay almost as soon as I receive my bill.)

The reason this letter caught my attention (and probably won’t get any big media coverage) is that it was sent to give me good news.

My credit card company has extended the amount of time between when they mail me my statement and the time I have to pay. That’s right, they are now giving me additional days from the time they mail me my statement until my payment is due. Since this isn’t an economically good deal for the bank, I can only assume it is a reaction to the new Credit CARD Act of 2009, which requires banks to send statements at least 21 days prior to the due date. While banks have until February 2010 to follow most aspects of the new law, two parts of the law went into effect in August 2009. First, the requirement that banks give you at least 21 days between mailing you your statement and the payment due date. The second is that they must now give you at least 45 days notice of any material changes to your account agreement. This includes any changes in finance charges, interest rates or fees

You can be sure we’ll be watching our mailboxes for the letters that will give us all more insight into how banks will make up for their lost revenue and increased expenses that will result from the new laws. We’d also love to hear from you, our visitors, about what you are seeing from your credit card companies. Please drop us a line through our Feedback Form on the Contact Us page.

For our perspective on all of the important aspects of the Credit CARD Law, please visit our credit blog.

Save 50% on Credit Card Balances - An Insider's Look at Credit Card Settlements

2009-07-28T16:14:00.008-04:00

In case you have missed all of the recent news stories, the credit card sale is on! 20, 30, 50% off and more! That's right, credit card companies are now offering special "settlements" to many more customers than they used to. So what is a settlement offer and when might it be right for you?

In a nutshell, a settlement is a negotiated agreement between a debtor and a lender in which the lender agrees to accept less than the full amount owed on the loan, like a credit card account. Typically, the lender requires a single lump sum payment of the settlement amount. However, you may be able to make the settlement payments over a few months. Once the agreed upon settlement amount is paid, the lender will cease all collections efforts on the debt.

These offers have historically been reserved for customers who have missed a few months worth of payments. However, in the face of high delinquency rates and the threat of higher levels of unpaid debt, credit card companies have begun to offer settlements to customers who are not as severely delinquent. There are even some stories about customers who have yet to miss any payments negotiating a settlement. Typically, these offers are only available if extended by the lender. However, you can certainly ask about one if you find yourself talking with a bill collector.

While getting a steep discount off of debt you owe sounds great, there are a few serious consequences to consider. First, a settlement will likely reflect negatively on your credit bureau report. While the credit card company will no longer try to collect the remaining debt, the account will likely be reported as “settled” rather than “paid in full”. A settled account may hurt your credit scores and make it difficult for you to borrow in the future. Second, if the amount that remains unpaid is $600 or more, it will be reported to the IRS as income. As such, you will have to pay income taxes on it. Finally, most credit card issuers who settle an account will not make any future loans to the customer who accepted it.

For these reasons, settling a debt with your credit card issuers for less than you owe is not a step to be taken lightly and may not make sense in certain circumstances. For example, if your current financial difficulty is likely to be short-term and you are currently able to make some payments, you may be better off contacting your credit card company to negotiate lower monthly payments and a reduced interest rate for six months or a year. The same pressures that are influencing the banks’ decisions to offer more settlements will also likely make them more flexible on other payment terms. This may help you to maintain your credit rating while you get through a challenging time.

Despite the negative consequences, a settlement may be right for you if you expect your current financial situation to be long-term and you have the cash on hand to make the deal (remember, you will be expected to make the payment very shortly after you agree to the settlement).

If you do decide to pursue a settlement arrangement, here are some tips to keep in mind. First, remember, this is a negotiation; Negotiate for the lowest settlement amount you can. Second, see if you can arrange to pay the amount over a period of a few months. Third, make sure you fully understand how the lender will report the debt on your credit bureau report once it is settled. Although unlikely, it is ideal if you can convince them to report it as “paid in full”. Finally, make sure you get any agreement in writing from the bank.

For much more information on collections and talking to bill collectors, take a few minutes to read my posts “Tips From a Former Bill Collector” and “Your Rights Under the Fair Debt Collections Practices Act”.

Credit CARD Law 2009 - College Students Being Cut-off?

2009-07-13T13:03:00.003-04:00

The Credit Card Act recently signed into law by President Obama will put significant restrictions on the ability of credit card companies to lend to consumers under the age of 21. Under the new law, consumers under the age of 21 will now need to either have a co-signor who has attained the age of 21 years or proof of income. The co-signor may include a parent, legal guardian, spouse or any other individual who has reached the age of 21 and is willing to assume repayment for the debt incurred on the credit card account.

The law also prescribes new practices for lending to full-time college students. In order for a college student to obtain a credit card without a co-signor he or she must provide proof of independent means of repaying the debt obligation. If the college student submits an application without a co-signor, the bank is prohibited from opening a credit card unless it is able to verify these independent means of repayment.

I’ll admit that when I first heard about the restriction of credit to adults under the age of 21, I questioned whether or not it was the government’s place to regulate the borrowing choices of a portion of our adult population. My argument was that it was the parent’s responsibility to raise responsible citizens and that maybe these regulations were taking things a bit too far. However, now that I have had time to review the actual text of the law, these restrictions make a whole lot of sense.

Fundamentally, sound lending is based on the lender’s assessment of the willingness and ability of the borrower to repay the loan. The ability of a borrower to repay is predicated on either a proven credit track record (typically 3 or more years) of borrowing experience or sufficient income to repay. Since most borrowers under the age of 21 don’t have a proven track record of responsible credit use, it makes sense that lenders should require proof of sufficient income to repay the debt.

Under the new law, college students with verifiable income will still be able to obtain credit cards on their own. Those with a parent or another adult over the age of 21 who is willing to co-sign will also be able to get a credit card.

There are still a couple of important open issues regarding the implementation of this part of the law. First, the requirement that a lender has to verify that an applicant has an independent means of re-payment means that the credit card issuers will need to receive either pay stubs, W-2 forms or banking records as proof of ability to repay. Many credit card issuers’ approval systems do not currently require this type of information from applicants. Therefore, they will have to develop processes to receive and use this additional information. In addition to costly and time-consuming computer changes, this may require banks to use additional human resources in order to the verification, which will add to the cost of processing credit card applications. The added cost of processing will likely be passed on to consumers as higher interest rates and fees.

The second open issue is that the law does not specify the appropriate level of income or assets a college student must have in order to be approved. Like many other parts of the law, this appears to be left to the Fed’s interpretation and implementation. If they decide not to provide specific requirements, credit card companies will be allowed to determine what requirements make sense on their own. One implication of this is that college students may have a better chance of being approved by certain issuers than others.

My belief is that while this part of the new CARD Law is intended to protect young borrowers from getting into financial trouble, it will also benefit everyone by requiring credit card companies to follow sound lending practices when lending to young adults.

As with many other aspects of the Credit CARD Law of 2009 the interpretation and implementation has yet to be detailed. Stay tuned to CreditGumbo.com as we follow all of the developments.

Credit Card Law 2009: Enhanced Repayment Disclosures

2009-07-03T14:35:00.005-04:00

This post is part 5 in a series of articles in which CreditGumbo.com's credit experts examine the 2009 Credit CARD Law and provide insight on its likely ramifications.

Credit cards have become so integrated into our daily lives because they offer tremendous convenience, ease of use, and flexibility. One aspect of that flexibility – the option to make partial payments over time, often represents a significant and unknown cost to the consumer, which if understood might cause the cardholder to make different choices. The Credit CARD Law of 2009 mandates enhanced consumer disclosures, in part, to address this issue.

Let’s look at an example to bring this into sharper focus. If you used your credit card to purchase a new 42" 1080p LCD HD television for $1,100 and each month only paid the card company the required minimum payment – what would be the real cost to you of buying that TV?

Not sure? Well, most of us wouldn’t know the answer. But you might be shocked to know that it would take you more than 12 years* to pay off your credit card obligation and that the actual cost of the TV, including the interest paid to the credit card company, would be $2209* – that’s double what you thought you were paying!!! Armed with this information you might make different choices.

Although the exact wording is yet to be determined, the Credit CARD Act will require that credit card billing statements include a warning that making minimum payments will increase the amount of interest that you pay and extend the time it takes to repay your balance. Of greatest value to cardholders will be the required disclosure on monthly billing statements of:
a.) the number of months that it would take to pay the entire amount of that balance, if the consumer pays only the required minimum monthly payments and if no further advances are made; and
b.) the total cost to the consumer, including interest and principal payments, of paying that balance in full, if the consumer pays only the required minimum monthly payments and if no further advances are made.

When the Law goes into effect in early 2010, with the newly required billing statement the consumer will know the consequences of solely making the minimum payment. Equipped with this information, it’s reasonable to assume that many consumers will consider alternative payment options. To assist in this process, the Credit CARD Act also will require that billing statements display the monthly payment amount that would be required for the consumer to eliminate the outstanding balance in 36 months, and the total cost to the consumer, including interest and principal payments, of paying that balance in full if the consumer pays the balance over 36 months.

To help appreciate the impact of the law, once again we’ll turn to our $1,100 TV example. But this time we’ll use the new information provided on the billing statement as required by the Credit CARD Law, and evaluate paying off the balance in 36 months.

By paying $39.22 per month to the credit card company, the entire balance will be repaid in three years, instead of twelve, at a total cost of $1,411, instead of $2,209.

That’s a total savings of $798!!! For a modestly higher monthly payment the consumer can save a significant amount of money.

The enhanced disclosures required by the credit CARD Act of 2009 will require that banks and credit card companies change their monthly billing statements to help consumers understand the high cost of making minimum monthly payments, and provide information that highlights the benefits of alternative payment amounts. This can mean real money in your pocket.

* Results will vary based upon the credit card APR, minimum payment formula, and cardholder monthly payments. This example assumes an APR of 17.0%, a minimum payment equal to 2.5% of the outstanding balance, and monthly payments equal to the required minimum payment.

Credit CARD Law 2009: Fair Billing Practices

2009-06-23T22:08:00.004-04:00

This post is part 4 in a series of articles in which CreditGumbo.com's credit experts dissect and examine the 2009 Credit CARD Law and provide insight on its likely ramifications.

Some of the less heralded features of the new Credit Card legislation are ones that will impact the vast majority of credit card customers. The law has taken aim at some of the revenue-generating billing practices that have been adopted by many credit card companies. These practices have been widely criticized for the way that credit card companies hit customers with unexpected fees and finance charges on their credit card statements.

Here's how the new law will make things more fair for credit card customers.

Two-cycle billing - Have you ever paid off your credit card balance in full, only to find that you still owe a substantial amount of interest on your next bill? You may have fallen prey to a practice called two-cycle billing, in which the credit card company calculates your interest based on your average balance over two months instead of just the current month. While two-cycle billing does not significantly impact those who keep a consistent balance on their cards, it can be particularly costly to customers who alternate between carrying a balance and paying in full. When the new law takes effect in February 2010, two-cycle billing will no longer be permitted.

Grace periods – Another practice that has become prevalent in recent years is the shortening of the amount of time you have to make a payment to avoid being assessed a late fee. The Credit CARD law now specifies that a statement must be sent by the credit card issuer at least 21 days in advance of the payment due date to give customers ample time to pay their bill.

Payment due dates – Many credit card companies do not currently adhere to a fixed-billing schedule. This means that customers' due dates can fluctuate from month-to-month, sometimes by as much as 5 days. This, along with the shortened grace periods described above, results in many customers unwittingly sending in late payments. The new law will require payments to be due on the same date every month, eliminating this source of surprise late fees.

Electronic Fund Transfer (EFT) Fees – Another revenue-generating tactic used by some credit card companies is to charge a fee for the "privilege" of paying a bill electronically through a bill payment service. The law now states that a fee may not be charged based on the manner in which a payment is made. So now all customers will be able to save on postage by taking advantage of EFT without having any additional fees assessed. The one exception to this rule is when a customer requests an expedited payment within one day of their due date; the issuer is still permitted to charge a fee in this case.

The intent of these changes was to set forth a fair set of rules for credit card billing, and the cumulative impact of these changes will be fewer fees and finance charges on credit card statements. While this is a major victory for consumers, the credit card companies will almost certainly make adjustments to their fee structures, interest rates, and reward programs to recoup the revenues that they would otherwise forego as a result of the legislation. Please check back with us at CreditGumbo.com as we continue to provide updates on the impact of the new law and any resulting changes that occur in the credit card market. To read more on this topic, you can find all of our related commentary on our Credit CARD Law blog page.

Will New Rules to Combat Identity Theft Help Consumers?

2009-06-19T10:10:00.003-04:00

By guest contributor, Andrew M. Baer, Esq.

With losses to consumers and businesses from identity theft running into the billions of dollars each year, the government has sounded the alarm for more aggressive protection. In November 2007, with much fanfare, federal banking regulators and the Federal Trade Commission (FTC) unveiled new regulations requiring financial institutions and creditors to implement comprehensive programs to protect consumers from identity theft. These so-called "Red Flags Rules" also include a special requirement for credit and debit card issuers to validate change of address notices which are followed by a request for an additional or replacement card.

Overall, the Red Flags Rules do not require traditional financial institutions and creditors, like banks and credit card issuers, to do much more than they should already be doing -- i.e., systematically assess and manage risks across their range of customer interactions to protect individuals and reduce fraud losses by detecting, preventing and mitigating identity theft. All that said, awareness of the new rules may relieve consumer anxiety and confusion and help communication with banks and creditors if a “red flag” scenario arises. (And, as we shall see, the Red Flags Rules apply to a wide spectrum of businesses in addition to banks and credit card companies.)

The FTC and five federal regulatory agencies (the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Office of Thrift Supervision, and the National Credit Union Association) collaborated to develop the Red Flags Rules as mandated by the 2003 Fair and Accurate Credit Transactions Act. Broadly speaking, the Rules require "financial institutions" and “creditors” with "covered accounts" to develop and implement a formal written program that effectively identifies and detects warning signs ("red flags") of identity theft and provides for appropriate responses to red flags when detected. Some obvious examples of red flags are account activity that is unusual or inconsistent with past use, presentation of suspicious (e.g., altered) account application documents, a fraud alert on a credit report, or a notice from a customer, identity theft victim or law enforcement agency. Appropriate responses to red flags depend on the facts of each situation. For example, if a credit card company detects unusual activity on an account, it could notify the customer, monitor the account for further anomalies, put a freeze on the account, close the account and reopen it after connecting with the customer, or some combination or sequence of these responses.

Consumers should also know that "creditors" subject to the Red Flags Rules include not just their mortgage and credit card lenders, but any business, non-profit organization or government agency that regularly extends, renews or continues credit or arranges for any of these activities. Credit is broadly interpreted to mean the deferral of payment for goods or services, so that entities outside the financial industry, such as utility companies, mobile telecommunications providers, law firms and health care providers are potentially covered by the Rules. This is an important fact because, while banks and other regulated financial institutions and creditors were required to have their identity theft programs in place by November 1, 2008, the FTC, which is tasked with enforcing the Rules for other types of businesses, has repeatedly delayed enforcement to give these businesses more time to determine if they are covered and, if so, to prepare their identity theft programs. As of this moment, the FTC will not begin enforcement until August 1, 2009.

The Red Flags Rules apply to financial institutions and creditors with "covered accounts," which are defined as accounts used primarily for consumer (i.e., personal, family or household) purposes and allowing multiple payments or transactions. Credit card accounts, margin accounts, utility accounts and cell phone accounts, as well as checking and savings accounts, all fall into this category. A covered account may also be any other type of account for which there is a foreseeable risk of identity theft. Thus, a small business or sole proprietor account which is linked with the personal information of the principal will likely be a covered account. Financial institutions and creditors must conduct a self-assessment to determine whether or not they have covered accounts.

Organizations covered by the Rules have flexibility to define their own red flags as appropriate, provided that their way of choosing is reasonable. There is no "one size fits all" approach; each identity theft prevention program must take into account the organization’s size and complexity and the nature and scope of its operations. However, at a minimum, each program must be initially approved by the organization's board of directors or a board committee, must have official oversight, must include training of appropriate staff and oversight of service providers who have contact with covered accounts, and must be periodically updated to address changing risks.

The Red Flags Rules, in effect, set up an early warning system for detecting possible identity theft. Consumers who suspect that their personal information may have been compromised or that they are victims of identity theft should contact their banks and creditors and the credit reporting agencies immediately, since the information they communicate will raise one or more red flags that, in turn, will require an appropriate response from the banks and creditors to mitigate the risk of further harm. Likewise, consumers should immediately cooperate with requests for information from financial institutions and creditors investigating suspicious activity, as they are likely responding to red flags.

While the identification of red flags is largely left up to businesses, Congress specifically required the FTC and the regulatory agencies to prescribe a rule for one particular red flag which is strongly correlated with identity theft in the credit and debit card world. Card issuers must have reasonable policies and procedures to assess the validity of a change of address notice followed within 30 days by a request for an additional or replacement card on the same account. The card issuer may not issue the new card within the first 30 days after the change of address notice unless the cardholder has been notified of the request and given a reasonable means to respond, or the card issuer assesses the validity of the address change request through some other mechanism. Written notices to cardholders in connection with the validation process must be clear and conspicuous and must be provided separately from regular correspondence, such as normal customer mailings.

While the sentiment behind the Red Flags Rules is laudable enough, it is unclear how much extra benefit they will bring consumers in the fight against identity theft. Banks and credit card companies already have an incentive to detect and prevent identity theft as early as possible, since fraud losses and the costs of notifying customers and closing and reopening accounts drop directly to their bottom line. Furthermore, the Red Flags Rules do not do much more than prescribe and formalize a system of risk assessment and management that their regulators already require. A soundly run bank or credit card company already has this system in place, and thus compliance becomes purely a matter of delivering to the regulators a suitable board-approved document entitled “Red Flags Identity Theft Program” along with its appropriate administrator. (With that said, as the events of the last year prove, soundly run banks and financial institutions should have been doing a lot of things that they did not, in fact, do.) The Red Flags Rules should catch the laggards, along with all of those organizations outside the federal regulatory umbrella who are unaware they are creditors and have covered accounts that are at risk for identity theft.

As the world is full of scheming fraudsters and the new rules are flexible and generally aligned with businesses' self-interest, a little extra protection is better than nothing, even if the cost is more paper.

Andrew M. Baer is an attorney with long experience in technology, e-commerce and information security matters relating to credit and the financial industry. He is the founder of Baer Business Law, LLC (www.baerbizlaw.com), a Philadelphia firm focused on providing cost-efficient business counseling, contracting, technology and intellectual property law services.

Identity Theft - Protect Yourself

2009-06-18T10:39:00.008-04:00

Make no mistake - we are under an unrelenting onslaught of identity theft. There should be no doubt in your mind, the stakes are high, the con artists are becoming more sophisticated with each passing day, and the attempts to steal your identity will only continue to increase.

We hear all too often of laptop computers containing the confidential information of tens of thousands of Americans accidentally left behind on subways, hackers stealing account information on millions of credit cardholders, and personal information being transmitted without proper encryption.

And this is not to mention the modern day con artists who operate within the unseen confines of the world wide web, emailing, phishing and pharming – all techniques designed to fool unsuspecting individuals into providing key information such as account numbers or social security numbers under the guise of some legitimate business activity.

Many of the identity theft preventative steps are built on exercising common sense.

Don’t ever give your social security number to someone who has called you.

If you already have a business relationship established with a company, they can generally verify your identity with only the last four digits of your SSN.

Don’t respond to inbound emails where they request your name, address, credit card account number, etc.

And of course, always beware of the opportunity for fast easy money. The old adage is still true today – “if it sounds too good to be true, it probably is.”

In addition, you may want to consider one other step to the prevention and / or early detection of identity theft. Consider buying an identity theft service.

When evaluating any identity theft service, the primary functions you should look for are fraud alert and fraud monitoring. Through the fraud alert process, you are called by the credit bureau whenever you or someone else attempts to establish a line of credit in your name. This allows you to verify if the activity is something you initiated or approve. The fraud alert indicator on your credit bureau record needs to be reinitiated every 90 days. Your service provider should perform this update on your behalf. Fraud monitoring is an automated process where suspected underground internet sites that illegally trade or sell personal information are regularly scanned to ensure your information is not present.

Credit monitoring, which most services include in their product bundle, watches your credit report for any suspicious changes that might indicate the theft of personal information.

When selecting an identity theft service be sure they offer recovery assistance, which in the event that you have been a victim of identity theft, contacts the authorities and necessary entities, related to your credit cards, drivers license, social security number, and the like.

Beyond these basic product features, you will find that some service providers include other additional benefits – free copies of your credit report, for example. You may also want to determine precisely the list of personal information that is protected, as this varies with each provider.

Lastly, look at the service provider’s track record and years in business. It is important that you have confidence in the company’s reputation, their reliability to perform, and that they will work hard to earn your trust. If you think you are interested in the safety and peace of mind that comes with identity theft protection, check out our Marketplace section for two providers we highly regard.

Credit Card Law 2009: Over-the-limit Fees

2009-06-17T09:52:00.009-04:00

This post is part 3 in a series of articles in which CreditGumbo.com's credit experts dissect and examine the 2009 Credit CARD Law and provide insight on its likely ramifications.

One of the provisions in the new Credit CARD Law that has credit card issuers most worried is the new set of requirements for charging fees when a customer exceeds his or her credit limit. As the card companies have waged price wars by slashing introductory APR's, the so-called "nuisance fees" make up a significant portion of credit card profits. In fact, over the past 10 years, over-the-limit fees alone have risen 85% – most issuers are now charging between $35 and $39 for exceeding the credit limit; in 1999 the average was only $20 (source: US GAO Credit Cards report, 9/06).

To put the new law in some perspective, let's first look at the current practices of the card companies. Nearly every issuer has policies in place to authorize transactions that will put a customer over their credit limit without informing them that this is happening. While this can be fairly characterized as a courtesy to the customer so that their transaction is not declined at the point-of-sale, it is also one that is very profitable for the card issuer. Many issuers maximize their fee revenues by assessing an over-the-limit fee if a customer's credit limit is exceeded at any point in the billing cycle. This means that often times a customer can be charged two over-the-limit fees for one over-the-limit transaction. Because a customer is often unaware of the over-the-limit situation until they see it on their billing statement, they have already entered a second billing cycle over their limit which will trigger another over-the-limit charge.

The Credit CARD Law will curtail these practices by providing more control and better disclosures to the customer. Specifically, the law provides that starting in February 2010:

Each customer must be given the opportunity to "opt-in" to over-the-limit fees. If a customer does not authorize these fees, the card issuer is prohibited from charging them. While this provision will likely eliminate many of the over-the-limit fees that are charged today, it will also likely result in many more transactions being declined.

Only one over-the-limit fee may be charged in a billing cycle. Though it is uncommon today for credit card issuers to charge multiple over-the-limit fees within the same billing cycle, legislators acted preemptively to prevent issuers from starting this practice in the future.

No over-the-limit fee may be charged in 2 consecutive billing cycles unless the customer has made an additional over-the-limit transaction. This will prevent the practice of fee-doubling for one over-the-limit purchase.

The challenge now for consumers is to determine whether it is more important to eliminate all over-the-limit fees, or to retain the flexibility to exceed the credit limit – and continue to pay fees. The law states that customers are free to change their over-the-limit fee election at any time by contacting their credit card issuer, so the initial decision you make is not permanent and can be changed if your credit needs change.

As we've pointed out in our previous discussion on the Credit CARD Law, the credit card companies will find a way to recoup the revenues that they will forego as a result of these changes. We expect to see more cards with annual fees, a cut back in generous rewards programs, and potentially the elimination of the interest-free grace periods enjoyed by many credit card users. So while the law is designed to be "pro-consumer," there are many who will actually see a higher cost associated with using plastic in the future. Please continue to check back with us at CreditGumbo.com as we delve further into this new legislation over the coming weeks. You can find all of our related commentary on our Credit CARD Law blog page.

Credit Card Law 2009: Payment Allocation Provision

2009-06-15T10:21:00.004-04:00

This post is part 2 in a series of articles in which CreditGumbo.com's credit experts dissect and examine the 2009 Credit CARD Law and provide insight on its likely ramifications.

Ever wonder how the credit card companies can afford to offer 0% balance transfers, when such a rate is below the cost they have to pay for the money they are lending you? The trick is largely a function of the way in which your payments are generally applied. The Payment Allocation Provision which is a part of your credit card terms and conditions, i.e. the contract you made with the credit card company, usually reads something like this:

You authorize us to allocate your payments and credits in a way that is most favorable for us. For example, you authorize us to apply your payments and credits to balances with lower APRs (such as promotional APRs) before balances with higher APRs.

The language is pretty straight-forward, right? Sure is. Unfortunately, it is not the way you want it done.

We’ll walk through a specific example to see how this works to the credit card company’s advantage.

Let’s say you are a new customer of a credit card issuer that offered a 0% balance transfer, and you wisely moved to your new card, an outstanding balance from another lender that was charging you a higher interest rate. Let’s also presume that the card carries an APR on purchases of 13.9%.

If during the month you made a purchase, let’s say you ate dinner out and paid with your credit card. At the end of the month, when your bill arrives you plan to make a payment in excess of the cost of the dinner so interest doesn’t continue to accrue. But that’s not what will happen. The credit card company will apply your payment to the 0% balance, thereby causing the purchase APR (13.9%) to continue to be applied to your dinner expense. When the next statement arrives, you will continue to have an interest charge assessed against the dinner and any additional purchases.

This will continue every month until you have paid off all of the 0% balance transfer.

Well, in this case, the Credit CARD Law of 2009 is exactly what the doctor ordered. The new law, which will take effect in February 2010, clearly prescribes a new method which must be followed by all card companies in the application of your payments. The law states:

Upon receipt of a payment from a cardholder, the card issuer shall apply amounts in excess of the minimum payment amount first to the card balance bearing the highest rate of interest, and then to each successive balance bearing the next highest rate of interest, until the payment is exhausted.

Under this new law, the payment allocation logic will work in exactly the manner you would prefer. In our hypothetical example, the payment will first be applied to the higher interest rate balance, i.e. the dinner.

This is eminently a very fair approach, and our legislators got this one right.

If however, you are among the group of consumers who have played the ‘balance surfing’ game – accepting credit cards solely for the purpose of taking advantage of the 0% offer while never using the card for any other purpose – your days may be numbered. It is reasonable to assume that either:

a.) 0% offers will no longer be made available,
b.) balance transfer fees will rise precipitously,
c.) credit cards will carry annual fees, or
d.) some combination of fees and less attractive offers will become the norm.

But this too will be much more fair. Because after all, the price of that free money had to be paid by someone, and that cost fell on the other credit card customers in the form of higher interest rates and fees. After February 2010, it will be increasingly difficult to find a credit card with the balance-surfing promotions we’ve become accustomed to.

Please continue to check back with us at CreditGumbo.com as we delve further into various aspects of this complex and far reaching new legislation. You can find all of our related commentary on our Credit CARD Law blog page.

Credit Card Law 2009: APR Increases

2009-06-11T11:04:00.006-04:00

This post is Part 1 in a series of articles in which CreditGumbo.com's credit experts dissect and examine the 2009 Credit CARD Law and provide insight on its likely ramifications.

Some of the most important consumer protections offered by the Credit CARD Law of 2009 are those that place limits on the ability of credit card issuers to raise interest rates.

In this post, we’ll lay out the facts, but as importantly, we’ll dig deeper to reveal how the credit card companies are likely to react. That’s what you need to know to determine whether you will come out a winner or a loser.

First, the facts: under current law, credit card issuers are allowed to increase the rates on existing credit card balances whenever they wish and for any reason or no reason. They do have to provide 15-day advance notification. They also must allow customers to “opt out” of the increase, enabling the cardholder to pay the remaining balance at the original lower rate.

The new law, which goes into effect early next year, specifically spells out the circumstances under which any credit card issuer may raise the interest rate on an existing credit card balance.

1. An increase in the index to which the interest rate is pegged: Many credit cards carry variable interest rates, which are linked to the Prime Rate or LIBOR (the “index”). The new law continues to allow issuers to move rates up and down as the underlying index varies.

2. If you take advantage of an introductory rate or a promotional rate on the account, the issuer may still raise the rate on that balance at the time the promotional rate expires. However, the law requires credit card issuers to allow at least a 6 month introductory period, before interest rates may be increased.

3. If you fail to make a payment within 60 days of your due date, the issuer may raise the rate on the existing balance. If the issuer chooses to raise the rate at that time, it must notify you in writing of the reason for the increase. Also, if you make at least a minimum payment for each of the six months following the increase, the issuer must decrease your interest rate back to the original rate.

Those provisions specifically address the rules surrounding existing balances and their interest rates, but the new law also establishes controls on pricing the future purchases of the cardholder. Before increasing the purchase APR, the law requires the credit card company provide at least 45 days notice to the customer before any such interest rate increase takes effect. Theoretically, this gives the consumer the opportunity to find a replacement card.

The short-term impact of the passage of the law is clear; issuers have already begun increasing rates on existing balances. Remember, the changes don’t go into effect until February 2010. Therefore, it’s important to keep an eye out for any mail you receive from your credit card company. If you receive notification of a rate increase and want to “opt out” of paying the higher rate, you should contact the credit card issuer. They will likely require you to put your request in writing and may require you to close your account to any new transactions. If you opt out, you have the legal right to pay off your existing balance under the original terms.

The longer-term impact is yet to be seen. One thing is for sure; banks will not walk away from the historically high profit credit card business. We’ll be watching for the banks to take some of the following actions:

1. Higher standards for approval: Without the ability to dynamically price for risk, credit card issuers may be more reluctant to take on as much credit risk as they have in the past. People with minor blemishes who have historically been able to get approved for credit cards may find it more difficult, more costly or impossible to get a card.

2. Increase in interest rates: The credit card issuers’ ability to offer the 0% introductory rates and the 9.99% or lower on-going rates was predicated on their ability to increase rates on individual customers as their risk increased. Without the ability to raise interest rates on existing balances, everyone will likely pay a higher rate from the time their account is opened.

3. The return of annual fees: Fierce competition in the industry has largely eliminated annual credit card fees. Look for fees to return as card issuers search for revenue.

4. Less rewarding cards: Whether in the form of cash back or airline miles, rewards programs are a significant expense for credit card issuers. At the very least, expect to pay for these rewards, but also keep an eye out for other ways card issuers may look to manage their costs. For example, you may see new tier structures that mean you are actually earning less per dollar spent or increases in the number of miles required to book an airline ticket.

5. Elimination of grace periods: People who pay their balances off in full each month typically benefit from a 25 to 60 day grace period. That is they borrow money for free each month. Issuers may look to eliminate grace periods and charge interest from the time the purchase is made.

For more commentary and lively discussion on the Credit CARD Law of 2009, please check out the CreditGumbo.com interview with Mark Wlaz and Dave Griffith, two of our credit experts.

Credit CARD Law 2009: A CreditGumbo.com Debate

2009-06-11T10:56:00.003-04:00

Two of our credit experts, Mark Wlaz and Dave Griffith, square off in a lively discussion on some of the ramifications of the 2009 Credit CARD Law. (click here to see Mark and Dave’s Bios)

CreditGumbo.com: How do you characterize the new law which was so rapidly passed by the house and senate, at President Obama’s urging?

mw: This is the most important piece of lending legislation that has come out of Washington in decades. After years of costly abuse at the hands of the credit card companies, Congress is finally doing its job to reign in their egregious re-pricing practices.

dg: Here we go again, the same politicians that used our tax dollars to bail out banks that made bad loans and homebuyers who got in over their heads have now passed a law that’s going to limit the borrowing options for people who have made the decision to use their credit cards responsibly.

CG.com: On what basis are the two of you so far apart on your view of the Act?

mw: The credit card companies have perfected the art of luring in unsuspecting consumers with ridiculously low interest rates, convincing cardholders to take balance transfers and to buy things they can’t afford, only to turn around, sometimes only a few months later, and raise the interest rates. The banks knew from the start that they couldn’t sustain those low rates and make any money. The consumer was set up right from the start.

To make matters worse, in many cases, the higher interest rates also resulted in an increase in the minimum payment requirement on the account. The higher payment sometimes caused the customer to miss a payment or two, which provided a reason for other lenders to increase interest rates on the consumer’s other credit cards.

dg: Mark, you are making sweeping generalizations that are misleading if not downright dangerous. I have never paid a dime of interest to a credit card company. I have enjoyed the 25 to 60 day grace period I get after making a purchase. I’ve also enjoyed lots of great trips on the free airline miles that I earned by using my credit card to purchase things I would have bought anyway. And, I got to do most of this without even paying an annual fee. Now, I, like tens of millions of other responsible Americans, will see these benefits curtailed, if not completely eliminated.

mw: By the way, the current law needed to be amended. The so-called 15-day notification period prior to an interest rate increase is something of a joke. Who can reasonably be expected to take the time to read through the pages of miniscule type to figure out that their rate is being increased? Even if you did read it, you’d need a lawyer to help you figure out what it says. The new law puts credit card companies on the same playing field as everyone else, you make a deal under certain terms and you are required to stick with it.

dg: And who benefits from these changes? Most likely it will be those who chose to use credit irresponsibly.

Credit card companies set their pricing based on the risk of the borrower. As the risk increases, as evidenced by things like higher usage of credit and late payments, the issuers raise the interest rates in order to offset the increased losses they expect to incur.

Sound familiar? It’s very much like the reason your auto insurance goes up when you get a speeding ticket. Without the ability to appropriately adjust interest rates for customers that demonstrated riskier behaviors, the card companies will have to turn to other sources for income. That’s very likely to result in annual fees, the elimination of rewards programs and, maybe even the elimination of grace periods. That’s right, you may have to pay interest from the day you make a purchase. This is definitely a loss for the responsible users of credit cards.

CG.com: Do the two of you agree on anything with respect to the interest rate pricing section of the Credit CARD Act of 2009?

dg and mw: Yes, there is much we agree on. Credit cards have historically been high profit margin businesses at most banks. These profits are arguably justified when you consider that unsecured lending is, by its nature, a very risky business. Unlike mortgage or automobile lending, where the loan is collateralized, the credit card business has no ability to repossess an asset if the customer fails to repay his or her debt.

Some of the practices employed by the credit card issuers clearly exacted stiff penalties for relatively minor cardholder infractions. The new legislation should limit these tactics in the future. However, the banks cannot readily walk away from the profits historically derived from the credit card business. Instead, they will employ new techniques to ensure they make the necessary profits. We have no doubt this will result in a very different landscape than the one that exists today. Not all consumers will benefit from these changes.

The Truth and Consequences, Credit CARD Law 2009

2009-06-05T18:34:00.007-04:00

On May 22, 2009 President Obama signed into law the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (Credit CARD Act). The law contains the most sweeping reforms on credit card practices in decades. From the politicians that wrote and voted for the law to consumer advocacy groups, everyone is celebrating the passage of the law as a hands-down victory for the American consumer.

However, the implications are profound, complicated and have not been adequately explored. In fact, the reactions by the card issuers will likely have unintended consequences, negatively impacting consumers.

We’ll discuss the full implications of new restrictions on credit card pricing, interest rate calculations, fees, credit limits, cards for college students, and required disclosures.

Want to learn more? Check back every couple of days and read our posts as we dissect, interpret and discuss the likely impact of each aspect of the new law. Or, visit our Credit Blog now to subscribe to our RSS feed in order to receive our thoughts as they are posted.

As always, feel free to contact us if you have specific questions about the law.

Tips from a Former Bill Collector

2009-06-01T10:42:00.019-04:00

Walking is great exercise. It also gives you the opportunity to observe things more closely than driving by at 25 mph. A new trend I have been noticing on my daily walks is more cars in the driveways of my neighbors in the middle of the week. My community, like most, is grappling with lay-offs, furloughs and other painful signs of the current recession. And, while it’s not something we talk about at cocktail parties, there are probably some who are finding it difficult to make loan or credit card payments on time.

If they haven’t yet, they will likely be receiving calls from bill collectors in the near future. As someone who’s been on the dialing end of these calls, I’d offer the following thoughts:

First, there are some things you need to know about bill collectors.

Bill collectors are not there to make your life difficult or to judge you. They are people being paid to get the property of the lender back. While their performance can be based on a number of things, typically, the more they collect, the more money they make. Avoiding a conversation with them is not a good idea – they’ll call back, it’s their job.
They appreciate honesty – people lie to them all day long. Be honest about your situation and your ability to make a payment.
Don’t send post-dated checks or give a bill collector your checking account number. While most bill collectors are honest, some may try to cash the checks early or try to draw payments from your checking account. If you don’t have the funds, you will be hit with non-sufficient-funds fees from your bank. Most creditors have the ability to do an electronic funds transfer if you contact them the day you have the money available. You may also be able to do this online when the funds are in your checking account. Ask about these options rather than sending a postdated check. (NOTE: If you are asked to pay an electronic funds transfer fee, ask them to waive it. If the first collector “can’t”, ask to speak with a supervisor. Your money should be going toward meeting your minimum payment requirements, not earning fees for the lender.)
While a bill collector will usually start by demanding all of the money you owe and ask that you pay it immediately, they are generally willing and able to negotiate. Typically, the more you owe and the further delinquent you are, the more flexibility they have. If you have only missed a payment or two, you may be able to get late fees removed or interest rates reduced, once you make payment. If you are further delinquent, you may be able to negotiate for principal reduction or lower monthly payments. PLEASE NOTE: This is NOT a recommendation to wait until you are in real trouble to negotiate. That strategy will severely damage your credit report and credit scores and will cost you far more in the long run. Before you start any negotiation, you need to have a strong grasp on your current budget and financial situation (keep reading for some tips on that).

Second, you need to be realistic about your budget and what you can pay.

Here are some tips to consider:

Make sure the necessities are paid for first. This includes food, housing (mortgage or rent payments), necessary utilities (HBO is not a necessity) and transportation. This will give you your new stripped-down budget. You won’t like it, but hopefully this is only temporary!
Paying unsecured loans like student loans and credit cards have to be a secondary priority. One word of warning, if you can maintain minimum payments on all of your cards, that is a better strategy than making bigger payments on one card while ignoring the others. The reason for this is that the credit card companies report your account each month to the consumer credit bureaus. If lenders see your credit report deteriorating, even the company you are paying may close your account. It is difficult to get by without at least one credit card.
Once you’ve set a budget you will know what you have left over for these non-essential debt payments. This is all you should ever agree to pay a bill collector.
In order to make sure you get as much mileage out of this pool of money as you can, you should review all of the non-essential debt payments you have each month to determine if you can make them with your new stripped-down budget. If not, it’s time to negotiate for lower payments.
If you need help, don’t be afraid to ask. Sometimes consumer credit counseling is the right thing for you. A legitimate credit-counseling agency can help you with your budget and with negotiating lower payments. For a list of reputable services, check out the National Federation of Credit Counselors website at nfcc.org.
Don’t do this alone. It is important to communicate with your spouse and any adult children who live with you so that everyone knows the plan. A united front when speaking with a collector is important.

Now that you have some insight into the thinking and motivation of the bill collector and have a good handle on what you can really afford to pay, the last step is to know your rights. Check out my posting: Your Rights Under the Fair Debt Collections Practices Act for a quick review of what you should know.

Your Rights Under the Fair Debt Collections Practices Act

2009-06-01T10:27:00.006-04:00

The Fair Debt Collections Practices Act (FDCPA) sets the rules by which a bill collector or collections agency may contact and interact with debtors. The law only applies to third party collections agents, not in-house collectors. For example, if a collection agent is an employee of the company to which you owe money, he or she is not required to abide by the laws set forth in the FDCPA. Despite this, many in-house collections units still follow the FDCPA laws because they make good sense and provide for appropriate customer treatment. Here are some of the highlights off the FDCPA:

A collection agent may not call you during unusual hours or at a time that is known by them to be inconvenient to you. Typically, 8:00AM – 9:00PM are considered acceptable times to call.
If you inform the collection agent that you are working with an attorney to resolve your debts, the agent is no longer allowed to contact you directly with regard to the debt. You will be asked to give the agent the contact information for your attorney.
If you file bankruptcy, the agent is no longer allowed to contact you directly with regard to the debt. The agent may contact your attorney, so make sure to give him or her the appropriate contact information.
An agent may not call you at work if you are not allowed to receive calls at work. You have to tell the agent that you are not allowed to receive calls at work in order for him or her to know that.
An agent may not call repeatedly in order to annoy or harass you.
An agent may not use harassing or obscene language during a call.
If you tell a collection agent not to call you, they must stop and may only communicate in writing from that point on.
A collection agent may not misrepresent himself or herself as someone else. This includes law enforcement or a government agent.
A collection agent may not speak with any third party, who is not liable for the repayment or the debt, about the debt without your permission.

In addition to the FDCPA, your state may have other laws, which collection agents must follow. For more details, contact your state attorney general’s office. If you feel that a collection agent has violated the FDCPA, you should contact the company to which you owed the original debt, your state’s attorney general and the Fair Trade Commission (ftc.gov).

Unused Credit Cards - Close 'em or Keep 'em?

2009-05-27T10:56:00.013-04:00

If you are like many consumers, the number of credit cards in your wallet (or purse, or nightstand drawer!) has been steadily growing over the years. In fact, myfico.com reports that the average consumer now has nine credit cards in his or her name.

With the seemingly endless stream of enticing card offers, from 0% financing to generous rewards on your purchases, it became very easy to accumulate a stack of plastic. But many of us now possess a number of credit cards that are not being used at all. And while you may be tempted to close out these accounts, you may not want to cut up your plastic just yet.

While some believe that having a large unused credit line could hurt their ability to get a new loan in the future, in reality the opposite is usually true. When you close an unused credit card, you can negatively impact some of the factors used to calculate your credit score. These include:

Credit card utilization: Your overall credit card utilization (your total balances divided by your total credit lines) will increase when you close an unused card, as the card you are closing will effectively have its credit line reduced to 0. And higher credit card utilization may hurt your credit score, especially if your resulting utilization starts to exceed 30% to 40% of your total credit lines. The impact can be particularly dramatic if your remaining open credit card accounts have little or no available credit.

“Thickness” of your credit file: If you have very few loans or credit cards, closing your credit card can result in a credit score that is based on too few relationships, which can limit your availability to credit in the future. Multiple credit relationships, even those that are not being utilized, will tend to help your credit score.

In addition, with credit markets tightening, you are probably seeing fewer credit card solicitations in your mailbox. For this reason, it may be wise to hold on to an unused card so that you don’t find yourself without an available credit line in the event of an emergency.

Despite this, there are still some valid reasons to close an account that you are no longer using:

To reduce the chance of identity theft: Many people do not actively keep track of the cards they no longer use. If an unused card (or card number) is stolen, you may not realize it until someone has used it to steal your identity. It is important to know what cards you currently have, and to not ignore any correspondence you receive regarding these accounts.

Self control: If you believe that you will tempted to use the card to purchase items that you can’t afford, then you should close your account. While there are a number of good reasons to keep an account open, it will not be worth it if you are going to use the card to increase your debt.

Annual fees: You should not keep any unused card that requires an annual fee.

Incidentally, if you find a credit card that you haven’t used for some time, you may wonder if it is still an open, usable account. Periodically credit card companies will close out credit card accounts that have been inactive for an extended period of time, but this practice differs from company to company. An excellent way to see what credit cards you have and whether they are open or closed is to request a copy of your credit report from one of the three national credit bureaus. Stop by Credit Gumbo’s Credit Bureau section to get started now!

Starting a New Business? Consider Getting a Business Credit Card

2009-05-27T10:07:00.015-04:00

Congratulations, you just opened your doors, hung your shingle or launched your website. Now let’s talk about credit cards! I know this might not be at the top of your to-do list, but you may be surprised to know that a business credit card can give you more time to focus on your business, pave the way to facilitating expansion, and save you money in the process.

I’ll tell you what, take a few minutes to read this article and you’ll probably find a way to fit applying for a small business card into your schedule today.

In the interest of time, I’ll cut to the chase and highlight a few things a business credit card can do for you right here. If you choose to read beyond these four points, I’ll give you more details.

1. Establish a credit history for your new business so that when you are ready to expand and become a bigger business, you’ll have a better chance of getting the loan you need.
2. Save you time every month by easily separating your business expenses from your personal expenses.
3. Save you money at tax time.
4. Protect your personal credit by keeping business credit card balances off of your credit bureau report.

If your ready to get a business credit card now, check out some of our favorites at Top Business Card Picks.

If your still not convinced, and have a little more time, here are the details.

Establish a credit history for your business: Many business credit card companies report the performance of their business credit card customers to one or more of the business credit bureaus (D&B, Experian or Equifax). Most lenders who make business loans will review reports from these companies when making lending decisions. Establishing a good credit history for your business by opening a business credit card, using it and making your payments on time will help you when you apply for loans in the future. Beware; while most business credit card companies report to the business credit bureaus, there are some that do not. It is probably worth a few minutes to call the credit card company you are considering, to ask if they do.

Save time by separating business from personal expenses: As a new business owner time is likely a scarce resource. Who wants to spend it combing through pages of credit card statement trying to separate your business and personal expenses? Using a business credit card can help you avoid time consuming conversations with yourself like, “was that Office Depot charge last month for printer ink for the office or for Tommy’s school project?”

Save money at tax time: I’d bet you have better things to do with your money than pay more taxes than necessary. Small business owners notoriously miss deductible expenses. Using a business credit card for as many business expenses as possible will help to ensure that you don’t miss any deductible expenses that are buried on your personal credit card statements. If you plan to use one, ask your accountant, I think you’ll find that he or she agrees.

Protect your personal credit: While many business credit card companies report to business credit bureaus, most do not report business card accounts unless you miss payments. This is an important, yet often overlooked benefit of a business credit card. Why? Credit scores, which virtually all lenders use to make credit decisions, are based on the information on your personal credit bureau. They consider things like your total amount of credit card balances, total number of credit cards and the how much of your total credit card limits you have used. If you use your personal credit cards for business purchases, lenders will think you personally have more credit card debt. This could decrease your credit score. A lower credit score makes it more likely you will have your APR increased, credit limits decreased or find it more difficult to get approved for things line mortgages and car loans. So keeping your business expenses off of your consumer credit bureau by using a small business credit card makes a lot of sense.

Now that you’re convinced, check out Creditgumbo.com’s Top Business Card Picks. Or, for more information, browse through the “Business Credit Card” listings in our Credit Blog section. Oh, and best of luck with your new business!

Credit Faucet Beginning to Flow?

2009-05-26T15:26:00.010-04:00

I hear a dripping sound coming from the large credit card issuers, and I am hopeful that it foreshadows the opening of their credit spigots. In the week prior to the extended Memorial Day Weekend I found four different credit card offers in my mailbox – two consumer and two small business.

Like it or not, our household (and small business) economy is predicated on the proper flow of credit. It enables us to purchase homes for our families, finance the automobiles we drive to work or school, and to facilitate the convenience associated with many everyday purchases.

When the tap was wide open and annually billions of direct mail solicitations were finding their way into our mailboxes – as the recipients we often cursed the junk mail. But, the sources we rely upon for access to much of the credit we need – seemed to have disappeared in recent months.

So last week I was quite pleased to receive these four solicitations from four different card issuers.

Bank of America Platinum Visa® Business Card;

0% APR on balance transfers for 12 billing cycles
No Annual Fee
A Purchase APR between 8.99% and 19.99%

Chase Business Card with Premier Cash Rebates;

3% Cash Back on everyday purchases,
1% unlimited on everything else
No Annual Fee
13.24% variable APR

Citi® Gold / AmericanAirlines® Advantage® World MasterCard®;

25,000 Bonus Miles
Annual Fee - $0 for first 12 months, $50 thereafter
13.24% variable APR

Discover® More® Card;

0% APR on purchases until October 2009,
10.99% variable thereafter
3.99% APR on balance transfers until 2013
5% Cash Back on select purchase categories, 1% unlimited on everything else

I hope my mail carrier doesn’t mind, but I am looking forward to the responsible flow of credit once again. Here at CreditGumbo.com we strive to stay abreast of what is happening in the world of credit. Keep an eye on our Credit Blog for frequent reports of what we are seeing in the mail. Also, be certain to check out our Top Picks section of the site.