Friday, Dec. 19
Posted 2 p.m.

Holiday letter to credit card issuers

Yesterday several regulatory agencies approved rules that credit card issuers will have to adhere to by July 2010. This is good news for consumers (although the issuers still have 18 months to do what they want). We hear a lot of complaints that hopefully will subside once these regulations take effect.

However, there are a lot of other issues that cardholders have with their credit card issuers. I thought I would let the credit card issuers know what many of our readers complain about.

Customer service: One of the most common complaints I hear is about customer service. Cardholders get notices in their statements or in separate pieces of mail that are hard to understand. They call customer service to ask some questions, and half the time the reps don't understand the notice either. Or they get different explanations from different customer service reps. How can they help the cardholder?

So, issuers, you need to do a better job of training your people -- especially when you have zillions of letters going out to customers telling them they're going to be paying more to pay off their debt.

Broken contract: The other thing we hear is that people are angry. They feel like they've played by the rules set down in the initial agreement with the card issuer, and without provocation, the rules change.

Credit card borrowing is the only agreement that does this. If you take out a 48-month auto loan at 6.75 percent, you know that your payments for four years are going to be X amount each month. You can plan your budget. If you've got a 5/1 adjustable rate mortgage, it's dicier because you don't know what the interest rate will be when your five years are up. But at least you know the risk going in. (At least, you should: If you don't understand what kind of mortgage you're getting into, you shouldn't sign that agreement.)

But credit cards? They can change the terms for any reason they feel like or add new fees. Issuers have given cards to too many people who can't pay their bills? Oops! We'll jack up their rates so they're in even deeper. (Hmm, sounds like the mortgage mess …)

Lower my interest rate. Many of our readers have told me that they want to pay their credit card debts; they just want a reasonable interest rate so they can do it. They can manage at, say, 11 percent, but not at 19 percent. Surely the credit card issuers can still make money by charging 11 percent interest.

The issuers say they are raising interest rates "due to market conditions." They are managing their risk. I understand that extending credit without any collateral, such as a house or a car, is risky. Americans have $976 billion in revolving (that is, credit card) debt, according to the Federal Reserve's most recent report on consumer credit. But this is the credit card business, and they've been making billions of dollars for years.

If you really want to manage your risk, lower interest rates to the national average (11.04 percent for standard variable cards, according to Bankrate's weekly survey) so that people will be able to pay their debt to you. Isn't it better to have cardholders pay their debt at 11 percent interest rather than default at 19 percent?

So that's what I've go to say on behalf of Plastic Rap readers.

This will be my last post of the year, as I head off to Wilmington, Del., home of my family, Vice-President-elect Joe Biden and the majority of credit card issuers in the world! Merry Christmas to all, and let's pay off our credit cards in the New Year!

Comments? Questions? E-mail me at Plastic_Rap at Bankrate.com.

Thursday, Dec. 18
Posted 2 p.m.

The domino effect of closed accounts, lower limits

Bankrate reporter Leslie McFadden contributed this entry.

On a daily basis, my editor Ellen Cannon and I receive reader complaints about credit card issuers making unwanted account changes.

The closing of an account, the raising of an interest rate, the addition of a new fee or a lower credit limit cause their own frustrations, but some of these adverse changes can also harm your credit score. Credit scores are based only on the information in your credit report. Since rate and fee information isn't reported to the credit bureaus, a new fee or higher rate won't directly impact the three-digit number.

"It's the credit limit reductions and closures of accounts that can have a domino effect on credit scores and the perception of creditworthiness of other creditors," says Greg McBride, senior financial analyst for Bankrate.com.

Having a lower credit limit or closed account can raise your utilization, or debt-to-available-credit ratio on your credit cards, a factor that contributes 30 percent of the FICO score. The loss of a high credit limit can make a person look more heavily utilized.

Closing an older account can also shorten the length of your credit history, which counts for about 15 percent of your score. Closed accounts will fall off the credit report within 10 years.

The "domino effect" from the closed account or line reduction may come in the form of other card issuers scaling back your accounts. They might slash your credit limit, jack your rate or cancel your card, among other changes. If that happens, the score can take another hit.

In a time when the minimum credit score required to qualify for a loan is going up, those whose credit scores are heading south will find it harder to qualify for new credit. "It's all about credit quality right now," says McBride. "The higher the credit score, the better. The last thing a borrower needs is anything that would bring down their scores."

One key action that could mitigate the snowballing effects of lenders' adverse actions would be if Fair Isaac Corp., which created the popular FICO score, tweaked its scoring formulas. I asked if the company had any such plans.

"Fair Isaac is taking a look at this question of the impact that credit limit decreases has on FICO scores," says Craig Watts, public relations senior manager. He expects Fair Isaac to finish its research sometime in January, but did not elaborate on what the company might do in light of its findings.

Comments? Questions? E-mail me at Plastic_Rap at Bankrate.com.

Tuesday, Dec. 16
Posted 11 a.m.

Fed to vote on credit card reforms

Bankrate reporter Leslie McFadden contributed this entry.

The Federal Reserve votes this Thursday on sweeping credit card reforms proposed in May. Among key regulations on the table:

• Restrictions on applying rate increases to existing balances.
• A ban on allocating an entire payment greater than the minimum to the balance with the lowest rate.
• An end to double-cycle billing, a method for computing interest charges that uses the average daily balance from the current and previous month.

Credit card-issuing banks have warned that constraints on risk-based pricing will result in higher interest rates for all and reduced access to credit cards. They reportedly have asked for as much as a year to implement the changes.

The reforms would enact significant protections for consumers, who are otherwise at the mercy of credit card companies. If passed as proposed, consumers would benefit from clearer rules on when payments are considered late and a ban on applying rate hikes retroactively if they were not caused by a late payment, an expiring promotional rate or index-related movement.

When the Fed finalizes the regulations, Bankrate will break down what the reforms mean to you. Check back soon.

Because banks might not have to alter their practices for some time, it's up to you to be proactive. Focus on paying down balances and sending payments on time. Read mail from your credit card companies, even if it looks like junk mail. Call your lender to negotiate any adverse changes made to your account. If possible, try not to close accounts, as doing so may lower your credit score. Find better credit cards on Bankrate.com.

Comments? Questions? E-mail me at Plastic_Rap at Bankrate.com.

Thursday, Dec. 11
Posted 11 a.m.

Cash in for Amazon.com gift card

This week I got a press release announcing an offer from Plastic Jungle, a Web site that allows people to sell unused gift cards, to get an Amazon.com card.

Usually, people go to the Plastic Jungle Web site and put in the name of the gift card issuer and the value of the card to see how much cash they can get back. Now there's a second option: People can get 105 percent of the value of the gift card -- as valued by Plastic Jungle -- they don't want by getting an Amazon.com gift card. There's a $25 minimum required on the gift card.

Say you've got $40 on a Macy's gift card; you can sell that at Plastic Jungle for $28 cash or you can get an Amazon.com gift card for $29.40. It's not much, but every penny counts.

Speaking of gift cards, you can look at the "fine print" of gift cards from American Express, Discover, MasterCard and Visa as well as 20 of the largest retailers at Bankrate's annual gift card survey.

Comments? Questions? E-mail me at Plastic_Rap at Bankrate.com.

Wednesday, Dec. 10
Posted 11 a.m.

Plastic pain

My colleague Leslie McFadden and I have been writing about the various card issuers cutting credit limits and adding fees to accounts for several weeks now. And we're hearing from readers daily telling us how this is affecting them. One of the main concerns for everyone is how these changes are hurting their credit scores.

Reader Damon A. wrote this last night:

I have perfect credit, absolutely no late payments, my debt-to-income ratio is under 20 percent, and I always pay at least three times the minimum payment. If I was cynical I would say that the credit companies are intentionally taking action that would reduce peoples' credit scores so they can start jacking up interest rates.

Reader Don B. expressed similar frustration this morning:

The offer I accepted from Chase was to "pay off your higher-rate cards"at 4.99% for the life of the transferred balance. The effect of the new monthly service fee is to render the offer I accepted a "bait and switch" because the effective interest rate will now be more than that which I accepted.

If I have been faithful to live up to my part of the agreement, shouldn't they be required to honor the offer they extended me in the first place?

We've heard this again and again: I've played by the "rules" to manage my credit and now the rules are changing because card issuers suddenly realize they have taken on too much risk.

And what about the credit reporting agencies -- Equifax, Experian and TransUnion? Are they making allowances in their scoring model for changes made by the card issuers? If available credit to credit used counts for 30 percent of a FICO score, and suddenly your ratio goes from 20 percent usage to 40 percent usage because your limit has been lowered, where does that leave your score? Is it still a proper way to judge potential borrowers? I don't think so.

Questions? Comments? E-mail me at plastic_rap@bankrate.com.

Wednesday, Dec. 3
Posted 11 a.m.

More on Chase monthly fee

Two weeks ago I blogged about Chase adding a $10 monthly account service fee to certain accounts, and said it applies only if you carry a balance and will not be charged if you pay off your balance. A reader pointed out that he was informed it would apply to his account regardless of whether he carried a balance or not.

I asked a Chase spokeswoman for clarification and here's the response:

For those accounts affected by this change, the service charge of $10 will be billed monthly whether or not there is a balance on the account.

A customer can avoid the account service charge by paying off the account balance and closing the account by Jan. 1, 2009. The last billed charge can also be removed if the account is paid off and closed within 30 days of the charge billing.

This change impacts a very small percentage of our accounts, less than one-half of 1 percent of our accounts on file. It does not apply to all accounts.

Another big change in the credit card world readers should look out for is a letter from Citi informing them of an increase in APR. Two of my colleagues received their letters yesterday and the increases are substantial, in the 6 percent to 10 percent range.

The notices came in plain windowed envelopes, they tell me, with the Citi return address but no other info on the envelope -- no "Changes to your account inside!" or any such note on it. So be sure you open any mail from Citi -- or any of your credit card issuers.

Questions? Comments? E-mail me at plastic_rap@bankrate.com.

Thursday, Nov. 20
Posted 11 a.m.

Chase adds fee, increases minimum payment

Credit card blogs and message boards have been abuzz this week with stories that Chase will be adding a $10 monthly service fee and increasing minimum payments. We contacted Chase to find out which accounts this will apply to. Here's the answer:

The fee you mention will impact one-half of one percent of our accounts on file. Those who are impacted have carried large balances for over two years while making little progress in paying them off. Beginning January 2009, we will be adding a monthly service charge of $10 to select accounts. We will also be increasing the minimum payment from 2 percent to 5 percent.

So that's the story. If you have a Chase card and have been carrying a sizable balance for more than two years, you can expect to be paying more each month -- and what amounts to a $120 annual fee to use the card. If you pay off the card and don't carry a balance, you won't be charged the monthly fee.

Letters to affected cardholders are going out this month, so be sure to open anything that comes from Chase -- even if it looks like junk to you -- and read it carefully. Of course, that's my advice about any piece of mail you receive from your credit card company.

If you're thinking you'll just cancel the card, be sure you do it carefully. The Bankrate feature "Closing credit card dings credit score" by Leslie McFadden will show you how that will affect your credit score.

Already thinking about New Year's resolutions? How about paying off your credit cards?

Questions? Comments? E-mail me at plastic_rap@bankrate.com.

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