Clarifying Interest Rate Changes Allowed with the CARD Act

The CARD Act is now in place and providing important protections for credit cardholders. Consumers are saving millions of dollars through some of these provisions, such as the elimination of over the limit fees and the restrictions on interest rate hikes during the first year of an account.

Credit card companies have had to find ways to make up for this lost revenue. Many issuers have increased balance transfer fees, cash advance rates and foreign transaction fees. There are not more cards with annual fees and most every fixed rate card has been changed to a variable rate card.

Based on the 1000+ cards found in the LowCards.com Complete Credit Card Index, the average APR the week before the CARD Act was signed into law (May 2009) was 11.64%. As of last week, the average interest rate had increased over two percentage points to 13.70%.

A new study from Synovate confirms that issuers have increased rates on existing cards. According to their statistics, the average APR in the second quarter of 2010 increased to 14.7% from 13.1% a year ago. Synovate reports the average interest rate is at the highest level since 2001 despite the prime rate being at an historic low. There is now an 11.45 percentage point gap between the two rates, the largest in at least 22 years.

“Higher interest payments are hard on consumers, but it will get even worse if the Federal Reserve starts to make changes that increase the prime rate. Nearly every credit card now has a variable rate and many of those cards have the prime rate as their base. Once the prime rate rises from its historic low, consumers will see a corresponding increase in the APR of those variable rate credit cards,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

There seems to be some confusion among consumers on how the CARD Act can affect your credit card interest rates. Here is some information:

• The Card Act does not cap interest rates. Issuers can still increase your interest rates. However, competition provides its own regulatory-type influence to help anchor down rates and keep them from soaring.

• Issuers have to give a 45-day notice for rate increases unless it is a variable rate card and the card’s index (usually the prime rate or LIBOR rate) increases.

• If your credit card company does raise your interest rate, the new rate will apply only to new charges you make. If you have a balance, your old interest rate will apply to that balance.

• If your credit card’s rate has been increased since January 1, 2009, the new rules require issuers to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate. Since the beginning of last year, millions of cardholders have seen their interest rates increase. Some issuers raised rates to as high as 29.99% for cardholders with good credit. Issuers must also perform a review every six months on accounts that receive a rate increase. The review should determine if changes in key factors (such as cardholder credit risk, payment history, and market conditions) give reasons to reduce the rate.

• If your payment is 60 days past due, the issuer can raise your APR to the penalty rate (30% for some cards). If you immediately make at least your minimum payment on-time for six straight months, then your issuers needs to reevaluate your account. However, if you make another late payment during that six month period, the higher rate could apply indefinitely to new transactions.

• Issuers can still apply your minimum payment to the balance with the lowest interest rate. Due to the CARD Act provisions that went into effect this past February, the remainder of the payment has to be applied to the balance with the highest interest rate.

• Issuers can’t raise your rate during the first year of an account unless your payment is more than 60 days late, or unless it is a variable rate card and the card’s index (usually the prime rate or LIBOR rate) increases.

Here are some tips for consumers regarding their card’s interest rates:

• Shop around for a card with a low rate. Direct mail offers are increasing again. Don’t necessarily apply for the first offer you receive. Compare your offer with others found on the internet.

• Consider transferring your balance to a card with a 0% intro rate for twelve months and a lower ongoing rate. This could be beneficial if the amount of interest you save significantly outweighs the upfront balance transfer fee you will be charged. You need to do the mathematical calculations to determine if this is a financially prudent move for you.

• Pay down as much as  you can on the balance with the highest rate. Any amount above the minimum payment will be applied to the highest rate.

“Paying off your credit card debt is the only way to be unaffected by rate increases. Higher interest rates drain away money that could be used to pay off your debt, extending the time it takes to eliminate the balance. If you have a few extra dollars, make smaller payments more often. Micropayments save on the interest you pay and will help you eliminate your debt more quickly,” says Hardekopf.

Another Sign of Recovery: Credit Card Mail Solicitations Increase 83%

Look no further than your own mailbox to see that the rebound in the credit card industry is underway.

According to a recent study by Synovate Mail Monitor, households in the United States received 640.3 million credit card offers during the second quarter of 2010. This was an 83% increase over the 349.1 million offers mailed during the same quarter in 2009. Several issuers showed very significant increases in volume during the April-June period: Chase quadrupled their mailings and Citi nearly tripled their solicitations.

This increase in mailings follows a 29% jump during the first quarter of the year (481.3 million offers versus 372.4 million).

For the first six months of 2010, there have been 1.12 billion credit card offers sent through the mail. During the entire year of 2009, there were 1.39 billion offers.

“This is an indication that the financial outlook for credit card issuers has improved dramatically. Defaults and delinquencies continue to decline, and they have put new policies in place, as well as some increased rates and fees. They are one again aggressively pursuing new customers, but this time around, they seem to really be focusing on those with good or excellent credit scores,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

In addition to increased mailings, issuers are using incentives to get potential cardholders to sign up for their credit card. 71% of these mail solicitations contain an introductory offer, the highest percentage in the 22 years of Synovate tracking this data. A number of these introductory offers have 0% APR for a certain number of months.

While these credit card mail solicitation figures are hefty increases over the previous year levels, they are substantially below the record 1.58 billion mailings sent during the third quarter of 2005.

Is Your Credit Card Company Upfront with its Customers?

This is a guest post by Odysseas Papadimitriou, founder and CEO of CardHub.com, an online marketplace for credit card offers.

Do you know what to look for before you apply for a credit card? If you’re not prepared ahead of time, there’s a good chance you might miss some key information on your credit card agreement. A recent study from CardHub.com found that many issuers still lack transparency on their credit card applications, despite recent regulations under the new credit card law (Credit CARD Act) meant to promote clarity in the credit industry.

The Summer 2010 Credit Card Application Study evaluated how much information could be gathered on a credit card application without reading the fine print, as this is what most consumers see before they apply for a credit card. The study evaluated the 10 largest issuers on the clarity with which they disclosed essential information such as APRs, common fees, and details on rewards programs. It was determined that the ideal application would have this information clearly displayed, without the applicant having to actively search for it.

Of the issuers evaluated, Capital One and Bank of America ranked the highest, with scores of 96.4 percent and 95.0 percent, respectively. The issuer that performed the worst in the study was U.S. Bank with a score of 59.3 percent. USAA and American Express followed with scores of 77.5 percent and 78.3 percent, respectively.

The category in which issuers performed poorly across the board was clear disclosure of the balance transfer fee. It is particularly important that this fee is clearly displayed because it less likely that a consumer would know to look for it (as opposed to knowing to look for the APRs) and it can cost the applicant a significant amount of money.

Applications were also consistently lacking in information on rewards programs for non-cash-back rewards credit cards. There was often information on how to earn rewards (e.g. one rewards point for every $1 spent), but it was often difficult to find how much rewards points and miles were actually worth (i.e. is 15,000 points worth a trip to Florida or a trip to Europe?). In order to find this information, the applicant typically had to read the fine print and in some cases navigate to an entire new section of the website.

Although clarity was lacking in some areas, there were also signs of improvement. Vague language and phrases such as ‘up to’ and ‘as low as’ were found to have diminished considerably. It was also often fairly easy to find information about the annual fee and in many cases the introductory APRs.

This improvement is encouraging, but the fact remains that in order to truly know what you’re getting into when applying for a credit card, you must carefully read the terms and conditions of your credit card agreement. If nothing else, be sure to look for the introductory and regular APRs for purchases and balance transfers, the annual or monthly fees, the balance transfer fee, and details on your rewards program. This will give you a good start for being your own financial advocate.

Simple Things You Can Do to Improve Your Resume

It may be back-to-school season for kids and their parents, but for a lot of people it has been find-a-good-job season, especially for recent college graduates who have spent the summer interning or preparing for the work force all summer.

In order to score the interview for that job you saw that you swear was made for you, you’re going to need a resume and because you have a lot of competition, being one person in a big crowd of people who all firmly believe that job was made for you, you’re going to need a resume that accurately sings the praises you know you deserve. So here are some simple things you can do to improve upon that resume you’ve been pouring over.

• Keep It Up-to-Date
  If you’re still sending out the resume you wrote three, six, or even twelve months ago, make sure to take a few minutes and think back over the course of where you have been and what you have done since you first wrote your resume. Have you acquired any new skills or become more proficient in something you didn’t feel confident including in your first draft? Be sure to add them before you change anything else. Potential employers want to know who the person applying for the job they are offering is now, not who they were a few months ago.

• Organization is Key
  If you Google how to write a resume, you’re going to find a ton of results that look super fancy, have embellished language and design and frankly, a lot of stuff that doesn’t need to be there. To pull off a distinctly professional and clear resume, all you need to know is how to use headers to announce distinct sections of your resume and bullet points to separate your thoughts and experience.

• Don’t Marry Your Words–Self-Editing is Your Friend
  Speaking of embellished language… a resume is a list of your skills and accomplishments and it is meant to be a quick way for your potential employer to see if you possess the skills and knowledge in order to get the job done. While correct spelling and grammar are a must, you do not need to include your life story in your resume, nor do you need to write more than what is necessary. Keep your resume condensed and easy for someone to read quickly.

• Use Keywords
  Managers who are constantly receive a high volume of resumes are beginning to rely on search systems that filter through someone’s resume and places them in an automated search based on whose skills match those of the job description. Use keywords when and where they make sense, but be sure to include the keywords that you saw in the job description for the job you’re applying for without copying and pasting the full job description language.

• Include Your Name in the File Name
  Instead of just naming your resume ‘resume’ on your computer and sending it to your potential employer, be sure to get noticed and stay noticed by including your full name in the file name of your resume. For example, your file name could be “Jane Doe Resume” or you can also include the date along with your name to refresh the employer’s memory of who you are and when you first showed interest in the job.

Additional Provisions of CARD Act Take Effect Sunday

Some of the final provisions of the CARD Act go into effect next week and these could prove very beneficial for credit card consumers. Starting August 22, new rules may result in interest rate reductions as well as limitations on some fees.

Here is a look at the three major provisions of this part of the CARD Act.

Interest Rates
If your credit card’s interest rate has been increased since January 1, 2009, the new rules require issuers to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate. Issuers must also perform a review every six months on accounts that receive a rate increase. The review should determine if changes in key factors (such as cardholder credit risk, payment history, and market conditions) give reasons to reduce the rate.

“This is the rule that could make a real difference for cardholders. Since January 2009, millions of cardholders have seen their interest rates increase. Some issuers raised rates to as high as 29.9% for cardholders with good credit. These higher rates shocked cardholders and they want their APR restored to the original rate,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “However, the catch in this is two words, ‘if appropriate.’ The final decision is left with the card issuers. Credit card issuers need revenue and they may not be eager to review and restore the original rates.”

According to the LowCards.com Weekly Credit Card Rate Report, the average advertised credit card rate was 11.68% in January 2009. Last week, that average was 13.71%.

Fees
The new rules also protect card users from unreasonable late payment and other penalty fees. They should now be assessed in a way that is fairer and less costly for consumers.

Issuers can only charge one fee for a single event or transaction that violates the cardholder agreement. The late payment fee can’t be more than $25 or more than the cardholder’s minimum payment. However, if one of the last six payments was late, issuers can charge up to $35. The fee may also be higher if the credit card company can prove that the costs it incurred due to the late payment justifies a higher fee.

Currently, the late payment fee is typically $30-$39, and the same fee is charged whether you are late with a $20 minimum payment or a $100 minimum payment.

The rule also eliminates inactivity fees. Credit card companies can no longer charge fees for not using your card.

“Issuers are already reacting to this limitation. Instead of the inactivity fee, some issuers are adding a yearly minimum. If you charge less than this minimum amount, then they charge you an annual fee,” says Hardekopf.

Gift Cards
The new rules apply to all store and merchant gift cards, as well as cards for general use, such as Visa gift cards. These rules include:

• Limits on expiration dates. The money on your gift card will be good for at least five years from the date the card is purchased. Money added or loaded on to the card must also be good for at least five years.

• Replacement cards. If your gift card expires and there is unspent money, you can request a replacement card at no charge.

• Fees. The law bans dormancy, inactivity and service fees on gift cards unless there has not been any activity for twelve months and the issuer clearly discloses all fees on the packaging. In those cases, consumers can only be charged one fee per month. Last month, Congress passed legislation to extend the effective date for the disclosure requirement until January 31, 2011, for cards issued prior to April 1, 2010.

Some states have stronger state laws for gift cards and these will remain valid. Many states do not allow fees or expiration dates. In California, a card with cash value of $10 or less may be redeemed for cash.

New Checking Account Overdraft Rules Now in Effect

Some Americans may be surprised by new changes in their checking accounts. Overdraft protection is no longer available for checking account customers unless they “opted in” for this service.

Before these new Federal Reserve rules took effect, most banks automatically added courtesy overdraft protection to checking accounts, providing the details and fees in the fine print. Some customers didn’t realize the high price of the fee until they incurred the charge.

An overdraft occurs when one does not have enough money in a checking account to pay for a transaction, but it is paid by the bank anyway. This service is a loan from the bank and it isn’t free. Banks charge a non-sufficient funds paid item fee (NSF) that is typically $30-$40. A fee is charged for each transaction paid in this manner.

If you did not opt in, your bank’s standard overdraft practices no longer apply to your everyday debit card and ATM transactions. These transactions typically will be declined when you don’t have enough money in your account, but you will not be charged overdraft fees.

The new rules don’t lock you to your choice forever; you can still make changes to your account. You can choose to opt in or out of overdraft protection at any time.

The rules are good for consumers, but will reduce revenue for banks. Some banks will try to persuade customers to choose the “benefits” of overdraft protection since banks are anxious to hold on to as much fee income as they can.

“This is a good time to sign up for free online alerts offered by most issuers. You can get a daily text or email that tells you the balance in your account. Knowing the amount of money in your checking account can help you avoid the embarrassment of a declined purchase,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

The new rules do not cover checks or automatic bill payments–banks can still authorize and pay overdrafts for these transactions at their discretion and charge a fee. If you do not want your bank’s standard overdraft practices in these instances, talk to your bank; they may give you the option to cancel.

Statistics on how many people have opted for overdraft protection are not yet available. A July poll conducted on the National Foundation for Credit Counseling website found that 26% of 2,089 respondents intended to opt in for overdraft protection.

If you are interested in the overdraft protection, be sure to carefully read the fine print to understand its costs and limitations. The cost of an overdraft may not end with the NSF paid-item fees. Secondly, transactions are not necessarily processed int he order they occur so banks can charge the items to your account in any order they choose. Finally, even if you choose to opt-in, the payment of an item is discretionary. Banks will choose which transactions to cover so a consumer can’t always count on having overdraft protection when you need it.

Your bank may offer less expensive alternatives to overdraft protection. Some banks allow you to create a link to your credit card, savings account or line of credit that will fund overdrawn transactions. There is a fee for each transaction, but it is typically $5-$10, much less than the overdraft protection. You must contact your bank to set up this alternative service, since it is not part of the opt in selection.

Credit Card Debt Continues to Fall

Americans reduced credit card debt for the 21st straight month in June.

The latest Federal Reserve Consumer Credit Report showed that revolving credit, which is primarily credit card debt, decreased in June at an annual rate of 6.5%. It dropped $4.5 billion for the month, and has declined nearly $150 billion since October 2008, from $976.1 billion to $826.5 billion.

This drop in credit card debt is good for consumers and issuers. Delinquency rates are dropping, indicating that consumers are paying down debts to manageable levels and reducing their risk of default. But not all of the credit can go to consumers, since issuers have minimized their risk by maintaining stringent credit card approval rates, slashing credit limits, writing off bad loans and canceling accounts.

“Paying off debt and spending less is good for personal finances. Fewer delinquencies and smarter lending practices are good for banks. However, cutting back on spending and lending is not good for the economy if they go too far and continue for too long. Lending and spending are the oxygen and water for the economy, and our economy will grow weak without a healthy supply of oxygen and water,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

The Federal Reserve is searching for new ways to stimulate lending and revive the economy. Interest rates have remained at historic lows since December 2008, but these low rates have provided little incentive for lenders or borrowers.

On Tuesday, the Fed left its key bank lending rate at zero to 0.25%, the lowest level in decades, and appears to be in no hurry to raise it. The Fed’s announcement said rates will remain “exceptionally low” for “an extended period.” This means rates on some credit cards, home equity loans, some adjustable rate mortgages and other consumer loans will stay low.

Ideally, the low rate encourages businesses and individuals to finance major purchases, generating momentum in the economy. However, interest rates have been at the historic low for a couple years and have not created the spark.

A low prime rate does not guarantee a low interest rate for credit cards. In August 2008, before the recession, the prime rate was 5.0% and the average credit card APR was 12.03%. Today, the prime rate is 3.25% and the average credit card APR is 13.67% according to the LowCards.com Weekly Credit Card Rate Report.

Free Online Alerts Can Help Credit Card Customers

Congress has passed many new rules and regulations to help credit card customers, but one of the best consumer protections is offered for free by credit card issuers. Online banking alerts provide instant updates on your account and can be sent by text or email.

“We have busy lives and do not have time to closely monitor our accounts all of the time. These online banking alerts can be a tremendous help in letting you know some important account information about your credit card. They can certainly help you avoid some painful late fees or over-the-limit fees, as well as notifying you of possible fraudulent activity. These alerts give you more control over your account and help you take immediately action,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

Online alerts can let you know your daily account balance, when your payment is due, and when the payment has been posted to your account.

In addition, these alerts can:

• Notify you when your credit card balance reaches a certain level you set. Or when your available credit is less than a predetermined percentage of your total credit limit.

• Make you aware of irregular credit card activity.

• Inform you when a purchase above a set amount is charged to your account.

• Let you know when changes have taken place with your account’s information such as the address, phone number, or email. This may indicate fraudulent activity.

• Some cards allow you to keep track of your monthly point balance.

The alerts are free, but your phone carrier may charge for the text messages. The issuers point out that they can’t guarantee the accuracy or delivery of an alert and they are not liable for the delays or errors in the content of any alert.

Financially Preparing Your Child for College

It is almost time for your high school graduate to leave for college. Talking with your son or daughter about budgets, credit cards and the dangers of debt should be part of the preparation in sending them off into a life on their own.

“Credit cards represent freedom and independence for college students, especially that first year when living away from home is new and exciting. The more they understand about the correct use of credit and its consequences, the more responsibly they can handle it,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “Money management is not a skill they should learn from their friends or by making mistakes.”

What Has Changed
As of February 22, the CARD Act began limiting credit options for students under the age of 21. While the regulations protect students from aggressive credit card marketing on campus, the law also restricts credit availability for students. If you are under 21 and want to open a credit card account, you will need to show you are financially able to make payments, or you will need a co-signer.

There are many benefits but also some potentially harmful side effects to these regulations. Parents can have more control and more influence over their students’ finances. These strict application requirements will reduce the number of college students with credit cards and credit card debt. But the law also eliminates the opportunity for responsible students to begin building a good credit score at a young age.

Before the CARD Act, it was very easy for college students to get a credit card. Issuers wanted to build brand loyalty early and if students got into debt, the parents typically bailed them out. This also gave responsible students a chance to build a good credit score while they were in college. Today, if college students can’t get a credit card while in school, it limits their ability to start building their credit score. While the credit score may not matter in college, it will matter immediately after graduation. Lenders, employers, and even apartment managers use credit scores to help make judgments about the applicant. A low or non-existent credit score could mean higher rates for loans or even a missed job opportunity.

Payment Options for Students Under 21
* Credit cards. Students under the age of 21 can get a credit card if he or she has a co-signer or has proof of the ability to make payments.

Co-signing should only be an option if your student can use a credit card responsibly. If the student makes a late payment, it also shows up on the co-signer’s credit report. If the student can’t pay off the debt, the co-signer is responsible for all the debt.

As a co-signer, you will also receive a monthly statement. Credit limits can’t be increased without your approval. It is advisable to “opt-out” for over-the-limit coverage; then, any charge that puts your account over the limit will not be accepted. This avoids costly over-the-limit fees.

Sign up for online account alerts. You can receive a text or email when a payment is due, and if there is irregular activity in the account.

“Students can also get a credit card if they have a job or can afford the payments. Credit card issuers give very little guidance in their terms and conditions about minimum income requirements or how they verify income,” says Hardekopf. “The definition of income also varies by issuer. Some include stipends, grants, and scholarships as income.”

* Debit cards. These cards are tied to checking accounts. Opt-out of overdraft coverage to avoid overdraft fees. Online account alerts can notify you when the account falls below a specified balance. Debit cards do not help build credit scores and they may not be a sufficient balance during an emergency.

* Prepaid cards. These can be purchased anywhere, even grocery stores. However, they also have fees, so read the fine print before you purchase.

* Secured cards. These cards have more fees and the interest rate in high, so pay it off each month. But secured cards are relatively easy for anyone to get before it is secured by a prepaid deposit. Make sure that the card reports to a credit agency. Secured cards from Orchard Bank and Public Savings Bank both report to credit agencies.

Credit Card Stats for College Students
According to a Sallie Mae study, 84% of college students had at least one credit card in 2009, up from 76% in 2004. The average amount of debt carried by college cardholders is $3,173 which represents a 46% increase over the 2004 figure of $2,169. The average number of cards per student is 4.6. Only 17% pay off their entire balance each month and 22% make just the minimum payment.

Even though these numbers should drop because of the CARD Act, they still show the importance of talking with your students before they get into debt. The CARD Act does not remove this responsibility from parents.

Talk With Your Student About Credit Card Debt
Parents should teach their student how to budget, spend wisely, and use credit. Start with your own credit card bill and use it to explain interest rates, grace periods, and minimum payments. Explain the high rates of cash advances and how to avoid these loans. Show them examples of how much they will pay in interest by only making the minimum payments. Tell them about the fees and penalty rates. Use online payment with reminders to help avoid late payment. Teach them to monitor their credit limit and if you must carry a balance, keep it under 30% of your credit limit.

Make it clear that credit cards are loans that have to be repaid in full each month. If you can’t afford to pay for the item with cash, then you can’t afford the item. Tell them what is a good time to use a credit card for payment (textbooks, emergencies) and what isn’t (clothing, food, entertainment).

Teach them that credit scores will be nearly as important as test scores. Show them a copy of your own credit report and use that as an example of building a good (or bad) payment history with credit cards. They can even review their credit report for free each year to check their progress at annualcreditreport.com.

Give advice on how to avoid credit card theft and what to do if your card or identity is stolen. Don’t let anyone else use your card.

Debit Card Use Tied to Credit Scores

A new study by MasterCard shows that debit card use is correlated with credit scores. Consumers with lower scores use debit cards more often.

The study showed that consumers with scores below 650 (subprime) use debit cards an average of 28 times per month and spending averages $860. Consumers with scores above 720 (superprime) use debit cards an average of only 11 times per month and spending averages $324 per month.

Subprime consumers use debit cards for 73% of card spending. Superprime consumers only use debit cards for 28% of card spending.

Consumers with lower credit scores have difficulty getting credit cards. According to a recent FICO study, over one-fourth (25.5%) of Americans have poor credit. Nearly 43.4 million people now have a credit score of 599 or below.

The MasterCard study says that debit usage peaks in the middle income bands ($40,000 – $70,000 in household income). It is lower among consumers with both lower and higher income. However, it shows the average number of monthly debit transactions is growing among prime users as they use debit cards instead of cash and checks.

The overall use of debit cards is increasing. According to their annual reports, MasterCard’s debit card usage in this country increased 10.5% in the fourth quarter of 2009 versus year ago levels, while Visa reported a 17% increase.