Posted on 10/18/2008 6:58:57 PM PDT by RKBA Democrat
The impact of ultra-tight credit markets is hitting your credit cards, and you might not even realize it.
On The Early Show Tuesday, financial contributor Vera Gibbons explained that lenders are tightening terms in numerous ways, and you need to be aware of all of them to avoid possible trouble down the road.
Behind the changes is the simple fact that lenders want to protect themselves from bad debt, so they're tightening standards and practices in hopes of avoiding defaults by credit card users.
What are they up to?
LOWER CREDIT LIMITS
This is the biggest and perhaps most ominous change of all -- and something many consumers won't realize has happened to them until it's too late. Here's what's scary: You don't have to "mess up" in order for a company to lower your credit limit. Big companies such as American Express, Bank of America and others say they can and will change terms at any time, based on market conditions and the economy in general. Any "perceived risk" can also lower your limit. That includes a decline in credit scores or late payments on other bills.
How much are credit limits being cut? In some cases, the cuts are big, Some companies are lowering the limit to right above your balance, and as the balance drops (meaning, as you pay off your debt), the credit limit drops, too. That makes it VERY easy to exceed your credit limit.
Credit card companies DO have to inform you that they're lowering your credit limit, but who really reads those small-print pamphlets that come in the mail? Consumers may not know their limit has dropped until they go over it and incur a large fee. Even worse than a fee, however, is how this affects your credit score. When a credit limit is lowered, it appears that you're using a much larger percentage of your available credit. That lowers your credit score, making it more difficult to obtain a mortgage, car loan, or even another credit card.
INACTIVE ACCOUNTS CANCELLED
Something else to keep your eye on: Banks are cancelling un-used -- and thereby, unprofitable -- accounts to eliminate the costs of maintaining those accounts. An inactive card can also be cancelled if your risk profile changes. That also hurts your credit score. Again, you may not realize this is happened. If you just have the card on hand "for emergencies," you're probably not paying any attention to it. But now, more than ever, you want to protect your credit score and keep it as high as possible.
FEWER CARD OFFERS
If you consider all those credit card offers in your mailbox, you'll be glad to hear that companies are sending out fewer solicitations. HSBC has sent out 54 percent fewer offers this year; Citibank, 45 percent fewer. But if you don't have great credit, that's bad news for you. When you get those offers in the mail, it means you've been pre-approved for a card. But if you have to search out cards and apply on your own it can, once again, lower your credit score. Plus, it's simply a pain in the neck, AND it's getting harder and harder to qualify for good cards. You may have to settle for one with a much higher interest rate.
FEWER ZERO-PERCENT OFFERS
Used to be that no-fee, zero-percent credit card offers were a dime a dozen. Carrying a lot of debt? Transfer to one of these cards for free, and pay zero percent interest for a year. Now, if you even qualify, the offers are more likely to be for six months. You're also likely to pay a balance transfer fee of 3 percent or more. If you're looking for a good zero-percent card offer (AND you have good credit), Chase and Discover still have a few deals.
NO SECOND CHANCES
Mess up once and that's it, you're out of luck. Banks won't hesitate to increase your interest rate or impose big fees if you pay late, etc. It used to be that if you were a good customer, you could call and basically apologize, explain your mistake, and ask that the fee be removed or your rate re-adjusted. But no longer. Card companies are holding firm to their punishments, and no amount of cajoling will change their minds.
why should CC companies have to cater to the lowest common denominator....
Debt Free Woot
I don’t know about Discover, but American Express does it’s financial stuff through/with American Centurion Bank, which I believe they own.
Could be wrong, but that’s the information I have.
CA....
“Haven’t had to worry about it. My kids understood early that they are going to pay for their own college. The have worked hard. My eldest is getting a full ride.”
Merit based full rides are rare, and I salute your kid on his/her accomplishment. My oldest is a 7th grader who gets straight A’s but works her butt off to get the grades. Given the competition I am not sure that she will get much in the way of merit based scholarships - those usually go to the top five or so of the graduating High School class. My bosses daughter got a 35 on her ACTs (along with great classroom grades, good extracurricular activities and outside work) and went to a state university, but she did not get much financial assistance.
I am putting aside $175/mo for my oldest and her sister right now (of course with the market crash it is worth less than the amount which I have set aside). I have been doing this about two years now. The numbers don’t look great for their college even for one of the state schools if I can’t get some traction against the rising cost of tuition. I do expect my daughters to work 10-15 hours/week during the school year, and 30-40 hours/week during the summer once they turn 14.
The one thing I do not want them to do is borrow money to go to school.
““How do they make money on you?”
By charging every business a % for taking your card.”
Here we have the problem of the best interests of society versus the best interests of the individual. Most credit cards give you 1%-2% back overall for purchases (either as car rebate up front, miles, or straight cash back for example). For this reason it makes sense to use a credit card for every conceivable purchase since everyone else is doing it. Obviously the merchants are including their fee inside the product which you are buying so you are really not gaining anything and only the credit card company is the winner (they are like the casino - they win even if you pay off each month because many do not).
I think credit card companies are vultures, but I am afraid our Congress is going to bail them out just like the banks over mortgage loans. Sending the wrong message to just keep the Ponzi scheme alive.
Last year I took over my grandmother’s finances. She has $60,000 in credit card debt and no conceivable way to pay it (she is in Title 19 in a nursing home). In the end the credit card companies have little power, and I guess banks have lots of credit card debt that is uncollectable - like my grandmothers.
“I guess you never rent a car or hotel room, or buy anything over the net.”
All things you can do with a debit card.
“Ten years later, I am still debt free and own two homes. I’ve been to Thailand, Bora Bora and Europe in the last five years.”
Bravo! Amazing what you can do when you’re not up to your ears in debt.
they ought to charge like the Master Sargent, $10 for 5, 20 for 10, per month.
Anyone that uses a card for anything but a convienence card is a irresponsible fool and deserves to pay 100% per month!!!
“I don’t carry credit card debt, or car notes either. Except for a very modest mortgage, I owe nothing.”
Well done!
“But this move by the banks is going to have temporary adverse affects on the economy.”
But in the long run it might have some positive effect. People who are addicted to debt, and it does seem to be an addiction, can benefit from those “rock bottom” moments. I personally don’t think that the debtslavers are going to push credit card debtors that hard. For no other reason than they make a heck of a lot of money on the debt. It doesn’t make sense to push people to the extent that they simply clip their cards.
“One thing about credit cards, I hate the d@mn things !”
Perhaps you should consider clipping them. Another way you can work this is to have a separate checking account with a debit card. The amount that you can charge is by definition limited to what you have in the associated checking account. You can’t spend what you don’t have with a debit card.
There’s this big myth out there that you need credit, a credit score, and credit cards to survive. The truth is you don’t. The debtslavers profit from the perpetuation of that myth.
Credit card companies are raising their rates. They re-disclose (no body reads the fine print) and I have seen some like this:
28.5% APR on the AVERAGE balance outstanding.Also the monthly payment has been lowered so that if you run the amortization, (monthly payments to maturity) some cards will take close to 20 years to pay out.
Debtslavers? You bet!
Dirty little secret. They do not want you to pay off your card.
At an effective annual interest rate approaching 30% they want you to bea permament annuity for them.
You can bank with Discover but it’s not a bank.
Okay then, I think it’s time to change the subject cause you’ve got me more than a little confused.
Here’s my problem. We’re all furious at the people who moved into houses with no downpayment, no income, no job but we blame the banks for the people who put too much on their credit card.
It is happening right now. There is some concern that the US might not be able to meet its current long term T-bill obligations. Unfortunately, it is a situation of scale, in which government remedies are a factor below the problem—like fighting a brush fire in the middle of a forest fire.
Next year, US tax revenues may be down by double digits from this year, and raising tax rates will reduce revenues even further, as the Laffer curve strongly loses amplitude in the flight to stability and liquidity.
That is, huge amounts of money are fleeing yield and other capital gains investments, and going into “mattress” storage, ironically, like T-bills, that generate little or no taxable income, or are just being held as liquid assets.
By itself, this would just mean a huge increase to the federal deficit, while driving the country into depression. But in this case, federal spending, which is still seen as the solution, makes the problem much, much worse. A death spiral.
When T-bills collapse, the government is bankrupt $1 beyond tax revenues, so it is no longer able to deficit spend. With a slump in tax revenues, this could mean as much as a 25% (my guess) halt to the federal government.
The big four parts of the government, Social Security, Medicare, Medicaid and Defense, have to take the hit. Most likely immediate means testing to Social Security. No extra money to give to people who have money.
And finally, if the government wants to improve the situation, it has to cut back even further, so that it has a budget surplus of hundreds of billions of dollars.
The Pentagon is already anticipating this catastrophe, and is making huge, if quiet cuts and hopefully hiding a ton of assets off budget.
Discover has a state chartered bank in Delaware. It’s not a member of the Federal Reserve, but deposits are insured by the FDIC. So the comment up thread that Discover wasn’t a bank is just flat out wrong. Perhaps I should have been more direct in my original response.
Here’s the history:
1 8/30/1911 Institution established. Original name: Greenwood Trust Company (5649)
2 12/31/1985 Changed organization type to Credit Card Bank.
3 7/18/1986 Changed trust powers from Full Trust Powers Granted to Trust Powers Terminated.
4 12/4/1986 Moved bank headquarters from Greenwood, Delaware to Newcastle, Delaware.
5 12/31/1986 Moved bank headquarters from Newcastle, Delaware to New Castle, Delaware.
6 3/13/1987 Moved bank headquarters from New Castle, Delaware to Newcastle, Delaware.
7 6/4/1996 Moved bank headquarters from Newcastle, Delaware to Greenwood, Delaware.
8 8/1/2000 Changed name to Discover Bank (5649).
American Express has a S&L and a bank, both in Utah. The S&L is chartered by the OTS; the bank (American Express Centurion Bank) appears to have a state charter.
I know Discover solicits deposits online and by mail; I don’t know about AECB, although they are classified as having one full service brick and mortar location.
I don’t know if you’re missing the point on purpose, so let me be succinct. You don’t have to be a bank to issue credit cards.
Is that plain enough?
Why can't politicians understand the basic principles of Econ 101/Econ 102? While I found much of macroeconomics to be hocus pocus, the Laffer curve is demonstrable reality(*). The fact that revenue as a percentage of GDP is not significantly affected by tax rates suggest strongly that the U.S. is on the wrong side of the curve.
(*) I would suggest, though I've not see it drawn that way, that the Laffer curve does have a second peak well to the right of, and far below, the first one. Tax someone enough that they must either work 10 hours a day or starve, and they will either work 10 hours a day or starve. Raise taxes further so people must either work 12 hours a day or starve, and that's what they'll do. Raise taxes too much beyond that and nobody will be able to work enough to avoid starvation, but I would suggest that there is a range of tax levels were raising tax will increase revenues; Obama seems to think that's where we should be, notwithstanding the fact that the other peak on the Laffer curve is much higher.
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