your credit score: what will you do?

The "news" is that credit card companies are scrambling to do anything and everything to add fees and stuff to your credit card accounts before any legislation stops them. They are adding fees to cards with no fees. They are charging a fee for in-activity. They are raising minimum payments and outright canceling cards on you if they feel like it.

I don't want to discuss the politics of this. It's just a fact that these companies are now going to begin manipulating your credit in unforeseen ways. That may be their right as companies granting you credit. 

I want to know: What are YOU going to do about it? 

What choices do we have to cancel cards we don't want anymore (say, a card that we have which suddenly has new fees we do not want) without "affecting" our credit score from the credit rating companies? In all the reports about new legislation countering these new fees, no news story reports to me how I can do something like that. (And you know, you're never supposed to "cancel a card," because it adversely affects your credit.) 
 

Will you cut your cards and then incur an in-activity fee which might become a collections issue even tho you destroyed the card? 

If you don't have credit cards, then of course this doesn't affect you. And you probably don't have to chime in with "I haven't had a credit card since the 80s." Those of us with credit cards feel squeezed enough. 

Any thoughts? 

MC

 

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First and foremost: continue to pay all bills on time and in full. That eliminates the issue of service fees and increased interest rates.

But we're watching for annual fees and changes rewards. We'll have to do the math and see if it makes since to pay an annual fee -- if it comes -- or switch cards. With our current rewards program with the Visa Freedom card, it's probably still better to pay a $30 annual fee than to return to Discover.

Not sure what I'm going to do.  I've never had a balance that I didn't pay at the end of the month, and never paid any fees to credit cards.  But I do have several old credit cards, inactive accounts, or things like the Home Depot card, that do help my credit score by being unencumbered available credit.  I'd hate to have to close all those accounts, because my credit score would go down due to available credit to income ratio, but I don't want any fees.  I'm hoping there is some law against putting a fee on an account that has been inactive and has zero balance.

Steve, this is exactly what I'm worried about. I have great (nay, excellent) credit, and I have open accounts that I (a) pay the full balance on each month, (b) only use sporatically to keep the accounts open and the credit rating phantoms happy. None of my current cards have "annual fees," and I'd hate to have them.

Yet, you can't "close the card" if they suddenly slap a cost on to a card you don't use much anymore, can you? Then the credit raters will snap closed on you like a trap! 

So, I am just wondering what to do. No "news" outlets are suggesting fixes or ways to avoid this issue without affecting your credit rating, which of course determines whether you live or die.

WWSOS? (What would Suze Orman say?) 

MC

First I'll call the credit card company and tell them I'm cancelling unless they waive the fee. Then I'll close any unused credit card accounts before I pay an annual fee on an unused card. I'll take my chances with the mystical credit rating algorithm.

Closing unused accounts won't hurt the credit rating much unless all your credit-reporting accounts are unused.

And while your at it, pull your credit history report once every year or two just to look for suspicious activity or for anything incorrect.

Hopefully, the movement to freeze interest rates in response to this bad behavior by the credit card issuers will become law. I would also suspect there will be class action lawsuits in response to what the issuers have already done, which may allow for compensation to those who have already been victimized.

Short of all this though, my suggestion would be to look into getting a credit card from a credit union, as they are historically more consumer friendly, charge lower interest rates and refrain from predatory practices.

The day they add a fee to my card for use or non-use is the day it goes back to them in pieces. I don't give two shits what it does to my credit score. These asshole companies need to learn that they exist because of their customers, not in spite of them. The bank I deal with tried to institute a non-active account fee on credit lines. When I found out I went to the branch to close my credit line. They asked why I was closing it. I told them I wasn't about to pay 25 bucks a year for the privilege of maybe borrowing money from them. I was then told that the fee had been rescinded. I'm sure the onslaught of cancellations that probably followed their decision to charge a "we're so good to offer you credit" fee had something to do with their decision to rescind. F$%^ing Corporations think we here to serve their needs, not ours.

The same thing happened with my satellite service. They kept raising prices and gerrymandering their packages. I finally phoned and cancelled. When asked why I told them, "I'm sick of you people charging me a hundred bucks a month to pump shitty commercials into my living room". Then he tries to get me to go on a lower priced package. I finally had to tell him that he must not be able to hear too well because I said, "cancel it"! I haven't missed it since and I get immense pleasure as they waste their money trying to get me to sign back up.

The more corporations I get out of my life the better I like it. If I could figure out a way to get the electrical company out of my life, those bastards would be gone too: they and all of their enviro levies and propaganda about cutting back electricity use. I wish I could grant them their greatest wish and stop using their power all together. I'd love to be able to get letters from them asking me to start using their power again and how they would give me a great deal if I would just come back. 

I have two cards - American Express as my main card, and Visa for the places that don't take it.  I pay off the balances on both each month.  They can raise my interest rate as high as they want, it doesn't affect me.  Neither would an inactive use fee.  I see no logic in retaining a card I never use.

On a radio show I listen to they did an interview with a guy who runs a credit card info website.  He says if you cancel your card write the CC company via registered mail explaining why you are canceling.  If your credit score does go down then you can contact the credit reporting company and prove to them that YOU were the one who canceled the card. The logic as to why your score goes down, he says, is when they see an account close they assume something happened that affects your ability to borrow.  If you can prove that it was canceled because the interest rate shot up your score might not take a hit.

You can listen to the interview here: http://tinyurl.com/ylrmxsh.  It starts 5m in.  The above mentioned bit comes it at 16m in.  The interview is about 12m long.

I'm curious.  Some people are saying they only have two credit cards.  Does that mean you have only opened two cards in the last decade?  I only have two cards also.  However, when I run my credit report there are several open accounts like a Home Depot card, (that I used to save 10% on a purchase), I never use the account, destroyed the card, however it is still out there technically as an inactive account.

Unless you actually closed the account, it will remain open. That's my experience. You need to call the issuing company and actually close it. This can be difficult with a card that's long be unused and discarded.

I second the notion of finding a credit union.  The credit union I belong to was only for company employees back in the day.  I guess the law on who could join was changed a while back.  Now anyone who lives, works, or worships in the county can join.
I have a no-fee Visa that I pay off every month that has a reward program which I have used for airline tickets.  I am a proud credit card dead beat !  I have a no fee checking account that pays a very small amount of interest and offers free bill pay.  I could not be happier with the credit union. 
The Visa is the only card I use regularly.  I had an Amex but couldn't figure out why I was paying them for the card.  I do occasionally sign up for a store card when they offer no interest financing for stuff.  I use them once and put them in the drawer.

In the past when we cancelled some cards we did it in writing and requested that the company state "closed at customer request" on our credit report. I don't know if this still applies today.


It gets more difficult if the original issuer has changed name, been taken over, or has gone out of business.

There has been some talk in the credit industry about instituting a "deadbeat" fee just for folks like you. The "deadbeats" are the ones that actually pay their bills in full and on time. That is just how screwed up that industry is and now they would like to charge a fee for use.

In my case, yes.  I still have a couple of old, dead CC accounts showing up on my report, but for the bulk of the last several years it's just the two.


I've heard rumors of that but I doubt it will pass.  Besides, Amex requires you to not carry a balance.  If my Visa card decides to do this I will change cards or, worse case, just start using my debit card or checks for the three or four places I frequent that don't take Amex.

I have excellent credit and all but own my house so I my credit can take a small hit if I have to close a card.

Ah, this is turning into an interesting thread.

I built my biz using low-rate, no fee credit cards. I would carry a balance, pay the tiny interest, and pay back the costs in my own time. I would not have been able grow my personal biz without access to that available credit. But that was years ago, and since then I have just used the cards in spotty ways, here and there, especially as my APRs have spiralled up and up. (I used to have no-fee cards with 2% APRs, solid, not "introductory," but those days are over.) 

Using credit wisely is having a great resource at your fingertips. I don't understand why the credit card companies are ruining this. By raising my APRs, they force me to stop using their available credit (I either don't use the card, or I merely pay it off every month), and they lose. Instead, give me a reasonable low interest rate and I'll be happy carrying a small balance and you can make some dollars off me. That seems reasonable to me. More reasonable than just cutting off your nose to spite your face, and losing income from me.

Who runs these companies, that so rule our lives (if we allow them)? Why do they make such bad decisions? And why do they punish us for trying to make good decisions? 

And why am I paying for cable TV when they have commercials to pay for it, too? Why can't I channel surf without having all the channels show commercials at the same damned time (at least, stagger your commercials!)? What's the point of this? Is someone being paid twice for one service (commercials, and then my bill)? 

Why can't we -- as a people -- come up with better models than these? 

MC

I want to know why credit records seem to be so seat-of-the-pants.  My father's credit records STILL keep coming up on mine, even though I've had them corrected several times.  One of them is an account that was opened before I was even born!  Just because we have the same name (different middle names) and lived at the same address.  Is it so hard for them to just use social security numbers instead of names and addresses?  It's not even like our names are identical.  My wife has the same issue too.

This is what we did with ours today!!    We were transferring balances back and forth to 0% cards for a few years. Started hitting them hard about a year ago when the economy was crashing. All paid off!!

Just got one left (that is paid off) but we need for internet purchases.

I paid all my credit off a few years ago. Just have a couple for large purchases, on-line, and as a back-up "just-in-case...". So, I've paid everything in full for quite a while now. No car payment, credit card payments, even pay the car insurance in full.

So I recently filled out a credit card app to get a free airline ticket (I'm so cheap) but found out later I was denied. Probably a lack of credit history lately has hurt my rating. Everybody knows how the game is played. Common sense should prevail but I guess it doesn't. Looks like we're too closely tied to the credit score number. Nobody actually looks at anything anymore, they just punch the numbers into the computer and wait for the results. But that's O.K. They don't want me, then I don't want them either. They can keep their free ticket, I'll fly elsewhere. Good thing is I got to see my credit report for free. Couldn't find anything wrong but I guess their computer did.

When I was a senior in high school, I would get dozens of credit card offers in the mail each week. With college looming, I knew I would need a card so I set aside all of the offers for a week and then researched which of them was the best deal. I finally picked a Visa card from Capital One; the low credit limit -- $500 -- was attractive to me, because I knew I couldn't get into too much trouble with it. As my income and credit history developed, I got bumped up to a platinum card with a much higher credit limit and lower interest rates but have stuck with the same account through several expirations and renewals as my sole credit card ever since. Like many of you, I pay it off every month and never carry any interest. If they introduced an annual fee, I would probably switch though, impact on my credit score be damned.
When credit cards were introduced, they replaced lines of credit (or "tabs") between induvidual businesses and customers. For the priviledge of moving the liability from themselves to the banks, induvidual businesses paid a small fee for each credit card transaction (and still do). During this early period, the banks sought to make money off transaction fees; customers who carried a balance month to month were charged interest as a way to discourage carrying a balance. Over time, the banks realized they were making more money on the interest from those spending more than they could afford than they were from the transaction fees paid by the businesses that accepted credit cards. Thus the business was retooled to target college students and other market segments that were unlikely to pay the full balance at the end of each month. The increasingly levels of personal debt were parceled off to third-parties, so that the banks didn't see any downside from the business.

And then the latest recession struck. The interest-based business model assumed that some customers would default. What it didn't assume was that a huge percentage of customers would default in a relatively short span of time. The banks suddenly found themselves overexposed. The worrying prospect that so many customers could default that the banks would no longer be able to absorb the losses loomed. Now they are in full CYA mode: cover your ass. Until the banks get a handle on how bad their losses are going to really be from bankruptcies, foreclosures, and defaults they're not taking any chances -- even if it means turning down responsible borrowers that would potentially very profitable for them. Until the lending institutions feel confident that they can absorb the worst case scenario again, you're not going to see credit markets unfreeze. And something tells me that credit will never again flow quite as freely as it did the last couple decades.

Thats an impressive picture.  Congrats!  I am a slave do my Delta Skymiles AMEX.  We put all expenses (gas, proceries, phone/cable/internet), etc on it and pay it off every month to get the miles.

That is probably a good thing. Before we cut up our cards, I ran a report. Totaling up all the cards, we were considering going on a $48,000 spending spree, and then bankruptcy to keep all the toys.   

When I was a senior (1977) I didn't get any cc offers at all. How things have changed. As I recall, It was difficult to get any credit at all when you were first starting out back then. Couldn't even get a gas card. My first  credit was to a small chain of furniture stores (Furniture USA!) for a dresser I didn't really need. Just wanted to get my credit started. The interest rate was outrageous. The Prime Rate was well over 10% at the time. But I had to start somewhere. My first car payment was 60 months @ 20.2%!!.

Bankruptcy does not eliminate credit card debt. (rule change about two years ago)

Good summary, Adam L. Better put that I would have done. The sad irony is that as the CC companies protect themselves with usurious interest rates from defaulting customers, they will end up causing even more to default.

One of the things that I don't fully understand is why higher risk people get charged a higher rate. On the one hand I know that higher risk investments should provide higher returns. But if an investor decides that someone is a high risk with a $10,000 line of credit with a $500 per month payment, what makes them think the same person can afford the same $10,000 with a $575 per month payment? The higher rate causes them to be even a higher risk.

The higher premium is to cover those who default on the loans. If you want a 10% return on loans -- which is what the credit is -- and half the people loaned to will default, then you need to charge 20% so that on average you earn the 10% return. (And for 10% return where just a few percent of borrowers would default, the credit could be given closer to the 10%.)

A more advanced accounting would include any increasing rate of default with increasing interest rate and find the optimum value. This is not particularly difficult math for the statistician (which I am not; my great mathematical weakness).

The cynical observer would suggest that higher premiums can be extracted from those with poor-credit because they have fewer options for credit, creating a profit-rich business opportunity.

What tweaks me about the current situation is that we, the customers, are being made to pay for the credit card companies accounting incompetence. They failed to understand their risks. They made the bad loans. As banks they may have bad exposure to the sub-prime housing market and are using credit card fees to backfill losses from that. And due to their systemic failures, we're made to pay for it.

Put in practical terms:
You've got two family members, one responsible and with a good job; the other chronically irresponsible and been through bankruptcy in the past. They both want to borrow $1000 from you. What conditions do you ask of them? For the responsible one, you might simply make the loan and ask for timely re-payment. For the other, you might actually create a binding, legal agreement perhaps even with some interest. Because you perceive the risks of getting your $1000 back from them as different.

The bottom line is consumers and taxpers eventually wind up paying for everything, including mistakes made by others. I don't like it either but that's the way our economy is set up. You can either play along and take your lumps every now and again or go without.
 
My main cc company, CitiBank, recently made major changes to it's pricing structure but gave me an opportunity to opt-out without penalty. Any current balance would be paid off by the old rules. Since I don't carry a balance the new rules shouldn't affect me so I'm keeping the card.

It's un-fortunate that we have to pay for the mistakes of others but that's the way it's always been and the way it always will be.

Tada! Saturday morning mail reveals a letter from Citibank, who are administering a card I have. I got the card in the 90s, a charter member. Original APR was 1% (for years! not intro!), and my credit limit was (and is) in the double-digits. At the moment, I have a zero balance. This is because they recently upped the APR to 9.9%.

Now this letter: "These changes include an increase in the variable APR for purchases to 18.99%, etc." 

I too can "opt out without penalty." Except... how does canceling this card (or, allowing Citibank to cancel it for me) affect my "credit score"? 

I plan to DO NOTHING. I will use the card once a year, buying something small, and repaying it immediately to not carry a balance, and see what they do to me.

Nuts!

MC

That sounds like a nuisance for a card you don't want to keep. I'd certainly forget to make the "something small" purchase, too.

I've not carried a credit card for the past 2 years.  Closed out everything (and man, that's not as easy as it sounds.  They don't want you to close out your account)  We got out of revolving debt, and plan to keep it that way.  We only have our house to pay off and one vehicle,

FYI, I got my credit score recently, and it was still over 800, so don't worry so much about keeping cards open, charging once a year, etc.  Close them out. 

Debt is normal, let's all be weird (thanks, Dave)