Beware of LendingTree® Loans

So, I decided to try and consolidate my credit card debt via a LendingTree® loan.

Bad idea. I did not get approved.

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They lure you in with words like "No hidden fees," "No points," "No collateral required," and "Borrow up to $35,000."

Then, when you initiate the loan request at LendingTree.com, you'll be asked to submit all kinds of personal information, like:

• What's your employment status?
  
  
• What do you need the money for?
  
  
• How much do you want to borrow?
  
  
• Estimate your credit score
  
  
• How quickly do you need the money?
  
  

And they'll want you to submit your most sensitive personal information too, like your Social Security number, your address, your current and former employers, etc.

You'll be presented with a list of potential lenders and their terms (maximum loan amount, interest rate, monthly payment, etc.) 

So, despite having a very good FICO® credit score (780), the bank I chose, First Midwest Loan (www.firstmidwest.com) did not approve my application.

Why?  Well, 1) They did not like the fact that I am self-employed and 2) They asked me to submit 2 years of tax returns, which I did not have (The online tax preparer I used promised to save all my returns, but they didn't.) 

So, If you're going to apply for a loan online, be sure you are ready to submit your tax documents.

And if you are self-employed: good luck.

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Of course, applying for this loan resulted in a hard inquiry, so my credit scores will almost certainly experience significant dings.

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Does LendingTree sell your personal / sensitive information?

Well, there's a link at the bottom of the First Midwest Loan homepage that reads, "Do Not Sell My Personal Information."  When you click this link, you are taken to a page that says:

"...Residents of California have certain rights regarding the sale of personal information to third parties. First Midwest Bank, our affiliates, and service providers use information collected through cookies or in forms to improve the experience on our site and pages, to analyze how our site is used, and to present personalized advertising.

At any point, you can opt-out of the sale of your personal information by selecting Do Not Sell my Personal Information.

You can find more information and how to manage your privacy choices by reviewing our California Consumer Privacy Disclosures located on our Privacy information page by following the link on the bottom of any page..."

In other words, unless you visit the bank's opt out page and waste a significant amount of time filling out the opt out form, your personal / sensitive information can be sold to...Whoever....

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Borrowers: Beware

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No Balance Transfer Fee Credit Cards

I'd really like to see 0% intro APR, no fee balance transfer credit card return to the U.S. Credit card offers have been improving, but, these days, banks are very keen on charging a fee for all kinds of services, including credit card balance transfers.

I know from experience that the best way to raise your credit score above 800 is to spend plenty of money with credit cards, then pay all that money back. That's what I did during the last decade, as I built my business. As of last month, my TransUnion credit score is still above 800; 804 to be exact.

I very rarely use my personal credit cards these days. I use my business cards for business spending, and for personal stuff I use my personal debit card.

I was thinking of transferring some of my business-credit-card debt to another business credit card that includes an attractive, no fee balance transfer, 0% intro APR deal, but I can't find any. And I can't transfer my business debt to a personal card, since, technically, that would be breaking the rules.

Before the financial crisis of 2008, there were plenty of no fee balance transfer deals out there, with both business and personal cards. Bank of America, Citi, Discover -- they all had at least one no transfer fee 0% card.

So I guess I'll just have to wait and do my best to pay down my business cards, so that I don't get overwhelmed with finance charges.

Used My Citi Personal Card, Just In Case

Last weekend, I decided to use my Citi personal credit card, just to use it.

My Citi card has a credit limit above $30,000. The APR isn't good, but I keep the card as a backup in case of a financial emergency, and to keep my credit score high. Closing a credit-card account that has a zero balance and a high credit limit would almost certainly cause my credit score to drop. As you probably already know, having lots of credit available to you, and not using it, looks very good to credit scoring algorithms.

So I used my Citi card to keep the account active. I don't want Citi to close it due to inactivity.

Spent a little more than $69 on some gas, then paid it off right away via an online payment.

I don't drive anymore (sold my car) but I was riding shotgun in my friend's car on a trip to New York. Trip was mostly benefiting my todo list, so I paid for the gas.

I was very surprised to find that at Sunoco stations, you can't use a credit or debit card more than once in a day. This is true even if you use a credit card to pay for fuel in one state, then try to use it again in another. VERY annoying.

So I found myself with limited cash and a debit card that I can't use to pay for gas. Seemed like the perfect opportunity to dust off my Citi card and send a clear signal to the good folks at Citi that I want to keep this card alive!

Why do I insist on using Sunoco? I like the quality of the fuel, and I also very much like the fact that the company gets not a drop of crude oil from the Middle East. Does all Persian Gulf oil money fund radical Islam? Of course not! But if even $0.01 goes to support terrorism, I'm spending my money elsewhere.

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New Credit Card Rules

Consumers are now familiar with the Credit Card Accountability Responsibility and Disclosure Act of 2009 or CARD and how it protects borrowers against unfair interest rate hikes and other exorbitant credit card fees. However, most consumers are not aware that the Federal Reserve enacted new rules for credit card companies on February 22, 2010 to ensure that consumer rights outlined in the CARD Act of 2009 are truly protected. As the regulatory agency of America’s banks, the Federal Reserve has to police the banks to make sure that they don’t try to exploit potential loopholes in legislation and thereby exploit consumers.

The February 2010 regulations enacted by the Federal Reserve provide the following protections to credit card consumers:

Credit card companies must tell you how long it will take to pay off your balance. Now your monthly credit card bill must include a breakdown of how long it will take to pay off your balance if you only make the minimum payments as well as what you would need to pay each month in order to pay off your balance in three years.

No interest rate increases for the first year. Credit card companies can no longer increase your rate for the first 12 months after you open an account, EXCEPT IF:

• Your card has a variable interest rate tied to an index.
• There is an introductory rate, but it must be in place for at least 6 months.
• You are over 60 days late in paying your bill.
• You violate a payment arrangement agreement.

You MUST be notified when they plan to increase your rate or other fees. Your credit card company is now required to give you 45 days written notice before they can

• Increase your interest rate;
• Change fees that apply to your account
• Make any significant changes to the credit contract terms.

If you do not agree to the new terms you now have 45 days to cancel your card before the changes are put into effect. However, if you do choose to cancel your card your credit card company may close your account and increase your monthly payment, with certain limitations.

Your credit card company DOES NOT have to give you 45-day written notice if:

• You have a variable interest rate tied to an index and the index goes up.
• Your introductory rate expires.
• You violate a payment arrangement agreement and you experience a rate increase as a consequence.

Increased interest rates can only be applied to new charges. If after 12 months your interest rate is increased it cannot be applied to a balance accrued before the rate increase itself.

Restrictions on over-the-limit transactions. You must now opt-in to allow transactions above your credit limit to be processed; otherwise the charges must be denied. If you do not opt-in and your credit card company allows your card to be charged above your credit limit, you cannot be charged an over-the-limit fee. Also, if you do go over your limit you can only be charged one over-the-limit fee per billing cycle, and you can opt-out at any time.

Payments must be directed to highest interest balances first. If you make more than the minimum payment, the difference must be applied to the balance with the highest interest rate, with one exception:

When you owe a balance on a deferred interest plan, the credit card company may give you the option to apply payment in excess of the minimum balance to the deferred interest balance before other balances. Otherwise, for two billing cycles prior to the end of the deferred interest period, your entire payment must be applied to the deferred interest-rate balance first.

No double-cycle billing. Interest charges can only be applied on balances in the current billing cycle.

Standard payment dates and times. Your credit card bill must be mailed or delivered at least 21 days before your payment is due. Furthermore,

• Your due date must be the same date each month
• Payments must be accepted until 5 p.m. on the due date.
• If your payment due date falls on a weekend or holiday you will have until the following business day to pay.

New caps on high-fee cards. If a card comes with fees such as an annual fee or application fee, those fees cannot total more than 25% of the credit limit. The 25% cap does not, however, apply to penalty fees.

Protections for underage consumers. Applicants under the age of 21 must prove that they have the income to pay their balances or they must have a cosigner in order to open a credit card account. Also, if an underage cardholder wishes to increase their credit limit and they have a cosigner, the cosigner must agree in writing to the limit increase.

The Fed also announced in October 2010 that it would amend Regulation Z, the regulations implementing the statutes of the Truth In Lending Act, in order to stop certain predatory practices enacted by credit card companies in attempts to maneuver around the CARD Act rules and earlier Federal Reserve regulations. The amendments will clarify matters of compliance for card issuers on the following:

Promotional programs that waive interest charges for a specified period of time. Reduced interest rate promotions are subject to the same protections as promotions that employ a reduced interest rate for a specified period. Credit card companies have recently used a ‘bait and switch’ approach to certain reduced rate offers, not disclosing that the promotion rules would allow them to revoke the benefit at any time.

Fees charged before a credit card account is opened. Application fees and other fees that are paid before a credit card account is opened are covered by the same limitations as fees charged during the 12 months after the account is opened to further avoid predatory lending practices.

Proof of ability to pay must be proven for the cardholder as an individual, not household income. Predatory lenders often issue cards to individuals who do not truly have the ability to maintain their accounts based on household income or other income credits, locking these consumers into a debt trap.

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Prime Rate & Credit Cards: Another Timebomb?

In 2007, the Pew Charitable Trust launched the Safe Credit Card Project; an ongoing study which analyzes industry practices and how they affect consumers. On October 28th, the project released their monthly report which discusses an alarming trend among bank-issued cards: circumventing the Credit Card Reform Act of 2009 by shifting to variable-rate APRs which are tied to the Prime Rate. This practice allows issuers to raise interest rates under circumstances which would normally not be permitted.

Data on Variable Rate Cards
According to the study – which encompasses over 400 credit cards – as of December 2008, 31% of bank-issued credit cards had fixed rates. The current report states that number is now less than 1%.

For now, this trend does not apply to cards issued by credit unions; as of July, 64% of their cards continue to offer fixed interest rates on purchases.

Minimum Rate Requirements
Furthermore, a growing number of creditors are implementing Minimum Rate Requirements (MRR). This practice sets a minimum benchmark APR; preventing the variable rate portion from falling below a predetermined level, even if the index it is tied to (such as the Prime Rate) moves lower.

Future Implications
Considering that the U.S. Prime Rate is at a historically low level of only 3.25%, interest rates on almost all bank-issued credit cards are poised to increase in the future. During rampant inflation in the seventies and eighties, the Federal Funds Rate reached double-digits; peaking as high as 21.50% on December 19th, 1980. Although that event was an anomaly, the historical median prime rate is 8.75% and the cumulative average is 9.842%... both of which are significantly higher than today.

Similar to the adjustable-rate mortgage collusion which has recently unraveled, consumers are now leveraging credit cards to pay for tuition, medical bills, and other expenses with the assumption their APR will remain relatively consistent as they pay down the balance. Although the economic consequences of this problem dwarfs in comparison to the mortgage debacle, it is a potential time bomb nonetheless. In turn, some of today’s credit card reviews and marketing campaigns are not only misleading the public, but also perpetuating the problem.

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Citi® Raises My Interest Rate from 8.24% to 14.99%

As a consumer with an 800+ FICO® credit score, I find it very vexing when a credit card bank raises my interest rate to that more suited to a subprime borrower, or someone with a limited or nonexistent credit profile. This has happened with a number of my consumer credit card accounts since the credit crisis peaked last year. In each case, I've opted out of the rate increase, which resulted in each account being closed by the bank.

Though I have the option to opt out of the latest assault on my credit -- an APR increase on my Citi® Dividend Platinum Select card -- I'm not going to. That's because this card has a relatively high credit limit, so closing this account would cause my FICO credit score to drop considerably. Keeping it open will not be a problem, as I haven't carried a balance on this card in years.

Change of Terms Notice

Since I will be accepting the change of terms. My APR will increase from 8.24% variable (Prime + 4.99%) to 14.99% variable (Prime + 8.99%, with a minimum of 14.99%) at the beginning of next month. In other words, in reality, my APR will rise to Prime + 11.74%! Simply outrageous for someone with my credit history. So why didn't Citi just note the change as Prime + 11.74% in the literature they sent me? Very good question. Perhaps it's because they know how uGlY it looks?

I'm betting that two years from now, when the Fed will be raising short-term rates to tame runaway inflation, the rate on this card will be close to 20%, if not higher. Just have a look at where the U.S. Prime Rate was at its most recent high: 8.25% from mid-2006 through September 2007.

8.25% + 11.74% = 19.99%.

Even more telling, let's plug in the median U.S. Prime Rate:

8.75% + 11.74% = 20.49%.

Yikes! Ouch! Just looking a those numbers makes me cringe.

Ok, so here is the reason I was given for the rate increase:

"...In this economic environment in order to continue to provide consumers with access to credit, we have had to adjust our pricing..."

Actually, the way I see it, the rate increase has more to do with the really bad mistakes Citigroup made during the recent housing/credit boom than it does with this recession we're in. Of course, the banks that messed up want consumers and taxpayers to pay for their mistakes, while top executives continue to take home massive bonuses. Seems to be the new American way of doing business on Wall Street.

Citi's excuse is not so bad, however, when compared to the one Advanta gave me when they closed my business credit card account. That bank actually tried to paint me as a credit risk despite my high credit score, perfect payment record and my habit of paying at least three times the minimum amount due each month. Advanta has a lot of small business owners very angry, and I think that lawsuits and settlements are only just beginning for that company.

Ok, here's another quote from the change of terms notice:

"...If you opt out of these changes, you may use your account under the current terms until the end of your current membership year or the expiration date on your card, whichever is later..."

This is actually a much better policy than I've seen with other credit card banks. With other banks, when I opted out of rate increases, the bank either closed my account right away, or closed it within 30 days of my opting out. So, I will give some kudos to Citi for giving customers time to pay down their debt before jacking up their APR.

As soon as I am done posting this blog entry, I will take my Citi® Dividend Platinum Select card out of my wallet, blindfold it, march it down to my crosscut shredder, give it its last cigarette and destroy it. I'll keep a record of the card's details, of course, just in case.

I'm actually grateful that banks like Citi exist. Why? Because my income varies so wildly that my credit union won't give me a credit card, despite my stellar credit rating. So, yeah, I like to complain when they're up to no good, but these banks actually play a vital role in providing credit to folks with undulating income, like me.

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One More Reason to Read Those Credit Card Terms and Conditions Carefully

We've all heard horror stories about it, and we all dread it. I'm talking about fine print. Many of us fail to read it, or even give it a cursory glance before we sign, or agree to something. I'll tell a story of how fine print can trip a person up, and end up costing them more than they expected.

A little over a year ago, my husband opened a credit account with Bank of America. He received the card in the mail, activated it, and began to use it. I advised him to read the terms and conditions carefully, but with the bravado that's so typical of him, he said that "he didn't have time for fine print". I shrugged, and went about my business, hoping that he wouldn't go too crazy with the credit card, and that we'd be able to pay the balance each month.

Oh, how wrong I was.

We managed to pay the balance for about six months, then he bit off more than he could chew by requesting a cash advance on the card. He found an incredible deal on a classic car that needed restoring, and the owner wanted $2500 for the vehicle. He got the cash, but not before I again told him that he should review the terms on the credit card agreement that referred to the interest rate charged on cash advances (If I recall correctly, the rate was 32%. Steep!). He was in such a rush to get the car that technicalities like that weren't important to him. They soon would become important, however.

The next month we couldn't afford to pay the entire balance, of course. The total owed on the card was $3,100, and after we paid all the necessary bills like rent, car insurance, water, phone, and utilities, we could barely manage to pay the minimum of $150. As times got rougher, we couldn't even bear to pay the minimum. After about five more months of not paying at all, the account went into default and collection efforts were started. My husband received several "courtesy notices" reminding him of the money he owed, and he foolishly continued to disregard them. Then, the efforts got decidedly less friendly.

My husband checked his online banking statement one morning, and he was more than $1,000 overdrawn. He'd written five other checks the week previously, but they didn't add up to what he'd had in the account, which was almost $4,000. Here's a breakdown of what the bounced checks were supposed to pay for.

• Car insurance. He lost coverage that month, and had to borrow money from his parents to get it reinstated.
  
  
• The phone bill. Our house was without phone and internet service for a week, until he was able to pay the bill, plus the returned check fee, in cash.
  
  
• Our electricity bill. Luckily I was able to call and get an extension, to avoid having the lights cut off.
  
  
• The water bill. As with the electric company, I was able to negotiate a payment arrangement to avoid losing the water service.
  
  
• The trash collection bill. As that was the smallest bill of the lot, my husband was able to go to the hauling company's local office and pay in cash.

He called the customer service number for Bank of America, and after waiting ten minutes to speak to a representative, he found out why the account was so seriously in the red. Since he hadn't read the fine print on the credit card agreement, he hadn't known that his Bank of America card was linked to his Bank of America checking account- and that after the account went into default, the credit card company could go in and drain his bank account to pay the bill. He was angry and shocked, but it was really his mistake because he didn't bother to read the terms and conditions that went with the card.

After alternately pleading, feigning ignorance, and arguing with the Bank of America credit card customer service rep, he finally negotiated a deal where he'd be partially reimbursed for the money taken out of his checking account. He ended up losing $2,500- the amount of the cash advance he'd gotten. He was still irritated about that, but as I quite rightly pointed out, losing $2,500 is a lot better than losing nearly $4,000. I told him to let that whole experience serve as a lesson and a warning, which, thankfully, he has. He's much more diligent now about reading the fine print on everything.

Always, always read the terms and conditions on any credit card you're about to sign up for. The credit card companies LOVE it when people don't read the fine print, because that means they can slap them with all kinds of late fees, higher interest rates, and other miscellaneous charges. It may not be exactly fair, but it's perfectly legal.

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Chase Cancels My WaMu Credit Card

I hadn't used my WaMu credit card since the first quarter of 2006. Back then, it was a Providian credit card. But then Washington Mutual (WaMu) bought Providian, and, just recently, Chase bought WaMu.

Now, the reason I wasn't using this card is because a) it didn't have a competitive interest rate for purchases and b) the rewards program attached to it wasn't anything special. I had plenty of cards to choose from, so why would I choose one with a high APR and a very ordinary rewards program? I used this card to take advantage of an attractive 0% balance transfer deal, then, when the interest-free period expired, I paid the card down to zero. I kept the account open because the $11,000 worth of credit available to me with this account was helping to keep my credit score high.

Another reason I liked having this account was because I had free access to my Bankcard FICO credit score (provided by TransUnion.) No other card in my wallet (and I have plenty) offered this unique benefit.

Last month, I received a letter in the mail informing me that Chase was closing my WaMu credit card account because I hadn't used it in more than 12 months. The letter was short and to the point:



I wasn't happy about this. First of all, my FICO® credit score would likely drop due to the decreased amount of credit available to me. Second, I liked having free access to my credit score. Who wouldn't?

So my first reaction was to try and use the card to see if Chase had deactivated it yet. I tried to buy a song from Amazon ($0.99) but the charge didn't go through.

Next, I called the customer service number on the back of my card. Despite the late hour, I was able to talk to a customer service representative (CSR) right away. I asked the CSR to reactivate my card. I told him that I wanted to do some Christmas shopping with it immediately (which wasn't a lie. I would have spent some money on the card to keep it open.) The CSR said he couldn't do it (listen to the MP3 audio here.) He explained that WaMu had closed 1.3 million inactive accounts. The CSR anticipated that I would complain about the negative effect this action would have on my credit score, so, before I could say anything, he went on to say that this action, "will not appear as a negative mark on your credit bureau report." I complained a bit, then he explained that because the account was closed due to inactivity, and because my account had a zero balance, I had nothing to worry about.

I did not see any point asking for a supervisor, but I did call back a few hours later (their CSR's are available 24/7) to see if I would get a consistent response to my reactivation request. The second CSR gave the same canned response to my appeal for reactivation, but also added that I could apply for a new WaMu credit card account if I wanted to (MP3 audio here.) This suggestion made sense to me even though I wasn't happy about it. The "don't worry about it" nonsense that CSR #1 gave me was insulting, because we both knew that my score will be affected. I'm just going to hope that the ding to my score is a mild one.

My credit score is 804 right now and I want it to either stay there or rise. So, should take my time and find a really great credit card and apply for it?

Having thought about it for a few seconds, I've decided to apply for another WaMu (Chase) card, because I want my credit score to stay high and I want free access to my score. According to the WaMu website, all WaMu cards still provide free access to the accountholder's FICO.

I found that I can still login to my WaMu account online, so I visited WaMu to see if they had any credit card offers ready and waiting for me. I found no offers in there.

I will try to find a good WaMu card and apply for it. I'll post again after my application is processed.

So I may end up with another WaMu credit card account after all this, which would be a silly waste of time and resources (paper, plastic, phone calls, etc.)

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If You Have A Citi® Credit Card, Watch Out: Your APR May Be On Its Way Up

We all know how profitable credit cards are for the banks that issue them. So it's really hard to believe that the credit card unit of America's biggest bank lost close to $1 billion during the third quarter of this year. Citi® made $1.4 billion during the third quarter of 2007.

So what's Citi going to do about it? Yup, you guessed it: raise interest rates on a substantial percentage of the bank's 54 million active credit card accounts. Here's a clip from today's Wall Street Journal article:

"...Meanwhile, Citigroup is notifying some credit-card customers that their interest rates are being raised by an average of three percentage points.

Citigroup is one of the nation's largest issuers of credit cards, with 54 million active accounts. The unit had a loss of $902 million in the third quarter, compared with $1.4 billion in profit a year earlier, as a growing number of customers fell behind or defaulted on their payments.

A person familiar with the strategy estimated that the rate increases would apply to less than 20% of Citigroup's card portfolio..."

If Citi has decided to target your credit card account for a rate increase, you will be able to opt out by calling of sending a letter to Citi by the end of January 2009. Citi will let you continue to use your card and keep your current APR until the card expires.

American Express is also planning to raise rates by 2 to 3 percentage points for certain Amex credit card cardholders.

The New York Times has a similar article about this here.

It's getting ugly out there folks. Time to payoff those credit cards.

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Is 5.00% APY On A 3-Year CD A Good Deal Right Now?

With all the chaos in the American banking system going on right now, consumers across the country are looking to for the safest place to store and grow their hard-earned dollars. The stock market crashed last week, with double-digit declines for each of the 3 major indexes. Though American equities regained some ground today, we are still dealing with a serious bear market. From the Prime Rate website:

"...Since closing with record highs on October 9, 2007, the DJIA has now lost 5,713.34 points (40.336%), while the S&P 500 Index has declined by 665.93 points (42.547%). The record high for the DJIA is 14,164.53; for the S&P 500 Index it's 1,565.15..."

Most of us don't trade individual stocks on a regular basis, but most of us are linked to stocks by our retirement savings, like 401(k) and 403(b) plans. The waning stock market is especially bad news for those near retirement, as most portfolios have lost a lot of value this year.

I Am Grateful for The Conservative Ways of Credit Unions

Back in 2003, when the Federal Reserve dropped the fed funds target rate to 1.00%, which in turn caused the U.S. Prime Rate to drop to 4.00%, I was very interested in a credit card on offer from my credit union. The APR was 6.99% fixed, and the typical credit line for this particular Visa® card was $5,000. I wanted this card bad, not just because of the interest rate, but also because it was from my credit union, and I knew that the term and conditions associated with this card would be more consumer-friendly than any card on offer from any traditional bank.

When I applied for the card, my application was met with fierce resistance. My credit score wasn't that bad, but I was, and still am, self-employed, so my credit profile must have caused one or more red flags go up. The loan officer who reviewed my application asked for 2 years of tax returns and proof that I was making the money that I claimed I was making on the application. I submitted all the documentation they wanted (took about a week to fax it all), but, in the end, my application was rejected. I did not received a canned "dear john" letter from the credit union. The loan officer called me at my home and explained that the credit union could not approve my credit card application because I did not have enough collateral with them, i.e. I did not have enough cash on deposit. I was told that I could reapply at any time. That rejection was painful, but I understood: the best credit cards on offer from the best financial institutions will only go to consumers who are very secure financially. If I had around $5k in my saving or checking account, I probably would have been approved.

Play it very safe; lend conservatively; don't lend unless the member has been thoroughly vetted. It's because my credit union stuck by these principles that it has managed to avoid the financial ravages caused by the excesses of Wall Street investment banks and the debt associated with lending hundreds of thousands of dollars to first and second homeowners who couldn't afford the monthly payments. Wall Street banks like Citigroup® chased the 11%-13% returns promised by super risky mortgage-backed securities, and, when the subprime fiasco was unfolding last year, ended up paying 11% on a loan from the sovereign wealth fund owned by oil-rich Abu Dhabi. Bottom line: Citi® was relegated to subprime borrower status because they got sloppy and too greedy. They were, in essence, issued an 11% APR subprime credit card by a foreign government that makes unbelievable sums of money for doing next to nothing. How's that for irony?

Is 5.00% APY On A 3-Year CD A Good Deal Right Now?

Right now, financial institutions are really into Certificates of Deposit (CD's), as evidenced by the high yields being offered these days. A week ago, my credit union was offering -- and they were pushing this offer very hard -- a generous 5.00% APY on a 3-year CD (CD's are called Share Certificates at credit unions), which may seem kinda' weird, because, as you can see in the screen capture image I've posted to the right, the rates on offer for 42 and 60 months are lower. Should be: the longer you let them hold your money, the better the interest rate you get, right?

The target rate at which most healthy American banks and credit unions can borrow overnight funds from each other via the Federal Reserve -- the target fed funds rate -- was lowered to 1.50% last Wednesday, and is expected to be lowered again at the October 29 FOMC meeting. With all the turmoil in the credit markets, the Fed has allowed financial institutions to borrow vast sums at very low interest rates and for terms much longer than overnight[1][2][3]. But the prospect of locking in a rate of 5% for 3 years is very tempting for my credit union, because they know how rates are going to look about a year from now.

With all the money the Fed is dumping into the American and international banking systems, the price we'll all have to pay for the Fed delivering truckloads of cheap cash at the doorsteps of our banks is inflation. A lot of money is being dumped in an effort to loosen up frozen credit markets, and this will inevitably translate to high inflation down the road. The Fed will respond to runaway inflation by raising interest rates, no matter how anemic the economy is. Since all that money that'll be sloshing around in the economy is likely to cause inflation to accelerate at a fast clip, the fed funds target rate (FFTR) will likely be raised to a relatively high level. The median FFTR from 1990 to now is 4.5%; the average is 4.367%. Don't be surprised if the FFTR is 6.0% or higher 12 months from now.

So if my credit union can lock in 5% for 3 years, and the FFTR will go to 6.0% or higher within 12 months or so, then you can see that my credit union will have gained the advantage by the time the CD matures.

So, is investing in a 3-year CD @ 5.00% APY a good idea right now? Absolutely! But, if you can, go for a 12-month CD for now, or reserve as much cash as possible for next year. When the Fed ends the next cycle of raising the FFTR, I'm betting that you will be able to get even better returns with 3-5 Year CD's, so much better that I'm confident it'll be worth the wait.

Yes, I am grateful for my credit union. My Roth IRA has continued to grow despite all the nonsense going on in the banking system. And I'm confident that I have nothing to worry about.

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My Three-Year-Old Thinks a Credit Card Can Solve Our Problems

One of my son’s favorite “toys” is his credit card. In actuality, it is a pre-paid Master Card that I received for the mail-in rebate on a PDA phone. The money long gone, I must have kept the card in my purse, because my excavating toddler found it and claimed it as his own. The card is bright orange, so it’s reasonable to believe that he would play with the small piece of plastic; however, the game he was playing was cause for alarm. My husband and I made the discovery one afternoon as he was leaving to run errands. We must have been discussing a bill of some sort because my son interrupted us, declaring, “Mom, it’ll be fine - I got my red car!” ‘Red car’, of course, is slurred toddler-speak for “credit card” - he pulled it out of his pocket to show us.

While the sentiment was heart warming, the premise was horrifying. First of all, how does my son know what a credit card is? We only have one credit card right now, and it’s locked away with the Hope Diamond as we rebuild our credit by paying off bills and living beneath our means. He may see us pay for items in retail stores with debit cards, but that’s only every now and then, as he rarely goes shopping with us. We knew that he understood that some plastic cards represent money, but to call it a “credit card” specifically and then assure me that everything would be okay because he had one was a leap in understanding that I did not predict or foster in my three-year-old son. Where did he get the idea that credit cards make everything alright?

Hubby and I laughed nervously, and then looked at each other, wondering how he could have formed such an idea. We talked about it and came to some realizations that we weren’t so happy with. Although we know that young children absorb new information like sponges, frequently learning things that their parents have not taught them directly, we were unaware of how acute his understanding of currency is…for a three-year-old, anyway. While he still thinks all paper money is worth $50, he comprehends that adults exchange money for items and services. He believes that money gets you things that you want; he usually wants food, and he sees us pay for food with money. However, to leap to the assumption that credit cards solve non-food related problems (my husband and I were not discussing food on the day in question) is a broad jump in my opinion. He is learning about money from some other sources, too. As a parent, I felt that it was time for me to take a closer look into his media exposure as it relates to money, credit, and how the economy works.

After I thought about it, I began to see how we in the Western world are so inundated with media messages promoting a consumer credit culture that there is no way to escape it without becoming a hermit. One of my son’s favorite cartoons has a main character who is rich, and she uses credit cards to fund her lifestyle - in elementary school. One CBS Evening News segment by Nancy Cordes explores how credit card companies are deliberately targeting children as young as three years old by integrating credit cards into children‘s games and toy accessories.



Then, even the safest of prime-time television shows are interrupted with commercial messages from credit card companies that promote lush, satisfying lifestyles that are made possible by the almighty plastic. While the television doesn’t baby sit my children, they see enough of it to possibly be affected by the onslaught of credit card marketing and comic characterizations of rich super-spenders who don’t carry cash.

What’s a mom to do?

I have to take a direct approach to teaching my toddler about money and credit, even now. Christian Credit One gives some great advice about how to begin exposing children to money management lessons, even in their pre-school years. Their website is at http://www.ccone.org/.



I plan on implementing some of those tactics in my daily routine with my little one. The first step is getting him a personalized piggy bank that he can cherish and keep as he gets older. I want him to be able to correlate responsible money management with fond family memories and family values. That way, instead of thinking that he is helping mommy by using his “red car,” he will remember the lessons that mommy and daddy taught him about saving and spending less than what you have in the bank, not more. We want him to think about how fun it was to go to the grocery store and help mom and dad pick out items based on cost to value comparisons, helping to spend the family money wisely. I have fond memories of learning about money in pre-school. I want his memories to be pleasant, too; not a reminder of how young he was when he first started on the road to ruining his credit through a warped understanding of money and red cars.

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The Convenience of a Check Card and a Loan Shark All Rolled Into One

Perhaps this has happened to you. You go to buy something at the store. It's been a busy week, so you haven't been watching your bank balance as closely as you should. The cashier rings you up. You swipe your check card and the cashier says, “It didn't go through. Do you have another card?” What happened? A check card draws money from your checking account, so your balance must have dipped too low to pay for your purchases. It happens.

Well... not anymore, it doesn't.

I switched my checking account to Bank of America a few years ago when I refinanced my adjustable rate mortgage into a home equity line. Back then, my credit was solid and it seemed like it would be easier to have my checking account within easy reach of my second mortgage and my Bank of America credit card. And like my other bank, Bank of America sent me a check card so I could make purchases with the ease of a credit card, minus all those pesky finance charges.

The first time I received an overdraft fee, I didn't think much about it. When you buy gas, the charge doesn't always show up right away and if you forget to keep track of your pending charges, sooner or later you're going to overdraw the account, especially if you're living paycheck to paycheck. The fee was hefty, but it was a small price to pay to make sure my charges were covered. Bank of America would have commended me for my attitude.

Then things started getting tight between paychecks, with more and more checks and charges floating around, and I started getting negative balance numbers that looked strangely plump. I thought maybe someone over the internet had stolen my account number, but the charges were all mine. In fact, I'd made several of them that same day. Twenty dollars here, six dollars there, twelve dollars somewhere else... and even though the balance must have been precariously low when I made the first of the three transactions, I was sure that the other transactions should have been declined. Furthermore, the fact that those two had gone through after the account dipped below zero meant that Bank of America had assessed another $70 in overdraft fees.

If I went to an ATM and tried to withdraw the same amount of money, Bank of America would have checked the balance and said, No dice. If I used my check card, on the other hand, it would authorize the charge regardless of whether or not I had money in my checking account. What mad, tortured logic was this? I could understand having to pay a fee when one too many floating charges collided because I hadn't been keeping a balanced checkbook. What I couldn't understand was how transactions kept getting approved after my account dipped below zero. It didn't make any sense.

My first credit card was a Capital One gold card, offered to me when I was still in high school. It had a $2000 dollar limit back then, and I can remember the exact moment that I reached that limit because the cashier handed it back to me and said, “It was declined, sir.” I'd gone over the limit and couldn't use the card any more. There was an over-the-limit fee and everything. I don't recall how far I'd gone over the limit, but it didn't take more than a single payment to get me back to $2000. One thing I remember very clearly was calling to ask Capital One whether I would be assessed another fee if the finance charges pushed the balance back over the limit. The customer service rep told me, “No, as long as you don't make any charges while you're over the limit, there won't be any more over-the-limit fees.”

It seemed logical to me. If I was to be penalized for using the card when my available balance was too low, that was fair, but if the credit card company could stack fees on top of each other until I got another over-the-limit fee, that was ridiculous. What Bank of America was doing with my check card charges seemed equally ridiculous.

In a single month, Bank of America charged me $350 in overdraft fees, spread out over ten separate charges. Many of these charges should have been declined in the first place, but I was noticing something else. Bank of America had an ugly habit of clearing charges in order from largest to smallest, often draining the account with the first charge and causing multiple overdrafts when clearing them in order would have overdrawn on only the largest transaction. This policy was the source of class action lawsuit against Nationsbank, which became Bank of America, that was settled in 1999. Since then, they've been informing new account-holders of the policy per the settlement agreement, but I don't recall being told about the policy by the manager who set up my account. I'm sure it's in the stack of papers he gave me to sign, or in the folder full of pamphlets I didn't have time to read after the account was processed.

The check clearing policy, however underhanded, is now an industry standard. Most banks will clear your largest checks first, claiming that this is “for your own good.” You want your mortgage payment to go through, don't you? What they don't say is that the three or four smaller transactions after the mortgage payment will go through as well, to the tune of $140.

From the Bank of America website:

Though the Bank of America Visa Check Card is accepted nearly anywhere VISA Cards are accepted, it's not a Credit Card and it's not tied to a line of credit.

Fair enough, but if it's not really a credit card, why do so many transactions go through after you overdraw your account, sometimes days after your account has fallen to a negative balance?

Bank of America explains their methodology:

We charge an overdraft fee when we pay a check or other withdrawal even though you don't have enough available funds in your account to cover these transactions.

In some circumstances, Bank of America may choose not to pay the check or other withdrawal. In this case, we will return it to the payee as unpaid, and may charge an Insufficient Funds Fee.

So, if they decide to pay the charge that should have been declined, they assess a fee. If they decide not to pay the charge, they also assess a fee. That's a pretty profitable arrangement. How exactly do they decide whether or not to pay a fee? Is it even possible to drop so far into negative numbers that your check card will be declined?

A few months ago, I found out the limits of Bank of America's largess when a series of overdrafts and the accompanying fees brought my account balance hundreds of dollars into the negatives. Knowing that the paycheck that would be direct deposited would be eaten up by the negative balance, I had no choice but to keep using the card to buy food and gas, each time watching yet another $35 fee join the transaction. $50 in gas? Let's just call it gas and a short term loan. A $35 fee for every purchase would be criminal if it was actually a finance charge, something akin to what a loan shark might charge, but I didn't have any choice if I wanted to gas up my car to go to work.

It seemed like they were willing to pay on anything as long as they could attach another overdraft fee, so I took one final look at my balance, $-643 and change, and I paid my electric bill. To my astonishment, the transaction was actually approved. I really hadn't expected it to work. A few days later, Bank of America changed its mind about this act of extreme generosity and canceled payment, charging me both the original overdraft charge, as well as the returned item fee.

Remember that thing I mentioned about their “biggest items first” policy, and how it was for my own good? I didn't use the card any more after that, but I forgot about a monthly membership charge that automatically debits the checking account in the amount of $9.96. That charge went through AFTER they declined to pay the debit to the electric company, and it was approved and paid, with the standard $35 overdraft fee tacked on, of course.

The policy of letting transactions go through even after an account's available balance reads $0.00 has become standard in the industry, and it's not even limited to check cards any more. My wife used a SunTrust debit card to buy about $50 worth of groceries last night, entered the PIN number at the Publix register, received approval and went home thinking that the charge was covered by money in the account, only to find a negative balance in the morning and a returned check fee.

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The $4000 "Free" Trip to Paris

My oldest child has retinitis pigmentosa, a degenerative eye disease that slowly erodes her vision. She is now legally blind, but eventually, she will lose all of her sight. Her world will go dark forever, and there’s not a thing I can do about it. Some day, medical science will hopefully find a cure, but until then, we deal with the situation as best as we can.

My daughter has had a fascination with Paris ever since I read the Madeline books to her when she was very, very small. When she got older, she told me quite often that someday she was going to go to Paris. I smiled, but I just kept my thoughts to myself. One day, she came to me and point blank asked me to take her to Paris so she could see the Eiffel Tower before she went blind.

My heart just broke because as a single American mother of 4 children going through a horrific and costly divorce, Paris was just not on my “can do” list. There simply was no way I could even dream of affording such a trip. I tried to do the best I could for her—I got her French lessons and books on Paris. I bought her an Eiffel Tower 3-D puzzle and helped her put it together. I hoped that she might accept this instead of the real deal but all of these things made it actually worse.

I was homeschooling my children at that time and they were attending a local homeschool co-op where I taught. My daughter was taking French lessons there and happened to mention to her teacher that she wanted to go to Paris before she went blind. The teacher had actually lived in Paris and still had contacts there. She didn’t say anything to my daughter or me, but she began to work on that Paris trip.

The group began to do fundraisers and spread the word that they were raising money for a community service project. The project: granting a wish to a handicapped child which would allow her to see Paris before she lost her sight. Our community rallied behind this project and the group collected enough money to send both my child and I to Paris for 2 weeks along with the French teacher as our guide. Another mom in the group agreed to keep my other children for free.

When the French teacher told my daughter and I that we were going to Paris after class one day, my child cried tears of joy. She was SO happy and I simply couldn’t believe it; maybe the world wasn’t such an awful place after all. The teacher bought tickets for the airline as we assumed (wrongly) that my ex would be excited for his child to go to Paris, especially since it was free, and would help in any way he could.

I went to my ex and told him about the trip and asked him to sign the paper for the passport. He refused. I went again and again and went with friends and he still refused. I had my lawyer write his lawyer a letter and they never responded. The Paris trip was approaching.

I know it sounds stupid. I mean, why wouldn’t the man just SIGN the paper and be done with it? To understand that, you’d need to understand a little bit more about the relationship the ex and I had. My ex was a very abusive, controlling man. He also had been diagnosed schizophrenia, borderline personality disorder, and oppositional defiant disorder.

Another thing that happened shortly after I left and filed for divorce was that my daughter had admitted to a counselor that he’d been abusing her during her court ordered visitation. Because of this, he’d lost his visitation privileges for a time. They’d been recently re-instated, but he was furious. He was angry that I’d left him and filed for divorce; he was angry about the abuse charges; and he was mad that we were moving on with our lives without him. We were going to pay for what we’d done to him, and this was the perfect opportunity for him to demand payment.

My lawyer advised me to sue him in court and ask the judge to order him to sign the paper. The only catch—it would cost me $3000. I signed the papers and charged the 3k to my credit card. I remember how angry and embarrassed I felt. I simply couldn’t believe that one nasty man was spoiling this wonderful thing for everyone. Strangers had, out of the kindness of their heart, given of their time and money to make this possible for our child and he was going to spoil that. Another thing, how can you deny your child her wish to see Paris before she went blind, if the trip is FREE? How? He was a cruel, heartless person indeed.

The day of the court hearing arrived and we argued our points in front of the judge. The ex’s lawyer argued that our daughter should not be allowed to go to Paris for a whole bunch of stupid reasons and asked the court to deny my request. My lawyer argued that our daughter should be allowed to go to Paris for a whole bunch of reasons and asked the court to grant me my request. Many of those who had contributed to the wish fund were present observing the court session. They too were shocked that things had gotten to this point.

After a brief recess, the judge agreed to grant me my request. He ordered my ex to sign the passport and allow our daughter to go to France and then the judge left the courtroom. This is when the ex, his sister, and his lawyer made a break for the exit. They had no intentions of obeying the judge’s order.

I lost them in the crowds as the different courts let out. I can not even describe the amount of anger I felt at that point. Well, maybe I could describe it, but my description would be peppered with a lot of not so nice words. I saw that across the hall, the ex had taken the elevator with his lawyer and I ran for the stairway followed by a bunch of the people who had supported me. We ran down the stairs and found…nothing. He and his lawyer were gone. I ran out of the courthouse and there they were, talking in one of the gardens in front of the courthouse. I ran up to them both and they were shocked.

“The judge told you to sign this. Do it now.” His lawyer started to argue that he couldn’t and make a whole bunch of excuses when the rest of the group of my supporters caught up with me. The ex and his lawyer were surrounded by a group of us…all very, very angry.

“Sign it. Or I’ll call the judge and report you to the Bar Association.” His lawyer, seeing we meant business, told him to sign.

The crowds started cheering and the ex and his lawyer left. We walked to the parking garage, and the ex’s sister came out of nowhere and tried to hit me and get the passport paper away from me. My friends helped me to fight her off and we continued walking.

I know, it’s incredible, but it really happened this way.

I expedited the passport application, which cost me several hundred extra dollars, but I did get the passport back in time for the trip. The judge had also ordered that my ex be allowed to contact his child for regular phone calls of 1 hour 3 times per week. It was my job to pay for these expenses too. This cost me several hundred dollars as well.

If my experiences were a commercial, it would read this way:

“Free” trip to Paris for 2: $4000
Knowing that your child has seen the Eiffel Tower before she went blind: PRICELESS

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When A Family Member Commits Identity Theft

I applied for and received my first credit card in college. I had no credit history, so I had a clean slate to start with. Soon after, pre-approved credit card offers started arriving at my apartment and my parent's house. The temptation was too much for my mom. She applied for and received two credit cards in my name. I first suspected that something was up when an envelope addressed to me arrived in the mail, but she refused to let me see it. Even though I had a nagging suspicion and a bad feeling, I chose to ignore them. She was my mom, after all. I didn't think she would ever do anything malicious to me.

After I graduated, I noticed statements arriving at the house for credit cards I didn't have. I opened one and discovered it had a $6000 balance. I didn't want to say anything, and I didn't. I still wanted to believe that my mom would never do anything to hurt me, but eventually, I did ask when the balance continued rising. She told me she was building my credit for me. I was young and had no practical knowledge about finances, so I accepted her excuse, even though the idea still felt wrong.

About five years later, my mom quit her job to open an antique store. She needed money to purchase inventory, rent a building and pay start-up fees. She borrowed against her retirement fund, and when that was tapped out, she cashed checks from credit card companies. I should rephrase that: she cashed checks from my credit card companies. I remained blissfully unaware until I noticed my statements no longer arrived in the mail, and when I called the bank, my balance had doubled. My mom tearfully admitted she had made charges on my card. She promised to pay me back and never do it again. I believed her until my balanced tripled and then finally maxed out. My mother never gave me any money towards her charges, even when confronted. I paid off the balance over the course of five years, totally unaware of the total impact my mom had made on my credit.

Those credit cards she had taken out when I was in college returned to haunt me, and still haunt me, long after I thought they had been cancelled. After maxing out the credit limits, she defaulted on them. They were sent to collection agencies, and the collection agencies came after me.

I had become much more financially savvy, and after my mom had stolen checks and statements from me, I switched my mail to a post office box so she no longer had access to them. The first letter from a collection agency arrived at my box announcing I had 30 days to pay a balance of $7000 or I would be prosecuted. I pulled my credit report and did some research. Then I wrote a carefully worded letter based on ones I'd seen on the ID Theft Center website. That collection agency never contacted me again, and the collection account and all things associated with it were removed from my credit report. According to my credit report, another default card was still out, and I took action to get it removed as well. I wrote letters and disputed the account on the credit report. I wasn't so lucky this time.

Since I lived with my parents, the majority of my mail arrived there, including letters related to that other card. It had a massive balance, and with interest and past due charges, the bank wanted almost $30,000. I knew about the card, and I took as much action as I could without filing a police report.

I never saw letters from the creditors. My mom accepted the summons to appear in court. I never saw that either. I knew nothing about the extensive court proceedings, or my mom's involvement, until I stumbled upon some court records at work. I could only stare in disbelief, not really certain what to do. The court had tried and failed to contact me, and they were about to garnish my wages. I chose not to confront my mother. Instead, I called a legal assistance program offered by my employer. They put me in touch with an attorney who agreed to take on the case and find out what had happened. I was left with the unpleasant task of talking to my mother.

She couldn't understand how I had found out. She had gone to great lengths to keep me in the dark about the whole mess. She had intercepted all letters she could. She had spoken to the sheriff when he came to the house, assuring him I had nothing of value. She had appeared in court in my name, but the day the judgment was rendered she had been unable to appear because of a doctor's appointment. She tried to call the court, but they refused to cancel or move the court date. She swore she never thought the case would result in a judgment. She hired an attorney to try to clear up the situation. The best the attorney could offer was to have me sign over all of my assets and accounts to my mom so I truly owned nothing. At this point, I knew more about finances, and I had no intention of signing anything over to the woman who had created the entire mess. Instead, I took the case back to court.

My attorney gave me copies of the court records where my mom had signed my name. He recommended I find a new place to live, and he advised against signing anything over to my mother. I had never filed a police report, because I didn't want to send my mom to jail. The rest of my family urged me to settle the whole situation out of court, set up a payment plan and just pay off the balance. I had already paid off one balance, and I didn't intend to pay this one. My attorney wanted my mom to sign an affidavit admitting her guilt, but when I asked her she informed me that she did not want to be saddled with the $30,000 worth of debt. I let the case go to trial.

Part of the process involved filing a fraud report with the creditor. I listed my mom as the thief who stole my identity. The creditor withdrew the case and the judgment was thrown out, but it remains on my credit report. It will be there for another five years. It affects everything I try to do. When I bought my house, I had to provide copies of court records. I cannot get new credit cards, and any loans automatically have a higher interest rate. Even though the nightmare has passed, its effects have not.

Financial ghosts of the mess will probably stick around to haunt me for years to come. I have developed phobias related to debt and money. I feel guilty for spending money and worry constantly about debt, even though my monthly income is more than enough to live comfortably. I cannot trust my family's advice related to financial matters. When I look at my mom, I have a slow, seething anger towards her that I'm not sure will ever go away. I feel obligated to love her, when in reality I want nothing to do with her. I resisted turning the theft over to the police, but if this same situation were to happen again, I wouldn't hesitate. I wouldn't let family ties stand in the way of justice.

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The Unforeseen Consequences of Keeping a Card in "Good Standing"

A few months ago, I called Capital One as part of my rounds when I tried to make arrangements with all the credit card companies I could no longer afford to pay. I started missing payments earlier in the year, after a surgery kept me out of work for a month. My wife and I are teachers, and summers are usually the lean months, which leaves us spending most of the year trying to catch up on our debt instead of getting ahead of it. That one month was like the pebble that started the avalanche, and soon I was missing or late with payments on most of my credit cards, instead of letting one slip so I could catch up on the others.

I had financial trouble the year before, which I fixed for the most part, except for my interest rates, which had jumped to insane and unreasonable levels. When I had to choose between paying the mortgage on my house or making payments on several credit cards I hadn't been able to use in years, I chose to let them slide. My interest rates were already terrible at 37.17% for the Bank of America card, 25.83% for First USA, and a variable rate with Capital One that never went lower than 21%. I had a Best Buy card floating around as well, but the last time I'd gone to their website, they refused to take my payment and sent me to a customer service number, clearly part of some brilliant scheme to get me to pay by denying me access to my usual method of payment.

The rates were already out of control, how much worse could they possibly get? And how exactly did they think that I could pay twice my normal payment if I couldn't pay the regular payment the month before? Maybe if I spent a few months trying to catch up on my overdue utilities, I could put together enough money to tackle one of the ever-expanding minimum payments and start fresh.

Even as I was missing these payments, I still made an effort to pay Capital One on time. It was my oldest credit card, with my largest balance, and like so many Americans with debt problems, I made the mistake of treating the highest balance as the highest priority. Here's what I received from Capital One in return: while all the credit card companies I had been unable to pay were willing to place me in programs that would accept lower payments, offer lower rates, or even just cut out the ridiculously high late payment fees, Capital One wouldn't.

By paying them when all of my other cards were getting late or no payments at all, I kept them in good standing. That was, apparently, a mistake. I was informed that they could not possibly put me in their program because my account was in good standing. They would only do that if I missed several payments.

I asked to speak with a supervisor, and the supervisor confirmed that even though I was trying to avoid damaging my credit by making arrangements, they could not make arrangements with me as long as my account was in "good standing." "Okay, so what you're saying to me is that the only way you'll be able to put me in a program is if I stop making payments for a while and destroy my credit with you?" The supervisor hedged a little, but he basically agreed. They only offer the program to people who haven't paid.

So I took his advice and stopped making payments. I put the money toward payments I negotiated with the other credit card companies, who were very understanding about my situation. It's been about 90 days now and I've finally fallen from Capital One's good graces. They sent me a letter urging me to call them and make arrangements so that my credit won't be further damaged. Imagine that.

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FICO® Credit Score Rebounds to 804 After Hard Pull

Here's an updated chart of my FICO® credit score, provided by the folks at TransUnion:





Here's a real life example of how applying for credit can affect your credit score. A dip of 8 points; a minor downgrade that lasted 2 months.

Earlier this year, I decided to open a new business credit card account, not because I needed the credit, and not because I needed to do a balance transfer to avoid paying interest. I opened up the new account because the credit crunch that began last summer and still persists today started to make me a bit nervous last winter. My business has suffered as a result of the economic slowdown, and no one knows for certain when a) the economy will return to substantial growth and b) when confidence will return to the banking system. So the new account is just a little insurance in case my situation gets really bad.

My understanding was that the ding associated with a hard pull on a credit report would last for about 6 months, so there's a chance that the reason my score rebounded so fast was due to some other unrelated improvement to my credit profile. Perhaps the rule is that a hard pull inquiry into my personal credit history for a business credit card application causes heartburn for only 1 or 2 months, whereas if it was for a personal card the ding would last longer. Just conjecture on my part: there's no way for me to know for sure.

Though applying for credit did cause my personal credit score to drop for a spell, the new account may bolster the credit rating of my business, because it's a new line that I most likely won't tap (debt to credit ratio is a big deal to lenders and, therefore, credit rating agencies.) I think I made the right decision, even though I read recently that having too many unused lines can have the opposite effect. My nascent business credit card account will lower the average age of my business credit lines, which can in turn hurt my business's credit rating. Hopefully, my other credit lines are old enough to provide enough weight to balance out the new account.

The credit line on my new card is generous -- much more than I was expecting -- but the interest rate associated with making new purchases is higher than I'm used to. Of course, it's a trade off, because if I need to use this card at some point, the debt I would incur would be unsecured, and that's something I really like. None of my personal or business assets are at risk, though if I hit rock bottom and defaulted for some reason, the bank would most certainly ruin both my business and personal credit ratings, in short order.

During my recent research into credit scores, I learned that:

• There are many different types of soft pull inquiries.
  
  
• Some banks perform credit-score-damaging hard pulls on credit reports when a customer applies for a checking and savings account. A commenter at CreditBloggers.com complained that his bank performed a hard pull every time his CD rolled over. Yikes!

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"Aspire" For Good Credit, Not Fast Cash

The credit card industry has some of the most effective marketing I have ever seen. Albeit sleazy most of the time and misleading at best, people actually apply for the cards that are advertised with little to no caution or due diligence. The marketing messages grab them and compel them to act – that’s what “good” marketing does.

One of the best examples of this that I have ever seen was the Aspire VISA card. I even remember the first time I saw the commercial. The spokesperson is an average looking woman with a child in an urban area. She calmly describes how hard she works and what not, letting the viewer know that she is a salt-of-the-earth, working class American, just like them. After she convinces you that she is non-threatening and sympathetic to you, she begins to convey the heart of the marketing message – she tells you how you “deserve” to have a credit card.

I was instantly turned off and angered.

I know that I said this was “good” marketing, and technically, it is. It achieves all of the goals of a “good” marketing campaign. My problem with it was that it was an absolute lie.

Most people with bad credit have it because they were (and oftentimes still are) irresponsible and or ignorant concerning proper credit usage and the importance of creditworthiness. If you spend more than you make and you do not absolutely have to (some individuals do have extenuating circumstances), you don’t “deserve” a credit card until you clean up the mess you’ve made, period. If someone gives you a second chance, then it’s a blessing, not something you’re entitled to. Unfortunately, however, most people are so self absorbed that they don’t stop to think about the predatory nature of advertisers who appeal to their vanity instead of their rationale. As I watched the commercial, unable myself to get a credit card at that time because my credit was bad, I was still offended at how this company was obviously trying to take advantage of me and my situation.

Soon after I first saw this commercial, I got into a conversation about credit with a good friend of mine. We usually call each other to rant and rave, so I was sure that I would get a chance to tell her about this horrible commercial I had seen so that we could laugh at how obvious their ploy was. She, however, got the head start, going on about how she had just gotten the screws put to her with a credit card she had. She was on the phone with customer service all day for the second day in a row, trying to resolve issues concerning her credit limit. She was promised a limit of about $500, and when she tried to make a purchase over $300, her card was declined. It turned out that because the card she had acquired was a “bad credit” credit card, there were fees tacked on right at the very beginning, totaling about $250. She owed them $250 before she had spent a dime! What a rip-off! She had gotten the card because she wanted to rebuild her credit, and she was prepared to pay more than the minimum balance each month and everything, but now she was steamed and ready to pop. I was appalled. Because I had recently seen the horrible Aspire commercial, I asked, with more than a hint of sarcasm, “It isn’t that Aspire card, is it?”

She gasped and replied, “How did you know?”

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Why I Tend To Overspend

I am currently in credit card rehab – my loving husband, who admitted me, is also the chief of staff. We are in the process of getting out of debt for good, so there has been absolutely no credit card usage allowed, period. It’s been like this for quite some time now, and I have to say, I didn’t think that I would make it this long. Paying off debt while ceasing from creating new debt seems like an obvious solution, but putting such theory into practice is harder than it seems. When we abruptly stopped charging purchases, I began to show withdrawal symptoms, which is why I am here, cleaning up my act.

Although I went down kicking and screaming, I always understood that my husband was right for putting a halt to all credit card spending until we were ready to be responsible users. We did what many newlyweds do – we got a joint card almost as soon as we got married and bought things that we thought we needed for our new life together. The problem was that we didn’t have the money to get those things outright; thus, the use of credit. This kind of spending put us in a vice that really began to squeeze when unexpected situations arose, pinching our finances so hard that accounts became delinquent.

How did that happen?

I believe that, at least for me, the problem began when the foundation was laid for my conceptual understanding of credit. Besides the fact that my teacher was an eighteen year old girlfriend, there were negative influences and temptations on every side. College campuses are now lairs for predatory lenders with magic plastic cards, giving you a free t-shirt or tote bag for books in exchange for your credit application. Hip, trendy boutiques make it all too easy for young people to obtain store credit. So, my belief system concerning the purpose for and availability of consumer credit was corrupted from the very start.

I bought into the idea that credit was a pipeline as opposed to a lifeline. From what I had gathered from my friends and the credit card companies, consumer credit was there so that I could purchase things I couldn’t afford and simply pay for them later. As long as I made small monthly payments, I could buy whatever I wanted, up to my credit limit. Credit was a money pipeline, creating cash flow in the present based upon resources from the future. I could keep the pipeline going, so long as I put a little cash into it on a regular basis.

While that sounds good, it’s a shame that it’s completely untrue!

Consumer credit was originally developed as a lifeline, primarily for the well-to-do and business owners in order to purchase necessary equipment or other assets that would either appreciate in value or help them turn a profit. That’s a far cry from getting some new clothes (that I really can’t afford) this week, even though I don’t get paid until two weeks from now.

Well, after living a while with this “pipeline mentality”, I soon came face to face with the realities involved with racking up debts that I couldn’t pay, and then being denied the help I really did need in the future because of past indiscretions. Then, I turned around and started fresh again when I got married. Apparently, I hadn’t learned my lesson in college.

I sure did learn it during my stay in credit card rehab, though. It’s actually been a couple of years now. I honestly believe that I have been rehabilitated. But, just to be sure, we don’t plan on getting another credit card until we know exactly what we will use it for and that we will pay the balance off every month that we use it.

The pipeline is officially closed.

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The Discover Motiva Card Is LOL Funny

I've been recommending the Discover More card for years. The card has great features, like 0% intro APR on both balance transfers and new credit card purchases, and a decent rewards program. Discover More charges a fee for transferring balances these days, but the card still offers much value if you pay your entire balance in full each month.

Discover recently introduced a new credit product: the Motiva Card. I had to chuckle when I saw a commercial for Discover Motiva. The primary selling point of this card is:

"Each time you make 6 on-time payments in a row, get your next month's interest back"

So, the good folks at Discover Financial want us believe that it's OK to pay interest on your Discover Motiva credit card debt, because Motiva will reward for it by returning one month's interest to you, about every half a year or so. Wow! What a great deal! Motiva is really looking out for me!


Here's a clip from the Motiva Card FAQ:

"Pay-on-Time Bonus is a type of Cashback Bonus that you earn for making your payments on-time. Each time you make 6 on-time payments in a row, we'll pay you the next month's interest back as a Pay-On-Time Bonus. An on-time payment means paying at least the Minimum Payment Due by the Payment Due Date. Your statement will display the remaining number of on-time payments you need to earn a Pay-On-Time Bonus. The amount of your Pay-On-Time Bonus will be included on your statement in the Cashback Bonus Summary section, along with the cash rewards you've earned on purchases."

Heh...Funny stuff.

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Life Lessons: How Will Your Children Learn About Credit?

I remember my first credit card - it was a store card for a popular fashion outlet. I recall how nervous I was as I completed the application; I didn't think that I would be approved. Despite my financial advisor's assurance that I would easily attain this line of credit, I found myself anxious, uncertain if they would trust me that much. And why should they? I was an eighteen-year-old college freshman who's financial advice came from a nineteen-year-old.

My best friend was one year older and that much wiser, but she was my role model 500 miles away from our home in a brand new environment. She told me that I should have this card for emergency party clothes and other such dire necessities, and since I could also use it in their sister company's catalogue, it was an absolute must-have.

Who could argue with that?

A well educated, financially literate young adult could. My parents had no idea that I needed to be taught about the proper use of credit because they did not anticipate it even being an issue so soon. I was supposed to be a mature adult before anyone would even approve me for a line of credit. By then, I should have had the wisdom to know what to do.

Needless to say, I waltzed down a slippery slope that quickly led to bad credit. I am still recovering. Years later, I still have the same best friend, whom I still tease, accusing her of single handedly ruining my credit with her bad advice. However, it wasn't her poor advice that sealed my fate, but the lack of good advice from the proper sources.

Bottom line: I am not going to let my kids go down the same road I did. I am going to teach them about money and credit. If I don't, who's going to teach them? Predatory lenders, and teenaged peers who really have no idea what they are doing, that's who.

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My Highest FICO Score Ever: 719!

I recently checked my FICO credit score: 719, the highest FICO score I've ever had! I've got plenty of debt: credit cards, student loans, car loan--which tempers my excitement about my credit score. But if you're going to play the debt game, might as well play the game right!

I'm still renting, so every bump to my credit score should translate to a lower interest rate when I'm ready to own, if I decide to buy a $1,000,000+ home.

When will I be ready to own? Not any time soon, that's for sure. I understand all the benefits of owning a home, but I really can't stomach the idea of paying a bank $x,xxx,xxx for the principal, and another $x,xxx,xxx in interest charges for a mortgage. Just doesn't seem fair to me. So, if I do well with my businesses, I am hoping to have enough to just buy a decent-sized condominium for about $150,000 in the same neighborhood where I am living now (thankfully, I've seen a few in my price range recently.)

As if on queue, I'm starting to receive some highly attractive credit card offers from the major providers. Heretofore, the credit card offers I've been receiving have been good, but not spectacular. Now that my FICO credit score is 719, the offers are much better.

Just yesterday, I received an offer for a Chase®  branded Visa® Signature credit card. With this offer, I have the option of transferring my other credit card balances, and pay no interest on the transferred balance until October, 2007! Now that's hot (apologies to Paris Hilton, for stealing your catch phrase.) Furthermore, the go-to rate for this card--the annual percentage rate (APR) I would pay once the interest-free period terminates--is a sexy fixed rate of 8.99%! To give you some perspective on how great an 8.99% APR is, we'll probably have a national Prime Rate of 8.5% after August 8^TH of this year. A credit card with an APR that's a mere 0.49 percentage point above Prime is...well...hot!

Of course, if you were smart enough to get a credit card with a fixed APR when the Prime Rate was 4% back in the summer of 2003, and your credit score was high, then you're probably one of the lucky few who now owns a credit card with an APR that's below the current Prime Rate. My credit score wasn't good enough to qualify for an ultra-consumer-friendly credit card offer back then, but, in early 2004, I was able to buy the car I've always wanted, and I was able to secure a 6% APR on that loan. Good stuff.

Well, folks: the game continues. My new goal is to have a FICO credit score that's above the 800 mark by the time the nation is ready to vote for a new President. Wish me luck (I'll need it!)

My Charted FICO Credit Score

For your viewing pleasure, I've posted below a screen capture of my charted FICO credit score:

When I lookup the reasons why my score is 719, I'm seeing the same two items:

• The amount owed on your revolving/charge accounts is too high.
• The proportion of balances to credit limits on your revolving/charge accounts is too high.

The second item is kinda' annoying, because I'm not even close to being maxed out with any of my credit card accounts. No big deal, really, but it's annoying to see it there.

That's it for now, boys and girls. I'll post more about my adventures with debt ASAP. Thanks for reading.

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