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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Chase "Forces" Me to Close My Favorite Business Credit Card

It's the old credit card bait 'n switch. The credit card banks bait you with attractive terms and generous rewards programs to get you to signup. Then, they wait. They wait for you to accumulate a large enough balance, then jack up your interest rate. I've been reading about this a lot on other websites recently; now it's happened to me, with my Chase business credit card.

Just got a snail mail notice from Chase informing me that the company is going to raise the interest rate on my favorite business credit card, from a fixed rate of 9.9% to a variable rate of (Prime + 11.99%) = 15.24%. 15.24% is now the interest rate floor for this card, since Prime is not likely to go any lower. Of course, I have the option to opt out of the change. This would cause my account to be closed, and I would then continue to pay the balance down to zero at the original 9.9% APR.

Thankfully, I'm prepared for this contingency. I plan on paying the balance off with some cash from savings.

I don't have to borrow any money via Lending Club to payoff my Chase business card, but I really like the idea of Lending Club -- bypassing the banks and borrowing from regular folks across the country -- and I want to go through the process of borrowing through Lending Club myself so that I can report on my experience here in this blog.

To be perfectly honest, I really like my Chase business card, but, clearly, it's time for us to part ways. With the U.S. Prime Rate at 3.25%, any rate above 10% is a subprime rate, in my opinion, and I'm not a subprime borrower. I took advantage of an excellent 0% intro APR offer with this card, and, when the 12-month, interest-free period ended, I used the cash back rewards program to lower my cost of borrowing to a nominal level.

I really like the cash back rewards program with this card. I spend money on it and reward points accumulate. Then, when points reach a certain threshold, I simply login to my account and request a statement credit. With a few business days, the statement credit is posted to my account. Easy. No forms to fill out, No waiting until the end of the year to get my cash back reward and no waiting for a snail mail check. I will miss this rewards program.

I have to hand it to Chase for being honest. In the change of terms notice they sent, they explained the change as a, "response to market conditions," and they also added that the company wants to "maintain profitability." I'm hating the change but I respect the honesty. Contrast this with the Barclay's notice I received when that credit card bank closed my BJ's Visa Card. The company wrote that it was to, "...help [me] better manage [my] credit accounts..." In other words, not only did they close my account without consulting me first, they also felt it necessary to insult my intelligence.

In other business credit card news: Citi® closed my inactive CitiBusiness® card recently. I will miss this card because:

• it had a decent credit line (~$10,000) which enhanced my business's credit profile, and
• the account was aged which, again, contributes to my business's credit rating. It was my first business credit card.

So now I'm left with 3 business credit cards: two from Bank of America and one from Advanta. The Advanta card is about to be anointed as my "goto" card, because I'm still enjoying 0% intro APR on purchases, and the purchase APR will jump to a somewhat reasonable 7.99% when the interest-free period ends . I have been reading some horror stories about this particular Advanta business card (unwarranted rate hikes), but so far I've all is well. If Advanta tries to pull some funny business by raising my rate, I'll just pay the card off (my credit limit is under $3,000, and my balance isn't anywhere near that.)

As a final note: it's really no wonder that American Express is consistently rated as the best credit card bank. Right now the company is offering some high-risk cardholders a $300 payment (in the form of a prepaid gift card) in exchange for these accountholders paying their balance down to zero within a certain timeframe, and closing their account. Now that's my kinda' credit card bank!

NB: In that same JD Power & Associates Credit Card Satisfaction Study(1), Discover Card placed second.

Chase, on the other hand, has identified certain credit card accounts that may be at risk for default, and has responded by imposing a $10 per month fee. Yikes! I'm not a public relations professional, but I do have some sage advice for JP Morgan Chase CEO Jamie Dimon: stop doing that!

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Another Involuntary Credit Card Cancellation!

My wallet just got a bit lighter. I found that I was carrying two BJ's credit cards around: an old one from Chase that I should have shredded a long time ago, and one from UK-based Barclays bank, which has just been canceled.

I am not pleased about this latest credit card cancellation. My BJ's Visa had a $8,500 credit line, and with this credit no longer available to me, I'm worried that my credit score will sustain a serious ding. I very recently suffered the involuntary cancellation of my WaMu (Chase) Premier Platinum Protect Visa® credit card, which had a credit line of about 11K. So what exactly is going to happen to my lovely 804 FICO® credit score now that my available credit has been reduced by about $20,000? Who knows. Stay tuned to find out. I'm still able to login to my now-cancelled WaMu credit card account, so maybe I'll have free access to my credit score for a while. That would be cool.



My favorite line in the above Dear John letter is, "To help you better manage your credit accounts, we have closed your account." Ha! Like that has anything to do with it. We all know how careful banks are being these days, so why don't they just write something honest like, "You credit score is fantastic and you appear to be a responsible user of credit, but we're worried that this recession may cause you to lose your job or close your business, which would make you a credit risk." Hey, Barclays, thanks much for your concern, but I don't need help managing my credit accounts! Not that kind of help anyway. It's like getting a Dear John letter from a college girlfriend, and she includes, "In order to give you more time to study and get good grades, I've decided to break up with you..."

Bottom line: the cancellation of this credit card account is just annoying and that's about it. I don't need the credit, and I don't take advantage of the rewards. The rewards program was decent, but not as good as the credit card I use for just about everything these days. Why settle for a $20 rewards check every once in a while -- that can only be used at BJ's Wholesale Club! -- when I can get a $20 or $50 (depending on my spending) statement credit every month with my favorite card?

The other day I cleared the cob webs from my oldest consumer credit card account, an account I haven't used in over 2 years, and used it to purchase five MP3's from Amazon @ $0.99 each. These were songs I was going to buy anyway, so I was cool with it. I was happy to find that the card was still working (whew!) This card has a very high credit limit, so losing it would be a very bad thing.

Why Amazon and not iTunes? I like the way Amazon allows me to quickly and easily preview each song before I buy, so I can get an idea of the sound quality, and I can also make sure I'm downloading the version I want. Preview functionality exists in iTunes, but I can't get it work for some reason. Must be a Mac-software-on-a-Windows-machine thing.

That's it for now. Thanks for reading and good luck to all in 2009 (I think this recession is going to be brutal. I sincerely hope I'm wrong.)

Happy New Year!

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FICO® Credit Score Holds Steady At 804

There are plenty of things I could complain about in my life. My credit score isn't one of them. My FICO® credit score has held steady at 804/805 since May of this year:



I was hanging out in a CNBC forum the other day and came across an interesting thread. The user has a FICO credit score of 788, but is still worried about a comment in his credit report that reads, "amount owed on revolving accounts is too high." I know this comment well. I posted about this back in the summer of 2006 when my credit score hit 719. Yeah, it looks bad, but, in my opinion, that's just the FICO system's way of telling you that if you want to have a score of 800+, pay your revolving accounts down to zero. It's nothing to panic about. This note disappeared from my report when I paid all my personal credit card balances down to zero.

The fact that I still had a balance on one of my business credit cards at the time did not matter, since healthy business credit card debt is reported to business credit rating systems like Dun & Bradstreet's Paydex or Experian's Intelliscore service.

Now, if I ever get into trouble with one of my business credit cards and default (God forbid), the issuing bank(s) will almost certainly report the negative item(s) to all consumer credit monitoring agencies (TransUnion, Equifax and Experian.) They have the right to do this since I signed a personal guarantee when I opened my business credit card accounts, which is standard practice.

Even with my current score of 804, I'm seeing the following notes in my report as reasons why my score isn't higher than 804:

• "The time since your most recent account opening is very recent
• The length of time your revolving/charge accounts have been established is too short"

The top one I can understand since I only recently stopped chasing 0% credit card offers. But I find the second note quite funny since I have accounts so old that I'd even forgotten they existed.


Avoiding Interest Charges on My Main Business Credit Card

There is a certain balance on my business credit card that I have been targeting. This target balance allows me to have enough cash to save to for retirement (Roth IRA, of course!), pay my bills and child support, and have a little left over for savings (I wouldn't have a balance at all if the credit crisis never happened, but that's life.) Now, with this particular target balance, finance charges are applied every month. However, I've managed to avoid having to pay any interest by using the rewards points I earn each month to "purchase" a statement credit of $50.

My target balance is $4,000. Since this business card has an APR of 9.99%, the daily periodic rate for purchases is:

• 9.99/365 = 0.02737%
• 0.02737% is the same as 0.0002737

So with my preferred target balance, I am charged $4,000 x 0.0002737 = $1.0948 interest per day. This makes the interest I owe each month in the $34 range, which gives me some breathing room since I can't predict the exact amount that I'll purchase on this card every month. As long as the finance charges are $50 or less, I'm good.

How do I manage to stay close to my target balance? Easy! I login to my account at least every other day and check my balance. When my balance is looking too high, I schedule and online payment. Quick and easy. Whenever I make a major purchase, i.e. over $500, I make an online payment immediately, so that I don't mess up my average daily balance.

So, if you've been paying attention, your next question is likely, "so how much do you have to spend each month to get a $50 statement credit?" Easy. A $50 statement credit requires 5,000 rewards points. I get 1 rebate point for each dollar I spend on the card. So I have to spend $5,000 per month. In other words, it's a 1% cash back rewards program.

During the good times, when I'm able to pay my balance to zero every month, my points accumulate and roll over, which gives me plenty to play with during the bad times (I had about 28,500 points stored up when the credit crunch took a serious turn for the worse a couple of months ago. Converted all those points to statement credits.) However, my points do expire if I don't use them within two years, which is quite reasonable in my opinion.

So, with this technique, it would seem as though I could have a 0% business credit card forever, just as long as I keep spending and avoid having an average daily balance above the $4,000 threshold (this card has no annual fee.) But the reality is a "fixed" rate of 9.99% can disappear without much notice. That's because credit card issuing banks invariably reserve the right to modify the terms of each credit card account whenever they wish, as long as they give you warning of an impending rate increase and the option to opt out of it. Citi and American Express have plans to raise APR's for millions of their credit card customers.

This technique requires that I do a lot of spending on this card each month, which has worked out fine since I've been buying a lot of advertising lately. Even as business improves and I'm able to pay down my balance a bit, I have another statement credit tier to work with: I can get a statement credit of $20 in exchange for 2,500 rewards points. As you can see, this tier isn't as equitable as the top tier I described above, but I can still work with it. Maintaining an average daily balance of $2,500 would produce an interest charge of about $21.21, so I'd need to keep my average daily balance at around $2,200 (interest would be $18.67) and spend at least $2,500 per month.

Of course, I'd much rather end this game and return to the good old days of paying my balance in full each and every month. Yes, I'm taking full advantage of my card's rewards program -- and I enjoyed 0% on new purchases and a transferred balance for a year -- which is great. But by having a revolving balance, I'm playing right into the hands of my bank. Bottom line: this scheme could easily blow up in my face if my business has a really bad month.

Some credit cards offer up to 5% cashback on everyday purchases like gas, travel, home improvement, dining out, etc. The Discover More card is the perfect example. For some reason, I wasn't able to get a Discover More card, despite having a good credit score when I applied. When I submitted my application for this card, my FICO score was in the upper 700 range, yet my application was rejected. I checked my credit reports after that rejection, and found nothing wrong. Go figure. If you can get this card, do it. If you already have one, cool. The rewards are peerless in generosity, it comes with 0% intro APR on purchases and balance transfers and the "goto" APR isn't that bad (as low as 10.99%, variable) when compared to competing consumer cards in the American market.

But I'm not complaining. I like my flagship business card. It's a business purpose card, which enables me to have credit card debt and a high personal credit score simultaneously. Plus, the process that my issuing bank has setup for claiming statement credits is efficient and stress free. I just login to my account and within a few clicks of my mouse I've traded my points for a statement credit. Lovely. My other business cards either have APR's that are too high for my taste and credit standing (so I keep them for building credit and emergencies only) or, as is the case with my newest business card, the credit limit is way too low.

Discover has some relatively new business credit cards on the market now, and the rewards are quite generous, though not as generous as the Discover More consumer credit card I noted above. I'd love to apply for this card, but I'm gun shy as a result of my previous rejection.

So, why I am not recommending my favorite business credit card here? Good question. The answer is simple: it's not available anymore. A victim of the current credit crisis. In fact, I just visited the issuing bank's website to see what other business credit cards they have on offer, and found none. The market for business credit card receivables dried up last month (a receivable is any debt owed to a company/corporation that is not paid in full yet.)

Before the onset of autumn this year, my bank could take my $4,000 business credit card balance, bundle it with other credit card receivables and sell the debt to Wall Street. But investors don't want to buy that kind of debt right now because credit card defaults are rising, even with accounts held by prime borrowers.

Want to know when global credit markets will improve? Stay tuned to the TED spread (the TED spread is the difference between the yield on the 3-month Treasury Bill and the 3-month LIBOR yield; it's a reliable indicator of banks' willingness to lend.) Once it falls below 1.00 percentage point, banks will start (probably with baby steps at first) lending like they did before this decade's housing boom.

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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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