Watch out for business credit cards

Image via WikipediaApparently credit card issuers have found another way to circumvent the new CARD Act protections. They are pushing their business credit card lines, which aren't subject to the new rules.

In an act of decluttering (thank you Fly Lady) I tackled the mound of paperwork in my front hall and found FOUR offers for a business credit card from Capital One. This despite the fact that my credit rating frankly sucks, and I've put myself on the card offers do not mail list. And, oh yeah, I've never done business with Capital One.

Anyway, my business is dead, and it turns out that one of my payment agreements with another issuers prohibits me from applying for an additional card.

Not that I'm going to. But I'm not just getting hounded by Capital One.  0% balance transfer offers are showing up again. Ugh. That's how I got myself into this mess in the first place.

Be careful out there. These big credit card companies are not your friends.  The two cards that I still have have been good to me. They are from USAA and from my credit union. They never jacked up the rates to 30%, despite an occasional late payment. They haven't lowered my credit line.

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Retiring the high interest rate debt

Image via WikipediaAs I mentioned in my New Year's entry, I'm about to retire my remaining high interest rate debt with Citicard. They've been a little weird this year. They've been relentlessly pushing their Payment Partner Plan, which I described here.  I finally decided to sign up for it. It's a cashback program for a percentage of what you pay over the minimum balance.

My Citi account is a little confusing, which I explained in this post. I have some very low-rate balances for life due to balance transfers I made before the credit crunch hit. My other outstanding credit cards are currently at 9.99%. But in the depth of my credit despair,I transferred another balance with a rate that expired after a few months. And then they jacked up my rate. And now that the Card Act says that credit card companies have to apply excess principal payments to the highest-rate balances first, I've been paying as much as I can to retire that balance.

So I figured, as long as I'm paying down the balance anyway, why not get the Payment Partner rebate in the meantime. So I finally signed up.

That was before I checked my credit rating.

Well, my credit rating isn't as bad as I thought it would be but it isn't good. It has some late payments from those dark days. But the worst score is my debt utilization score, which is the percentage of outstanding debt to available debt.  Mine is really high. Part of the reason for that is because I got really ticked off at Discover and Chase when they jacked up my rates to 30% and I closed my accounts as soon as I paid off those balances. That wasn't smart. I should have cut up the cards but left the accounts open.

So if I ever want to refinance my mortgage, my credit rating is going to get in the way. And the Payment Partner Program is going to adversely effect my debt utilization ratio, because they'll lower my credit limit by the amount I pay down.

But wait. It turns out Citi has been lowering my credit limit every couple of months anyway, even before I signed up for Payment Partner. So maybe it didn't make any difference after all.

Let me tell you that as soon as the high-rate balance has been retired, I'm going back to paying the minimum balance on this account. I'll make higher payments on my 9.9% debts, thank you very much. Some partner.

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Credit easing up? Or credit score improving?

Image by oschene via Flickr

Just this week I've noticed I've started to get credit offers in the mail again--for credit cards and refinancing the mortgage.

Now one of two things is happening. Either 1) my credit is improving, or b) credit is easing up out there.  The credit card offer I got yesterday actually included a 0% balance transfer offer.  Haven't seen one of those in a long time. (And of course, given my past experience with balance transfers, such a thing sends me running for the hills.)

And mortgage rates are pretty durn low. If my credit score wasn't so bad, I'd be thinking about a refinance myself.

I should probably mention that I have put myself on the do-not-mail list for credit card offers. (You can do that too at https://www.optoutprescreen.com.) But some offers always seem to sneak through. 

Now mind you, I'm not going to be taking out any new credit. I've been there, done that, got the T-shirt (which is now old and smelly).

According to the the recent quarterly survey of banks by the Federal Reserve, credit hasn't loosened up yet. (Reported by Market Watch).

So maybe this is a sign of spring in the winter of our discontented finances.

Have you noticed any changes in the availability of credit?

C.A.R.D law reverses order of credit card payment application--Woot

Image via Wikipedia

This post has been included in the Carnival of Debt Reduction hosted by Ask Mr. Credit Card. 

I don't know how I missed this before, but in reading the fine print on my credit card terms and conditions, it appears that now payments will be applied to the highest rate charges first. As you may know, until now, the typical practice of big issuers was to apply payments to the lowest-rate balances.

Here's how it affects me.

I have had a Citibank card for a long time. I never used it for spending, just for balance transfers. I took advantage of a balance transfer offer of 2.99% for the life of the balance some time ago. A year or so later, I did the same thing for 3.99%. And 4.99%.

And then I got into trouble (business bad, husband unemployed), missed a few other payments, and got socked by Chase's universal default clause. You can find the back story here, here, and here. The Chase rate skyrocketed to close to 30%. After no luck negotiating with them to lower it, I decided to transfer the balance to a few other credit cards, including Citbank at something like 8%. But it was only for 8 months, not for the life of the balance.

At the end of the 8-month period, the Citi rate went up to 21.99%. I should mention during this period I hadn't been late on any payments to Citi or any other creditors. And I couldn't do much about it, because I didn't have the money to pay off the whole balance at once, and my monthly payments were going to the lower-interest debt.

But, thanks to the Credit Card Accountability, Responsibility, and Disclosure Act (C.A.R.D), as of February 22, the payments will first go to the higher interest debt. Which gives me  a fighting chance of paying it off.

Polly's Pointers:

1. Check your credit card terms.  Some new fees are coming. Some good things might happen as well.

2. Be mighty careful playing credit card roulette with balance transfers. It's like gambling at the casinos. The house always wins. 

More information:
White House Fact Sheet

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Bye Bye 27.99%

Image via WikipediaSo I finally zeroed out the Amazon Chase card that was charging me 27.99% interest because of a universal default clause that got triggered when I missed payments to other creditors. (The back story is here and here.)

I paid a lot of it off, but I also transferred some of the balance to other, less usurious credit cards (like those I have with credit unions). And I haven't made any purchases on those for months. Good girl.

And now my highest interest rate is 10 percent. I still have lots of debt at that rate, but I can actually pay it off now.

The couple of hundred a month I was paying to Chase will now go to the IRS and the State Department of Revenue for back taxes. Once that's paid off, I'll start chipping away at the other credit card debt. Whew...

Prioritizing Debt: From Lowest Interest Rate to Highest? Say What?

Image by hankoss via FlickrYou and I know that the rational thing to do is to pay off your high-rate, non-deductible (i.e. non-mortgage) debt first. (Except you need to prioritize your mortgage payment before anything else so you can keep your house--but any EXTRA payments need to go to non-mortgage debt.)

Isn't it ironic that that's exactly the opposite of how credit card companies apply your payments? I was smart enough to avoid this particular trap, but it's easy to get snared in it.

Let's say you take a low-rate balance transfer offer, intending to pay off a higher rate card. Cool. Just don't ever use your new card to charge anything. Ever. Because if you do, they'll charge you a higher rate for purchases than for balance transfers. OK, that's fair, you think. But then they apply your payments to the lowest interest debt. So you are gaily wracking up new debt at a higher rate, and retiring the cheap debt. This policy is fairly universal among credit card issuers.

Good plan for the credit card company. Not a good plan for you. What tangled webs they weave when they practice to deceive. Can you say "Bait and Switch"?

CitiBank Wants Me to Pay Off My Debt

Image via WikipediaCiti sent me a letter yesterday offering me to participate in their Payment Partner plan. Here's the deal: agree to stop spending on your card for 4 months, and at the end of 4 months they give you 10% of any payments you make over the minimum balance due up to $550. At the end of the period, they also reduce your credit limit by the amount of the payments over the minimum balance.

Not a good deal for me, because I have very low "for life" interest rates of 2.99, 3.99, and 4.99 on this card, and I have too much other high rate debt that I'd rather pay off first for this to make sense. The spending freeze is no big deal because I've never charged anything to this card--I just used it for balance transfers from higher cards. And this is one card at least where I haven't missed payments or any other such nonsense.

According to some quick Googling, this offer from Citibank has been around for a couple of years. Some speculate that it is only extended to those with damaged credit as a way to get folks to voluntarily reduce their credit line, reducing Citi's risk. See the article below on the recent trend of credit card issuers of reducing credit limits.

I have to say, that in all of my credit mess, Citi has been the best to deal with. They don't have the dreaded universal default clause that jacks up your rate if you are late with payments to other creditors. They have had reasonable balance transfer rates. Yes, you pay lower rate balances off before higher rate balances, but some of these low rates are for the life of the balance. You just have to be careful not to incur any higher rate charges that would negate the advantage.

Further Reading:
Consumer Credit Limit Crackdown by Jessica Dickler, CNNmoney.com

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