Credit Cards

We told you about the debt collection hassles endured by people shouldering a large amount of credit-card debt. Then we invited debt collectors to tell their side of the story. Both sides had a lot to say about just what goes on in the debt collection industry, but one assertion -- by the head of a collections industry trade group -- that debt collectors were courteous and professional raised many eyebrows. Many of you vociferously disagreed with this in the comments section.

As it turns out, government watchdogs agree with you. A new report has led to the Federal Trade Commission stepping up its enforcement of debt-collection abuses.

"I'm pleased the FTC is cracking down on debt collectors, and has identified harassment and targeting the wrong debtors as examples of what's wrong in the industry," Linda Sherry, director of national priorities for Consumer Action, a consumer advocate group, told WalletPop via email.

More and more consumers are saying no to credit cards and shifting to debit cards, but are they permanently changing spending habits or finding a way to make do because lenders aren't lending? It's probably a little of both.

Whatever the reason, new credit card origination was down by 54.5% in November 2009 compared to figures from November 2007. In November 2007, 64 million new bankcards were issued year-to-date. In November 2009, that number was down to just 29.1 million new bankcards year-to-date, according to Equifax's January 2010 new account trends report.

You may never know when it happens, but lenders may begin guessing your income before they approve your credit application when the new Credit CARD Act takes effect on February 22.

The new law requires lenders to consider your ability to pay any new or additional debt before approving a credit card application. While they could do something as simple as ask you, they may want to verify what you tell them.

Since most people don't carry around a pay stub when they go shopping, if you decide to apply for a credit card during a shopping trip, the stores may look for a clue about your income when they ask for your credit score.

"Retail stores are quite upset about this change in the instant approval of their cards," Bill Hardekopf, CEO of LowCards.com, wrote to WalletPop by e-mail. "Consumers now need to show proof of income when they apply for a card, and not many of us carry this around when we are shopping in the mall."

It's no big secret that a lot of Americans are having trouble making their credit card payments these days. High interest rates and punitive penalty fees just heap it on, and make getting out from under those bills a daunting task.

This article from MSN Money, though, explores a possible solution many people aren't even aware of: Asking their issuer to cut them some slack.

The technical industry term for this is "forbearance." It's not loan forgiveness; you still have to pay. But, according to the article, an issuer can do anything from postpone payments to lowering minimum payments to reducing your interest rate or the amount you pay in fees.

If you need to use credit but don't want to impact your credit score, you may want to apply for a charge card rather than a credit card.

If you've found yourself paying frequent overdraft fees when using debit cards, or finding your checking account tied up waiting for the bank to correct an error from your debit card usage, charge cards may also be the answer.

Not long ago, we shared the experiences of several Americans who had climbed their way out of deep debts. Their tales touched a nerve with readers who shared their own harrowing stories of their experiences with debt collectors. Some of these agents treated their debtors professionally; others, less so. Readers described dodging collection calls and hanging up on agents.

A few brave professionals also responded, complaining of the unfair mis-characterization of their jobs, and of them. What's it like to be on the other end of that phone, or on the other side of that doorway? Here's the consensus: Being a debt collector is a tough way to make a living.

"It was the worst, nastiest job I ever had. Every day, I would go to work stressed out," says Lisa Crowley, who handled receivables for a heavy-equipment company in Michigan in the late 1980s. Half of her job involved calling clients who hadn't settled their bills, from mom-and-pop businesses to the city of Detroit. Crowley stuck it out for a year before transferring to another department.

You might expect a plunging credit score to affect your ability to qualify for a car loan or how high the interest rate on your credit card will soar. But too often Americans don't realize a plunging credit score can cost them big bucks on insurance premiums.

One of the biggest mistakes insurers say people make is not realizing when their credit score is tanking.

"Credit scores factor heavily into your rate," says Ashley M. Hunter, a construction-risk insurance specialist who owns HM Risk Group in Austin, Texas. That's because in the eyes of your insurer, if you've missed a few payments to your credit card company or have written a lot of bad checks (that wound up in collection), chances are you'll do the same thing to them.

It's no secret that banks and credit card issuers are looking for ways to make up the money they'll lose when both the new Federal Reserve rules on overdraft charges and the Credit CARD Act kick in. One way they're doing this is by tacking on a host of new fees.

Both MSNBC and Consumerist.com pointed out that more companies will charge you if prefer to receive a paper statement in the mail.

But while many people prefer electronic statements for convenience or for environmental reasons, Ed Mierzwinski, consumer program director at advocacy group US-PIRG, told WalletPop in an interview that it can be risky to trust a financial institution to store your data. "In my opinion, you are better protected when you have a paper copy of your records than [having them housed] by a web site that can change," he says. Paperless billing is a way to pass that cost of printing along to the customer, he added.

Even people who don't whip out the plastic on a regular basis like to have a credit card they can turn to in the event of an emergency.

This article from CreditCards.com outlines some of the main ins and outs of using without abusing an emergency card. Clarky Davis, a reformed debt-aholic who gives financial advice under the moniker of the "Debt Diva," spoke with Walletpop to give our readers some sound advice about when to use -- and when not to use -- an emergency credit card.

First, since card companies have taken up the irritating habit of canceling unused cards, don't save your card just for emergencies, or you may find that the account's been closed right when you need it most. Davis suggests using it for one small payment each month, either a purchase you make regularly or an automatic payment, just to keep the account active and in good standing.

It is an unfortunate truth that those who can least afford to lose money are often targeted by businesses (and scams) intent on taking advantage of their weak position.

The folks at Mint.com put together an excellent graphic presentation of how lower income people get caught up in difficult situations and pay dearly called "The Shaft: How Companies Prey on the Poor." The raw deals users get with payday loans, "repair" credit cards and renting to own are detailed by the artist behind WallStats.com.

See it here. Be patient, the image is large and, depending on your browser, you might have to click on it to expand it for viewing.

It's a good primer on the perils of doing business with those who cater to those with lower incomes and the credit-challenged.

The credit card reform bill, otherwise known as the Credit CARD Act, goes into effect next month (on February 22, to be exact). While there's a lot to be grateful for in this legislation, there are also some omissions, loopholes and flat-out giveaways to the credit card companies of which consumers need to be aware.

WalletPop talked to Lauren Bowne, an attorney with Consumers Union, the nonprofit consumer-advocacy group (and publishers of Consumer Reports). Bowne has been tracking this act as officials get ready for its launch, and she offered WalletPop readers a list of loopholes to watch out for when you use your credit cards after the CARD Act kicks in.

Rebuilding lousy credit is a hot topic with consumers these days, and one I've thought about a lot, having recently written a book about bad credit and having survived many, many years of financial turmoil. I currently have no credit cards, save one that my wife and I were able to get when my wife needed dental work last year. When I mentioned this to my bank manager once -- during a discussion about my almost-every-other-month overdraft fees -- he suggested I get a secured credit card.

Secured, as in, I put my own money into the credit card, say $300, and then I use it for a year, and eventually I'm be granted credit again. (Bankrate.com does a nice job of explaining the ins and outs of secured credit cards, in case you're interested in learning more.)

Getting the best interest rates on major purchases, whether that's a house or a car, can be much harder with today's stricter credit standards. Credit scores must be higher, and so does the amount you plan to put down on a house, even to get a mortgage.

In 2006, when I wrote my book, The Complete Idiot's Guide to Improving Your Credit Score, you could get a 0% down home loan with a credit score of 720 and still get the best interest rate. Today in order to get the lowest rates for a home loan, you'll need at least 10% down and a credit score of 760 or higher. For a 15-year equity line, you'll need a score of at least 740 and you'll only be able to get a loan for up to 80% of your home's value. In 2006, you could get a loan for as much as 100% of the home's value. Loans for as much as 125% of the home's value were also available, but you wouldn't get the best interest rate.

The Federal Reserve just issued more than 1,100 pages of clarifications about the the Credit CARD Act, which goes into effect next month. A handful of the clarifications revolve around sneaky interest-rate tricks in which the banks currently engage. Fortunately, many of the Fed's notes clarify things in favor of the consumer. This CNN/Money article touches on some of the big ways you'll be affected by the CARD Act when it comes to interest rates.

The CARD Act strictly limits the circumstances under which credit card companies can raise your interest rate on existing balances on fixed-rate cards. The rules are a little looser on variable-rate cards, which a lot of issuers have been strong-arming consumers into accepting. They've been doing this by basically saying, "Take this variable-rate card, or we're going to skyrocket the interest on your fixed-rate card." When faced with these alternatives, it's no wonder many people took the variable-rate option. Variable rates would be especially good in theory right now, except that banks have cooked up yet another (also soon-to-be-outlawed) catch to make more from them.

I was washing dishes and listening to NPR when Michelle Singletary came on to introduce a "21-day financial fast." At first I was excited with the idea, tinged as it was with the overtones of spirituality (my dad, an ordained minister, is a big lover of the food sort of fasting) and the whole concept of living within one's means. Singletary's rules go like this: except for food and medicine (and of course, utilities and contracted housing costs and other monthly non-negotiables), no purchasing. No plastic, not even a debit card. No purchases at all, unless it's keeping you alive and out of debtor's prison, not even gifts. Much like the alcoholic who's banned from bars when she joins AA, you may not go to malls. You may not window shop. Not even Marshall's! (I made up that last part, but it seems right.)