Posted on 11/24/2008 6:47:21 AM PST by TigerLikesRooster
Credit crunch for consumers
As card issuers hike rates, consumers forced to work harder to protect credit
By Andrea Coombes, MarketWatch
Last update: 1:36 p.m. EST Nov. 23, 2008
SAN FRANCISCO (MarketWatch) -- As credit-card issuers raise rates and fees and lower credit limits, consumers face higher-cost debt -- and more work maintaining their credit score.
In some cases, banks' former darlings -- consumers who paid consistently and on time but let their balances ride -- now are being hit hardest, asked to stomach higher interest rates and fees or try their luck with different card issuers.
For instance, some J.P. Morgan Chase & Co. (JPM JPMorgan Chase & Co) credit-card customers who have carried a balance for more than two years will be charged a $10 monthly fee starting in January and their minimum payment will rise to 5% from 2%.
Meanwhile, as many as 10 million Citigroup Inc. (C Citigroup, Inc) customers whose interest rates have not changed in two to three years will receive notice in their November statement that their interest rate is increasing by an average of three percentage points.
And in December, American Express Co. (AXP American Express Company) will lob a two to three percentage point interest-rate hike across a broad swath of consumers, plus increase the conversion rate for charges made in foreign countries.
Amid rising unemployment and higher delinquency rates, credit-card issuers are cracking down, particularly on the balance-carriers. "Given the current environment banks are starting to get very scared of the backlog of debt they're owed from their current borrowers who have carried balances," said Greg Larkin, a New York-based senior analyst with Innovest Strategic Value Advisors.
(Excerpt) Read more at marketwatch.com ...
I believe most (if not all?) of the scoring systems take the two factors I mentioned into account. In any case, FICO, several months ago, supposedly began a modified scoring system called 'FICO 08'.
FICO 08
June 17, 2008
With the changes in the market place and the shifting attitude of consumers towards plastic over cash, Fair Isaac has deemed it necessary to make a few changes. Fair Isaac or FICO is responsible for doling out consumer credit scores when can pretty much make or break a consumer searching for a mortgage, a loan, and even employment.
FICO’s new model is set to debut in a few months but many consumers and lenders are getting ready for the change now. FICO will keep the scale in which the credit scores appear the same. Which means consumers can still expect to see a number ranging from 350 to 800 which the higher the number reflecting the better score.
Many find that FICO 08 will be far more forgiving of consumers then the previous model.
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Also see:
http://www.mortgagenewsdaily.com/172008_FICO_08.asp
And:
http://www.bankrate.com/brm/news/cc/20080812-authorized-users-a1.asp
True enough. But I remember a time when people rented until they saved 50% of the price of a house. After getting out of the Marines after WWII my dad bought a little row house in Philly for $5000 after he had saved $2500 as a downpayment. No credit history but the local banker knew him and he had a decent job. Back to the future, Friend. Prepare for a differnt world.
However, if the banks we hold cards with now (about 7,500 between two cards) think they can raise our interest rates then attempt scare us into not paying off the balance in its entirety to avoid them - they have another thing coming!
If our excellent credit score is “damaged” by paying off credit cards, so be it - it has been our goal all along to pay off the credit cards we have - we haven't used a card for a purchase in over 5 years!
I'm just a bit outraged at this low-life ploy of theirs.
The best thing anyone can do is strive to be debt free regardless of how loud credit card companies scream.
Those who can pay it off or cancel it should do so rather than fall for petty, greedy, manipulations.
I got a letter from a bank card company saying that since I haven’t used my card in over 24 months, they were closing my account.
Usually, on cards I don’t regularly use I get balance transfer checks (with low or no interest) in the mail each month instead of bills. Come to think of it I haven’t seen any of those in the past two months, either.
This is necessary for the banks to clean up their balance sheets, but is going to kill consumption (as if it isn’t killed already...)
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LOL! Every time we paid off a credit card,we had to call them 4 or 5 times to get them to cancel it, or quit sending us checks and offers.
As far as killing consumption, I don't know. For the average consumer, it will only prevent them from buying things they can't afford in the first place. Nothing wrong with saving up for what you want - delayed gratification can be a good thing.
And I'm not acting all high and mighty by saying this. We got into that credit card trap about 20 years ago. Never again. Never again.
I want new flooring (laminate) in my sun room and living room. Ten years ago, I would not have blinked an eye when I pulled out the credit card.
But, knowing much better now, I opened up a savings account specifically to save for my new flooring. It should take me almost eight months to save for it. But I can wait.
My daughters, who are in the Navy, are in the process of paying off their credit cards on advice from mom. They are closing them as they pay them off ~ against the advise of the credit companies, of course. They will keep only one credit card with Navy Federal. They both have new cars which they intend to mostly pay off when they reup in January. They don’t really care about their credit scores going down since they don’t need any loans in the foreseeable future. They don’t intend to buy a house until they get out. Thank goodness I have daughters who heed my warnings about the economy and the dangers of debt.
In the short run they'll bring in much needed cash - in the long run they'll cause more bankruptcies and defaults. That said, the minimum payment should ALWAYS have been at least 5% of the balance. These crooked banks know that at 2% people will never get their bills paid off. It's criminal.
You don't have to close or pay them off entirely (unless you can't resist the temptation to use them?) Leave a small enough amount in the account(s) so that you can continue to make manageable monthly payments. History (payment history, avg length of accounts, and usage) are all important in credit scoring.
Check out your FICO score - someone might be messing with your credit identity. Everything's probably fine, but it has an odd feel to it.
Scores aren't "damaged" by paying them off - but they are damaged when the account is closed. FICO uses a formula that looks at credit used relative to credit available. So if you can borrow $10,000 and owe $9,000, it's worse than if you can borrow $10,000 and owe $1,000. When you close an account it changes the ratio.
If they haven't yet closed it, if I were you, I would keep the account going with a minor purchase. Again, if an account you've had for some time closes, the average length (age) of all your accounts will drop and your score will go down.
We have a Chase card that we haven't used in probably 10 years or so, that is impossible to cancel. We have requested in writing and and on two seperate occasions they have sent us a letter stating that it has been cancelled but every two years or so we get someting from them saying they are changing the terms of the agreement that effects our card and like clock work when the card is due to expire they send us a new one, which is never activated.
This wouldn't concern me except for the fact that at any time they choose they can start implementing an annual fee. I am truly at a loss as to how to get this company out of our lives.
Also, as I mentioned in my first reply, the total amount of credit available to you will obviously drop if you close an account. I think about 30% of the score is based on the ratio between total used and total available. Good credit scores are not only important for getting loans, but can also be for employment and apartment hunting. Dependability, etc.
Except the greedy bankers got their buddies in Congress to rewrite the bankruptcy laws so they could have their cake and eat it too.
We've not used a credit card for a purchase in years! So far, that's helped our credit, not hurt it. But one never knows these days!
Oh, OK. I get it now.
I was pretty outraged for awhile there.
We’ve worked hard to pay off our debt and are looking forward to paying off the last two cards and closing them.
Even better is to skip getting any new flooring at all.
I mean, unless the laminate is truly ripped up and needs replacing.
My next door neighbor buys a new stove every 5 years even though the old one is perfectly fine!
Well that’s just cazy.
As long as the interest does not go up, we’ll keep the two we have. But I’ve grown to hate credit cards. I keep only those with low interest rates.
The two we have left are at 2.99%, we wouldn’t keep them otherwise.
It doesn't help your credit if you don't use the card, or close the account. Either action (or 'inaction') hurts your credit.
Please share where you get 2.99 cards.
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