Posted on 02/02/2009 11:36:30 AM PST by Clairity
You probably know that credit card companies have been scrutinizing every charge on your account in recent years, searching for purchases that thieves may have made. Turns out, though, that some of the companies have been suspicious of you, too.
In recent months, American Express has gone far beyond simply checking your credit score and making sure you pay on time. The company has been looking at home prices in your area, the type of mortgage lender you're using and whether small-business card customers work in an industry under siege. It has also been looking at how you spend your money, searching for patterns or similarities to other customers who have trouble paying their bills.
In some instances, if it didn't like what it was seeing, the company has cut customer credit lines. It laid out this logic in letters that infuriated many of the cardholders who received them. "Other customers who have used their card at establishments where you recently shopped," one of those letters said, "have a poor repayment history with American Express."
(Excerpt) Read more at finance.yahoo.com ...
That hasn’t been the case for us. We actually received a notice from our insurance company that said our insurance rates were going UP because of our credit risk due to zero balance/open credit accounts. I think they look at all that potential credit card debt as a risk, as would other lenders. We’ve closed lots of accounts we used for zero balance debt reduction offers, paid off, then closed. Other accounts have been closed by them for inactivity. I’m sorry, but that Amazon card sticking us for an annual effective percentage rate of 74% tells me they want us gone. Maybe we’ll just payoff the CitiAA card and leave it open, but stop using it. But then, we’ve said we were doing that before, and kept using it anyway. I think a good old savings account for emergencies and our debit card is the way I want to go. I’m sick of credit card debt and these guys are just going to keep getting worse until the law changes next year to regulate them.
My goal is to be debt free except for the mortgage and then to never borrow again. At that point, I wouldn’t care if my credit score was zero.
I’m going back to cash. Except for emergencies, using credit cards for conveniences is borrowing money from your future.
Debt freedom is my goal as well. I racked up a lot of credit card debt when I was in nursing school and my mother got knocked down with cancer. I couldn’t pay for gas and food and pay my bills at the same time and take care of my mother.
When you owe someone money. They own you.
There are some good owners and some bad owners.
When you use a credit card or even a checking account. You are
giving up some of your personal freedom.
You are absolutely right!
Just reading World Net Daily article called Death of Cash = Death of Liberty.
http://worldnetdaily.com/index.php?fa=PAGE.view&pageId=87400
Scary. I’m mildly irritated that I have to use direct deposit for my salary checks. Very good article. I don’t I’ve ever used up all of a gift card. Those pennies add up.
I agree with that logic. In fact, it’s a good idea just about anytime.
Bear in mind that a zero balance does not report on FICO (the credit scoring model). So, for example, a one dollar balance with a 100 dollar limit increases your score more than a 0 dollar balance on the same account. Further, if you don't have any balances on any revolving accounts, that impacts your score negatively.
I agree with you that 74% is ridiculous. And you are exactly correct in thinking they don't want you to keep it. I can't speak for Amazon on this one, but what is going on is credit card companies are decreasing their exposure - canceling inactive accounts/lowering limits and raising their fees.
This is their business and what they think they need to do at this time. The point I'm making is that these actions results in a much lower credit score for a great many folks - unless they know what to do.
Credit scores impact our lives in a lot of ways other than borrowing - and we never know when we might want to borrow or when borrowing will be the wisest financial option.
I truly understand your points here, and I agree with the sentiment. What's at stake with your score in the near term is losing long positive history. If some of your cards you close are seven, ten, twenty years old.. you can't get that back helping your credit score for a very long time.
Here's a really brief ABC news radio story about Should I cut up my credit cards. It gives the basics anyway.
Thanks for your reply.
The lowest score for a live body I think is 500. If you want to refi, your score will be critical, and of course there are other rates and employers, etc, where your score can come into play.
I look at your strategy as similar to "living off the grid" as far as the main milieu of the economic world. And I admire that, I did it myself for 20 years. It began to make things much more difficult for me and so I worked to increase my score. It's where it needs to be now to make life easier and more enjoyable for me.
But... that's me. It's a lot of other people too, particularly young families. I still think living off the grid is a great way to go, so long as it suits you in the future. I think it's great and I wish you the best.
Thanks so much for your thoughtful reply. I think we will keep the long-standing CitiAA card open, but just pay it down to a couple of hundred. We’ve had that one forever. We only had the Amazon card for a few years. We also have a Discover card we’re paying off, and I think two is enough. (Besides we have Lowes, Home Depot, Penneys, etc.)
I know all too well how the credit rating affects us in other areas. I just wonder how much longer it will be a viable assessment of people’s ‘character’. Remember after the oil and gas and saving and loan crashes, nearly everyone had declared bankruptcy or had credit problems. Most lenders were understanding and forgiving of those problems in light of the economic melt down. And today, with jobs tough to come by, and with the current economic situation, if employers continue to use credit ratings/bankruptcy etc as factors for hiring/not hiring, it’ll be the same thing as it was then—almost everyone was in the same boat in some hard-hit regions, and if they wanted to stay in business, they had to break down and hire some of those people.
I know times are much different now, but frankly, this whole country needed to get off of credit, and this will probably be a good thing for people in the long run. Seriously, when you are forced to find other ways to come up with the money you need in emergencies, or (heaven forbid) have to SAVE UP for something you want to buy, you’re much better off. I think this is all good.
Thanks again for the advice.
Thanks for your very kind reply. You got the right strategy here.
As for the encroaching of credit scores on an assessment of character, employability, trust, risk, etc., I couldn’t agree more. I think there’s two things that contribute to it: we have become a nation of creditors and debtors, we have become a large impersonal, digital world.
You spoke well to both those conditions, and I hope with you that we learn and begin turning back from this future.
thanks very much for your posts..
Perhaps, but I'm nost sure that they can look at your credit history without your permission. Yes, they can certainly look at your payment and spending patterns with their card but that's expected. After all, they do know if you pay or not, and they do know where you use your card. And they know where you live and they can find demographic data on your neighborhood - that is public information.
I can carry quite a few rounds...
Are you saying that the more available credit lines a person has, the higher their score? I'm not too sure about that. I'm over 800, have 2 credit card accounts and a mortgage. I pay the cards off each month without interest and haven't had a car loan in 5 years. I generally pay all my bills on time. I have opened and closed two credit card accounts in the last 2 years. I'm not seeing any ill effects.
This is interesting. As a provider I will be sure that I tell my clients to watch where they use their credit cards or they will be tracked. Medical care and medicines are tracked and may hurt your credit score.
don’t think that it sounds stupid or evil. I wouldn’t want to loan money to somebody who appears to be spending it at adult establishments either and is apparently too stupid to realize he should be paying cash for items he doesn’t want the wife to know about.
This isnt information going to the wife, the spenders are being tracked as part of an over all evaluation.
It’s going to be on the credit card statement, which the wifey might very easily see or find out about = stupid.
It also doesn’t change the fact that somebody who is putting their party life on plastic is a poor risk.
Many merchant accounts won’t accept adult oriented businesses as clients or charge them a much higher processing rate because they have a much higher rate of chargebacks.
Nobody has a right to credit line.
In general, the scoring model rewards those with:
- A variety of types of credit (installment, revolving, car, mortgage, etc.).
- Long history with this credit (very high scores can only come with this factor.)
- Low debt/limit ratios.
- No negative events (late payments, collections, public records. One single recent negative event, no matter the amount can have a major impact on scores.)
[It’s also important to know that the scoring model sees almost nothing of dollar amounts, only ratios.)
So, IN GENERAL, we can say the more lines the higher the score, up to a point. The difference between no revolving and two revolving accounts is a great deal more than the difference between two revolving and four revolving accounts.
In general, again, two-three credit card accounts with no lates and low balances is going to get you pretty much what you’re going to get from these lines - EXCEPT for the length of time you have a successful history with them. I.e., closing a one year old card hurts you a great deal less than closing a ten year old card.
So you have to look at each situation individually. Closing the same credit card can have quite different results depending on the rest of a person’s history.
What I’m saying on these threads is that in these times, crazy stuff is going on on the credit card side. And, the GENERAL effect of the companies actions lowers folk’s scores.
Which means we have to be more informed with accurate information now to deal with what’s coming at us. Those I trust are recommending keeping almost everything you can open and active because of the volatility - if you have three cards, you don’t know which one you’ll really need when/if the other two go south on you.
I hope this makes more sense.
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