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Owning a credit card is fast becoming a better deal for consumers as the credit card industry (banks and other credit card issuers) starts changing their practices and implementing what can only be construed as more lenient practices, under the pressure exerted by Congress. This article offers the whole story.
In economic figures released by the Commerce Department at the end of May 2007, the U.S. first-quarter gross domestic product (GDP) grew by 0.6 percent. This was the weakest quarterly expansion since the fourth quarter of 2002 and was well under the 0.8 percent growth rate projected by Wall Street economists.
Housing continued to be a drag on the economy and was though likely to remain so in the coming months. However, there were positive signs as well, which could signal a healthier rate of growth towards the end of the year. One of these good signs was personal consumption spending ? which powers two-thirds of the economy ? increased by about 4.4 percent versus the 3.8 percent figure in April.
In a related report, the Labor Department reported on June 6 that U.S. worker productivity had also increased at a much slower rate than originally estimated. This report raised fears about possible inflationary pressures as labor costs go up.
Most of the performance figures had already been anticipated.
What came as a surprise was that borrowing by U.S. households had expanded by less than half ($2.6 billion) of forecast ($6 billion) as credit card use actually fell for the first time in 13 months. This increase in consumer credit was the smallest monthly increment in seven months, since October.
It seems consumers are pulling back from taking on more debt. Revolving credit, which includes credit cards, declined $403 million in April, the first monthly decline in the 13 months since March 2006. Consumers may be cautious about contracting more debt while housing remains in a slump and economic growth has been so weak. The decline in revolving credit has been interpreted as a sign that consumers are paying off more of their credit card debt.
In the middle of these mixed signals from the various sectors of the economy, legislators have expressed their dismay over practices being followed in the credit card industry. The House Financial Services subcommittee hearings last Thursday, June 7, called for stronger action by the Federal Reserve to control what lawmakers called the deceptive and predatory practices of credit card companies. Lawmakers subjected executives of major credit card issuing banks to intense questioning during the hearing.
Saying that the average American household carries $13,000 in credit card debt and overall credit card debt runs in the hundreds of billions of dollars, the panel chairwoman Rep. Carolyn Maloney, D-N.Y., was reported to have expressed fears ?that we will see a perfect storm in consumer credit as these pressures converge on Americans, and that the ripple effect will be felt throughout our whole economy.? Maloney cited the success of credit cards in providing for the credit needs of the American consumer but also emphasized that with great success came ?great responsibility.?
Lawmakers think the Fed needs to do more to protect credit card users, and propose to give other bank regulators the authority to curb industry abuses, including policies that confuse consumers and push them into more debt. The Fed is requiring credit card companies to extend to 45 days the notification period to consumers before they implement any changes in the terms of an account. The present practice is that when banks want to make any changes, for instance, to increase interest rates or to impose a higher penalty rate for missed or late payments, they will give only 15 days notice.
The Fed?s proposed full disclosure requirements would, among other things, allow consumers a longer time to look for another credit card. But legislators feel this is not enough and want regulators to impose an outright ban on abusive practices. They do not want to create new laws, but prefer to see regulators act on the problems.
Legislators are targeting other practices like charging interest on portions of debt that is paid on time during a grace period, and raising interest rates because a customer is late on payments to other creditors (not the credit card issuer) ? which is termed ?universal default? in the industry. Legislation is being proposed that would make some of these practices illegal.
These are serious concerns being raised by our lawmakers. Other regulators appear to agree with the lawmakers. The Federal Deposit Insurance Corporation chairman is not fully convinced that problems regarding credit card industry practices will be resolved by full disclosure alone. Other federal regulators who were also called to testify expressed support for legislation that would give their offices the authority to curtail practices that are deemed to be deceptive or unfair.
Because of the close scrutiny by Congress, several major banks have started to temper or remove some of their most criticized practices. Banks may need to do more to allay consumer fears, suspicion, and eventually, resentment.
How banks will respond remains to be seen.
Already one of the major credit card issuers, Chase, has begun to articulate its response. The bank has issued a June 12 statement saying that in their view the complex credit card system that exists today will be able to sustain its success if the two principal parties in the relationship ? the credit card issuers (banks) and the credit card holders (individual consumers) ? acknowledge that theirs is a shared responsibility. The credit card holder must use the card in a responsible manner; the bank must strive to meet the credit card holder?s needs.
Overall, the bank says the credit card has broadened access to credit to all consumers. It insists that average interest rates have gone down from close to 20 percent to only 12 percent approximately, and in many cases issuers no longer charge annual fees.
The bank has defined what responsibility should mean for the credit card holder: pay on time; keep within your credit limit; and maintain your creditworthiness. By following this simple equation, the credit card holder gets an interest-free loan for a certain period when they pay off whole balances every month, fraud and loss protection, and other benefits, plus instant and constant availability of credit.
The bank also delineates what it sees as its responsibility: make sure customers understand the terms of their credit card account; show them how to manage their credit cards; give them tools that help them pay promptly time and stay within their credit limits; spot those in trouble and point to avenues for financial solutions; and evaluate more carefully the credit applicant?s capability to manage debt prior to credit card issuance.
The bank has implemented a set of initiatives to promote greater customer understanding of the terms of their credit card account and to provide tools for managing accounts. This program is channeled mainly through the company?s special website, which it says details everything in clear and simple terms. Some of these initiatives involve:
Putting detailed instructions and calculations that clarify the implications of paying only the minimum amounts instead of paying more on the balance, if not paying it off entirely; Outlining procedures that allow customers in the military to keep their credit card accounts current when deployed overseas; Allowing all customers to choose their preferred due date for payments; Providing instructional materials for students and first-time credit card users to guide them in making prompt payments and keeping within credit limits; Installing a system of communications where customers can sign up for timely alerts sent via phone, e-mail and text messages to remind them of payment due dates; Providing for a system of automatic credit card payments; and, Creating an outreach program to reach those who may be having financial difficulties and to determine what assistance and financial programs can best help them.
Individual credit card holders like you have made your opinions heard, to both the legislators and the credit card issuers. By heeding your opinions, and altering the criticized practices, holding a credit card is becoming even better than before.
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If you’ve ever applied for a loan or credit card, chances are your lender acquired and examined a copy of your credit report before deciding whether or not to grant you credit.
Your “Credit Report” is a record of your credit history and it’s prepared by agencies called “Credit Bureaus”, or “Consumer Reporting Agencies.” These are private organizations and have no affiliation with the United States (or any) government. There are 3 major credit bureaus in the United States (2 in Canada) and their names are Experian, EquiFax, and Trans Union.
Did you know that credit reporting is a multi-billion dollar a year industry? It’s true! The credit bureaus are for-profit organizations that generate billions of dollars in revenue each year from selling copies of credit reports to creditors and mailing lists.
Your credit report affects more than your financial life. It could affect your education, career, and even your relationships. Your credit report is used not only by lenders and creditors, but also by auto, life, and home insurers, future employers, and even some educational institutions. It affects the interest rates you’ll pay on everything!
So as you can see, your credit report can have a critical impact on many facets of your life. For example, because of a bad credit report you could be forced to pay tens of thousands of dollars MORE in loan interest over the life of your home mortgage. This is no exaggeration!
Since the credit bureaus prepare and distribute your credit report to lenders, they clearly wield a great deal of power over both your financial and personal life. But it would be a grave mistake to be intimidated by them, or to think that you have no choice but to live with the negative effects of a bad credit report.
In fact, there’s plenty you can do!
Always remember; Knowledge is power! There’re a few facts the credit bureaus would rather you don’t know. Let’s take a look at them, and you’ll see why.
1. Credit reports are filled with errors!
It will probably astonish you to learn the percentage of credit reports that contain errors. While there seems to be some disagreement, estimates range from 1 out of every 3 (on the low end) to as high as 90%! Here’s a “run down” on error estimates.
Percentage of Credit Reports Than Contain Mistakes
Attorney General of NY 1/3
Consumers Union 48%
US Congress 1/2
Charles Givens Organization 90%
So no matter who you believe, it’s clear that way too many credit reports have errors. So even if you think you have good credit, it might be well worth your while to get a copy of your credit report and take a careful look at it.
2. The law is on your side!
In 1972 Congress passed the Fair Credit Reporting Act (FCRA) to curb abuses by the credit bureaus. The FCRA is the governing federal law on the issue of credit reporting.
Under the FCRA, you have the right to dispute negative information in your credit report. The credit bureaus then have 30 days to verify the disputed information with the creditor. If they cannot (or do not) verify the disputed information within 30 days, it must be deleted from your credit report.
3. Even accurate data in your credit report must be deleted if it’s not verified.
If you’ve done any research into credit repair you’ve no doubt run across statements to the effect of “Negative data in your credit report that is accurate cannot be removed.” As stated above, the FCRA stipulates that any disputed information must be verified within 30 days, or it must be deleted. The “burden of proof” (in a manner of speaking), is on the credit bureaus.
4. Credit repair DOES WORK in most cases!
You’ll hear all kinds of opinions as to whether “credit repair” (i.e. efforts to improve your credit report) can be successful. The truth is, credit repair doesn’t always work perfectly. But in almost every case the process of credit repair will result in at least SOME improvement in your credit score, and most often that improvement is substantial. So credit repair does work!
Now you may be wondering why repairing your credit score would be of any concern to the credit bureaus. After all, don’t they make money by compiling and distributing credit reports regardless of whether those reports are negative or positive?
Well, yes they do, BUT…they also make money (a GREAT DEAL of money) selling names of people with poor credit, to creditors who have a specific interest in those people.
So why would some creditors want to bother with people who have poor credit? Because they know they can charge higher interest rates to those people, because the “bad credit risks” have no choice but to pay those exorbitant rates or forgo credit altogether!
Besides, investigating disputed information costs the credit bureaus time, manpower, and money. They have nothing to gain, and plenty to lose, when people take the initiative and dispute negative information on their credit report.
5. It’s perfectly legal to hire third party help to repair your credit.
There are plenty of “Credit Repair Agencies” who will help you repair your credit. But if a credit bureau even suspects you’re using such an agency, it’s likely they’ll try to discourage you from doing so. In some cases they’ll even go so far as to send you a letter stating that use of such agencies is illegal.
Such statements are (to put it as politely as possible) garbage! In fact there are laws that regulate such agencies. Now laws don’t exist to regulate illegal activity, except to ban it! When was the last time you saw laws that regulate what cocaine dealers must do to operate within the law?
Once again, repairing a bad credit report just isn’t in the best interest of the major credit bureaus. But unless you happen to be the CEO of one of those bureaus, the most important question as far as you’re concerned is “What’s in MY best interest?”
First of all, get a copy of your credit report and examine it. You can get a free copy of your report at http://www.annualcreditreport.com.
Secondly, take steps to improve your credit report. You can go about it in one of two ways.
1. Hire third party help.
If repairing your own credit report sounds too intimidating, there are plenty of credit repair agencies that will do it for you. But if you take this approach, there are three things you need to know.
First, they’re not cheap. Expect to pay from $2,500 to $5,000 for an attorney or $795 to $2,000 or more for a credit repair agency. Secondly, they don’t always do it right! Some will manage to get the negative data on your credit report removed while actually doing damage to your “credit score” (a calculated number used by creditors to evaluate you credit worthiness.) Finally, many are outright scams!
That’s not to say you shouldn’t hire third party help. If you do your “home work,” ask for references, and carefully select a reputable credit repair agency, you’ll be much better off than if you had done nothing. Still, if you’re willing to do a little work, there’s a much better alternative.
2. Repair you own credit report.
Anyone can fix their own credit report. If you can write a few letters, address, stamp, and mail them you can repair your own credit. There’re plenty of good books available that can walk you thought the whole procedure, and once you’re done a little study, you’ll be surprised at how simple the process is.
Bad credit will cost you many thousands of dollars and limitless anxiety. Even if you have fair credit, fixing you credit could still save you thousands in interest payments over the years.
Get a good book on the topic of credit repair, and get started fixing your credit report today! And don’t be intimidated by the credit bureaus. Remember, the law is on YOUR side!
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