7 Decisions That Lead To Bankruptcy

According to the Sunday Times, in 2009, 340 people a day declared for bankruptcy in Britain – and they're not alone. Over the past three years, personal bankruptcies have been on the rise throughout the United Kingdom. Over 70% of bankruptcy cases cited "living beyond the bankrupt's means" as the primary reason for insolvency. Here are the seven decisions that lead people in the U.K. into bankruptcy.

1. Lack of an Emergency FundExpect the unexpected. Unplanned changes are the second leading cause of bankruptcies. Not having an emergency fund is one of the worst financial decisions that you could make because emergency expenses can destroy even the best of financial plans. Job loss, home repairs, car troubles and medical issues are examples of unplanned expenses that can pop up at anytime. Without an emergency fund these unplanned expenses can land you deep in debt and throw a monkey wrench into your carefully crafted financial plans. (Learn more in Build Yourself An Emergency Fund.)
   
   
2. Buying Too Much HouseBuying a house that is too big for your wallet can turn your dream home into a financial nightmare. A mortgage payment that is too large can rob you of your retirement and hinder your kids' college plans. A large mortgage payment has other bills associated with it including higher property taxes, maintenance bills and insurance. The worst part about overspending on your home is that it can land you in foreclosure, making bankruptcy court a likely destination. (Hidden costs can create what looks like a good deal. Find out how to find the best mortgage possible. Read Score A Cheap Mortgage.)
   
   
3. Poor Financial PlanningThere is an old proverb about how people that fail to plan, plan to fail. Failing to have a budget will land you in hot water. How do you know how much money you have left to spend if you don't keep track of your monthly expenses? Most people aren't realistic about their spending habits and underestimate their monthly expenses, leaving them strapped for cash and vulnerable to insolvency. It's important to remember that you should even record one-time expenses and seasonal purchases like birthday and Christmas presents. (Learn how to start planning, read 6 Months To A Better Budget.)
   
   
4. Ignoring DebtWhen people fall behind on their bills, they have a tendency to ignore their debts. Out-of-sight, out-of-mind doesn't work when it comes to debt. Ignoring bills doesn't make them go away. Avoiding court hearings, bill statements and creditor telephone calls are all signs that you are on the road to financial ruin. You may find that creditors will be willing to work with you if they are informed that you are having difficulty paying your bills.
   
   
5. Too Much Credit Card DebtPeople that are facing financial difficulties often rely on their credit cards in order to survive. Racking up massive credit card debt has led many consumers down the path of insolvency. This year alone over one million U.K. residents have borrowed from their credit cards to make mortgage and rent payments according to the BBC. While this may temporarily stave off bankruptcy, it's only a short-term solution. You can't eliminate debt by borrowing more money at a higher interest rate. These borrowers are navigating a slippery slope and are only increasing their debt problems long term. (Learn how to avoid this. Read Expert Tips For Cutting Credit Card Debt.)
   
   
6. GamblingDo you love the thrill and excitement of the casino? Maybe you prefer placing a bet from the privacy of your own home. While occasional gambling might be a recreational hobby, habitual gambling will lead you straight to the poorhouse. In the past, betting on card games, lotteries and sports was the method of choice for gamblers. With the rise of the internet, more people are turning to online gambling. Mortgage payments, car notes and bill payments are gambled away every day on online poker sites and online sports books.
   
   
7. Tax ProblemsTax problems are one of the leading causes of bankruptcy in the U.K. Whether failing to pay personal taxes or business taxes, tax problems have led many U.K. residents into bankruptcy court. The British government can force citizens that fall behind on council tax payments to sell off assets through bankruptcy proceedings to repay tax debts.

The Bottom LineLiving beyond your means greatly increases your chances of facing financial difficulties and going through bankruptcy. Making the right choices can help keep your financial future on sound footing, whereas the wrong decisions can lead you to financial ruin.

How much debt is too much?

As housing prices across Canada continue to rise and a 20 per cent down payment gets harder to come by, many people find themselves wondering how big a mortgage is too big.
But they are asking the wrong question, says Henrietta Ross, chief executive officer of the Canadian Association of Credit Counselling Services, based in Grimsby, Ont. Her offices helped 130,000 Canadians face their debt problems -- including mortgages -- last year.
"People should not be looking at mortgage debt but rather at their overall levels of family debt," she says. "Mortgages alone are not usually the cause of financial problems."
Her advice is spot on, say mortgage brokers Sue Pimento, east Toronto regional manager for Invis, and Sean Binkley, a mortgage broker with Mortgage Intelligence in Ottawa. Both note that debt consolidation through home refinancing is on the rise.
"People are taking advantage of those historic low mortgage rates to get rid of credit card and other debt with interest rates as high as 19 per cent," says Binkley. "The problem is they are taking short-term consumer debt and turning it into long-term mortgage debt."
The move may solve their current financial problems but it also frees them up to take on even more new debt through credit card spending and household purchases, he says.
As Pimento notes: "money is never the solution to money problems. A change in behaviour is the solution to money problems."
This is where Ross and the CACCS come in. Her members offer counselling on the phone, online ( www.caccs.ca)and in person to people struggling with creditors.
The telltale signs that family debt loads might be too high are not hard to spot. Binkley says debt consolidation through a mortgage is one. "I see people coming to me every two or three years," he says. "That is a sure sign something is wrong."
So is living on the financial edge, making minimum payments each month on bills and loans, especially credit card loans.
What are people caught in this situation to do? Ross offers a few tips to anyone taking out a mortgage. The first is to ignore guidelines offered by lenders as to what you can afford to pay. "As a rule of thumb, lenders allow you to borrow based on gross income -- up to 30 per cent or even a little more. But we don't live on gross income. We live on income after taxes and other deductions.
"You also have to remember that home ownership comes with a lot of other bills like taxes, utilities, heating, insurance and regular maintenance. That could in some cases drive the total cost of home ownership up to 40 per cent of gross income."
She says a more reasonable guide is 30 per cent of net income -- what you take home in cash to pay the bills.
Then keep all other debt to 10 per cent of net income. That includes things like car payments and credit card spending.
"Before taking out a mortgage think about the unexpected," she says.
What happens if one spouse loses a job or becomes pregnant? What happens if illness strikes and the borrower is unable to work? What happens if interest rates begin to rise?
"Many young people also carry a large burden in student loans," she says. "This obligation may mean either delaying a house purchase or opting for something less expensive."
To understand how big a mortgage you can afford, Ross suggests trying one of the budgeting calculators the CACCS offers on its website. "A lender may tell you that you qualify for a $300,000 mortgage on paper but in reality you may find your take-home pay can only support a $200,000 mortgage."

Utah's Advanta Bank seized by state regulators

"The bank, founded in 1991, is a wholly owned subsidiary of the Spring House, Pa.-based Advanta Corp., which filed Chapter 11 bankruptcy Nov. 8, 2009.
At the time the Draper bank was seized Friday, it had 25 Utah employees; another 85 worked out of the company's bank operations center in Pennsylvania."State regulators seized Utah's Advanta Bank Corp. Friday after determining the finances of the Draper-based industrial bank were too weak for it to continue doing business.
The closing marked the first failure of a Utah industrial bank.
"We've been tracking Advanta's financial condition for a number of years and finally made the case [to a Utah judge] that they were in an unsafe and unsound condition, and that unfortunately taking them over was warranted," said Ed Leary, commissioner of the Utah Department of Financial Institutions.
When it seized Advanta, the state immediately appointed the Federal Deposit Insurance Corp. as the bank's receiver. That role involves winding down the affairs of the bank by sending out checks to depositors for their insured funds up to $250,000 and liquidating its assets.
"Those checks will be mailed on Monday," said David Barr, a spokesman for the FDIC.
The FDIC noted that as of Dec. 31, Advanta had $1.6 billion in assets and $1.5 billion in deposits. Of those deposits, an estimated $20 million represented funds that are owed to Advanta's Utah customers.
Industrial banks, also known as industrial loan corporations, or ILCs, are state-chartered but remain federally insured financial institutions that historically have operated in narrow niches. In Advanta's case, it primarily provided credit cards for small-business owners nationwide.
The problems faced by Advanta were indicative of the struggles faced by small-business community generally, Leary said. "They were one of the largest credit-card lenders to small-business owners in the country." Advanta's problems began surfacing publicly last May when it announced it had quit funding its charge cards after its default rate for the first quarter of 2009 reached 20 percent.
On June 30, the FDIC ordered Advanta to come up with a plan that provided for the "orderly discontinuance of deposit-taking operations and the voluntary termination of deposit insurance after the repayment in full of all deposits."
Although that order left open the possibility that Advanta could, with FDIC approval, begin taking deposits again, it never was able to find the additional capital it needed.
And after shopping the bank for the past several months, the FDIC determined it would be unable to find another financial institution to take over Advanta's banking operations, Barr said.
The FDIC is estimating the failure of the Utah industrial bank will cost is deposit insurance fund $636 million.
Frank Pignanelli, executive director of the National Association of Industrial Bankers, said Advanta was a victim of "unprecedented financial conditions" that primarily impacted its small-business customers.
"The failure of Advanta isn't the start of a trend," he said. "Industrial banks have only marginally been impacted by the economic downtown. They are among the safest and soundest financial institutions in the country. They have some of the highest capital-to-asset ratios, the lowest troubled-asset ratios and the highest return on assets around."

Credit card companies won't quit

The primary effective date for the Credit Card Act of 2009 -- Feb. 22, 2010 -- has come and gone. But the impact of this law is only now being felt. It offers many positive features for consumers who use credit cards: increased disclosure, limits on the capacity of issuers to change agreement terms and elimination or curtailing of pernicious practices such as double billing cycles, disproportionate fees, mandatory allocation of payment clauses and extensive fees on subprime credit cards.But since the law's passage, issuers have made significant changes to credit card agreements and credit practices that will negatively impact consumers. These changes are a concerted effort to recoup the financial losses engendered by the new law because, make no mistake about it, consumer credit card use is big business -- a more than trillion dollar business.
Some examples: Since there is no interest rate cap in the new law, companies are increasing rates -- something that was less common when fees, not interest payments, generated key revenue streams.
They are adding up-front membership fees, lowering credit limits and shifting from fixed to variable interest rates.
They are increasing the size of minimum payments and augmenting minimum finance charges. They are prohibiting overdrafts rather than developing appropriate opt-in provisions. They are rebating interest payments for timely payments to avoid limitations on double billing cycles, increasing foreign exchange fees and eliminating the valuable grace period.
In short, credit card companies are working hard and seemingly successfully to find new ways to generate revenues that do not overtly violate the law. What bothers me is that some of these approaches run contrary to the spirit of the new law, whose goals were to increase accountability, create simplicity, prevent unfairness and target and eliminate abusive practices.
A lesson from our bankruptcy laws is relevant here. When we became concerned about consumers violating the bankruptcy laws some years ago, a new provision was added that allows a court to dismiss a case if an individual debtor's filing is a "substantial abuse" of the bankruptcy process (Section 707(b)). Courts have spent considerable time defining what that terms means (and a more definitive standard was enacted later), but the idea was to foreclose bad behavior, even if we cannot predetermine exactly what debtor behavior is abusive.
Why couldn't we have done something similar with respect to the credit card industry -- banning it from substantially abusing the provisions of the new law? Obviously, the credit card companies would have lobbied hard to prevent such a provision -- although they were strongly in favor when it applied to consumer filings in bankruptcy. But, the idea is right because clever planning to circumvent the new law undercuts its purpose.
My point is simple: Consumers still need to be vigilant with respect to their credit cards and evaluate carefully the onslaught of new mail they are receiving from their credit card issuers. The Credit Card Act of 2009 notwithstanding, consumers still can and will be taken advantage of in the consumer financial markets.
Unfortunately, "consumer beware" remains the watchword of the moment.

When Does It Make Sense to Cancel a Credit Card?

Most Americans have multiple credit cards, while the majority hold 3-5 credit cards, some have as many as 10-12. Few people really need that many credit cards; for the most part, the cards are left-over relics from the days when lucrative no-fee 0% APR offers flowed like milk and honey.

In the changing credit card environment, however, it could soon get costly to have too many credit cards. Some card issuers are reintroducing annual fees and other fees linked to card usage, which could quickly turn unused credit cards into a liability.

However, simply cancelling unused credit cards isn’t that straightforward either. Most experts advise against closing credit card accounts, because it may lower your FICO score. In particular, cancelling a credit card could affect your credit utilization ratio, a measure of how much credit card debt you carry in relation to your total credit available. It could also shorten the length of your credit history, another component of FICO scores.

However, while the overall caution against cancelling credit cards is well-founded, it is not a one-size-fits-all advice. Depending on the specifics of your personal financial situation, closing inactive credit cards might not affect your credit score, or could affect it minimally, as long as you go about it correctly. Here are some tips to minimize the effects of closing credit cards.

1. Pay down credit card debt first
The best way to minimize the impact of closing a card involves maintaining a healthy available credit-to-debt, or utilization ratio. In general, the drop in your credit rating from canceling a card will run proportional to the increase in your utilization ratio. To avoid impact on your credit score, keep the utilization ratio below 30 percent, and ideally at around 10 percent.

To get a sense of how much closing a card would affect your credit utilization ratio, total the credit limits among all your cards, then divide it by the total balance you typically have outstanding each month. For example, if the total credit limit across all cards is $20,000, and the typical monthly balance on all the cards is $2,000, the credit utilization score will be 10 percent, which is considered within the ideal range for boosting this component of credit scores.

If you cancel a card with a $5,000 credit limit, and keep the same average monthly balances on the cards, the credit utilization score increases to 2,000/15,000 or 13 percent, which won’t affect the FICO score much, if any. However, if you carry a monthly balance of say $6,000, cancelling that $5,000 card would create a utilization score of 6,000/15,000, or 40 percent, causing your FICO score to take a hit.

The greater the increase in credit utilization, the greater the drop in credit scores. While an increase in the credit utilization score from 10 percent to 13 percent, for example, will only trigger a minor dip, a jump from e.g. 10 percent to 85 percent in credit utilization could cause a score to plummet over 100 points.

One way to safeguard against spikes in your utilization ratio is to pay down the balances on all your cards. For example, if you have five cards and wish to close one of them, make sure to pay off as much debt as you can on the other four before cancelling the fifth. This way, although your overall available credit decreases, you’ve decreased your debt as well, maintaining a healthy ratio.

2. Keep credit card balances low
For people unable to pay down their credit card debt, closing a credit card without affecting the utilization ratio can be much more difficult. However, there are a few things you can do to minimize the impact. Firstly, shifting monthly expenses to debit cards or prepaid cards can help minimize the effect on the credit utilization ratio. Why? Because the total you’ve charged for the month counts towards your credit utilization ratio, even for cards that you pay off in full each month. By shifting spending to debit cards, you can avoid having the charges counted as part of the credit utilization score.

Secondly, if you’re looking to cancel a card because it introduced an annual fee or changed terms in ways you’re unhappy with, consider applying for a new credit card before canceling the old one. The credit line on the new card will help you maintain you overall utilization ratio, even as you get rid of cards with annual fees, or other unattractive terms.

3. Close new credit cards before old
New credit cards don’t hold as much weight as their predecessors do when it comes to bolstering credit scores. A ten-year-old credit card contributes more points to your credit rating than one that just arrived in the mail. Consequently, if you are looking to pare down your credit cards, to minimize the effect on your credit score, get rid of the newer ones first, all other things being equal.

Close a credit account with little, no impact on score

Q. I've had my credit card for many years, and always paid on time. Now they've notified me that they'll start charging an annual fee. I'm angry -- but afraid to cancel the card because it will hurt my credit score. What should I do?
A. Your concern is understandable, since it seems the credit card companies have all the power these days, in spite of the benefits of the new Card Act, which took effect Monday. If you make the decision to close your credit card account, assuming your credit is in good standing, it might have a small impact on your credit score. But that might not be enough of an impact to cause you to hang on to the card and pay an annual fee.
There could be two consequences of closing an account. Part of your credit score is based on your length of credit. So if you've had that card for many years, closing it could ding your score about 20 to 30 points, depending on whether you have other long-held cards. Even so, your score is likely to rebound within months.
One way to protect yourself, if you are the one closing the card (instead of the issuer), is to send a registered letter to the issuer when closing the account. Then keep a copy of that letter so that if your credit score declines, you have proof you were the one who closed the account.

Protecting your credit rating – even in these difficult times – should be a priority

WHILE MUCH of the attention in the crisis-hit property industry is focused on Nama and legal action by developers to stop apartment investors reneging on purchase contracts, a wider problem relating to mortgage repayments is fast emerging as another major headache. And with mortgage rates going up, things can only get worse.
A recent suggestion by the OECD that a Nama-style rescue operation should be introduced to help homeowners struggling to pay their mortgages will find approval in all quarters. A tightly managed financial support system could make a hell of a difference to those finding it difficult to meet their mortgage repayments for a number of reasons, especially after the loss of a job.
Lenders have no interest in repossessing homes and invariably do so only as a last resort. If a rescue formula is ultimately adopted by the authorities, it would need to be carefully monitored to ensure that any improvement in the personal circumstances of the borrower or in the economy generally would be immediately reflected in the repayments schedule. The ground rules could also provide for a clawback in the event of a turnaround in the borrower’s finances.
It is no secret that many homeowners have been put to the pin of their collar to make ends meet. With over 6,000 mortgage holders a year reported to be “delinquent” on their repayments, this figure is widely seen as the tip of the iceberg especially as interest rates have been at historic lows for the last few years.
Mortgage expert Frank Conway of Irish Mortgage Corporation is convinced of the need for what he calls “financial education and financial consoling” to help those struggling to meet their commitments.
There is clear evidence that many people are choosing to pay their credit card and personal loans rather than their mortgages. Conway says this “unique behaviour” has arisen as a result of talk about mortgage moratoria. Some people believe their mortgage provider will not take action against them if they fall into arrears whereas not paying a credit card could immediately cut them off from a form of household income. “We now have a situation where negative income is a fact of life and a lifeline for keeping the family finances on track.”
With the money supply getting tighter there is a need for borrowers to know the difference between priority and secondary creditors. Priority debt – the biggest and most visible in most people’s lives – is a mortgage and should be paid first. A car loan can also be categorised as a priority debt if the vehicle is essential for travelling to and from work. There are also other debts considered priority, like household utilities, court fines and rent. In short, debts that relate to basic human functions such as shelter, food, fuel, etc.
Secondary debts are generally in other areas, like personal borrowings, credit cards and store card charges. While all debts have to be repaid, some are more important than others, especially when personal budgets are tight.
For most people it is crucially important that they should be able to access credit in the future. In the new tight-fisted banking environment that has replaced one where bankers dished out the money, often recklessly, it is more important than ever that a borrower should have a good track record when it comes to personal credit reports. In some countries these credit reports are used for everything from credit approval to job applications and even hospital admissions.
As the economy continues to limp along with no real sign of a sustained recovery in the labour market, it has never been more important for those struggling financially to protect their personal credit rating at all costs. Not doing so can result in a failure to secure credit in the future. Those in difficulties with credit, particularly a bank overdraft, would be well advised to maintain close contact with their bank to work out a fair repayment programme and, as part of the deal, get a commitment from the bank that they will work with them to maintain a good credit record report.
With competition in the mortgage market disappearing fast, a good credit rating is more vital than ever to support a mortgage application down the line. Anyone wanting to check out their personal credit report can do so by logging on to icb.ie. Errors can sometimes creep into these reports but, by and large, they will determine whether you are a safe bet or not.

Does Canceling An Old Credit Card Hurt Your Credit?

A reader recently e-mailed me with a question about credit cards and his FICO credit score. Here's his question:

I have a question relating to annual credit card fees. One of my credit cards that i got about 7 years ago with HSBC has an annual fee of $37.00. I have developed positive credit history with it and it has a $1,400.00 limit and no rewards. I have since managed to get other credit cards with no annual fees and higher limits. My dilemma is whether i should close it down and take a hit on my credit score or keep it and continue to be charged the annual fee.

I confess that this question stumped me for a while. But a recent article by George Mannes, a senior editor at Money Magazine, helped answer this reader's question. The short answer is that canceling the card may lower your credit score a bit, but in most cases won't have a big impact. Of course, the devil is in the details, so let's dig a little deeper.
Your FICO credit score is composed of five factors: (1) your payment history, (2) amounts you owe, (3) length of credit history, (4) new credit, and (5) types of credit you’ve used. The three factors at issue here are your payment history, which makes up 35 percent of your score; length of credit history, which makes up 15 percent of your score; and amounts you owe, which accounts for 30 percent of your credit score.
How does closing your credit card affect these factors? Probably less than you think. The big negative impact on your score results from the percentage of available credit you lose by closing the account. If the card represented a significant percentage of your available credit, closing the account will hurt this aspect of your credit score.
But on the positive side, your good history with the credit card with not disappear, at least not right away. Most information, both good and bad, remains on your credit report for at least seven years. In fact, according to the article referenced above, the good stuff in your report stays put for 10 years. The bad stuff falls off the radar after seven years. Chances are that by that point it won’t matter much anyway if you’ve already started building a strong credit history and FICO score.
Before closing the account, however, there are some practical considerations to review. First, it's worth a few minutes of your time to contact your credit card company to see if you are able to either have the annual fee waived or have your card converted to a no fee credit card offer. For example, when I found out that American Express launched the Premier Gold card with rewards much better than the Preferred Gold Card I'd been carrying, I called up Amex and asked to switch. They accommodated my request without any fuss. If you can get the annual fee waived, your available credit won't drop as it would if you closed the account.
Second, if you decide to close the account, consider the timing. If you plan to purchase or refinance a home soon, for example, you may want to wait until that transaction closes before closing the credit card account.
Third, it's worth considering how the loss of the available credit will affect the percentage of your available credit. For example, if you don’t carry balances on your credit cards, whether you have $12,000 in available credit with the card or say $10,000 without it, you’re still not using any of your available credit. However, if you carry a large balance, the loss of $2,000 of available credit could have a more significant effect on your credit report.

Signs of pick-up in credit card debt

There are signs that consumer borrowing is rising in response to better economic conditions.
Too much debt can be a bad thing, as the global finance crisis reminded us, but a willingness to take on debt can be an important indicator for the strength of the spending that drives the economy along, generating jobs and bringing unemployment down.
The latest credit card statistics from the Reserve Bank of Australia (RBA), released on Friday, are tentatively good news in that regard.
Total credit and charge card balances outstanding declined by 1.6 per cent to $46.152 billion in January from $46.912 billion in December.
But these figures are not seasonally adjusted - a fall is normal in January after the pre-Christmas spending binge in December has wound down.
In fact the average change in the previous five Januaries was 1.8 per cent, so in that respect January was ‘‘normal’’. And it followed a better six months.
The trend in retail sales picked up in the latter half of the year after stalling earlier in 2009 after the cash handouts to households were finally spent.
Card-based debt has picked up in tandem. In the year to January growth in card credit debt outstanding was 5 per cent.
It was a relatively slow rate by the gauge of previous five years, when the average increase was 11 per cent, but it still marked a recovery from the annual pace of less than two per cent recorded six months earlier.
It showed household spending, driven by strong employment growth and high levels of consumer confidence, has momentum of its own despite the withdrawal of the payments used to cushion the worst of the blow from offshore.
There is no sign that households have thrown caution to the winds and are plunging merrily into deep debt, though.
Growth in the value of purchases using credit and charge cards remains well under recent norms, at 4.4 per cent in the past year, versus 8.5 per cent on average over the previous five.
And cash advances using credit cards fell by 12.8 per cent between this January and the last, compared with increases averaging 2.8 per cent between January 2004 and January 2009.
It looks very much like the kind of not-too-hot, not-too-cold growth in household demand that central bankers like to see.
With an business investment boom on the near horizon, the last thing the Reserve Bank would want to see is a spending frenzy in the household sector as well.
As they stand, the credit figures are strong enough to be taken as evidence that the household sector would not wilt if the central bank took interest rates up another notch.
If it were much faster, the growth in card credit would indicate a rate rise was not just bearable but urgently necessary

Credit card debt largely written off

According to an analysis by the Federal Reserve, 2009's drop in credit card debt was largely the result of banks writing off loans that borrowers were no longer able to pay.

Banks wrote off a record $83.27 billion in credit card debt last year. While a drop in credit card debt is typically good news, in this particular instance it wasn't.

"If you just look at the numbers, you think, 'Oh my goodness, there was a big decrease in credit card debt,'"Odysseas Papadimitriou, CEO and founder of CardHub.com says. Papadimitriou also says that the majority of Americans couldn't possibly make a dent in outstanding debt with the economic upheavals of 2009.

Credit card borrowing fell for 16 straight months through January, suggesting consumers have been chipping away at balances and spending less. The CardHub study found that the only time consumers truly paid down their debt was in the first quarter of last year. The charge-off rate on credit card loans spiked dramatically in the downturn, hitting a record 10.1 percent in the third quarter of 2009.

Survey: Most Americans concerned about identity theft

It may be no surprise, then, that the majority of citizens are concerned about falling victim. A recent survey commissioned by Recall North America and conducted by Harris Interactive showed that nine out of 10 respondents were at least somewhat concerned, while almost half of these were very concerned about being victimized.

About 86 percent of respondents in the survey said they were concerned about information - like Social Security and driver's license numbers - shared at the doctor's office. Medical identity theft targets an individual's personal and health insurance information to receive free health treatment. It may be one of the most dangerous kinds of fraud because it often alters a victim's health information and may prevent them from getting the care they need.

In addition to altering one's health information, this type of fraud can damage a consumer's credit score, making it more difficult for him or her to obtain loans with favorable interest rates. As more employers look to credit history as a basis for hiring, a poor score can also reduce job opportunities.

Businesses can reduce their risk of being victimized by offering proper training for employees. Installing software to protect against viruses used by scammers and updating passwords frequently may also eliminate some risk associated with identity theft. Information management providers can help businesses safely store and destroy documents.

"Businesses, specifically medical and legal offices, have the responsibility to securely manage and protect their client's confidential information," Mark Wesley, president of Recall North America, said.

Individuals can follow some of the same measures. By installing antivirus software they may be able to detect and remove malware used by scammers to trace their keystrokes. Shredding personal documents and stopping pre-approved credit card offers can also eliminate risks.

How to make the most of the new credit card protections

Joseph Strickland, 55, of Brooklet, Ga., has used credit cards for years, and he's never made a late payment. So he was more than a little perturbed last year when he received a letter from Capital One, informing him that the credit card company planned to increase the 7.9% interest rate on his $7,000 balance to 17.9%.

Strickland scraped together enough money to pay off all but $1,000 of the balance. Then he received another letter from Capital One, informing him that his credit limit had been cut to $1,400 from $7,900.

Fed up, he paid off the remaining balance and closed his account.

"I was pretty upset with them and willing to take the hit on my credit score not to do business with them any more," he says. (A Capital One spokeswoman cited "external challenges" as the reason for an increase in some customers' rates last year and says the company gave them plenty of time to opt out.)

Congress enacted legislation last year that targets the industry's most controversial practices. Some of the most significant provisions became effective Monday. But consumers will still need to be vigilant. If you're a regular credit card user, here are some tips for making the most of the new protections:

•Pay off your balance. The new provisions prohibit credit card issuers from raising interest rates on existing balances, except under certain circumstances. But that doesn't mean your monthly payments will remain the same. Your credit card issuer could increase your minimum payment, says John Ulzheimer, director of consumer education for Credit.com.

In addition, if you decide to opt out of a rate increase on future purchases, you may be required to pay off your balance in five years. That could lead to sharply higher payments for card holders with large balances, Ulzheimer says.

If you've somehow managed to ignore the high cost of paying just the minimum amount, you'll get a monthly tutorial from your credit card company. The law requires issuers to include a "minimum payment warning" on your credit card statement. This section will explain how long it would take to pay off your balance if you pay only the minimum amount, and will provide an estimate of the interest you would pay.

•If you can't afford to pay off the balance, at least pay more than the minimum. Most credit card issuers charge different interest rates for different types of credit. For example, you might pay one rate for a cash advance, another for your purchases, and still another if you transferred a balance from another card.

In the past, most card issuers applied payments to the balance with the lowest rate first. Now, they're required to apply anything over the minimum to your highest-rate balance first. That saves you money, but only if you pay more than the minimum each month.

•Pay on time. Once you're more than 60 days late on a monthly payment, your credit card issuer has the right to raise the interest rate on your outstanding balance.

You can bet your issuer will take advantage of this exception, and the law doesn't restrict the amount of the increase. Credit card issuers are required to restore the old rate after six months if you make on-time payments.

•Keep track of your credit card limits. The law prohibits credit card companies from charging over-the-limit fees unless card holders sign up for the service.

You won't have to worry about triggering a $39 fee because a cup of coffee pushed you over your limit. But this also means that you could be rejected for purchases once you've hit your limit, which may be lower than you think. Credit card companies are still allowed to lower your credit limit or close your account without advance notice. In recent months, credit card issuers have lowered credit limits for thousands of card holders, a trend that's likely to continue, says Ben Woolsey, director of consumer research for CreditCards.com.

•Read your mail. Credit card companies can still charge annual fees, transaction fees and other types of fees. However, they're required to give you 45 days' notice, which gives you time to opt out and get a new card.

That means you should open everything you get from your credit card company, even if it looks like it's just junk mail, says Josh Frank, senior researcher for the Center for Responsible Lending. You should read the notices stuffed in your monthly statement, too.

Bank of America finally ends unpopular bank fee

 Bank of America just pulled a cultural 180-degree turn by ending a most unpopular fee. Look for more banks to follow its lead.
How timely. Congress begins to focus on banking legislation that may include a new federal consumer protection board. And the Federal Reserve sets new rules on certain fees this summer.
Bank of America, a dominant player in Florida's banking market, said Wednesday it will stop charging $35 fees for overdrafts created when customers make purchases using their BofA debit cards.
Instead, Bank of America now says it will decline any transaction involving a debit card if a customer's checking account does not have sufficient funds. Before, the bank allowed any debit card transaction, no matter how small, to proceed regardless of the lack of funds in the account, and then dunned the customer $35 for each underfunded purchase.
Some customers discovered they were charged hundreds of dollars in overdraft fees in a single day for small purchases.
Like most banks, Bank of America profited richly from its vast menu of overdraft and other fees. In 2009, banks generated about $20 billion from overdraft fees on debit purchases and ATM transactions, and $12 billion more by covering checks and recurring bills, says the research firm Moebs Services.
How will Bank of America make up all that revenue it will lose from eliminating overdraft fees on debit cards? Banks frequently test new fees. Many have annoyed customers, such as charging extra for doing business with a live teller or visiting a safe deposit box too often.
Bank of America plans to elaborate on its new revenue strategy in April when it reports earnings.
Susan Faulkner, Bank of America's "deposits and card products" executive, on Wednesday outlined the bank's new policy to end debit card overdrafts and fielded questions from the media. She says the bank, after "researching the changing behavior of its customers," now wants to help when customers "unknowingly incur" overdraft fees.
"What they told us," Faulkner said of her bank's customers, "is 'do not let me spend money I do not have.' "
So, I wonder, before this new research, does it mean Bank of America operated on the premise that customers wanted to spend money they never had and have the bank keep them in the dark while they did it?
Bank of America's change in overdraft policy affects only debit card transactions. Customer who write checks with insufficient funds still face overdraft charges.
Faulkner says Bank of America's debit card customers have some options. Bank of America ATMs will soon tell customers if they lack the cash to make a withdrawal (rather than just handing them the money, triggering a fee) and first offer the option to pay a $35 overdraft fee to receive the requested cash.
Of course, customers still can avoid any overdraft fees by linking their checking accounts to savings accounts or even credit cards.
Kudos to Bank of America for at last coming to its senses on ending a fee that so symbolized customer gouging. But add a Bronx cheer for ignoring for decades the consumer advocates who criticized the industry's overdraft-fees-gone-wild mentality.

How to cope with new fees, rule changes on credit cards

Buried in your wallet is a credit card that's older than the lava lamp in your rec room. You rarely use it, but you don't want to close the account because that could hurt your credit score. Plus, it's always nice to have an extra card on hand in case the one you regularly use is lost or stolen.

Soon, though, that orphaned credit card could cost you money. Credit card companies are expected to implement a variety of new and creative fees to cushion the impact of a credit card reform bill signed into law last year. Under provisions of the law that took effect Feb. 22, card issuers can no longer increase interest rates on card holders' outstanding balances.

Last week, the Federal Reserve Board proposed rules that would prohibit credit card issuers from charging customers an inactivity fee for failing to make new purchases with their card. That's good news for infrequent card issuers. But the rules wouldn't put any restrictions on credit card companies' ability to slap an annual fee on your cards, says Bill Hardekopf, chief executive of LowCards.com. Nor do the rules prevent credit card issuers from reducing your credit limits or closing your accounts.

How to cope with this changing environment? Some suggestions:

•Use your cards. Even if you never pay a dime in interest, you generate revenue for your credit card issuer every time you use your card. That's because merchants pay an "interchange fee" to card issuers when credit cards are used to make purchases. To cope with an expected loss of interest income, credit card issuers are looking at ways to reward customers who frequently use their credit cards — and get rid of those who don't.

To avoid having your account closed, use all of your credit cards occasionally, says Kenneth Lin, chief executive of Credit Karma, a website that provides free credit profiles. Even small purchases, such as a tank of gas once a month, will make you a more valued customer in the eyes of the card company, he says. You may still decide to get rid of cards that add an annual fee. But this strategy allows you to decide which cards you want to keep.

•Maintain good credit. The number of credit card issuers that charge an annual fee has increased in recent months, but there are still good deals out there. Just last week, for example, Chase announced that its Chase Freedom card will increase cash-back rewards to 5% on some seasonal purchases, with no annual fee. "There are still going to be some great no-annual-fee cards around for quite a while unless there's some drastic change," says Curtis Arnold, founder of CardRatings.com.

But in response to rising defaults, credit card companies have tightened their credit standards. That means you'll need good credit to qualify for the best deals, Lin says.

Credit card comparison sites such as LowCards.com, CardRatings.com and IndexCreditCards.com can help you search for the best deals. "Competition is still alive in the industry," Lin says.

•Weigh rewards against annual fees. While the Chase Freedom card doesn't charge an annual fee, many rewards cards do. Others offer tiers of fees, based on the rewards provided. In that case, you need to determine how much you need to spend to earn the rewards. In some cases, the most generous cash-back rewards won't kick in until you spend a specific amount.

If you're an infrequent credit card user, you may be better off with a non-rewards card that doesn't charge an annual fee. There are still plenty of those cards available, Arnold says.

•Check out cards issued by credit unions. Only 11% of cards issued by the largest credit unions charge an annual fee, vs. 16% of cards from major banks, according to a July 2009 survey by the Safe Credit Cards Project at The Pew Charitable Trusts. The median annual fee for credit union-issued cards was $15, vs. $50 for cards issued by the largest banks, the survey found.

Credit cards issued by credit unions also have lower penalty fees. The median late payment fee for credit union cards is $20, vs. $39 for bank-issued cards, the survey found.

The Fed's proposal would limit late-payment fees to no more than the minimum payment. For example, if your minimum payment is $20, your credit card issuer wouldn't be allowed to charge you $39 for paying late.

The rules are scheduled to take effect Aug. 22. For more information, go to www.federalreserve.gov.

Never fall below card's minimum payment

Q: What if we can't pay the minimum due and after contacting the credit-card company and making the request, it won't work with us to reduce the monthly payment and interest rate? Can we just pay what we can? Will the company sue us or garnishee our wages?
We actually had one credit-card company reduce our rate to zero percent, less $100 per month, and a $16,000 balance will be paid off in five years, and we have it in writing, while the other company won't even talk to us; they just give us a debt-consolidation organization.
A: Let me start by saying some credit-card companies are more willing to work with consumers than others. It is good news that you have worked out a plan with one of your creditors. Be sure you stick to the plan and don't miss any payments or it might become uncooperative.
As for your other creditor, let me first explain what will happen if you do as you suggest and "just pay them what we can." Your cardholder agreement most likely includes a clause for what the card issuer can do if it receives payments in amounts less than the minimum amount due. Most consider it a late payment because the payment is not the full amount due and you will be charged a late-payment fee - these days, a late fee averages about $29.
The payment will be processed, but with your interest-rate charges and the late fee, it is likely the payment will be less than the charges added for the month. As a result, your balance will begin to increase each month rather than decrease. If that isn't bad enough, and you are close to reaching your credit limit, your increasing balance each month may push you over the limit and you could then be charged an over-the-limit fee of approximately $39.
To illustrate my point, let's do a little math. With a balance of $10,000 at a 29 percent interest rate, your minimum payment would be approximately $350. The interest charged for the month would be $241.67. So, if you were to make a payment of $200, the $41.67 in interest charges that was not covered by your payment and a $29 late fee would be added to your balance. Ouch! You can begin to see how quickly your balance would get out of hand if you do not pay at least the minimum amount due. Use the CreditCards.com minimum-payment calculator to see how your numbers add up.
Should you make payments that are less than the minimum due or not make any payments at all for several months, your creditor may or may not take action to collect what it is owed. If you owe a large amount - such as our example above of $10,000 - it is likely that the creditor will make attempts to collect, including suing you.
A good rule of thumb to follow here is if you ever receive a summons to appear in court from a creditor, by all means appear. Without your presence, your side of the story is not told and the court will likely side with the creditor who could then be issued a judgment in the amount of the debt. A judgment can be used to garnishee wages.
Ironically, some creditors are more willing to lower interest rates and monthly payment amounts after you have missed several payments than when you were current with payments. Rather than risk damaging your credit history and the stress of missing or making less than minimum payments, I'd recommend you contact a reputable nonprofit credit-counseling agency.
The vast majority of credit-card companies will work with nonprofit credit-counseling agencies to lower interest rates and monthly payments for consumers when they are contacted by the agency on behalf of a consumer in your situation. You can find help at a member agency of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling.

Be smart and careful with credit cards

Go shopping after work on a Friday night. Spend a frantic hour buying gifts at the last minute. As you're headed for an exit, notice the coat you've been wanting is on sale. Trudge to the only customer service desk that is still open, where the clerk tells you can get another 10 per cent off if you use your store credit card. You don't have one. No worries, says the clerk as she pulls out an application form.
This is how I acquired my latest credit card. It's No. 3 in the collection.
Later, I remembered Credit Canada executive director Laurie Campbell telling me that the majority of impulse shopping is done with credit cards and most folks really only need one.
The average Canadian over the age of 18 has three which is "way too high," says Campbell, who points out that the interest is higher than on any other traditional kind of debt.
When I got my latest card the limit was $4,000. (I have since lowered it.) The interest rate is 28.8 per cent and the minimum monthly payment is the greater of $5 or 3.33 per cent of the balance. If I spent $4,000 with the card and then made the minimum payments without adding any new debt, it would take almost 34 years to pay it off.
OK, so that won't happen. I use my credit cards to buy things I know I have money in the bank to cover. Still, was it a mistake to sign up for another card just to get a 10 per cent discount and some future deals at the same store?
Maybe not, says Wendy Dupuis, executive director of Windsor's Financial Fitness Centre, but even those who are disciplined in their spending need to be careful.
She notes that if you have a lot of credit cards with high limits, some creditors may be reluctant to extend you a loan for a vehicle or home because of the risk you could have too much debt.
"Take time to decide which card is right for you and make sure that the limit isn't too high," Dupuis advises.
A good place to do some quick comparison shopping is the Financial Consumer Agency of Canada website, www.fcac-acfc.gc.ca.
It has a credit card selector tool that helps you do quick comparisons based on the features and rewards you want.
It also has a payment calculator and other helpful information.
Another tip from Dupuis is that carrying more than 30 per cent of your total limit on your credit cards could negatively affect the credit score that lenders use when determining whether to give you money.
If you think you have too many cards, try to pay them all off and do a little research before cancelling any of them to make sure you don't inadvertently blemish your credit score, Dupuis says.
And, finally, "use them with caution and as part of your overall (financial) plan."

New rules or not, consumers pile up debt with credit cards

Embedded in the stories regarding legislation that became law two weeks ago, were some statistics I found interesting. Given the heightened interest among the general public with regard to the amount of the national debt, U.S. household credit card debt nearly tripled from 1992 to 2008. The average American household has nine credit cards with an average total balance of $10,691. Since credit card interest rates are typically significantly higher than the rate paid by U.S. Treasury Bonds, it would seem that there is a lot criticism coming from people who do not practice what they preach.

I guess that is not surprising since Americans have something of a complicated relationship with credit cards. People love their plastic, but believe the companies who issue them their cards engage in practices that are unfair and at times deceptive. The legislation was spurred by complaints from the public regarding the practices of credit card companies. The law that went into effect Feb. 22 will outlaw some the more controversial practices and will require credit card issuers to give advance notice of significant changes in the terms of their account. Customers will have the right to close their account if they disagree with the new terms.

There have been rampant reports of overly aggressive credit card companies issuing cards to people who should not have them, including minors. But the new law prohibits some of the practices companies use on existing customers. Now, companies will no longer be able to raise the interest rate on existing balances. For instance, if a customer has a balance of $1,000 at an interest rate of 12 percent, the company cannot not raise the rate on that balance even if their interest rate changes. This protects clients from making purchases on their credit card at one rate and paying for them at another. Or to put it another way customers will no longer experience drastic interest increases on money they have already borrowed. Another provision in the law prohibits credit card companies from raising the interest rate on a new credit card account for 12 months.
Credit cards have become so ingrained in our culture it can be difficult for consumers to function in commerce without one. Carol and I signed up for our first credit card when we were no longer able to secure a rental car without one. The rental car companies will not accept checks, cash or a note from your banker or minister. It is particularly cumbersome when arranging to bring potential employees into town for an interview. One has to be very deliberate and explicit with instructions to them that although the company will be paying the bill, they must have a credit card to pick up the car. The same has become the case with hotels. They want an imprint of a card to cover “incidentals.”

As easy and efficient as plastic has made purchasing goods and services for consumers, it has made it even easier for them to borrow. If the credit card holder only makes the minimum payment and does not pay off the entire amount, they have essentially taken out a loan. The interest rate on the credit card only comes into play if there is a balance at the end of the payment period. That did not change with the new provisions in the law. Credit card companies will still be able to charge annual fees for having the use of the card and inactivity fees if you do not use it often enough.

Many borrowers have several lines of credit with different interest rates on the same card. For example, one may have one rate for cash advances, another rate for purchases and still another for a balance transfer. Prior to the new law when borrowers sent in a payment, issuers usually applied the entire amount to the balance with the lowest interest rate. Under the new provisions, the issuers will have to apply any amount greater than the minimum payment to the balance with the highest rate.

The new credit card law offers consumers more protection than they have had, and more clarity on what they are actually paying. However, it seems to me the distinction they need to focus on is that they are borrowing money and paying dearly for it. The financial responsibility principle applies to the household budget as it does to the government.

Paying for Poker & Casino Games by VISA Still Possible

One of the biggest urban myths doing the rounds right now is that Visa has also blocked payment for online poker players. Unfortunately, it’s an urban myth that may come true very soon according to our sources. “Everyone is working like crazy for fixes (Mastercard), etc and just so you know, there’s major rumblings that Visa could join the party in some form or another. My contacts on the Ecommerce side of things are keeping me up to date and I’m not going to lie to you, it’s tough right now.” Our source is part of a gambling site that focuses on US players and has been in the industry for a long time.
The truth of the matter is that it is no more difficult to pay for online poker entertainment now than it was before the rumors started.
The internet is full of reports, some of them speculation and some downright false, that online poker players cannot process their payment with Visa.
When Mastercard turned away from the industry several weeks ago, naturally there were many questions asked about the future of the credit card industry as a whole and its future attitudes towards accepting payment online for gambling purposes. It was considered a possibility that Visa, Mastercard’s business rival, would follow suit eventually.
However, it must be stressed that there is no greater level of difficulty than before to pay for online poker and gambling sessions with Visa.
Visa’s website states that the company itself has no problem with online gambling, although the player’s geographical location may influence the outcome of the transaction attempt.
Players are urged to try using Visa again to see whether their rate of decline is any higher than before in order to reach their own decision about whether this payment giant has turned its back on the poker industry or not.
Due to the circulation of these rumors, alternative US poker deposit methods have reported an increase in the number of players seeking their services. These banking methods are considered to be safe and reliable and there is less of a threat of them leaving the US poker market due to legal influences.
In a statement a fortnight ago, Poker Stars said that does not re-code the 7995 code that is typically used for online gambling transactions. “Poker Stars does not, nor ever has engaged in the practices of mis-coded credit card transactions. We have therefore been unaffected by any crackdown by Visa or MasterCard to close down such mis-coded processing accounts.”

Virgin charity credit card launched

Virgin Money has launched its first product since gaining its banking licence - a credit card which will help raise money for charity.
The Virgin Charity Credit Card will donate the equivalent of 1% of all spending to a charity of the user's choice.
The card will go straight to the top of the best buy tables in terms of the proportion of spending it donates to charity, beating the current leading rate of 0.35%, although many charity cards also make donations of up to £25 when the card is first taken out.
The group is also the only provider to automatically add Gift Aid to the donation, increasing the amount of money the charity gets by 28% for UK taxpayers.
Unlike most charity cards, which are affiliated with a specific charity, users can nominate any charity to benefit from the money, and they can change charities whenever they want.
Virgin Money gained its banking licence at the beginning of January through the acquisition of regional bank Church House Trust.
The group, which has made no secret of its ambitions to offer a full banking service, has previously pledged its products will be "better but different", and provide good value and simplicity.
Scott Mowbray, spokesman for Virgin Money, said: "The Virgin Money Charity Credit Card is an easy and convenient way to support good causes and the addition of Gift Aid ensures charities get the maximum benefit from donations."
The card charges a typical interest rate of 12.9%, and offers a rate of 8.9% for life on balance transfers, on which consumers pay a 2% fee.
It pays cashback of 0.8% of all spending, which increases to 1% when the impact of Gift Aid is taken into account.

New credit card rules triggering more, higher fees

What a shame. For people who handle credit responsibly, new credit card regulations that went into effect Feb. 22 actually hurt more than help.
I'll tell you why, and what we can do.
The new rules, part of the Credit Card Accountability, Responsibility and Disclosure Act passed by Congress last May, are intended to protect cardholders and end abusive industry practices.
For example, card payments must now be applied first to the highest-interest rate balance. "Double-cycle" billing, which results in higher interest charges, is no longer permitted.
Interest-rate increases on existing balances are for the most part prohibited, as are rate increases on new purchases the first year on a new card. After the first year, card issuers must give 45-day notice before raising rates on new charges.
That's all terrific but it does nothing for financially prudent people who pay their balances in full each month. Instead, the law is prompting card issuers – who need to make a profit to be able to grant us credit – to raise other fees for everyone to make up for an estimated $12 billion in lost revenue.
In essence, "those who manage their credit well will end up paying for those who don't," said Nessa Feddis, an American Bankers Association vice president.
To be fair, some new rules benefit everyone, including prohibiting fees for the way bills are paid (such as by telephone) and eliminating confusing cut-off times for receipt of payments. (For a rundown of the rules, check out the Federal Reserve's Web site at www.federalreserve.gov/creditcard.)
Still, by making it more difficult for card issuers to charge more to those who pose a higher risk of default – and defaults are running about 10 percent – the new rules lead to an inevitable result.
"Everybody is going to feel the higher cost," said Kenneth Clayton, a senior vice president for the bankers group. Examples include more annual or inactivity fees, fewer or reduced rewards program and, for those who carry a balance, higher interest rates.
"We seem to be going from a marketplace in which a relatively few cardholders got into deep trouble to one in which the misery is more evenly spread," said Adam Jusko, founder of IndexCreditCards.com, a card information and comparison site.
Even those with outstanding credit are being affected. "I am livid," said a reader whose Citi card will start charging a $60 annual fee (more on that later). "I canceled it immediately," he said. "Here I am with an 800-plus credit score and this is how they treat me?"
That's the way indeed. "The new law does not address or cap non-penalty fees like annual fees or inactivity fees, which may become more common for those who do not carry a balance," said Ben Woolsey, director of consumer research at CreditCards.com, another consumer-oriented Web site.
"Fees, fees and more fees" are an unintended consequence of the new rules, said Bill Hardekopf, CEO of LowCards.com, another card-comparison site. Bank of America, for example, added an annual fee of $29 to $99 on some accounts and Fifth Third Bancorp imposed a $19 inactivity fee if a card is not used during a 12-month period. Citi will begin charging the $60 fee to some customers in April, but will waive it if they charge at least $2,400 a year.
What to do? Comparison-shop for the best deals – there are still many – using the sites mentioned above. As Clayton of the ABA said, "no customer is a prisoner to their card" and can switch to a better one.

Understanding credit card approvals

A credit card can be an attractive way to borrow money in the short term, especially as many lenders now offer features such as cash-back schemes and Nectar points. In recent times, however, even those with no history of bad credit have found it hard to obtain credit cards as a result of banks becoming more cautious about lending and tightening their criteria.

Poor availability of credit

The difficulty in obtaining credit cards was highlighted by recent figures from the UK Cards Association, which revealed that banks and other lenders only accepted around half of all credit card applications in 2008 and 2009. Some 48% of applicants were turned down in 2009, compared with 42% in 2008 and just one-third prior to that. According to the organisation, the trend has been fuelled by the £110bn losses sustained by lenders in 2007 as a result of consumers defaulting on loans. This has led personal finance providers to take steps to prevent further losses.

Credit scores and interest rates

When a person applies for a credit card, the lender runs checks to see whether the applicant is likely to be in a position to repay the money they borrow. This involves asking them a number of questions about their income, expenses, assets and existing debts. The lender then gives the potential customer points for each of their answers in order to form their credit score, and anyone with a low number of points is likely to be rejected.

Alternatively, applicants sometimes find that while they are not rejected outright, the deal they are offered is offset by a higher interest rate than the one advertised. Bank of England statistics, published in January, show that the average credit card APR is currently 16.4%. If a cardholder always pays off their balance in full each month, the APR should not matter to them as they will not be charged any interest on their purchases. However, customers who intend to pay off their balance in small amounts should take care when comparing credit cards to ensure they do not end up with a prohibitively high APR.

What to do next?

Unsuccessful applicants are usually given a brusque decision with little explanation, but that need not necessarily be the end of the story. Consumers may be able to argue their case if they have information that could sway the lender's decision.

In particular, they should obtain a copy of their 'credit history', a file of information held by credit reference agencies that contains details on whether a person is on the electoral register, whether they have had any county court judgements or bankruptcy orders, or whether they have missed any loan repayments or had their house repossessed. It is vital that consumers keep a close eye on their credit file, as there may be incorrect information that could sway a lender's decision and lead to a rejected application.

If this is the case, the individual should seek advice from the credit reference agency on how to have the erroneous information removed and consider comparing credit cards once more in a few months' time

Balance Transfer Credit Card Offers & The Card Act

With the CARD Act taking effect today, long term 0% balance transfer credit card offers may be one step closer to extinction.  Since the CARD Act began to gain traction in early 2009, credit card companies have been raising rates on their current customers while lowering the quality of available offers to new customers.  The primary changes, where balance transfers are concerned, involve the shortening of 0% interest rate periods and the increase of balance transfer fees.
Before the CARD Act gained traction in Congress, typical balance transfer offers lasted for 12 months and charged a standard 3% fee, with a maximum amount of $75 per transaction.  Today, many balance transfer offers only last 6 months, and balance transfer fees range from 3 to 5% with no dollar limits.
Ultimately, the changes to balance transfer credit card offers have diminished the power of these money saving transactions.  In 2008, balance transfers were truly a free-lunch.  Thanks to the CARD Act, the bill for that lunch has come due.  Consumers can longer reap the large benefits they once did.  However, even with higher fees, balance transfers are still an effective tool in reducing interest expenses and, if used properly, in reducing the time it takes to get out of credit card debt.
In the past, just about everyone could benefit from balance transfers.  Today, however, 0% balance transfers provide substantial benefits to most people with interest rates of 14% or more.  Those with lower rates are both lucky and, unless they intend to fully repay their debt before the 0% period expires, likely better off keeping the good rate they currently have.
Consumers with interest rates of 15%, 20% or 25% will likely save around $100, $150, or $200 for every $1000 transferred to a new card with a 0% rate for 1 year and a 5% balance transfer fee.  This is no small amount and a good reason to consider a balance transfer if your current rate has recently been raised.  In a few months, getting a 0% APR for a year may not be possible, so acting now is important.  Balance transfer offers have become much less generous over the past year and in a few months, there may be few good deals around.

Discover offers site to help with credit card questions

Recently, a company that makes credit card offers announced it has launched an effort to help educate consumers when it comes to accounts.

Discover Financial Services has put together a series of online articles and videos through a program known as Straight Talk. The series explains a number of issues facing consumers, including how companies decide on rates and limits. It also covers fees and new rules put forward by the Credit Card Accountability, Responsibility and Disclosure Act.

Carlos Minetti, executive vice president of Cardmember Services and Consumer Banking at the company, said that Discover started developing the program after feedback from its customers.

"These online resources will help them better understand credit, while empowering them to achieve brighter financial futures," Minetti said.

Recently, the Federal Reserve Board announced that it has also launched a site that is dedicated to credit card accounts. Along with tips for handling credit card accounts, the site from the Fed gives consumers an overview of the Credit CARD Act.