Economists Take on the Credit Card Bill

By: Jason Steele

06/23/2009

The Credit Card Bill of Rights was signed in to law weeks ago, but it is still generating some debate as to how it will ultimately shake out.

Over at the New York Times, a couple of Harvard economists, Ryan Bubb and Alex Kaufman, are making their own predictions.

The Word From Haaaavard

According to Bubb and Kaufman, they feel that the credit card bill will be a win for consumers and that the banks will survive, as does nearly everyone who is not in the banking industry. Their analysis is based on the performance of credit unions. They claim that credit unions have significantly lower penalties and fees as compared to credit cards issued by banks. They then conclude that if credit unions can do it and still make a profit, so can the banks. I have very little experience with credit unions, but I do find they often have fee free ATMs.

They then reach the conclusion that rewards will be cut because people paying interest and fees have been subsidizing those, like myself, who never carry a balance.

My Take

I have to agree that banks will still make profits the old fashion way, without being able to employ the same tricks and traps they normally do. Besides, they can and will develop new tricks and traps. Foreign transaction fees anyone?

As for the theory that people who pay their bills on time subsidize those who don’t, I still don’t it. They either make a profit on my account or they don’t. If they do not, why is my mailbox full of offers? Why have I been approved for every credit card I have ever applied for? Why don’t banks realize that I am a “deadbeat” who always pays my balance in full and on time and just cancel me? Why do they keep offering me more and greater rewards?

I don’t believe a business will continually sell a product below it’s marginal cost, unless it is a loss leader. Bubb and Kaufman would have us believe that the credit card companies balance their customer portfolio so that their losses are justified by their profitable customers. I just do not believe that is now or has ever been the case. I think that, like an insurance company, they would drop me in a second if they really thought they were likely to lose money on me as a customer in the future.

Where Reward Cards are Going

I think you may see the time where reward cards are restricted to only those with the highest credit scores, but they won’t go away. I think that you may also see the minimum spending clauses come back a bit. The income that the banks make on reward cards is mostly through annual fees and merchant fees. Raise your annual fee, and you will lose customers, but raise your minimum spending requirements, and you will promote the use of your card over others. There may be a minimum spending option to reach a loyalty program status level, or a points bonus, or both. Both the Starwood American Express and the American Express/Delta Airlines Reserve Card come to mind. Starwood has a promotion where you earn 15,000 valuable StarPoints when you reach a minimum spending level, while the Delta card offers invaluable Elite Qualifying SkyMiles when you hit spending thresholds. In fact, if you spend enough with your Reserve card, you can make their “Gold Medallion” status without even stepping on an airplane.

Other Directions

As we get closer to the implementation of the Credit Card Bill of Rights early next year, look for reward cards to offer valuable perks that have no marginal cost to the bank or it’s provider. Airlines will waive fees and put you on their priority wait lists if you have a their co-branded card. Other companies might give you exclusive membership in some other type of “club” that gives you early access to new product releases. I can forsee the day when the first people with the new I-Phone or whatever are those with the Apple Credit Card.

I would also expect to see a lot of loss leader tie ins. Get a brokerage account with us, and you will be able to apply for our reward card. Consider our mortgage/insurance product/cable tv subscription, and you can be eligible for this super competitive reward card.

These are natural evolutions of a competitive marketplace, and they are mostly a good thing. Ultimately, there will have to be a new law to reign in the next generation of tricks and traps, and the cycle will begin all over again.

Making Miles

By: Jason Steele

06/22/2009

The goal of every reward card holder and frequent flier is to make as many miles as they can, as quickly and as easily as possible.

The View From The Wing blog has a list of their top ten suggestions on ways to earn “Lots Of Miles”. Their suggestions range from the easy and obvious to the risky and hidden loopholes.

My Take

Suggestion number one is credit cards. They touch on the fact that most companies will only give you the sign up bonus for each card only once, but they often offer multiple cards that you can get a bonus on. Citibank is the exception as they allow churning American Airlines reward cards. I am currently attempting this myself, but it is only what I would regard as an extremely advanced strategy that poses some risks for all but the most highly organized cardholders. In this recent post, I laid out the risks. I intend to share a complete update with you later this year to see how it has worked out for me.

Their second suggestion also involves CitiBank. The idea is that you can open a checking account and they will let you fund it with a credit card transaction that gets treated as a purchase, not as a cash withdrawal. What they don’t tell you is that you may be able to take advantage of a promotion that will get you an additional 20,000 American Airlines miles. Also, if you do this, I would do it a day after your statement closes, to maximize any interest you may accrue over the next 45-50 days until your payment is due.

Number three is obvious, look for elite status bonuses by consolidating your traveling on one airline. I actually prefer to stay a mileage neutral when I fly, which allows me to choose my flights based on both price and service rather than the preferred “loyalty” program. I am in good company in this regard. On the other hand, I don’t fly (with paid tickets) often enough to make elite status even if I only flew one particular airline.

Number four, Presidential Dollar Coins, is a little known trick to rack up a few miles, but it is not without it’s effort and risk. The US Mint offers these new dollar coins, as well as a Native American dollar coin, for sale through their web site. You can pay for the coins on your credit card, and they are waiving the shipping charges too, so the amount you pay is the amount you receive. The coins are both beautiful and practical, but most people end up just depositing them in the bank to pay the bill. I did this the other day and I had to unwrap all of the coins so they could count them. They came up with the wrong amount, they were off by $1.50!! I was too flabbergasted to fight it. So you must put in the effort of depositing the coins, but there is also a slight risk that the purchase will be lost in the mail or stolen from your doorstep. Fortunately, they appear to be using UPS these days. Even still, you must be able to take delivery at some place where there is a human, such as your office.

Number five is to take advantage of online shopping portals that offer mileage. I have actually never done this, because I find that the sites offering mileage are doing so because they can’t compete on price. I always take the better price as the mileage is usually not worth the difference.

Recommendation number six is the dinning rewards sites. These are great, especially if you travel on business and eat out a lot. When I am eating out on someone else’s dime, I always go to the affiliated dining sites. The rewards add up and multiply as you dine more often. Extra bonus if you can “treat” your colleges and expense that too! It is also a great way to force yourself to eat at different places when you are in an unfamiliar city.

Number seven is to be on the lookout for promos. Sign up for the email list and remember to register immediately for each promo. I would also record your registration with a screen capture, in case they company claims you didn’t.

Suggestions numbers eight and nine are to not forget rental car and hotel points. I would go further and look at every transaction you make from the moment you leave home, especially on a business trip. That includes airport shuttles, parking, telecommunications, office supplies, or anything on your expense report. When the company picks up the bill, miles not price should be your top priority. Done correctly, a three week project can equal a one week’s vacation worth of miles.

Number ten is banking. Yes, you should look for miles when starting a banking relationship. On the other hand, a good bank is worth more than miles, and quality is my top priority.

They then offer the bonus of complaining for miles. I strongly recommend this, but only when the company has not met the letter of it’s agreements. I have complained politely and successfully to many companies and received very generous rewards in return. I like to think that I am doing them a favor by alerting them to service deficiencies that will cost them many customers that are too busy to complain.

Would The New Credit Card Legislation Have Prevented Me From Falling Into Debt In College?

By: Mr Credit Card

06/19/2009

This is a guest post from Adam Baker from Man Vs Debt. I interviewed Adam a while ago and he had an interesting story on how he got his first credit card in college. I’ve asked him to recount his experience and also to voice his opinion about the recent credit card bill of rights legislation. One of the things that attracts me to Adam’s blog is that he writes really long detailed posts with lots of thoughts put into it. I would suggest that you subscribe to his blog feeds here. Below is his post

In my recent interview with Mr. Credit Card, we touched a little on my personal story of how I got into debt. It’s a rather interesting story, especially for those of you that may not know how credit card companies recruit on college campuses.

Up until my first year in college, I had been able to avoid debt completely. This really isn’t too rare, though. I still lived with my parents, worked some part-time and summer jobs for extra cash, and honestly wasn’t exposed to credit cards.

Sometime within my first year in college though, things changed. To be honest, I think it was within the first semester. I still remember applying for my first credit card. There was a large festival/orientation for the different clubs, organizations, fraternities, and sororities. Throughout the large lawn that ran through the middle of our campus were hundreds of tables with banners, posters, games, and other actives advertising their sport or organization. There were sports teams, religious groups, honors programs, and ultra-specific clubs like “comic book collectors”, etc… For the young and naive freshman it was a all-you-can-eat buffet of exposure to new and exciting things.

I remember a booth catching my eye from afar. It was the Purdue University Rugby Team. Really? Rugby in the Midwest was almost unheard of. I had seen the occasion highlight reel on Youtube, but had no idea how to play. I had always been intrigued by the sport and wanted to learn more. As I approached the booth, I was greeted by other students whom where trying to raise money for the club to be able to travel to play other Midwest clubs. It wasn’t an official team, rather just a group of students who wanted to play. The funny thing is they weren’t even asking for money. Everyone knew college students were broke. All they were asking for was for you to fill out this one page long application for a credit card. Their was no obligation, but you did have to put your real name, e-mail, and campus address. As long as the application was from a real person, the club would make $5.

Sounded great! After all, I could just throw away the junk mail I got and help out the team for free. I couldn’t resist! Later, I found out that some other clubs were offering free T-shirt or even a free medium one-topping pizza if you filled out the offers. Holy cow!

Something did feel a little wrong about the process thinking back on it. I had some hesitations after the 3rd or 4th offer I filled out. But I convinced myself that I understood the game they were playing. I almost never opened my junk mail anyway. Why would this be any different?

Snap forward 4 or 5 months. I had adjusted to college life and had blown through my own savings. I had even requested money once from my parents for food, gas, etc… (that’s what I told them). Eventually though, there was a tournament a couple states away for one of the video games my friends and I played regularly. We had the best team at Purdue and wanted to test our skills against more regional competition. Only one problem. No gas… No Money…

Unfortunately, I had a way out. I had a couple pre-approved credit cards still in their enveloped scattered around my dirty dorm room. Even though my gut told me not to, my brain quickly reminded me how badly I wanted to win this competition. Before I even knew it, I was at the gas station and filling up my tank with my newfound $500 limit.

It was too easy and I was too uneducated. I didn’t dive off the deep end immediately, but slowly started using the card for more and more purchases. I was in engineering, anyways. I would have the high-paying job in 3 more years or so.

2-3 years later I had dropped out of college, worked all sorts of interesting, but random jobs and was wanted to start my own small business and was even considered getting married. My life was drastically different and unfortunately now included $10,000+ debt on different lines of credit including revolving, car, and even jewelry (engagement ring).

Luckily, as you can see on Man Vs. Debt now, my wife and I were able to get motivated and passionate eliminate all of our non-student loan debt in a little over a year. Here’s the big question though…

Would increased regulation have prevented this in the first place?

Potentially… but that doesn’t necessarily mean I’m a big fan of ALL the changes.

Reading and discussing the new credit card legislation had me asking that question. First, before we dive into the details of my opinion on the 18-21 year old restriction, let me state that overall I’m a huge fan of the added regulations.

It’s a slippery slope, but in general I don’t feel like the added transparency can hurt. I’m a fan of private business and have absolutely no problem with credit card companies existing and making a good profit. However, I do have a problem when they utilize what I consider to be sneaky and deceitful tactics to obtain “gotcha” fees. I really like that the new bill addresses the following concerns:

Companies must provide 45 days notice of changes in policy
Companies must send out bills 21 days in advance
Companies can no longer justify “universal defaults”
Companies must accept payment until 5 p.m. on due dates
Companies must apply payments to highest-interest debts first when applicable

Although the legislation contains many more changes, these 5 in particular help combat some of the shady tricks some companies were regularly using to take advantage of people.

Other than the “pork” that was attached to the bill, my only other beef is with the added restriction on adults ages 18-21. It might sound a little weird given my own background, but hear me out.

We don’t make young adults jump through extra loophole to vote if they are 19 instead of 22. We certainly, dont distinguish between a 20 year old and a 23 year old when it comes to fighting and dying for this country. However, when it comes to credit cards we want to restrict these “adults“. Don’t get me wrong, I would love to see credit card companies off of campuses, but that should be something that the schools themselves step up and ban (which many have done). If we don’t think people can handle credit cards without restrictions until they are 21, let’s raise the legal adult age to 21. If not, let’s keep treating people like adults at age 18 and do our best to educate them before, during, and after.

That might sound like a bold solution, but I’m not so sure it is. What’s next? Should we make anyone under 25 have to wade through tape before getting Adjustable Rate Mortgages? Like I said, it’s a slippery slope once you get the government involved.

I’ve been on both sides of the fence now. I was marketed to when I was young, stupid, and most vulnerable. I thought I was invincible like most 19 year olds. But in the end, it was my decision to start down that path. I made the mistakes, paid the consequences, educated myself, and have taken steps to ensure that the mistakes I make moving forward in my life won’t be the same that I’ve made in the past.

I feel like I’m a better person from surviving those trials, but do realize that many aren’t as fortunate. All that being said, this is the formula our grandparents used and frankly I think this recession has proved that returning to some of their financial principles of that generation could be a good thing for everyone.

The Case Against Reward Cards

By: Jason Steele

06/18/2009

I spend so much time analyzing different reward card offerings, it is easy for me to forget the other side of the coin. In the interest of intellectual honesty and a spirited debate, I thought I might take a moment to lay out some of the arguments against reward credit cards.

Credit Cards In General Are Bad

People should pay cash for everything and never accumulate any debt. Having a credit card will only lead you to overspend and put yourself in debt. Life is too complicated without having to worry about your credit card at all times. When you pay cash, you simplify your finances and guarantee a debt free lifestyle.

Reward Cards Encourage Spending

Who cares if you get a few percent back in some kind of reward if you end up spending much more money. Getting a reward for spending encourages the wrong type of behavior. We should be looking for ways to encourage saving and not spending. For many people, it is just too hard to put aside the prospect of a reward and defer their spending.

Reward Cards Have Terrible Terms

Any reward card you get is likely to have high interest rates and possibly an annual fee. When you carry a balance, even occasionally, having a higher interest rate just isn’t worth it. Paying an annual fee is even worse, when there are so many cards out there that have none. People should be looking for a card with the lowest interest rate and the fewest fees.

The Rewards Are Just A Scam

You spend so much time and effort accumulating points and miles, yet every year they are worth less and less. Rewards have become, in the words of some critics, the largest unregulated lottery in the world. With some programs, especially airlines, the rewards can be all but impossible to find. For example, United Airlines and their infamous “Starnet Blocking”, which is now pretty much absolute on some partners.

Wealthy Reward Card Users are Subsidized By Poorer Cardholders

We have seen this argument advanced in the wake of the Credit Card Bill of Rights. The idea is that the only way that the banks can afford to offer rewards is by sticking it to lower income borrowers. Generally, reward card holders are higher income customers who pay their bills in full. Lower income borrowers tend not to have reward cards, yet they are always paying interest and fees that subsidize the rewards of the fat cats.

Do I Believe These Arguments?

Of course not. In many ways, they are all valid arguments that should be considered strongly if you are using reward cards. In just so happens that I feel that the counterarguments are stronger.

I have been using credit cards as my default method of payment for so long, that I no longer find it any different than paying with cash. I pay my bills electronically, so it is very simple for me to see what I spend on my credit cards, pay my bills on time, and avoid all interest and fees.

I recognize that a lot of reward programs are scams, but I have learned to maximize my rewards by avoiding the worst programs while taking advantage of “special offers”. Finally, I don’t believe for a second that reward card holders are being unfairly subsidized by sub prime borrowers. If reward cards were not a profitable for the banks, they would eliminate them. Instead, you see more reward cards with increased rewards every day. Even if my cards were somehow subsidized by others, so what? The banks and I enter into a lawful agreement, and I am more than happy to come out ahead if I am smart enough.

Hilton HHonors Surpass Card Review

By: Mr Credit Card

hiltonhhonorssurpass The Hilton HHonors Surpass Card is the higher end version of the 2 Hilton credit cards available. In my opinion, this is one of the better hotel rewards credit cards out there in the market. Let’s look at it in closer detail.

Reward Formula – With this card, you can earn 9 HHonors bonus points for every eligible dollar spent at participating Hilton Family hotels. You can also earn 6 HHonors bonus points per dollar on everyday purchases at gas stations, drugstores, and more. Plus, earn 3 HHonors bonus points for every eligible dollar charged everywhere else.

This is an improvement over the regular hilton credit card, which only allows you to earn 6 points for every dollar you spend at Hilton Hotels.

Sign Up Bonuses – The Hiilton HHonors Surpass Card allows you to earn up to 40,000 bonus points. Here is how it works. To earn up to 40,000 Hilton HHonors bonus points, you must make your first eligible purchase with the Hilton HHonors Surpass Card within one year of Card issuance. Only one first purchase bonus per Card Account. Only first-time Hilton HHonors Surpass Cardmembers will earn up to 40,000 HHonors bonus points. Cardmembers who have previously earned a first purchase bonus from any Hilton HHonors Card from American Express earn the incremental difference of up to 40,000 Hilton HHonors bonus points.

Additional Bonus – In your first 18 months of Cardmembership, you can earn 2,500 HHonors bonus points for each of your first eight stays at Hilton Family hotels when you charge $100 or more to your Hilton HHonors Surpass Card for each of those eight stays.

Hilton HHonors Gold and Silver VIP Status – For your first year as a card member , you are automatically given a complimentary HHonors Gold VIP status. You can receive a 25% bonus credit on all HHonors Base points earned and upgraded accommodations when available. You can maintain your Gold VIP status after the first year if your total eligible spend reaches $20,000 during each calendar year.

You can also get an automatic upgrade to HHonors Diamond VIP status when your total eligible spend reaches $40,000 or more during a calendar year. With Diamond VIP status you may enjoy:

A 50% bonus credit on all HHonors Base points earned

48-hour reservation guarantee

Access to the Executive Floor lounge

Upgraded accommodations when available

Silver VIP status is complimentary as long as you are a Cardmember.

Priority Pass Membership – Cardmembers get a complimentary Priority PassSM membership (valued at $99). This membership grants you:

Access to over 500 airport lounges in over 90 countries around the world

Complimentary refreshments

Guaranteed access to airport lounges regardless of your choice of airline, class of airline ticket, or membership in an airport lounge program

But there is small catch here : When you use your Priority Pass membership, there’s a fee of $27 per visit per person at participating airport lounges, which will be automatically charged to your Hilton HHonors Surpass Card!

Discounts with EmpireCLS Chauffeured Services – Cardmembers can also call EmpireCLS Worldwide Chauffeured Services if they need a ride from the airport. Empire offers door-to-door service in over 650 cities around the globe.

As a Hilton HHonors Surpass Cardmember, you can:

Save $50 off your first trip with EmpireCLS

Receive a 20% discount on EmpireCLS car service

Enjoy a car class upgrade, when available

Earn 500 Hilton HHonors bonus points per booking

Use less points for awards – As a Surpass Card member, you can use less points than usual to redeem for Hilton Stays. Here are a couple of examples:

Category 5 hotels — 125,000 HHonors bonus points (normally 140,000). You have to mention promo code AXON5.

Category 6 hotels — 145,000 HHonors bonus points (normally 160,000). You have to mention promo code AXON6.

Fees and Rates – The annual fee is $75 which in my opinion is very reasonable for the perks that you get. New cardholders get a 2.90% APR for balance transfers for six months. The normal APR is prime rate plus 9.99% (which is the standard rate for most reward cards).

Verdict – This card is clearly targeted at frequent guest members of the Hilton Honors program. If you are on the road often and stay a lot at Hilton HHonors hotels, then I would highly recommend this card.

Identity Theft Story – How MyMoneyShrugged Lost His ID

By: Mr Credit Card

06/17/2009

This is a true story about an Identity Theft that occurred to “Atlas” (pen name) from My Money Shrugged. Though identity theft is always reported in the news, it is not like we encounter people everyday who have their identity stolen. I’ve asked Atlas to tell his story. He even sent photos of his files! Please check out his blog and subscribe to his rss feed. Here is his story in his own words

How it happened?

January 12, 2004, the day my identity was stolen, I went to my mailbox and received my mail. On the way back to my apartment I saw a letter from Exxon Mobil and was surprised when it had “immediate attention” required on it. At that point in my life I was used to receiving credit card offers and such, but this envelope did not look like the normal ones. I opened up the letter to find out that an account had recently been opened up under my name, but the address and/or first-last name did not match with the one with the consumer credit bureau report. They wrote the letter to confirm that I had opened an account. Thank goodness they wrote me because I was able to call them back immediately, only to find out that it was real and that it had not been used yet.

Damage Control

idtheft1

They were very helpful and they told me only that I needed to contact the credit bureaus and the FTC. I needed to let them know that there was a possibly of identity theft. Once I contacted all three of the credit bureaus and told them my situation they told me I needed to file a police report and that they would all send me my reports ASAP. I received all credit report to find that they had also opened and American Express card under my previous mailing address. I had to write letters to both Exxon and AMEX, write letters to all three of the credit bureaus, and I had to write to FTC and request an investigation of identity theft.

I also needed to add a fraud alert in writing and over the phone on to all of my credit, reports, mailing, and credit cards. I had to write all of my financial institutions and notify them of my situation while documenting everything, including logs of all phone conversations with the names of people whom with I spoke. Along with each piece of documentation, I had to make copies of my Social Security card, Pay Stud with SSN, W2 Forms, Drivers License, Rental/Lease Agreement and Utility Bill. Once I got all documents prepared and made sure everything was really nice and tight, I had to spend the extra money to send each one to each institution by certified mail (at the time, it cost me around $50.00). I received letters from all of the investigations for my claim of fraud and they all determined that I was not responsible for any fraudulent transactions. Also, everything had been removed from my credit report and score, even though it took somewhere between 30-90 days.

Call from Collection Agency! Yikes

idtheft4
As a side note…knowing that they had opened at least one account at my past address I was pretty sure they were going to get caught, but I never heard back from the LAPD about my case or their findings. Fast forward to July 19, 2006. I received a statement from Capital Management Services, Inc. notifying me to resolve a delinquent debt of $1743.58. I immediately contacted the collection agency and asked what is going on with the delinquent debt. I have never in my life been called a liar, until I spoke with the service rep. She told me that I was lying and that I needed to pay them right that second. We got into the most heated debate and I was absolutely floored with what she saying. We ended the conversation because we were yelling at each other and, eventually, she hung up on me. I was shaking when I got off the phone with her. I had never experienced anyone so hateful, but was also scared about what was going to happen to my credit score.

Dealing with Collection Agency

I called my father and together we came up with a game plan on how to deal with the settlement company. After our conversation, I called Chase Bank, USA, and spoke with their fraud department. They informed me that someone opened a Home Depot account under the alias of my wife, and that they had my social security #.

I got a buddy of mine who went to law school to write a letter disputing the debt. In the letter we wrote the collection agency telling them that the address they had for the card was incorrect, along with my mothers maiden name they had on file. I also requested that they hold all collection activities that would show up on my credit report and damage my credit score. I had to go through the whole process I previously outlined above, plus add the collection agency to the list. After filing another police report, I had to add an “extended” fraud alert to my credit reports via certified mail. Once again I never heard back from the LAPD, but Chase determined that I wasn’t responsible for the transactions and cleared the delinquent debt and marks on my credit.

Additional Measures

I decided that I had had enough. I opened a Lifelock account, which protects my identity, but costs me $110.00 per year. I also take the time every year to check my credit report to make sure nothing suspicious shows up. Every time I open a new line of credit I have to go through a whole identity verification process. I either have to go through a series of questions to prove my identity before I can open an account. When I was trying to get cable, I signed up online and the day when technician was supposed set up, the system froze me out. I called the cable company and their online system never signed me up. I had to show valid I.D and proof of residency in person down at the cable company’s office. Little things like this constantly haunt me and it is just a part of life now.

The one and only good thing that came out of this situation is that I don’t receive junk mail anymore. I didn’t need identity theft to happen to stop receiving it. The kicker in this whole story is that it was not only my identity stolen. They stole my life away from me. It cost a lot of money when it happened and it is still costing me my hard earned money everyday. Money is money and it sucks, but the thief easily took days, if not weeks, off of my life by having to fill out paper work, file police reports, mail documents, and had to talk with the rudest person I have ever spoken to. That is time I will never get back and it is unacceptable that people can get away with this. They not only steal your identity, but they steal your livelihood, your thought process, and your money. It is you that has to suffer, it is you that has to make all the efforts, it is you that has to worry, it is you that has to spend the extra money, it is you that has to go through a longer process for opening up another line of credit, it is you that has to explain yourself, and it is you that will never get your life back for dealing with this. Identity thieves have no soul, they are the scum of the earth, and they have no moral code by which they live.

I would never wish this on my worst enemy, but I can honestly say that all the credit card companies, the FTC, and the credit bureaus were absolutely wonderful while dealing with the situation. They were on my side, they took it very seriously, and that they told me they would do everything in their power to work with me to make sure my credit was cleared. I hope that my story can be an inspiration to help you take all the steps you need to make sure it never happens to you. If you have any questions please contact me at mymoneyshrugged@gmail.com

Note from Mr Credit Card – If you have similar experiences, please share them with us by commenting below. If you would like me to publish your story, please submit it here.

Finally, I really want to thank Atlas for taking the time to share his story with us. Please visit his blog and feel free to ask questions here as well. I’m sure he’ll be checking this post.

Advanta Pulls the Plug on 1 Million Customers – Lessons to be learned

By: Mr Credit Card

06/16/2009

Sometime during the middle of May 2009, Advanta Bank (who issues only business credit cards) informed their customers (or rather cardholders) that they will have have to stop using their card. Someone had to stop charging by the end of May, some were given until 10th June 2009.

This news simply shocked many Advanta credit card holders and it shocked me too. The reason for Advanta doing this is probably due to their losses on their credit card portfolio (rumored to be as high as 20%). But what really shocked me was that they decided just to simply shut down their customers. Couldn’t they have sold off their credit card portfolio to someone else? That was probably the ethical thing to do. Instead, many business owners are scrambling to replace their advanta credit cards and get another one with similar lines of credit.

But I thought that there are some lessons to be learned from this episode.

Do not just rely on one credit line for your business or working capital – Many business owners rely just on their business credit cards for their line of credit. This episode has shown that this can be a very risky strategy. Instead, one should also get a line of credit from your bank. Yes, it may be more expensive (ie higher rates). But having a diversified source of credit lines is very important.

Have enough emergency cash – Yes, this sounds like personal finance advice. But it applies to a business as well. In fact, in the bond market, cash flow and cash on hand and two extremely important factors in evaluating the credit worthiness of a bond issuer. The more emergency cash on hand you have, the more stable you are and things like that will not derail your business.

Have a few business credit cards – Well, you shouldn’t just have business credit cards as your sole source of credit. You should also not just have one card. Get an Amex, a Discover Card and/or a Visa or MasterCard. That way, when one card pulls (like Advanta did), you have other cards as backup.

Some suppliers do not accept Amex. Some do not accept Discover (though most accept Visa or MasterCard). So make sure you have a few of them.

Business Credit Cards Are No Different from Personal Credit Cards – Yes, you’ve heard me. There is no difference between a “small business credit card” issued by the top credit card issuers and their personal credit cards. The reason is because both require the personal guarantee of the applicant (in this case the business owner). So if you fail to make payments on your business credit card, then your personal credit suffers!

Some business credit cards may not report to the three personal credit bureaus, but will do so if you are late!

The only cards which do not require personal guarantee are corporate cards. Corporate cards are only issued to businesses who are of a certain size, like 8 or 9 figure sales and lots of employees. Hence, unless you are the owner of a decent size business, corporate cards are out of the question.

Use Your Rewards Quickly – In todays’ environment, you never know what credit card companies can do. If they simply freeze your card for any reason, you could loose all of your rewards. So as a matter of policy, watch your rewards and use them while you can. Use them as soon as you can redeem them for rewards that you want.

Establish a business credit history – This topic can consume a whole blog itself. But if you have a business, take the necessary steps to establish a business credit history. At the most basic level, this involves establishing your business checking account, registering with Dun & Bradstreet, taking out a couple of small loans from folks who report to the business credit bureaus.

A solid business credit history will make it easier to get loans and working capital lines of credit.

It may be better to get a personal card – The latest credit card bill of rights does not (IMO) apply to business credit cards. Hence most of the protection offered in the bill may not apply to business credit cards. Lately, credit card issuers have been much more stringent about business credit cards because it appears that folks are paying off their personal cards but missing payments on their business cards when things are tight. All these plus the fact that your personal credit is on the line suggests to me that you are better off getting a personal credit card and using it for your business.

I would appreciate any thoughts from all of you.

Bible Money Matters Interview With Peter Anderson

By: Mr Credit Card

06/15/2009

This is an interview with Peter Anderson from Bible Money Matters. Peter blogs about personal finance from a Christian perspective. This is an interview about his views in general about Bible teachings and money. I would also urge you to check out his blog and subscribe to his feeds.

About 2 years ago, you said that you became debt free (ex mortgage). Could you tell us about your debt, how you got into it, how much etc. And how you paid it off?

My wife and I never had a ton of debt. At our low point we probably had $12,000 in student loans, $6,000 in auto loans and about $1500 in credit card debt. I know for a lot of people that doesn’t seem like much, but it still felt like it was weighing us down. We paid all of our debts off over a couple of years just by spending less than we made, making some small sacrifices, and by not creating any new debts.

You once mentioned that you and Maria faced up to $250,000 in medical bills and if you did not have medical insurance and an emergency fund, you would have gotten into debt. Can you tell us what happened (cos 250k is a HUGE number)?

My wife, who is a healthy 27 year old woman, started having pain in her leg one day. It just kept getting worse until she finally went into the emergency room. At first they didn’t find anything, but after insisting something was wrong they did an MRI. They found that her entire left leg was clotted over. Several of the doctors told us it was the worst leg blood clot they had ever seen. After being in the hospital for about a month, and 4-5 surgeries later, we received a statement in the mail showing we had amassed over $250,000 in medical bills. Thankfully we had good health insurance coverage, so we ended up only paying about $3000. So if anyone is considering getting health insurance, my advice would be to just do it! You only need one major event like this to make it worth your while.

In the bible, the story of jacob and the 7 year famine in Eqypt kind of tells us of the importance of having an emergency fund. But when you read about a famine lasting for 7 years, you tell yourself, man, that is a long emergency. What is your emergency fund policy?

My wife and I have planned ahead for emergencies in a variety of ways. I did a series on this recently called “In The Event Of An Emergency” where I talk about building up an emergency fund of at least 3-6 months of expenses, what types of insurance you should have, things you should keep in a fire safe or safe deposit box and having a good financial plan set up. You really do need to think about a lot of things when planning ahead for the future, and things that may happen.

One of the factors that causes people to have credit card debt is that we tend to be bombarded by TV about material things and what we should have to have a “complete” lifestyle. What does the bible teach us about being materialistic and how can we avoid their trappings?

One guest poster on my site cited a quote from C.S Lewis that fits well here, “All that is not of eternal use, is eternally useless.”. I believe that material things that we strive to obtain are in reality of little use to us in an eternal mindset. Can things give us some fun times? Sure. Can they make us happy? I don’t think so. The only way to true happiness is through a personal relationship with Jesus Christ. Remember:

For we brought nothing into the world, and we can take nothing out of it. – 1 Timothy 6:7

In your blog, you mentioned this phrase from Proverbs 16:8 – Better is a little with righteousness than great income with injustice – I think this is such an appropriate verse given what has happened in the financial industry recently and especially shady credit card practices. In your opinion, can ethics really be taught in an MBA school? How do you teach someone to be ethical?

I think ethics can and should be taught in schools, however, I think whether or not people are ethical in practice really comes down to their heart, and where they are. If they are just a bad person with little regard for others, they won’t give a second thought to doing things that are unethical. If they have a sound moral foundation, and a faith in Christ, I think it makes them much less likely to act unethically, but even Christians fall, and do things that are unethical. I think we need to guard against these types of things, and constantly rely on God, otherwise we can all fall into that trap.

To me, a mortgage is a debt. What are your views about it?

Yup, mortgage is a debt. I agree. It is one of the few kinds of debt I would say it is ok to incur. I’d prefer if people save up at least a 10-20% down payment, and something that is no more than 25% of their income. Because so many people didn’t follow these guidelines, the real estate market has really taken a huge hit.

You mentioned in one of your post that easy money is never actually easy and you cited “Dishonest money dwindles away, but he who gathers money little by little makes it grow. Proverbs 13:11”. In our society, getting things done quick seems to be our mentality – losing weight with magical pills without exercising, getting rich instantly if you someone’s manual? How do you personally try not to get tempted by these “quickie schemes”?

People always want to get something for nothing, and I think today more than ever people are relying on others to do things for them. They want the government to take care of them, and support them when times are hard. Along with that people want the easy money. Because of their greed they fall prey to scam artists out there offering easy money. As the verse talks about, the best way to make money is through hard work, and by making it grow bit by bit. I’ve been taught that from an early age, and because of it I have an extremely skeptical eye when it comes to get rich quick schemes.

If someone has debt, can they or should they still tithe and donate to charity? What are your personal giving philosophy?

Personally I always believe in tithing right off the top. I know there is some debate as to whether the tithe is mandatory or not, but I believe that we should tithe as it is meant for our own good. God doesn’t need our money, he wants us to give in order to make us more caring, unselfish people. At the same time, I believe that we should take care of our own families first – after the tithe. 1st Timothy says:

“If anyone does not provide for his relatives, and especially for his immediate family, he has denied the faith and is worse than an unbeliever.”

So my personal opinion is tithe first, then your family obligations (food, shelter, clothing, transportation), debt obligations, saving and extra giving.

Thank You for taking the time for this interview

Thanks for the opportunity to talk with you, and God bless!

Interview of Neil Robertson from Debt Advice 4 Free

By: Mr Credit Card

06/13/2009

This is an interview with Neil Robertson from www.debtadvice4free.com. Neil lives in the UK and he got himself into debt and is working his way out of it. I wanted to find out not just about his story, but also what alternatives folks in UK have with regards to things like credit counseling and filing for bankruptcy. Below is my interview with Neil

How did you get into the debt? What was the peak of your debt load three years ago?

Firstly let me thank you for the chance to air my view here. My slide into debt crisis was not a simple one, and was not the result of any single event. I think that I spent to compensate for feelings of low self-esteem for many years. This resulted in me building up and then carrying quite high credit balances (around £30,000) for a long time – (I hate to think of the amount of interest I paid). This money was spent on living the high life with my family, e.g. numerous foreign vacations, eating out etc. Although this was stupid it wasn’t actually dangerous whilst I was earning well – my earnings were nearly £100,000 pa from short-term IT contracts. As well as unsecured debt I also had a large mortgage and loans on 2 new cars. Again all of this I could easily afford on my generous income. Unfortunately that didn’t last! Working on short-term contracts you are always the first person to be let go when there isn’t so much work. I endured 6 months without a job and then had to take a permanent salary that was much lower than my previous income. My lifestyle and my income just didn’t fit anymore. Unfortunately rather than being sensible at this point I tried to keep the same lifestyle and borrowed to fund it. By the time I had been brought to my senses my total debts were something like £70,000.

What was the breakdown of your debt? (if you have not answered that already)

The breakdown of my debt was:

£35,000 on 3 credit cards
£25,000 on 3 loans over 5 years
£10,000 secured car loans

How has your progress been?

Well I’m pleased to report that I no longer have any significant levels of unsecured debt. I still have a fairly large mortgage, but in a way that’s good news because it means that I kept my home! This is because of the debt solution that I chose. I’m sure that some people will think that it is wrong, but I judged that it was the best solution for me and my family.

What steps did you take to tackle your debt? (budget, negotiations etc)

My first step was to contact reputable debt management organizations for help. They helped me through the process of making a proper budget and starting to negotiate with my creditors. I had never been in any sort of money problems before so found being contacted at home by debt collection agencies very stressful.

In the US, those with credit card debt can seek help from credit counselling firms (some are actually supported by credit card companies themselves) or get someone to negotiation a debt settlement deal. What options are available to folks in the UK?

In the UK there is a choice between charities (some funded by the credit industry) and profit-making debt management companies. The Consumer Credit Counseling Service (CCCS) and the Citizens Advice Bureau are two of the best known charities. These charities will typically help you with a Debt Management Plan (a plan to reduce/freeze interest and pay off all that you owe over time) or negotiate a debt settlement deal. Debt Management Companies generally specialize in Debt Management Plans or Individual Voluntary Arrangements (a form of bankrupty that is explained below).

Back to kind of the same question, in the US, you can file for a chapter 7 or 13 bankrutcy. Are similar options available in the UK?

In the UK (actually in England and Wales – there are slightly different rules for Scotland) an individual that files for bankruptcy in court is effectively filing for chapter 7, this is the only sort of bankruptcy there is. This almost always results in the bankrupt losing their home unless a friend or relative can them out. There are no exemptions for your main residence as I believe there are in some states in the US. If you share your home with a partner you do get 12 months from the date of your bankruptcy before the home has to sold.

The equivalent to chapter 13 bankruptcy is actually called an Individual Voluntary Arrangement. This is arranged by a debt management company and is overseen by the court, although it does not require the debtor to attend court. It involves agreeing to pay back a proportion of your debts either from monthly payments or from a lump some from re-mortgaging your home. This is the option that I chose.

What was the most difficult part of your journey to become debt free?

The most difficult part was admitting to my partner the mess that I was in. She didn’t deserve that and I will always feel ashamed of the stress and worry that I caused her.

What advice would you give my readers who are looking to be and stay debt free?

I’m sure that your readers are (on the whole) a lot more sensible than me so I wouldn’t want to patronize them. However I think the most important part of becoming/staying debt free is to have a proper budget and stick to it. This budget should allow for the creation of an emergency fund for use if your income is reduced. In fact a budget is central to your financial health whether you are in debt or not. If you are in serious debt then choose an advisor carefully. The quality of their advice will have a massive impact on whether you are successful in getting out of debt or not.

Look at my story as a warning. I nearly lost my home and my marriage because of my debt problems. I became so stressed that I developed medical problems (skin rashes, depression) and even considered suicide. Be wary of taking on any debt unless you absolutely need to. Every time you do you are damaging your future wealth and increasing the amount of money that you need each month.

Neil – thanks once again for your time and advice

You’re welcome.

Which Credit Monitoring Service Updates Most Frequently?

By: Christina

06/12/2009

I am trying to find a credit monitoring service that will give me unlimited daily access to reports and scores from all 3 credit reporting companies. Many do not allow you to get up-to-date information on a daily basis, only monthly or quarterly, or just monitor the three reports. Credit scores can change often and I would like to be able to watch changes regularly.

Bob

Thanks for your question Bob. It is valuable to regularly track your credit scores and reports. However, to do that effectively, you will need to have the following information:

You have more than one credit score:

Everyone who has a credit history has at least four main credit scores, and three major credit reports. (You actually have more than that, but the vast majority of lenders use one of the four credit scores and three main credit reports for lending decisions, so we will concentrate on those).

To put it simply, each of the three main credit bureaus (Equifax, TransUnion and Experian) keeps a credit report on you, and they have their own credit scoring system. FICO also keeps a credit score for you, but not an individual credit report.

The problem that you are going to run into when you try to track your credit score is simple: Which credit score is the most important for you to track?

Your FICO score is probably the most important score for you to track, but truthfully there are just as many lenders who use credit scores from one of the three credit bureaus when they make lending decisions.

Which credit score to use in a credit check is completely up to the lender. It used to be done by location because the lender would check the credit bureau that was closest to them. However, with the advent of the internet, it became easier and more cost effective to check people’s credit reports at any of the bureaus. So today, it’s really anyone’s guess which credit bureau (or FICO) a lender will check before they issue you a loan.

Whew. So, with all that said, what should you do if you just want to monitor your credit scores and reports? From your question, I understand that you also want to be able to track your scores in real time, or as close to that as you can get.

The bad news is, there are no credit score monitoring services that update hourly, or even daily. There are services that advertise “constant” tracking of your credit score – be careful of those. The ones that I have seen advertised don’t even use one of your four main credit scores, but rather, a replication of them, and they don’t always disclose which credit bureau they get their information from.

Your best bet is to go straight to the source(s) – purchase your monitoring directly from one of the three main credit bureaus or FICO because they will have the most up-to-date information. Be sure that you read the fine print from them too though. Each program offered is different, and updates differently.

If you want the most complete picture of your credit, you should track all three of your credit reports and scores from the three main credit bureaus, plus your FICO score.

To simplify all of the programs out there, and make an individual suggestion for you, I recommend a combination of True Credit from Transunion, and Score Watch from FICO.

Features of True Credit:

True Credit costs about $15 a month, and gives you access to all three credit reports, and all three credit scores. It updates monthly – which unfortunately is about the best you’re going to get in terms of real-time information. The only negative of True Credit (and I have used it personally) is that they frequently show distracting “targeted” advertising along with your scores and reports.

Features of Score Watch from FICO –

Score Watch gives you access to your Equifax credit report (which you will not need if you purchase True Credit – you will have a bit of an overlap.) However, it gives you weekly updates and tracking of your FICO score. It costs around $9 / month.

So, based off of this individual recommendation, for around $24 a month, you can get monthly monitoring of all three credit bureau’s reports and scores, plus weekly monitoring of your FICO score.

That’s the most comprehensive, cheapest option available right now. It is my hope that soon we will be able to have real-time tracking of FICO scores, and our three-credit bureau reports and scores. Right now though, that’s just not available.

Thanks for your question!