We wrapped up Cash in on Credit Month on July 31, leaving a trail of enlightened Fools in our wake.
What? You weren't glued to the site for our month-long rah-rah about all things plastic?
Look at what you missed! My colleagues and I took on debt collectors, the notion of all debt being "bad debt," frittering away frequent flier miles, and having "the talk" with your little ones about their future borrowing power. Readers entered the Fool confessional to own up to their own debt levels. Heck, we even got our partner TrueCredit to lower the going rate for a 3-in-1 credit report and credit score so you could look at your borrowing potential under the same harsh lens the lending industry uses. And because we care so much, the $29 price tag (which is one of the best offers I've seen) has been extended.
Of course, we didn't touch on everyone's burning credit questions during our campaign. Fools wrote in about some of the finer points of credit, debt, and working with lenders. Here, I attempt to answer a few.
Hair trigger interest rates
Renee wrote: I had a balance on my Fleet Visa of $2,000, which in two months I paid down to $500. I received a letter from Fleet stating that the terms of my credit agreement were null and void (with little explanation). It indicated on the back of the notice that I could contact a credit bureau to get a copy of my report. When I called Fleet, they told me that my 9.99% rate was being increased to 14% due to information on my credit report. I have had the Fleet card for four years, never been late with payments, always paid more than the minimum, and have tried to always pay the full amount off each month. The flaw on my credit report was from a medical bill in the amount of $131 that my insurance had not paid and it was turned over to a collection agency. How fair is that? All of my fixed and revolving accounts are in excellent standing.
For the most part, it sounds like you have been an upstanding card-carrying citizen. Still, that doesn't protect you from the lending industry's dirty little practice of raising your interest rates. To remain profitable, many lenders have started to raise interest rates based not on your history with them, but based on your payment history or credit activity with other companies.
Fair? Maybe not. But it is completely lawful for them to do so at any time.
Your cardmember agreement (you know, that leaflet written in microscopic type in the acceptance envelope with all the deals for rental cars, hotels and "Kittens in a Basket" porcelain figurines?) spelled out Fleet's freedom to raise your interest rate at any time. When you signed the card and activated the account, you agreed to these terms, like it or not. It's not just a Fleet practice, either. Pretty much every lender has that clause built into the contract.
That said, you still have several avenues of recourse:
1. Pay off your balance as quickly as possible and then resolve to pay your balance in full every month from now on. That way, the interest rate doesn't matter.
2. Roll your balance over to another lower interest rate credit card if you are not able to pay it off soon. However, you might want to keep the Fleet card line of credit open, especially if it is one of your older accounts. Older accounts help establish a long credit history. So if you roll your balance over, pay it off ASAP, then cancel the new card.
3. As soon as you resolve the medical bill, you can dispute the red mark on your credit report directly with the credit bureau(s) that are reporting it, and the entity that is sending you the bill. We're re-running a popular online seminar right now called Achieving Perfect Credit. It walks you through the dispute process, and distills some great tips on improving your lot in the lending world.
4. Wait it out. Most dings on your credit report will disappear after seven years. The good news is that it doesn't take that long for lenders to consider it old news. Your more recent good credit behavior weighs much more heavily in your favor than one blip a few years ago.
Keep up the good habits, and this will soon be but a "Fleet-ing" memory.
Sorry, I couldn't resist the pun.
From Suzanne: You are so dead-on in that article about the credit card company "conga line" party. Lately, I've been receiving daily phone calls from a very noisy call center trying to tell me I've been approved for a Visa from CNS (for which I don't believe I applied) with a combined credit limit of $5000.00! And they've taken all the monthly fees upfront and consolidated them into one payment of $279.99! All I need to do is give them my checking account and routing numbers and they'll help themselves to $279.99 and send my Visa card. And they guarantee I'll have and A-1 credit rating in under 6 months if I continue to make my payments to them on time each month using their Visa card. Is this sort of thing even legal?
Wow, that's one doozy of an offer. A Visa card for $279.99? What are you waiting for?
Wait. Don't answer. I know what you're waiting for: The laugh track.
You, my friend, have simply received a particularly awful pre-approved credit card offer. Chances are you probably didn't apply for the card. The fees they cite are all probably legal. Lenders can pretty much charge whatever they want to, depending on which state they operate out of. However, the company's offer to give you an "A-1 credit rating" is nothing short of suspect. In fact, excuse me for a moment while I go take a shower.
Sometimes it's hard to spot the seamier offers. This one has a few telltale signs, though, including the hefty signup fees, pre-payment requirement, and credit improvement claims. But there are good promotions from lenders competing hard for your business. If you are shopping around for a credit card, here are some tips on finding the right one.
You'd be wise -- er, Foolish -- to refuse this particular offer and ask the next representative that calls you to be taken off their phone list.
You can opt out of future awful offers like these by registering your phone number on the national "Do Not Call" Registry at www.donotcall.gov. If you want to opt out of calls from businesses (mostly lenders) who get your contact information from your credit reports, call 1-888-5OPTOUT (1-888-567-8688). I did it yesterday and, boy, it felt gratifying.
Fees breeding like fleas
Adria asks: Like you, I pay my charges off on time each month. That's why I was surprised to get hit with a late fee in May. I mailed a check on 5/11/03 to MBNA for payment due on 5/20/03. It wasn't credited to my account until 5/23. Where'd that ole check sit for all that time? I think these companies do it just to irritate us -- and they succeed.
The fees are indeed getting out of control. While irritating us is not high on lenders' list of priorities (at least according to their PR folks), making more money off of our lazy tendencies is. In fact, fees have become one of their biggest sources of revenue -- up more than 300% in less than a decade.
Why the growth? We're paying 134% more for late fees, convenience fees, access charges (just to name a few fees) than we did in 1994. Just last year late fees increased 5.5%.
Since you've been a model customer with your credit card and swear on my puppy's head that this one infraction (whether due to postal glitch or a vengeful mailroom clerk) is rare, I suggest you call the 800 number on the back of your card and plead your case. Nicely. And in a Southern accent, if you can pull it off. If your account is in good standing and you ask really, really nicely, most lenders will forgive the occasional late payment and waive the associated fee.
If you don't get the answer you want, take up your case with someone higher on the call-center food chain (again, nicely, with a Southern lilt, and tissue in hand) -- and let them know that you are willing to take your business elsewhere. If that fails, then follow through on your threat.
Teaser rates for fun and profit
Tom writes: I was digging myself out from underneath the pile of credit card applications that flow forth from my mailbox each day when I noticed one offering a rate of 2.9% for balance transfers. This sparked what I'm sure is un-Foolish money-making idea in my mind. But I can't quite put my finger on what could go wrong.
Is it possible with the incredibly low rates that are offered by credit card companies to make money off their money? The idea is this: I open a credit card and immediately request a $5000 cash advance. Within a few days I do a balance transfer to pay off this card using my other new card with the 2.9% balance transfer rate. I now have $5000 in my grubby mitts at 2.9% interest. Couldn't I then take this and say, purchase an I-bond, that is paying 4.66%.
Now this isn't really anything I'd ever do, and I'm thinking that I must be missing something. Perhaps you could shed some light on my idea.
I'm answering this in the hopes that this is indeed one of those "Do Not Try This At Home" queries.
Sure, all of what you describe is certainly do-able. But there are several factors that could foil the entire plan:
1. What are the fees -- and there are almost always some hidden fees -- for the cash advance?
2. How long does the low interest deal last? And what is the minimum amount of time you have to keep your money in the I-bond (or other investment vehicle) before you can withdraw it without penalties?
3. Do you plan on putting any other purchases on the card? If you do, then your payments will go towards the low-interest balances first, so until you pay off the cash advance, your new purchases will be accruing interest at a higher (usually much higher) interest rate.
4. Do you always pay your bills on time? Well in advance? One late payment or other infraction, and that low "teaser rate" will head towards the roof.
Any of these things alone (and other ones that haven't even occurred to me) could cancel out the benefit you might get from taking a low-interest cash advance and investing it elsewhere. It takes diligent timing, planetary alignment, and a generous time window on both the cash advance and the investment maturity to make a few extra shillings on this.
Though technically possible, I think it's much easier to make that little bit of extra money either cutting back someplace in the budget, or finding a decent long-term investment. Call me a Fool!
Dayana Yochim is suffering from wedding fever. Not her own. Other people's. Last week she and Washington Post columnist Michelle Singletary tried to talk people down from triple-digit wedding spending. Read thetranscript of the live chat here.