Friday, October 31, 2008

Recession Proof: Servicemembers Are Buying And Charging More –- Defying The U.S. Economy

Even though U.S. civilians are struggling to make ends meet, the same fate doesn't seem to be plaguing our U.S. servicemembers, according to Stars and Stripes, a daily newspaper written for members of the U.S. military. Quite frankly, I'm glad. We owe our military a huge debt of gratitude here in the United States. If they're doing relatively well, that's good news.

The only negative in the story is that U.S. servicemembers continue to spend nearly everything they earn, which is leading to more credit card debt. On the flip side, credit-card delinquency rates have fallen year over year.

From the story (hat tip Lupoman, a member of the U.S. Army who is serving in Afghanistan):

Living in the military is kind of like "living in a bubble," said Sgt. 1st Class David W. Bucklin, station commander for the U.S. Army recruiting station on Pulaski Barracks in Kaiserslautern, Germany.

Once you’re in, you are almost guaranteed to have a job to retirement — in a mere 20 years — as long as you want it. And all the while, the military picks up the tab for housing, medical and dental care, food and even clothing — not to mention free college and training in a profession of your choice and 30 days’ paid vacation.

Even when the economy’s humming along, most American corporations and small businesses offer at most only a fraction of these benefits.

The rest of the story can be found here (link).


A Mortgage Bailout: Is Anybody Else Mad?

Anne Newman, a BusinessWeek copy editor, and former Wall Street Journal reporter, has a blog entry over at BW that I suspect a lot of people will agree with. She's probably saying what a lot of others are thinking. "As a debt-averse homeowner with an excellent credit rating, why should I bail out people who bought homes that were too big for them with mortgages that were nothing but reckless?" asks Newman. Again, she's saying what I suspect a lot of people are thinking.

From the BW blog:

Sure, there are plenty of people who were swindled, plenty of victims of lending predators that should be hung out to dry, plenty of responsible borrowers who got caught in the vise of the current mortgage crisis. I agree there should be some relief for responsible borrowers facing foreclosure. And we must have compassion for people who lose their jobs through no fault of their own or get swamped by medical expenses. But if as taxpayers we’ll now have a stake in the banks we are bailing out, then why shouldn’t we get a stake in a mortgage bailout, too? readers: do you agree? Disagree?

You can read the rest of Anne's blog entry here (link).

Also, here is the link to the mortgage rescue story that Newman refers to (link here) in her first paragraph (there is a bad link over at BW).


Complaints Surge As Bill Collectors Get Tough

If you're being hounded by debt collectors, welcome to the club. You're not alone. Americans across the country, who took on more debt than they could handle, are now being harassed and abused by debt collectors like never before, according to an Associated Press story.

From the Associated Press story:

Bob Silvers of San Jose, California, said a company called Bay Area Credit Service has been hounding him over a disputed $60 ambulance bill from 2002 by bombarding him with calls that begin early in the morning and sometimes continue all day.

"I get between three and nine calls a day, six days a week," said Silvers, who claims the agency has ignored his demands to stop calling. "It's just constant harassment."

A spokesman for Bay Area Credit said he was unfamiliar with Silvers' dispute, but said it is against company policy to use the telephone to browbeat people.

I always get a kick out of these collection agencies. You know they break the rules -- often -- but to hear their spokespeople, you'd never know it.

The rest of the AP story can be found here (link).


Slow Payments Squeeze Small-Business Owners

It's not just consumers who are struggling to pay their bills on time. Small-business owners are struggling as well. To make matters worse, companies, when they're slow to pay, often decide to pay their smaller business partners last. Not surprisingly, these small businesses are forced to find short-term funding wherever possible, including tapping their credit card accounts.

From the Wall Street Journal:

The biggest blow came a couple of months ago when an architecture firm with several hundred employees called to say it couldn't pay the final chunk it owed on a shutter project Artisan completed for a high-end hotel development.

The hotel's construction depended on financing from Lehman Brothers Holdings Inc., and building ground to a halt when Lehman filed for bankruptcy protection in September, Ms. Wolfe says. Artisan is out $40,000 of its $180,000 bill, she adds.

A few days ago, Artisan laid off about 15% of its staff, leaving it with 25 employees. Ms. Wolfe and her husband, the company's founders, have raided their personal retirement accounts and racked up credit-card debt to pay bills. Now they're considering selling the building they work from and renting instead.

The rest of the story (link here).


Thursday, October 30, 2008 Webcast

EDIT: Guys/gals, thanks for participating. That was a blast. I had a lot of fun and I hope it was a lot of fun for you, too. I'll be hosting another Webcast in December -- likely around December 15. This blog would be nothing without my readers, so thanks for reading every day and thanks for participating in events like the Webcast.

Welcome to the Webcast. The Webcast officially begins at 9:30 pm ET -- although I will likely flip the video on a little earlier than that.

NOTE: If you do not register at, you will be in "view-only" mode. You'll be able to see me and hear me, but you will not be able to ask questions.

The Webcast will not have a specific topic (other than credit). Instead, it will be open-mike night. We can talk about anything that is credit related. If I don't know the answer, I'll tell you. If I do, I'll answer it.

In order to participate, you will need to register at You'll be asked for your birth date (I used a birth date that put me at 18 years or older), an email address, a user name, and password. That's it. It's as simple as that. Once you have registered, you'll be able to ask questions during the Webcast. Indeed, when you try to type a question, you'll initially be prompted for your user name and password. Once you've entered the information, you're free to ask questions.

Here is the link for registration (link here).


10 Credit Questions and Answers at (October 30, 2008)

As I have said before, I can see how my readers find I don't collect any personal information, but I can see search terms that people use to find the site. This information is like the center of Lifesavers candies. Or doughnut holes. Rather than letting them fall by the wayside, I figure that I should put these search queries to good use.

Here are the game rules: I will edit search queries for syntax purposes. Otherwise, I will leave them alone. I'll also phrase queries in the form of a question whenever possible. By request, these Q&As will now be published whenever I have received 10 questions (through Google, Yahoo, and AOL searches).

Q: How to keep credit card companies from reducing limits on inactive cards?

A: That's not your biggest worry with inactive cards. What most people should worry about is having the account closed. While I am sure that inactive cards can see a reduction in limit, I would think that the more common result would be an account closure. If you don't want the account closed, be sure to use the card periodically.

Q: Keep getting denied for credit card -- serious delinquency.

A: In this credit environment, get used to it. Card companies are finally doing some real underwriting and risk management. During 2006, you could get a card with a serious delinquency. Now, though, it's a much different situation. Card companies are reining in credit limits and they're taking adverse action on those who have blemishes.

There is also a compound problem here. The serious delinquency is preventing you from getting a new card, but the new inquiries are now damaging your chances as well. Those new inquiries make it look as though you are seeking new credit. If you have enough new inquiries, it will make it look as though you're desperate, too.

Q: Should I call Nordstrom after applying for a credit card?

A: Nordstrom takes its sweet time with card approvals (and denials). Expect to hear something from Nordstrom within 7-10 days. However, if you are eager to find something out, feel free to call three to four days after you submit your application. Nordstrom may be able to give you the status of your application at that time. You can call using this phone number: 800-964-1800.

Q: My credit is shot.

A: Sorry to hear that. I wrote a story a few months ago regarding shot credit (link here). Some of my readers may find it useful.

Q: How to reduce credit limits without hurting credit score?

A: While I don't generally advise people to lower their credit limits, if you are intent on doing it here's what you do: You'll need to reduce your spending. The key is to keep your utilization down. You can only keep your utilization down when you spend less. When people reduce their limits, they're essentially making it more difficult on themselves. I wrote a story on reducing limits (link here) back in July. Give it a read.

Q: What interest rate is better -- .99% for a limited time or 5.99% until balance is paid off?

A: This is where the calculator comes in. If you can pay off your balance quickly, then the 0.99% interest rate will likely work best. However, if you KNOW that you won't be able to take advantage of the 0.99% rate -- because your repayment schedule is going to be drawn out -- it may be that your 5.99% rate will do the trick. Figure out what the 0.99% rate will go to when the promotion ends. Then figure out how long you think it will take to pay off the balance. If you estimate that you'll save more money with the 0.99% rate (plus the go to rate), then opt for that. If the 5.99% rate pencils out, then go for that.

Q: TrueEarnings American Express vs. USAA American Express?

A: I am finally starting to see more questions like this. People are getting more shy about American Express, so they are looking for cards that use the American Express payment network. USAA underwrites the American Express card that it issues. The True Earnings American Express is underwritten by American Express in New York. The American Express in New York is the one that loves to do credit limit decreases and financial reviews. USAA, on the other hand, doesn't roll like that.

Now, there are differences between the cards. And they're big differences. The TrueEarnings card is geared toward Costco shoppers. "The TrueEarnings Card serves as both your American Express Credit Card and your Costco membership Card," according to American Express. What's more, there is no annual fee on your TrueEarnings card if you have a paid Costco membership. Additionally, you get a rebate of 3% for gasoline, 3% for restaurants, 2% for travel, and 1% everywhere else, including Costco, with your TrueEarnings card.

The USAA American Express card, though, doesn't offer a lot of rewards. But it will allow you to shop where American Express is accepted, including Costco.

For people who don't want to do business with American Express in New York, but who still need an American Express card to shop at Costco, the USAA American Express will do the trick. Just don't expect a whole lot from the USAA card in terms of rewards and rebates.

Q: Should I request a credit line increase or get a second credit card?

A: I always prefer to get a credit-limit increase. If I get a second card instead, the new account will bring the overall age of my credit history down. I'll also get a hard inquiry for the trouble.

With a credit-limit increase, there is a chance that the card company won't pull a hard inquiry (check with your card company to see what its policy is). And I won't have to worry about a new account showing up on my credit report.

Therefore, my general rule is this: go for a credit limit increase first. If that doesn't satisfy your need for more credit, then perhaps you might go for a second card.

Q: Preselector HSBC?

A: Yes. HSBC has a card preselector that will point you to cards that HSBC thinks you would likely qualify for (be warned, though, that there are no guarantees of an approval). The HSBC preselector will ask you for some basic information and it will require a credit pull (though it will be a soft pull that won't hurt your credit score). You can find the preselector here (link here).

Q: Authorized user on maxed out account.

A: If you are an authorized user on a maxed-out credit card, your FICO score is likely being harmed. Rather than go into a long spiel about the perils of this situation, you should read my primer (link here) on authorized users.

READER ALERT: For more credit questions and answers, the entire 10 Credit Questions & Answers index can be found here (link).


Car Deals Are Plentiful (but Bring Good Credit)

If you have great credit, you're in the driver's seat right now -- as automobile dealerships scramble to clear lots of excess inventory. Still, according to the New York Times, your good credit won't clinch the deal. It'll just get you to the bargaining table. Customers should expect to put about $3,100 down, up from $2,500 just a year ago. What's more, the best deals are going to customers who have FICO scores of 786 or higher. Yikes. A year ago, the best terms could be had with a FICO score of 741.

From the New York Times story:

But unless you pay in full with cash, you may find that the game has changed. Many lenders are tightening their standards, and as a result, customers with a so-so credit history will pay more for a loan, while those with poor ratings will find themselves shut out. Loan lengths are getting shorter and amounts are getting smaller; even the best customers may be required to make a larger down payment.

If you are unsure of your credit situation, don’t bother to visit showrooms, said Tom Quinn, vice president at the scoring division of Fair Isaac, the company that developed the widely used credit scoring system known as FICO. Obtain a credit report first and learn your FICO score, he said. People with scores of 700 and above are considered prime customers.

The rest of the story can be read here (link).

Related Stories:

American Express to Cut 7,000 Jobs

As part of a reengineering plan, American Express plans to cut some 7,000 jobs, or about 10% of its work force, the company said Thursday morning.

The company will cut staffing levels, reduce compensation, lower operating costs, and scale back its investment spending. "We've been engaged for the past few months in an intensive, companywide review of priorities and staffing levels," said Kenneth Chenault, chairman and chief executive at American Express. "The reengineering program we announced today will help us to manage through one of the most challenging economic environments we've seen in many decades. It will also put us in position to ramp-up investment spending as economic conditions improve so that we can take advantage of the substantial opportunities that will be available to us over the medium to long term."

The company said that it would also suspend management-level salary increases for 2009 and implement a hiring freeze for open positions. These moves are expected to result in cost savings of about $700 million in 2009. The job cuts do not affect employees who deal directly with customers, American Express added.

In all, the company hopes to save $1.8 billion in 2009. American Express said that it would record a pretax charge of about $370 million to $440 million during the fourth quarter. The entire press release can be read here (link).

Related Articles: Webcast Tonight (October 30)

I will be hosting a Webcast this evening (Oct. 30). Yes. You'll be able to see my mug on your computer screen (and, yes, the picture you see -- the ones that look like monkeys -- are pictures of me when I was a baby). My first Webcast (assuming there is a second one) will not have a specific topic (other than credit). Instead, it will be open-mike night. We can talk about anything that is credit related. If I don't know the answer, I'll tell you. If I do, I'll answer it.

This will also give you an opportunity to find out a little bit about me (and me about you). I don't mind if this Webcast looks more like a "meet and greet." Fact is, I love talking about credit but I'll talk about anything you guys want to ask me.

The format is pretty simple. I will embed the video link right here at I will be using a streaming video link from (good, old Justin). You will type your questions (which everyone will see on the screen) and I will answer them via video feed (which will be viewable by all).

In order to participate, you will need to register at You'll be asked for your birth date (I used a birth date that put me at 18 years or older), an email address, a user name, and password. That's it. It's as simple as that. On the night of the Webcast (tonight), you will come to and log in using your user name and password. It's a very painless process. If you don't register, you'll only be able to watch; you won't be able to ask questions.

The Webcast is tonight, October 30, 2008, at 9:30 PM ET.

In the meantime, please register at so that you'll be ready to go. The registration process takes about two minutes. Here is the link for registration (link here).

Thanks. Looking forward to seeing you soon.


Wednesday, October 29, 2008

Does Your Credit Card Have an Interest Rate Floor? (Reprise)

With the Federal Reserve cutting interest rates today (down another 50 basis points) -- for the second time in three weeks (link here) -- I think it's instructive to trot out a story that I pointed to earlier this month. Today's rate cut will bring the prime rate down to 4%. At some point, though, these rate cuts could stop having an impact on your credit-card interest rates. That's because many cards have interest rate floors.

If you missed it the first time around, here is the story (dated October 8, 2008) I recently did on interest rate floors (link here).

Related Articles:

Consumers Feel the Next Crisis: It’s Credit Cards

Indeed it is. If you're not in top shape for the credit card shakeout that's already taking place, there isn't much you'll be able to do about it. It's probably already too late. After years of flooding the market with credit cards (and generous limits), banks are finally starting to take it back. Eric Dash, a New York Times reporter, does an excellent job of distilling the situation.

From the story:

Big lenders — like American Express, Bank of America, Citigroup and even the retailer Target — have begun tightening standards for applicants and are culling their portfolios of the riskiest customers. Capital One, another big issuer, for example, has aggressively shut down inactive accounts and reduced customer credit lines by 4.5 percent in the second quarter from the previous period, according to regulatory filings.

Lenders are shunning consumers already in debt and cutting credit limits for existing cardholders, especially those who live in areas ravaged by the housing crisis or who work in troubled industries. In some cases, lenders are even reining in credit lines after monitoring cardholders who shop at the same stores as other risky borrowers or who have mortgages from certain companies.

You can read the entire story here: Consumers Feel the Next Crisis: It’s Credit Cards (link here)

You can also listen to an interview with Eric Dash (link here). He was interviewed by one of his colleagues at The Times. The interview relates to today's story.


Related Articles:

10 Credit Questions and Answers at (October 29, 2008)

As I have said before, I can see how my readers find I don't collect any personal information, but I can see search terms that people use to find the site. This information is like the center of Lifesavers candies. Or doughnut holes. Rather than letting them fall by the wayside, I figure that I should put these search queries to good use.

Here are the game rules: I will edit search queries for syntax purposes. Otherwise, I will leave them alone. I'll also phrase queries in the form of a question whenever possible. By request, these Q&As will now be published whenever I have received 10 questions (through Google, Yahoo, and AOL searches).

Q: What happens to inactive bank accounts at Citibank?

A: It depends how long the account has been inactive. Bank accounts are no different than credit card accounts in this regard. If you leave an account open for long enough, the bank will close it. I recently received a letter from JPMorgan Chase asking if I wanted to keep my old Wamu account open. But the letter was generic -- and only applied to accounts that were inactive. Because my account is active, I ignored the letter. I imagine that if I did have an inactive account, and did ignore the letter, that my account would have ultimately been closed. If that happens, the bank will send you a letter detailing the closure. You'll also receive a check for the amount of money sitting in the idle account.

Q: What triggers an American Express financial review?

A: No one knows the answer to this question. People have tried to figure it out, but it's a mystery. Some people think that having a mix of credit cards and charge cards can trigger it (I don't agree). Others think that unusual spending patterns can trigger it (maybe). Others still wonder if it's just a random event (like winning the lottery). Perhaps. Whatever it is, no one knows what triggers it. And I wouldn't waste time thinking about it.

Q: What is revolving debt experience?

A: I imagine someone got denied for a credit card. That's one of the reason codes that is often generated for a denial. Lack of revolving debt experience means that you don't have enough experience with credit cards and other credit instruments that allow you to revolve balances from month to month. The best way to avoid this kind of reason code is to acquire a few credit cards. Over time, after you've shown some history with these cards, you'll likely not receive that kind of reason code in the future.

Q: Restore slashed credit limit American Express?

A: Unfortunately, it's very difficult to change American Express's mind once it has slashed your credit limit. That's not to say that you won't be able to eventually get your limit higher down the road. But if you're asking if you can get your limit restored immediately after a credit limit reduction, I would say that it's extremely difficult to do. American Express, as I have written extensively about (link here), is on a mission right now. On a relative basis, it is cutting more limits than it has in the past. Previously, American Express used to cut limits on just 4% of its customers during the year. Now it has upped that amount to 10% of its customers.

Q: Citibank hard credit inquiry -- how do you get inquiries off?

A: If this was a legitimate inquiry, I would not dispute it. Disputing inquiries can result in fraud alerts and closed accounts. Why? Because if you are disputing the inquiries (not yours), then the creditor would likely wonder who tried to open the account. If not you -- then who? Same goes for the fraud alert. If you contact the credit bureau, it could place a fraud alert on your report. Here's the bottom line, though: inquiries aren't score killers -- unless you have a slew of them. Although inquiries remain on your credit report for two years, they only impact your score for 12 months.

That said, if a creditor has placed duplicate inquiries on your report, then feel free to call the credit reporting agency. Just be sure that you are disputing the inquiry because it's a duplicate. You're not saying that the original inquiry isn't yours -- you're just saying that the second one shouldn't be there.

Q: Getting Amex account backdated?

A: Even though American Express is disliked for a lot of reasons, this isn't one of them. Indeed, this is one of the bright spots about having an American Express account.

Here's how it works. If you had an old American Express card that you closed back in the 1980s (or whenever), and you apply for a new card today, your new card will reflect the age of the old account. That's great because it will be reported to the credit bureaus that way. Think about it. How nice would it be to apply for a card today and be able to pick up 30 years of history? Assuming you opened a card in January of 1982, and opened a new card today, here's how the new card would show up on your credit report: Date Opened 10/1982. It would reflect the year of the old card and the month in which you opened the new card.

By the way, if you do get a new card today -- there's a good chance that the new card (the physical card) will not reflect your history with American Express. Your "member since" date will likely show 2008. If that happens, here is how you get it changed. You call the "card replacement" department and have them reissue a new card, with the correct "member since" date. If you had an old account from 1982, American Express's card replacement department will be able to verify that. They'll then reissue a new card. American Express will -- at their cost -- send the replacement card to you immediately. The card will arrive at your home within 24 to 48 hours.

You can call the customer service number (800-528-4800) at American Express and ask to be transferred to replacement cards.

Q: To request a increase limit for cards, do you have to give a reason?

A: Nope. You can just call up and ask for an increase. It doesn't hurt to have a readily-available reason, but it's not necessary. I usually have a reason, though.

These are just some of the explanations I've used in the past:

Limits on my other cards are significantly higher (assuming that's, in fact, true). I'd like to bring this card's limit in line with the rest of my cards.

I'd like to make this my primary card, but the initial limit won't allow me to do that. The limit just doesn't allow me to put a lot of purchases on it -- at least not without getting me into trouble with my utilization ratio.

Because I care about my credit scores (which is what helped me get this card in the first place), I put a lot of emphasis on not maxing out my cards. This initial limit makes it difficult for me to keep my utilization in check (making it more difficult to keep my scores high).

I have some fairly large expenditures coming up in the near future. I was hoping to put those expenditures on this card. With the low initial limit on this card, it will be difficult, if not impossible, to put those purchases on this card. I'll be forced to use another card.

And on and on it goes. You'll have to come up with one of your own if you don't like mine.

Q: Not paying credit card in full to improve credit score?

A: No. No. No. I hear this one a lot. People think that they'll somehow curry favor with credit card companies if they leave a balance each month and pay interest. No. All you are doing is enriching the company. You are better off paying in full each month -- showing that you can afford what you're buying.

But to answer this question more specifically, there is no reason to not pay your bill in full each month. The balance that you pay in full still gets reported to the credit reporting agency each month. Here's how it works: I buy $500 in goods and services during the month with my Capital One card. Capital One generates a billing statement for me. I then pay the bill in full a few days after receiving the bill. When the billing statement was generated, Capital One reported that balance to the credit reporting agencies. Next month, assuming that I don't make any charges on the Capital One card, my balance will be zero. That zero balance will get reported to the credit reporting agencies. Or, if I do have a balance due (because I made more purchases after I paid my previous bill in full), that new balance will get reported to the credit reporting agencies.

As you can see, there is absolutely no point in not paying your bills in full. Your balances will continue to get reported to the credit reporting agencies -- whether you pay in full or leave a balance. Knowing that, you are better off not enriching your credit card companies by paying interest each month.


A: Stay away from that friend. Desperate people do desperate things. Lend moral support to your friend, but try to avoid lending monetary support. Friends and money often don't mix well. That said, if you want to give your friend a gift, without any strings attached, I am all for that. You won't have any expectations of being paid back and your relationship won't go south.

I'm even more rigid when it comes to people putting their credit history at risk (link here).

Q: Does closure of first credit card account affect credit history?

A: Not immediately. Eventually, though, that closed account will fall off your credit report (typically about 10 years from when you close it). The most immediate impact to closing cards relates to utilization. For a full explanation of what happens when you close cards (and what happens to FICO), see my story here (link).

READER ALERT: For more credit questions and answers, the entire 10 Credit Questions & Answers index can be found here (link).


The Buck Is Back -- What Does It Mean For You?

I'm of the opinion that if you are a consumer of credit information, you should also be a consumer of economic information as well. The Wall Street Journal has an excellent story on the strengthening dollar -- and what it means for you. A stronger dollar impacts a host of things, including imported goods and travel. The question, of course, is how long the dollar can hold its own against other currencies.

From the story:

This reversal halts, at least temporarily, a longstanding bearish trend that had seen the greenback slide against major world currencies for much of this decade. Today's newfound strength has consequences for investors, consumers and travelers. A more robust dollar weakens the benefit of investing abroad, yet makes imports, commodities and even an overseas vacation more affordable.

"All those things that had been hurting the consumer have now reversed," because the stronger dollar is bringing down prices for oil and other commodities that had been pinching pocketbooks, says Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. Still, she notes, the dollar's rise "isn't because we're in a fabulous economy. It's for mechanical reasons, as so much money around the globe is rushing to safety."

If you don't have a subscription to the Wall Street Journal, you can read a free version of the story here (link).

If you do have a subscription to the Journal, you can view the article here (link).

Another Record-High Year For Fees On Everything From ATM Use To Bounced Checks is out with its annual checking study. "The 2008 study reports another record-high year for fees on everything from ATM use to bounced checks," says If you bounce a check or have to use an ATM machine that doesn't belong to your bank, you'll spend more money this year for your troubles. But, according to the study, there are also several ways that you can keep bank costs down.

These are the five conclusions from's survey:

1. Bounced check fees hit new high -- again (link here)
2. ATM surcharges and fees continue climbing (link here)
3. Interest accounts require high minimums (link here)
4. Online banking can be pricey (link here)
5. Know your banking habits and save money (link here)

With all of the banking consolidation taking place this year, I don't see the cost of doing business with banks going down anytime soon. Still, the study does offer some tips on what you can do to minimize the damage. If you have the time, the study is a worthwhile read.

Tuesday, October 28, 2008

White House Explores Aid for Auto Deal -- Another Bailout

This is getting pretty amazing. The plan that allows the government to bail out banks and financial institutions gives our government wide latitude. Almost anything goes. Indeed, last week the government rolled the insurance industry into the bailout plan as well. So we've got banks, financial institutions, insurance companies, and now -- if the New York Times story has it right -- the automobile industry. The government is trying to encourage a merger between General Motors and Chrysler. Heck, I know some friends who are struggling in their marriage. Think there might be a chance the government steps in and provides a rescue package? Sheesh. Where and when will all of this end?

From the New York Times story (hat tip to Sean): White House Explores Aid for Auto Deal (link here)

A bailout for carmakers would be the latest in a series of government-financed rescue efforts for banks, Wall Street firms and an insurance conglomerate. While few experts dispute the car industry’s troubles, rescuing them would also increase political pressure to help ailing industries like airlines and steel producers.

The automobile industry and lawmakers from Michigan are now arguing that the car companies should be included, because their financing subsidiaries, which have been starved for credit, represent an important channel for consumers to obtain loans to buy cars.

See what I mean? Where will it end? Who can't make an argument that they're too important to fail?

If the funding doesn't come from the $700 billion set aside earlier this month by Congress, the government has other options.

Another option under consideration is to tap a $25 billion loan program that Congress just created to help the auto companies modernize their plants. A third option would involve going back to Congress, immediately after the Nov. 4 election, for authority to spend funds aimed specifically at the auto industry. But officials have not yet decided how much assistance to provide or how to structure any aid program.

After you've read the New York Times story, read this Wall Street Journal essay from this past weekend: How Detroit Drove Into a Ditch (link here).

Paul Ingrassia argues that it makes little sense for GM and Chrysler to merge:

What now? Cerberus is trying to sell Chrysler. The most logical buyer would be Nissan, India's Tata or some other profitable foreign car company seeking to expand in the U.S. But desperation doesn't breed logic, which is why General Motors might become the buyer. It's difficult to see how this deal would make any sense for GM, which already has too many brands (eight) and must cut billions from its cost base. Adding more brands (Chrysler has three) and more costs would be charging headlong in the wrong direction, and distract GM's management from putting its own house in order.

Personally, I'd let the free market take care of this one. Chrysler should be allowed to fail -- if that's its fate.

Finally, what's Chrysler worth? According to a story last week (link here) in the Detroit Free Press: $0.

Credit Card Horror Stories: Tales of Credit Limit Reductions and Account Closures did a story on Friday (sorry for not getting to this earlier) highlighting some of the same stuff that I've been pointing out at for weeks. More and more customers are experiencing credit-limit reductions and account closures. Over the course of the past few weeks, readers have been chiming in with their own credit-card tales. Many of their stories will seem familiar. Indeed, many of my readers have been experiencing the same thing.

From the story: Credit Card Horror Stories (link here)

My American Express credit line got cut down to less than half the credit limit from $10,000 to the current balance I had at the time. I found out about it when I went to do a $33 purchase and was told it did not go through. I said, "Something is wrong," and we called, and then I was informed by AMEX that the credit limit got lowered due to a report from the credit bureau. I found out a week later -- by pulling my report from three bureaus -- that was incorrect because they did not pull credit through any of the three bureaus. There had been no inquiries, and my payments had always been on time and I always paid 50 percent more than the amount due.

This is just one reader tale. There are more.

Enjoy the story.

Related Articles:

New Indian Middle Class Gets Caught In the Whirlwind of Revolving Credit

It's tough all over -- and not just in the United States. In India, where revolving credit is still relatively new, consumers are struggling under the weight of crushing consumer debt, according to a story in the Wall Street Journal this morning. But it's not just Indian consumers who are suffering. The banks that handed out this easy money are being hammered as well. Indeed, card companies that lent money indiscriminately -- to unqualified customers -- are now paying the price.

From the story: New Indian Middle Class Gets Caught In the Whirlwind of Revolving Credit

More people are turning up desperate for help with their credit-card payments, says V.N. Kulkarni, chief counselor at Mumbai's Abhay Credit Counseling Center, which advises borrowers. Hundreds have been lining up at the center, dumbfounded by their debt and asking the most basic questions.

"They are unaware of the charges, unaware of the interest rates," Mr. Kulkarni says. "They just take the money because it is freely available."

Related Articles:

10 Credit Questions and Answers at (October 28, 2008)

As I have said before, I can see how my readers find I don't collect any personal information, but I can see search terms that people use to find the site. This information is like the center of Lifesavers candies. Or doughnut holes. Rather than letting them fall by the wayside, I figure that I should put these search queries to good use.

Here are the game rules: I will edit search queries for syntax purposes. Otherwise, I will leave them alone. I'll also phrase queries in the form of a question whenever possible. By request, these Q&As will now be published whenever I have received 10 questions (through Google, Yahoo, and AOL searches).

Q: Easiest way to get an American Express card?

A: Is this a trick question? You can apply online (link here), apply over the phone (800-223-2670), or apply using a paper application (that's so old school).

Beyond that, the easiest way to get an American Express card is to be as creditworthy as possible. The better your credit history, the easier time you'll have getting approved.

Good luck!

Q: I have multiple credit cards and I want to have one number to call in case of lost or stolen.

A: Many credit card companies offer a service whereby they will contact all of your creditors in the event that your wallet is lost or stolen. If you call your card company and ask about credit card registration services, a service where the card company will contact all of your other card companies, they'll know what you're talking about. There will be an annual fee for the service, however.

I'd rather save my money and just keep the phone numbers of your credit card companies in a handy place. Last month I wrote a story about losing your wallet or purse. In the story, I provided a list of phone numbers (link here) to some of the biggest credit card companies.

Still, if you simply feel more at ease with a card registration service, feel free to call your card company and see if they offer the service.

Q: How often does AMEX review your account?

A: At least once a month -- and sometimes more. American Express checks my Experian report once a month. The entry is always the same: AMEX ACCOUNT REVIEW.

American Express is checking in to see if I am ramping up debt or seeking new credit. Which reminds me: I am sure that American Express subscribes to a service with the credit bureaus that alerts them to new inquiries on credit reports. Any time you apply for a card, American Express is sure to do an account review (a soft pull) to see what it is. I'll tell you, American Express is the most proactive card company I can think of.

Q: Was National City bank sold?

A: Yes. National City was acquired by PNC Financial Services Group on October 24, 2008, for nearly $5.6 billion ($5.2 billion in stock and $384 million in cash to certain warrant holders). The deal is expected to close by the end of the year. The press release announcing the deal can be found here (link).

Q: What to do when you can't pay the full balance on Amex?

A: You have very few options here. If you signed up for the extended payment option, you can set aside some of your purchases so that you can pay them over time. According to American Express: "Once you enroll, all eligible travel-related charges and purchases of $200 or more are automatically itemized in a separate section of your monthly statement. You decide whether you want to pay the charges in full, pay the minimum due or anything in between. Each month, you must pay the other charges on your bill in full."

If you can't pay your bill in full, you might want to check into that feature. Beyond that, if you can't pay your bill and full, and you're not eligible for sign and travel and the extended payment option, you're in a bind. Your best bet is to call American Express and see if it will work out a payment plan with you (I've heard they do have a program for customers who can't pay their bills under normal repayment terms). Of course, once you tell American Express that you need a payment plan, it will likely take some kind of adverse action on you (lower credit limit or exposure limit). You'll want to jump on that, though. You'll be delinquent as soon as you've been late by 30 days or more. Soon thereafter, American Express will consider you in default and likely begin collection efforts.

Q: Is Juniper a subprime card?

A: Subprime is all in the eye of the beholder. While I know a lot of people who don't like Juniper, because of their business tactics, I know many people who think highly of them as well. I know several people who have credit limits in excess of $50,000 on a single Juniper card. That does not smell like subprime to me. That said, Juniper can often have a subprime feel to it. I don't like the fact that Juniper doesn't allow for customer-requested credit limit increases. That's subprime to me. Washington Mutual does that as well. And it's one thing I don't like about the card company. By and large, though, I don't consider Juniper subprime. But ask someone with a $300 limit and a host of complaints what they think of Juniper. I'm sure they'll likely say that Juniper is subprime.

Again, it's all in the eye of the beholder.

Q: What should I do if my credit card account get closed due to inactivity?

A: You'll get a letter in the mail (link here) notifying you of the closure. If you want to do something about the closure, you should immediately call the company and ask them to reopen it. Assure them, though, that you will use the card in the future. Lots of card companies are closing cards because of inactivity. The best way to avoid closure is to use the card periodically. Anyhow, that's neither here nor there. I'd call the card company and see if they can't reopen the card.

While you're at it, you might also tell them that the limit was too low or the APR was too high. That's why you weren't using the card. Maybe they'll increase your limit or reduce the APR while they're at it.

Q: Does American Express waive balance?

A: Man. I sure have received a lot of American Express questions lately. Not quite sure what this Google query was getting after, but let me be blunt. If you're looking for American Express to forgive your debt, forget about it. I'd be more likely to ignore a $20 bill sitting in the middle of the sidewalk than American Express is to forgive even a dime of the debt you owe them.

That said, if you are in default, and American Express is coming after you, Amex has been known to settle the account. It's not unusual to get an offer from American Express where the account will be satisfied if you'll pay 50%-60% of the balance you owed. But do know this: you will not be able to get a card with American Express in the future until you've paid off the entire debt. You might get American Express off your back by paying 50%-60% of the balance but you won't be helping your chances of eventually getting back in with American Express.

Q: American Express card flexible payment terminated suspended.

A: This is very common. If you take advantage of American Express's flexible payment option -- and leave a balance for several months -- don't be surprised if American Express suspends your flexible payment privileges. American Express wants you to pay your bill in full. But if you do use the flexible payment option, it wants you to pay the outstanding balance as quickly as possible. If you don't pay the balance quickly, American Express will suspend your privilege. It's as simple as that.

Q: Chase is canceling my card for inactive use?

A: Welcome to the club. I've written extensively about this (link here). Card companies are closing inactive accounts. Do your best to use the card periodically (every other month at least). If you're leaving your card dormant, don't be surprised if your card company closes the account. You're not profitable. The card company is looking to cut costs. Inactive accounts are ripe targets for closure.

As I said previously, though, you might give Chase a call and see if they'll reopen the account. There is no guarantee that Chase will reopen it, but you won't know unless you ask.

READER ALERT: For more credit questions and answers, the entire 10 Credit Questions & Answers index can be found here (link).


Monday, October 27, 2008 Gets A Mention In The Wall Street Journal's "Wallet" Blog

I love The Wallet, a Wall Street Journal blog that covers personal finance (and investing news and trends). The Wallet's author, Mary Pilon, is terrific (and not just because she pointed to my blog today). She's sharp, witty, and incisive. I read her column every day and I've pointed to her blog in the past (link here).

If you're not a regular reader of The Wallet, I encourage you to give the column a read. Although a good deal of the Journal's site is subscription based, the blogs are not. They're free.

The Wallet's home page can be found here (link). It's usually updated several times throughout the day.

Meanwhile, here is the "Loose Change" story from today (link here) mentioning

Thanks, Mary.

Isaac's Windfall: Where Should the Money Go?

I can't point my readers to enough of these kinds of stories. Even though the Wall Street Journal story uses the word "windfall," we're really just talking about one of the co-author's paychecks. The entire story deals with Isaac, the son, and how he'll deal with the money that flows from co-authoring these Wall Street Journal stories with his father, Steve. The article is chock-full of tips on how to handle money in general.

From the story (from Isaac's perspective): Isaac's Windfall: Where Should the Money Go? (link here)

But my response didn't come out of nowhere: I've known the benefits of saving since late elementary school, when my parents instated an allowance system. I could either get immediate gratification by spending my weekly 75 cents on much-sought-after candy or soda from the corner store, or stash my allowance until I "needed" the occasional luxury item like a CD or a book about dogs, my obsession at the time.


10 Credit Questions and Answers at (October 27, 2008)

As I have said before, I can see how my readers find I don't collect any personal information, but I can see search terms that people use to find the site. This information is like the center of Lifesavers candies. Or doughnut holes. Rather than letting them fall by the wayside, I figure that I should put these search queries to good use.

Here are the game rules: I will edit search queries for syntax purposes. Otherwise, I will leave them alone. I'll also phrase queries in the form of a question whenever possible. By request, these Q&As will now be published whenever I have received 10 questions (through Google, Yahoo, and AOL searches).

Q: What good does it do me if my FICO is over 800?

A: Not much. But at 800 and above, you do join a select group. Just 13% of the population have a score of 800 or higher. But, by and large, a 760 score will do just about anything an 800 score can do. That said, I'd feel more comfortable with a score of 780 in this crazy credit environment. I'm suggesting that 780 is the new 760. Who knows if I'm right, though.


A: I had to take this question. This is either GEORGE, a prolific online message poster, or a relative asking the question. Generally speaking, 715 is a decent score. However, it's still below the median FICO score of 723. In other words, 715 is still in the bottom half of those who have a FICO score. For the most part, assuming you have a clean credit report, you would likely get an approval with a 715 FICO score. That said, there are tons of things that go into approvals. Do you have a lot of recent inquiries? A lot of new accounts? Utilization too high? In a vacuum 715 should get the job done. But it will depend on a host of other things as well.

Q: FICO 689 able to finance BMW?

A: Excellent timing for this question. I have a friend who just bought her first BMW on Friday (couldn't have happened to a nicer gal, either). She used BMW Financial Services for financing. She put down one-third of the purchase price in cash. BMW Financial Services financed the rest. The car is three years old (2006 model). She got an interest rate of 3.96%. BMW Financial Services pulled her Equifax report -- and nothing else. She had a 691 FICO score. Is a 689 good enough to get you financed for a BMW? It would seem so. But, just as my previous answer stated, there is more to an approval than just a score. Debt-to-income ratio will also play a part in the approval process as well.

Q: How to bring up credit score from 780 to 800?

A: I'm in the same boat. One of my scores is right around 780. The answer for me is to stop applying for new cards. I'm being dinged because my average age of credit history is just four years. By not applying for new credit, my overall age will continue to move higher. As it does, my score will climb as well. Still, there is always more than one way to skin a cat. While average age is my bugaboo, your problem could be something different. My advice is to read the story I did on working your FICO score (link here) during the credit crunch. That might help you figure out where you need to do some work. Finally, a 780 score is excellent. You're golden. Getting to 800 is just for bragging rights. Nothing more.

Q: Cash advance from American Express at my bank?

A: I am sure you can do a cash advance from your bank. I've never done a cash advance, though, so don't quote me. You'd likely have more luck just using an ATM machine. Of course, you'd need a PIN from American Express.

Still, let me make a recommendation: try to stay away from cash advances. Cash advances raise red flags with card companies. If you're tapping cash at 24%, a card company probably has good reason to wonder what's going on. American Express will wonder if you're strapped for cash. If you're strapped for cash, then you're likely a high-risk customer to American Express. If you're a high risk to American Express, it's going to reduce your credit or exposure limit substantially or cancel your card altogether.

I'd stay away from cash advances if at all possible. Indeed, I would not do cash advances with any credit card company.

Q: What happens to credit rating after bankruptcy?

A: Here's the thing. Most people who go bankrupt already have trashed scores. That's because they've likely been late on a slew of debt obligations or defaulted on their debts altogether. Much of the score damage has already been done before the consumer steps into the bankruptcy attorney's office.

The bankruptcy will remain on your credit report for ten years. The bad accounts (and history), which led to your demise, will remain on your credit report for seven years. Ultimately, you can recover from a bankruptcy. Indeed, it's not unusual for people to have scores of 700 within three years of a bankruptcy. Still, there will always be some credit-card companies that will not approve you -- even if your score is respectable.

The key to recovering after bankruptcy is changing any bad habits that landed you there in the first place. When you get new cards after bankruptcy -- and there will be plenty of offers (trust me) -- make it a habit to pay those bills in full. Develop that good habit and you'll eventually be just fine.

Q: Why does having good credit matter?

A: My entire site is devoted to this question. Start back in July, when I launched this blog, and read from there.

You’ll likely need strong credit to land your first job (and your second job, and your third job, and your…). Employers are increasingly pulling credit reports to vet would-be employees. Additionally, if you decide to attend graduate school after college, you may have a need for a private loan to help finance part of that education. If that’s the case, you’ll need good credit to land that loan. Beyond that, there will be mortgages and auto loans. In other words, the need for good credit is never ending. A person who doesn't understand or appreciate the need for good credit is an idiot, indeed.

Q: What happens when creditors increase my limit?

A: A couple of things happen. One, it gives you more spending power. It also helps your utilization ratio (assuming you don't ramp up your spending). If your utilization ratio goes down in a meaningful way, because your credit limit goes up, you should get a FICO score increase (unless your utilization ratios are already so low that a credit limit increase doesn't help in that area).

I would not use a credit-limit increase as a license to go out and spend. That's what fools do. Instead, welcome the increase and let it help your utilization ratios.

Q: Get a credit increase from Bank of America.

A: If you are interested in a credit limit increase from Bank of America, you can do that by going to your online account. There you will find a button that says "request a credit line increase." Unless otherwise notified, the credit limit request will result in a soft inquiry -- which will not hurt your credit score. Bank of America says that it will notify you if it needs to do a hard inquiry. Therefore, credit-limit-increase requests with Bank of America are soft -- unless Bank of America tells you otherwise.

Q: If you don't use credit will you lose your credit report?

A: If you never get any credit, you won't have a credit report that can be scored. It will be empty. It won't house any information.

Now, if you do have cards, but never use them, the cards will continue to stay on your credit report. And as long as the cards remain open, the accounts will remain on the credit report indefinitely. More than likely, though, these accounts will eventually be closed for inactivity. Once they are closed, they will remain on your report for up to 10 years. It's theoretically possible that all of your closed accounts could fall off your report and you'd be left with an empty report. The key is to get some accounts and keep them open.

READER ALERT: For more credit questions and answers, the entire 10 Credit Questions & Answers index can be found here (link).

Sunday, October 26, 2008

How to Beat The Credit Card Bind

The Wall Street Journal has a story out this morning that addresses the pitfalls of not getting a credit card while in college -- when the gettin' is good. I'm a big advocate of starting your credit life early (link here). If you don't start early, and decide to stay away from credit altogether, it will make things a lot tougher later on.

Hat tip to LBCS (one of my readers) for pointing the story out to me. From the story: How to Beat 'Card Bind' (link here)

You're trying to get your life established. You get a job. Then you set out to buy a car, rent an apartment, maybe even you plan to buy a house -- all of which require credit.

But you resisted getting a credit card in college. So now your credit history is pretty much nonexistent. And getting a card after college is harder, since most lenders stop advertising to graduates the same generous deals that they routinely offer students.

What do you do? How do you get a credit card when you need one but can't get one because you did the right thing in college and didn't get one?

That's the credit-card bind, and here are five tips that can help you get out of it.


Saturday, October 25, 2008

Heads Up: Macy's and Citibank Closures and Credit Limit Reductions On My Radar Screen

My subscription to Site Meter has been a real boon to Not only can I monitor my traffic statistics, I can also monitor search queries. I'm already using these search queries for my 10-Credit-Questions-and-Answers column (link here). I'm now going to use them to alert my readers to things that my search-query data is pulling up.

Over the past 48 hours, I have noticed a substantial spike in Macy's credit card closures and credit limit reductions. Some 24 hours ago, I was seeing credit-limit reduction searches. I was not seeing anything regarding closures. Today, however, I saw quite a few Macy's closure queries. According to a person over at Creditboards, who seems to have inside knowledge of what's going on over at Macy's Visa card division, Macy's is scouring customer lists, looking for people who have recent late payments on their Macy's Visa accounts, Experian FICO scores that don't meet a certain level, and accounts that have been inactive. Macy's is targeting these people for credit-limit reductions. This person didn't say anything about account closures. Still, if my traffic is any indication, Macy's is closing accounts as well. Anyhow, just a heads up for you Macy's Visa customers.

In addition to Macy's, I have also noticed an uptick in people using search queries that pertain to Citibank credit limit reductions. It's difficult to know if people are worried about this problem or if people are actually suffering from these Citibank moves. Regardless, my search queries are up -- and there are enough of them to make me take notice.

To a lesser extent, my Chase credit limit reduction queries are up as well. Ditto Walmart credit-limit reductions. Because I am mostly getting "Walmart reduced credit limit," and searches like that, I can't tell which Walmart cards are involved.

Not surprisingly, American Express is still chopping limits as well. This has been -- and continues to be -- my number one search query when it comes to credit limit reductions. People are also searching 4506-T as well, which tells me that American Express is still doing financial reviews.

That's what I am currently seeing. In the future, if I see something that warrants another story like this, I will be sure to write something up.

I normally wouldn't write something like this up on a Saturday, but I'm hoping this story will help some of you stay ahead of the curve.

Have a great weekend.

Related Articles:

Friday, October 24, 2008

In China, It's Pay Your Credit Card Bill -- or Else

I think we have it pretty good in the United States. That's my conclusion after reading a Los Angeles Times story that detailed the Chinese credit card industry. In China they don't mess around. If a card user intentionally defaults on a debt as little as $3,000, that person could be sent to prison for five years -- assuming the leg breakers don't catch up with you first. If you're lucky, you might only get your name listed in the newspaper -- publicizing the fact that you are a deadbeat.

From the story: China charges into credit cards (link here)

Among Chinese credit card users, more than 70% pay the entire balance every month, says Nie Junfeng, a manager in the Bank of China's personal finance department. "This may be related with the tradition that Chinese people, as the saying goes, don't like eating next year's food this year," he said.

But the young generation is different, he said. "They're more comfortable spending tomorrow's money today."

Indeed, the rest of the story details what happened to a man who belongs to China's younger generation. Let's just say that one card company wasn't letting this guy off the hook.

Related Articles:

Target Tightens Credit Terms For More Card Holders

This is something that people better get used to. This is happening at every credit card company. Over the past couple of days, I have noticed a big uptick in people finding my site because of credit-limit decreases. Target's move should not surprise anyone. At this point in the credit cycle, all we can do is keep our balances low or nonexistent. But, as pointed out in the story, even that might not be enough.

From the Associated Press: Target Tightens Credit Terms For More Card Holders (link here)

Target is also moving quickly to tighten standards for inactive cardholders, who typically are already in trouble with other lenders, company officials said. It's also being more aggressive in collection activity. Reflecting the overall tightening of credit in the marketplace, Target noted that it's seeing lower credit card usage among its shoppers for the first time since 2001-2003.

Take a close look at that statement about inactive cardholders. That's very interesting. The story intimates that inactive cardholders aren't using the cards because they're having trouble elsewhere. I'm wondering if that's how other creditors perceive inactive accounts. My initial thinking is that an inactive account will put you on the radar screen for an account review. Then the creditor will check to see if you're having trouble elsewhere. The creditor will then take action on your account. My advice? Don't let your cards go inactive. Try to stay off the creditor's radar altogether.

Thursday, October 23, 2008

Dynamic Maps of Bank Card and Mortgage Delinquencies in the United States

I thought my readers might find this interactive map interesting. I did. The data are accurate as of the first quarter of 2008. Put your cursor over the map to zero in on specific locations. There is also a map that shows the trend from four quarters ago.

According to a press release (link here) issued by the New York Fed, the "quarterly updates will be issued approximately 10 weeks following the end of each quarter."

Anyhow, here is the interactive map (hat tip to breeze over at creditboards): Dynamic Maps of Bank Card and Mortgage Delinquencies in the United States (link here)

If you're interested in a dynamic map of subprime mortgages, you can go here: Dynamic Maps of Nonprime Mortgage Conditions in the United States (link here)


10 Credit Questions and Answers at (October 23, 2008)

As I have said before, I can see how my readers find I don't collect any personal information, but I can see search terms that people use to find the site. This information is like the center of Lifesavers candies. Or doughnut holes. Rather than letting them fall by the wayside, I figure that I should put these search queries to good use.

Here are the game rules: I will edit search queries for syntax purposes. Otherwise, I will leave them alone. I'll also phrase queries in the form of a question whenever possible. By request, these Q&As will now be published whenever I have received 10 questions (through Google, Yahoo, and AOL searches).

Q: How to increase limit with Juniper card?

A: Juniper is very quirky. In the past, the company has said that if you want a credit-limit increase, you'll need to have $250,000 in income. Seriously. I laugh every time I think about it. What Juniper is really saying is that we don't grant customer-initiated credit-limit increases. Instead, it evaluates your record on a regular basis, and grants limit increases on its own.

Q: What happens when American Express account goes in default?

A: American Express can immediately call your outstanding balance due. Officially, this is what American Express says: "we may require payment of a portion of your outstanding balance greater than the total minimum amount due, declare the entire amount of your obligations to us immediately due and payable, and/or suspend or cancel your account, any component of your account, and/or any feature that may be offered in connection with the account."

Additionally, the company could also initiate collection proceedings. Meanwhile, you agree to pay all reasonable costs associated with those collection efforts.

Q: Does having more credit available mean higher FICO score?

A: Not necessarily. Having a lot of available credit, in and of itself, doesn't guarantee anything. To be sure, having a low utilization ratio definitely helps your score. But it's just one component of the FICO score (link here).

What's more, the question is really asking whether having a lot of credit results in a higher score. The short answer is no. I know plenty of people who have a lot of credit. But they also use a lot of that credit (resulting in high utilization ratios). The best way to boost your score is to not utilize a lot of your available credit.

Q: What is the average FICO sore?

A: I've seen several numbers bandied about. I've seen 678, 686, 692, and other scores in the high 690s. I have my doubts, though, about whether those are actually average FICO scores. My guess is that they're fake scores that have nothing to do with FICO.

I pay attention to the figure that Fair Isaac, the creator of FICO, uses. Fair Isaac says that 723 is the median (half above the score and half below). Until I see Fair Isaac come out with an "average" score, I'll stick with the median score.

Q: Is the Merrill Lynch Visa card tough to get?

A: I personally don't think it's that tough to get. I've seen friends with low 700 scores get approved for the Merrill + Visa card. See my write up on the card (link here). What's more, I have seen these very same people get initial credit limits of $10,000 and above.

Q: Combining my Washington Mutual and Chase credit cards?

A: Even though Chase has acquired Washington Mutual, there is no guarantee that Chase will be keeping the Washington Mutual credit card portfolio. I think we all assume that Chase will keep a portion of the portfolio, but there's no guarantee. That said, nothing is happening right now. I would not expect the two card platforms to be merged for at least a year (at the earliest). Chase has a Q&A (link here) that should be read by all Washington Mutual customers.

Q: Is it possible to get a perfect credit score of 830?

A: This person must be talking about the Plus score, which ranges from 330-830. It's a score that was developed by Experian (link here). What's more, it's a score that should not be relied upon. Most lenders use FICO scores when making lending decisions. They do not use PLUS scores. For more on scores that are not used by lenders, see my story on FAKO v. FICO (link here).

But to answer the question: it's theoretically possible to get a perfect score of 830 on the Plus score.

Q: I pay the bill in full each month and it does not help FICO.

A: Ahh, I see this one a lot. Even though people pay their bills in full each month, the balances still get reported to the credit bureaus. Remember, even though you pay in full, the balance, when the billing statement gets generated, still gets reported to the credit bureaus. If you are using a lot of your available credit each month, you can still be hurt -- even if you do pay in full.

Here's how it happens. You have four credit cards. Each has a $1,000 limit. You make purchases of $800 on each of the cards during the month. When the bill arrives in the mail, you immediately pay the $800 that is due on each card. Great, right? Not exactly.

Even though you are paying your bills in full each month, you are using 80% of the available credit. As a result, your FICO score is likely getting hammered. As a general rule, it's best to keep utilization at less than 30%. I personally believe that people should use no more than 10% (which is also better for scores).

If you are running into this scenario, you should probably ask for a credit-limit increase. It's clear that your credit limits are not high enough for your usage pattern. I'd call the credit card company and tell them that you pay in full each month (they'll know this). Also tell them that you are nearly always maxed out on the card because the limit is too low. This is hurting your FICO score. If your card companies are unwilling to give you a limit increase, then you'll need to do one of two things. You can either not use the card as much (keeping the utilization ratio down), or you can make payments on the card during the month (during the middle of the billing cycle) -- so that the balance that gets reported to the credit bureau is lower.

I'd rather have a higher limit than have to keep making payments during the month.

Q: Why does my FICO score that WAMU provides me not match the credit scores from the 3 credit bureaus?

A: My guess is that this reader wants to know why the FICO score provided by Wamu does not match the scores from FICO. I have written a nice story (link here) on the topic, which should answer this question nicely.

Q: What to do with credit cards that I am not planning to use anymore?

A: It depends on how old the cards are, whether there are annual fees, how high the limits are, etc. The reader is probably trying to figure out whether it makes more sense to close the cards or whether it makes more sense to leave the cards open -- and toss the cards in the sock drawer. My rule of thumb is to leave the accounts open and just toss the cards in the sock drawer. Of course, you'd also want to use the cards on occasion so that they are not closed for inactivity. Read this story on how closed accounts affect your FICO score (link here). After that, you'll be better informed.

READER ALERT: For more credit questions and answers, the entire 10 Credit Questions & Answers index can be found here (link).

Credit Rating Agency Heads Grilled by Lawmakers

The more things change, the more they stay the same. The New York Times wrote a story in response to yesterday's Congressional hearings on credit-rating agencies. Read the story from the Times and then read the story from 2006 that I have included as well (see below). I thought Congress was already well aware that these ratings companies were conflicted. No? Be the judge. Read both stories (the New York Times story from yesterday) and then read the story from 2006.

From the New York Times (hat tip to Josh): Credit Rating Agency Heads Grilled by Lawmakers (link here)

“The story of the credit rating agencies is a story of colossal failure,” Mr. Waxman said. “The credit rating agencies occupy a special place in our financial markets. Millions of investors rely on them for independent, objective assessments. The rating agencies broke this bond of trust, and federal regulators ignored the warning signs and did nothing to protect the public.”

If Mr. Waxman is right, then what was the Credit Rating Agency Reform Act of 2006? I thought that was designed to stop the abusive practices that had been running rampant in the credit-rating industry.

Read this story from 2006 and tell me if this sounds familiar: Bush Signs Rating Agency Reform Act (link here):

"The dominant rating agencies failed millions of investors by neglecting to lower their ratings on Enron, WorldCom and other companies headed for bankruptcy," said Alabama Republican Senator Richard Shelby, chairman of the Senate Banking Committee and sponsor of the legislation, after the bill was signed. "The absence of timely downgrades in these cases was a product of an industry that was beset by conflicts of interest and a lack of competition .... Ultimately, this compromised the integrity of the market and investors paid the price," he concluded.


Wednesday, October 22, 2008

American Express Customers: Don't Try This At Home

I hate writing these kinds of stories.

On the one hand, it will help those who are currently doing -- or thinking about doing -- what I am about to write about. On the other hand, there will be some readers who will now go out and do exactly what I am trying to dissuade them from doing. That said, I can't control what my readers do. They'll do what they're going to do.

Here's the deal. A reader of mine got a call from American Express yesterday. Turns out that American Express wants to know about a particular purchase that was made on this person's American Express card. Why? The Amex card was used to fund a purchase that ultimately got funneled through a Paypal account. Let me explain.

It works like this: you buy something. The person on the other end of the transaction has a Paypal account and allows you to pay for the purchase using your American Express card. That's usually not a problem. However, it is a problem when you're on the other side of the transaction as well. Or when you have a friend who is on the other side of the transaction -- and the transaction is nothing more than a sham.

People do these kind of sham transactions when they need cash. If you "purchase" something from a friend who happens to have a Paypal account, the friend could simply turn around and hand the cash back over to you. Think about it. I could pretend as though I am buying something from a friend -- even if there isn't a product to buy. The friend will take my American Express payment and then turn around and hand the proceeds over to me (minus the Paypal transaction fee). It would look like a purchase in every way.

Except, it would really be nothing more than a cash advance. American Express, if it knew that I was doing this, would be highly interested. That's because I would be depriving American Express from collecting interest from the cash advance (at more than 20%). Instead, I would be getting the purchase APR if I could effectuate a transaction through Paypal. So, American Express cares.

But here's a twist. Some people have been known to use these sham Paypal transactions to do things that are not allowed by credit card companies. For example, card companies (we'll use American Express here) do not allow customers to use one card (an American Express Blue card) to pay off another card (an American Express gold card, for example). It's just not permitted. You cannot take two cards from the same card company and use them to pay off balances. Throw a sham Paypal transaction into the mix, though, and you can see exactly how to get around that rule.

By using Paypal, though, you could make a "purchase" and then take the proceeds from that "purchase" to fund your other credit card from the same company. In our hypothetical, I would use the Blue card to make the purchase. Then I would use the cash proceeds from the transaction to pay off my gold card balance. That's a big no-no. And this is exactly what got my reader into trouble. The reader must now explain the purchase to American Express.

If you've ever read your American Express card agreement, you've seen the disclosure saying that you can only use your card for goods and services. Of course, you can also use the card for cash advances, but you will be assessed a huge interest rate for the trouble. You cannot use your card to make a fake purchase (at the purchase rate) and then pocket the cash (without being assessed the cash advance rate).

American Express is very hip to this game, by the way. Paypal purchases are always scrutinized by American Express. They're scrutinized because it's so easy to do what I've just described. Small purchases won't likely gain anyone's attention at American Express, but you can bet your bottom dollar that big purchases won't go unnoticed.

American Express, once it has flagged your account, wants to know two things: one, are you essentially doing a cash advance or balance transfer? And, two, are you broke? Indeed, if you are doing these kinds of sham transactions, you're likely strapped for cash. If you're strapped for cash, and doing these kinds of deals, then you're likely a high-risk customer to American Express. If you're a high risk to American Express, it's going to reduce your limit substantially or cancel your card altogether.

If you're going to do these kinds of Paypal transactions, don't use American Express to do it. They're on top of the game when it comes to this stuff. Better still, just don't do it at all. Indeed, this is not the credit environment in which to test the cards companies' computer systems.

More likely than not, you're going to get caught.

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