Welcome To The World Of Credit Cards in 2011Posted On: September 2011
THE KREDIT KORNER WITH THE KREDIT GURU, GARY NOVEL
Editor: Tiffany Brewington
Have you been out shopping lately and tried to use your Credit Card, but it was declined? As you stood in line, embarrassed, calling your Credit Card company, you are told your credit limit was reduced by 90% for no reason, or closed without any notification.
Have you received a current Credit Card statement and noticed your credit limit was reduced, or that your interest rate has increased? Has your card issuer suddenly started charging an annual fee?
Have you noticed less and less pre-approved Credit Card applications in your mail that offer 0% on purchases? See those rising rates on balance transfers?
In today's crazy financial climate it all comes down to one word - RlSK.
The Banks that offered these credit cards have lost so much money on the mortgage end of their business over the past few years they are trying to prevent further losses in their credit card divisions.
In the past three months, two major credit card issuers have simply closed ALL accounts that did not show any activity in 18 months. So, even if you have had this card for 10 years and have never been late on this or any other accounts, they just closed the account. By closing these accounts, they remove the available credit you had and were not using, so this will have a negative impact on your Credit Scores.
Remember, when it comes to revolving debt:
the more of it you have available and the less of it that you use,
the better it is for your Credit Scores.
Banks are "thinking" differently nowadays when reviewing your accounts. In past years, when your account was reviewed, it was for a credit limit increase, or a decrease in your interest rates. Now, they see a potential problem with you. The banks are thinking, “what if you lose your job? What if you max out the credit card and don't repay it?” Unfortunately, now everyone is considered as a possible future risk.
If you continually carry a balance almost maxed out, and even if you have paid on time, you are now looked at as a potential problem down the road. I have even seen Banks lower your limit under what your balance is, and then try to stick you with an over limit fee !!
The Banks call this their new "credit evaluation formula" and it effects everyone, regardless of Credit Score or past history.
Based on what is happening, I have been advising everyone to handle and look at their Credit Cards differently than I was back in the day, and the day was just six months ago!
I have actually been advising people to use their Credit Cards now.
Banks are looking at things differently, and YOU have to do things to adapt to protect your Credit and keep your Scores up.
What you need to do is to use your Credit Cards, regardless of what the interest rate is. Now when I advise you to use them, I am not telling you to go out and go crazy and run up high balances, as you still do not want to carry a balance and pay the interest. Simply use the Card and pay it off the following month.
For example, say you have one Card that has a low interest rate, and you always carry a balance on it. Then you have three other major Cards (Visa, MasterCard, American Express) and two department store cards that have a zero balance, yet remain open and unused. I suggest you take one of the Cards, go out to dinner or make a small purchase, and then come home and put the Card away. When the statement comes the following month, pay it off in full. Then take out a different card, go put some gas in your car and come home and put the Card away. When the statement comes the following month, pay it off in full. Do this SAME THING with all the other Cards. Rotate these cards so you use them every 6 months or so.
It does NOT matter how much, or what you charge. All you are doing is using the account and updating the date of last activity, which will keep the accounts in good standing. Following this advice will actually improve your Credit Score (FICO) as it will show that you are handling and managing more of your Credit better, and will actually give you some points.
So now, not only do you need to pay on time and keep those balances low on the Credit Cards you use, but you have to keep track of ALL of your Cards, making sure you keep them showing activity every 6 months.
When these Banks make these decisions to close or reduce the limits on your accounts, you HAVE to stand up for yourself. Call them and complain and use your good credit history against them. They need to keep their good customers. If you just let them steamroll you with these changes, there is no telling what can happen with your Scores.
As consumers, there really isn't much we can do except roll with the punches the Banks are giving us.
The financial situation we are going through will pass.
When it passes, I want you to remember how the Banks treated you, a loyal and good customer throughout all of this: Closing credit cards for no reason, reducing limits, shutting down lines of credit, making it almost impossible to get a loan. When they come back asking you to open up new accounts, remember how you were treated when you really need their help.
Your Credit Scores are more important to you now than at any time in history and I can't stress the importance on keeping an eye on your Credit so that nothing on it causes your Score to drop.
For all your credit-related questions, contact Gary Novel, President of Kreditguru, Inc at 630/624-9557 or firstname.lastname@example.org
Posted On: September 2011
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