July 2011 - Posts - Dollar Stretcher Guest Bloggers
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July 2011 - Posts

  • Lenders Must Soon Reveal Reasons for Loan Rejections

    by Bill Hardekopf

    Beginning July 21, consumers will get an explanation when they don't receive the best interest rate or are turned down on a student loan, automobile loan, or credit card application.

    This new regulation from the Federal Reserve and Federal Trade Commission requires lenders to send you a free copy of the credit score it used to arrive at its decision. The new Consumer Financial Protection Bureau will enforce these new rules.

    For the first time, consumers will get a clear understanding of how they are judged by lenders. The lender's disclosure notice must provide the score and the factors that pulled down your score and where your score ranks nationally. It must give the major factors that decreased your score, such as late payments or maxing out credit cards. It will also tell how to get a copy your credit report.

    There are exceptions. The ruling only applies to lenders. If a utility, telephone company, or insurance agency has a special scoring system, it does not have to provide a free credit score. If you received the best terms and lowest rates, you may not receive a free score.

    This is very beneficial for consumers. Credit scores affect so much of our financial and daily lives, from interest payments to employment and insurance rates, yet many people overlook it. This new rule makes consumers come face-to-face with their credit score and perhaps recognize its importance. This should be an opportunity for people to understand the changes they need to make in order to improve their credit score.

    The majority of Americans don't know their credit score. A new study, Americans' Financial Capability by the National Bureau of Economic Research, showed that only 36 percent of consumers checked their credit score. The study also showed that the majority of people who check their credit score (52 percent) had a score higher than 720.

    Here are five tips for raising your credit score:

    • Pay all your bills on time. This is the single most important factor in your credit score. Even if you only pay the minimum, pay your bills on time because late and missed payments are the easiest ways to lower your credit score.

    • Get a copy of your credit report from all three credit agencies and check it for errors. U.S. residents are entitled to one free copy of their credit report from each credit reporting agency once every 12 months. That means you can request a free credit report once every four months as long as you stagger your request so they go to a different agency each time. This information is found by calling 1-877-322-8228 or at AnnualCreditReport.com. If any of the information on a report is incorrect, contact the agency to correct it since it may give your credit score a quick boost. Incorrect information should be corrected or removed within ten to thirty days. Your credit score is usually not shown on the free annual credit report; you typically have to pay to see your credit score.

    • Pay off your debt. High balances and high debt ratios drag down credit scores. Your debt balance should be less than one-third of your available credit. If you have a good payment history, contact your creditors and ask for lower interest rates. Then use what you saved in interest to pay down your balances.

    • Build a long-term relationship with the accounts you have. A long history of good payments on a car loan, mortgage, or credit card increases your credit score. Keep older accounts or credit cards open even if you are not using them, because you are rewarded for a long, positive credit history. If you review your credit report and discover you have many accounts you no longer use, close the newest ones first.

    • Limit your credit applications. Too many new accounts can lower your credit score. Each time you apply for a loan, the application shows up on your credit report. A significant increase in inquiries signals that you may be desperate for money and are a credit risk. The exception is shopping for a mortgage or a car loan, as multiple inquiries for the same purpose in a reasonable period are considered a single inquiry.

    Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories, such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.

  • The Impact of Debit Interchange Fee Regulations

    by Bill Hardekopf

    On June 29th, the Federal Reserve was scheduled to vote on the final plan to cap the interchange fees charged by banks on debit card transactions. Currently, retailers pay banks an average of $0.44 every time a consumer makes a debit card transaction. The new regulations propose limiting that interchange, or "swipe" fee, to a maximum of $0.12 per transaction.

    Earlier this month, the U.S. Senate failed to pass a measure that would have delayed the onset of these new regulations. These new interchange fees are scheduled to take effect on July 21.

    Banks argue regulations will slash revenue and they will have to make changes to their debit cards because the capped fee will not cover the operational costs to process debit transactions.

    Debit cards have surpassed checks and credit cards as the primary form of noncash payment for Americans, increasing in volume from about 8 billion in 2000 to 38 billion in 2009. According to the Federal Reserve, the debit card interchange fee generates as much as $16 billion in revenue.

    Banks have stockholders to answer to and revenue goals to meet. Historically, when banks incur a loss of revenue, they find new fees and charges to levy on the consumer to generate new revenue.  There are a number of ways that banks could make up for this lost revenue resulting from the cap on the debit card interchange fee. Issuers could increase interest rates and existing fees on credit cards or even introduce new fees. Other possible changes that banks could impose:

    More Conditions for Free Checking

    Banks advertise free checking, but the fine print for major banks like Bank of America, Wells Fargo, Chase, Citibank, PNC and US Bank also contains stipulations. The most common stipulations are the offer to waive monthly fees as long as your balance is above a designated amount, or for you to deposit a specific amount each month. The fee could also be waived if you have multiple accounts.

    Over the next year, Bank of America is shifting checking customers into new accounts that have higher balance requirements or other conditions to get free checking. One new product is called Enhanced checking and customers must make deposits totaling $2,000 a month, keep at least $5,000 in various accounts, or use a bank credit card at least once a month to avoid a $15 monthly fee. An eBanking account lets customers avoid a $12 monthly fee if they sign up for paperless statements and make all deposits and withdrawals online or through an ATM.

    Monthly Statement Costs

    Banks encourage customers to use online statements by charging $2 or $3 to mail paper statements. ATM statements also have fees. US Bank is charging customers for mini ($1) and full ($1.50) statements at US Bank ATM locations. Bank of America doesn't charge for a mini statement but does charge $3 for full statements from their Bank of America automated teller machines.

    ATM Fees

    There are different fees associated with ATM usage. These fees aren't new but they could increase as a result of the new debit card regulations. Out of Network charges can be as high as $2.50 per withdrawal. Denied transactions will also generate a fee that is much as $2.50 per denial. Using your debit card internationally costs extra too. Chase Bank charges $5 per withdrawal outside the US.

    Reduced Debit Card Reward Programs

    Many customers receive rewards for using their debit card. Some banks have already begun reducing or eliminating their debit rewards program. Wells Fargo, SunTrust and U.S Bancorp are among those who have already made significant changes to their rewards programs. Chase is ending its debit card reward program in July.

    There has been some speculation that big banks will try to cap debit card transactions to $50 or $100 apiece. This kind of action is seen as very aggressive and is unlikely to happen.

    The regulations on debit card interchange fees scheduled to go into effect will reduce the revenue to banks. These institutions will, in turn, charge consumers more for banking services. The consumer will likely not see any benefits from retailers because swipe fees are embedded in product prices. The retailers have clearly won this battle, while banks and, in the end, consumers will end up as the losers.

    Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories, such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.

  • Credit Card Issuers Gradually Ease Lending to Consumers

    by Bill Hardekopf 

    For the second straight week, there are signs that the financial outlook for credit card issuers is improving.

    Last week, credit card issuers reported defaults and late payments had dropped to pre-recession levels. A new survey by the Office of the Comptroller of the Currency released yesterday shows that some banks are gradually easing lending standards on credit cards.

    According to the Survey of Credit Underwriting Practices 2011:

    • 25 percent of 16 banks offering credit cards eased their underwriting standards through reducing credit score cutoffs and increasing credit limits. This is the first time that credit card underwriting standards have loosened since 2008. The study says this was caused by economic outlook, competition, strategy, and government regulations.

    • 44 percent of the banks that offer credit cards tightened underwriting standards, but this was down from 81 percent last year. 31 percent left the standards unchanged.

    • Credit risk in card portfolios increased in only 6 percent of banks compared with 94 percent in the 2010 survey. Credit risk decreased in 69 percent of the banks. The study says this drop in credit risk is due to conservative lending, an improvement in the economy, and a drop in defaults and late payments.

    The 17th annual survey covers the 12-month period ending February 28, 2011. It examines assets and underwriting standards at 54 of the largest national banks with assets of $3 billion or more.

    Find the link to the Survey of Credit Underwriting Practices 2011 here

    LowCards.com simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories, such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete Credit Card Index is the most objective and comprehensive resource on the Internet, which allows consumers to compare rates for over 1000 credit cards offered in this country. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for eleven years.

    For more information, contact Bill Hardekopf at 1-800-388-1910 or billh@LowCards.com.

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