The Brave New World of Credit Cards

As credit card holders’ struggles with payments on credit cards continue to increase the environment looks like it will only get tougher, particularly those with infractions and/or low credit scores. Due to increased losses from chargeoffs, companies are moving away from fixed rates, raising minimum payment requirements, and raising fees wherever possible stretching budgets thin for millions of cards holders. If you are stretching to make payments now, there are a few actions you can take to preserve your credit card standing, according to Ben Woolsey, director of marketing and consumer research for CreditCards.com. They are:

If you’re not already there, pay attention to the 30% rule – Do everything you can to stay below 30% of your available credit on any single card and across all the cards you have. Once you’re above this level, you are on the radar of the credit card companies. Going above the 30% line can result in the lowering of your credit limits and increases in the interest rate on some or all of your cards.

Keep your cards active – Credit card issuers are either closing accounts or charging fees for inactivity. While neither action is good news, the closing of a card account can reduce your available credit and result in increased fees on accounts that remain open. Be sure to use your cards once or twice each quarter to avoid any problems with inactivity.

Pay on time – Late payments can result in swift and severe cost increases for holders. Issuers are becoming increasingly vigilant with their holders that commit infractions. Costs are going up across the board, but they’re going up faster and further for holders that are deemed as risky borrowers.

If you’ve been hit by a rate or fee increase, call the issuer - If you are in good standing with your issuer, challenge every fee and interest hike that makes sense to do so. Credit card companies will still respond to requests for lenience so it’s worth a shot. Don’t stop with the customer service rep if your needs aren’t addressed. Ask for a manager for the best results.

These are issues that credit card holders may be familiar with as they’ve been around for a while. There are some new wrinkles, however, in how banks are managing their holders’ accounts that consumers should know about. Here are three:

Uses of credit cards at discount stores – Banks are now using projection models to analyze where card holders shop and how they spend. Of particular interest are purchases made at discount or dollar stores. Small purchases at dollar stores using credit cards puts a red flag on the account as the projection modeling software assumes that those purchases would be made in cash by a low risk borrower.

Residing in an area with a high foreclosure rate – Similar to the practice of red lining by insurance companies, a holder living in an area with a high level of foreclosures is considered to be a higher risk borrower. The results again can be higher rates and fees.

Being a good borrower – Banks are beginning to see holders that pay off their balances each month, generating no fees or interest, as a bad bet. New data sharing practices between banks are identifying these holders and making it difficult for them to establish new lines of credit. If you fall in that category and are contemplating opening accounts at new issuers, do it sooner rather than later.

As credit card issuers tighten their lending standards, it will become more difficult and expensive to operate with credit cards. Following the points made above can mitigate some of those issues but there will still be those won’t be able to keep up their payments in light of the increased costs of their accounts. In those situations, debt relief in the form of debt negotiation may be the best action to take before falling too far behind. If you’re at risk of falling behind, contact a debt negotiation expert now.