FDIC Article on Convenience Checks

by Wade Barnes 15. March 2010

Convenient or expensive??  The FDIC posted an article on convenience checks issued by credit card companies.  While this may be a convenient service for many borrowers, it may come with expensive fees and unseen pitfalls from overdraft fees to fraud if you're not careful.  Check out the FDIC's article: http://www.fdic.gov/consumers/consumer/news/cnspr09/blank_check.html

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Should I close my credit card?

by Wade Barnes 24. February 2010

There has been a lot of discussion this week revolving around the Credit Card reformation act that became effective this week (If you missed the conversation, check out the Credit Legislation post for details).   A result of the proposed legislation was a knee jerk reaction by the credit card companies to raise rates across the board to all of their customers, as future rate hikes will be regulated a bit more aggressively.  Over the past few months, many good customers whose rates have been hiked now feel slighted and want to close their account with their credit card holder.  By all means, if you feel so strongly don’t let me discourage you from acting.  On the flip side, this same legislation has unintentionally made credit harder to come by (and likely more expensive), so you may want to consider this before axing your old account.  On top of this, think through what affects this may have on your credit rating.

I had lunch with a friend a few weeks ago who is an executive at a local business.  He has never been late on his payments, never gone over his credit limit, has excellent credit, a stable job with a solid income but was still a victim of blanket rate increases by his unnamed credit card company.  Out of frustration, he wanted to close this account that has been opened for over 20 years.

The reality of it is, my friend never carries a balance on their card and hence is never affected by the associated interest rate.  Even if a balance was carried from month to month, I’d check out the competition’s rate before moving a balance as the grass isn’t always greener.

On to the core issue: If they close their credit card, an account with an excellent history, their credit score will take an immediate hit – especially if they open a new card in its place.  Not only would they close a beneficial account in their credit history, they would also reduce the available credit limit, which could affect the credit usage ratio (the amount of revolving credit outstanding / the total credit limit).  So, there are two factors that could possibly affect your credit score by closing an account with a solid history to keep in mind before jumping ship.  Keep in mind though, with a stable credit rating, even this minor hit won't affect your overall rating in the long-term and shouldn't be of great concern but there are consequences to every action that should be considered before making any financial decision.

For more information on how credit scores are calculated and factors that affect your score, check out the post on maintaining credit ratings during tough times or feel free to be in touch for more information wbarnes@1stmarinerbank.com.

As always, I welcome questions and conversations about situations you may have encountered and how these recent changes have affected you.

Credit Legislation

by Wade Barnes 5. November 2009

First, I apologize for being dormant with posts recently.  As you are probably aware, the credit industry has been going through some fierce revisions, many of which are overdue.  We can debate the pros and cons in another conversation but essentially this works to remove dishonest lenders and/or lending practices and create a template for explaining loan terms in a consumer friendly fashion. 

You may notice some changes from your credit card provider thanks to the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009.  Consumers Union has done a nice job explaining the provisions of the act and how they may affect you and your account.  As the legislation is making it tougher to increase credit card rates in the future, many companies are raising rates now and in some cases for no apparent reason. 

Changes to the Real Estate Settlement Act (RESPA) and Regulation Z are set to take place in January.  These new rules work to present the costs involved with obtaining a mortgage in an easy to read document.  The goal is to create a shopping document where you can compare the rate and costs of the loan between lenders.  There are also provisions in place to keep lenders from increasing fees after the initial disclosure (within reasonable measures).

As there are pros to the new legislation, there are also cons.  I am happy to discuss any questions or concerns you may have.  Feel free to share your thoughts as well.

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