Not maxing out your plastic gets tougher

Credit card reform doesn't always go smoothly, we are discovering.

Horror stories abound of how credit card users are being whiplashed by fast changing loan terms. The Federal Reserve reports 75 percent of the nation's lenders might not comply with new regulations that kick in in February. That echoes a Pew Charitable Trusts report two weeks ago that cards offered now by the 12 biggest lenders still fall short of snuff.

Lenders in general are tightening their credit card standards, reports Creditcards.com. Lenders are tightening other lines too, Diane Swonk, chief economist at Mesirow Financial, writes in that firm's latest newsletter; home equity loans have all but vanished.

Borrowers can still get relatively good credit card deals from credit unions, Forbes.com reports.
Even so, tight money and shrinking credit lines make it easier to hit credit limits before you mean to.

The Angry Mob Platinum Diamond Card is hilarious, but look what's really going on

I thought John Hodgeman's Daily Show riff on Wall Street reform and the Angry Mob Platinum Diamond Card the other night was a hoot.

But a dead serious report from the Pew Charitable Trust the same day is even more droll. Online credit cards offered by the nation's 12 largest banks won't be legal when new credit card rules kick in next February, Pew found. Better yet, both the Hodgeman bit and the Pew report arrived almost exactly on the 80th anniversary of one of U.S. history's most spectacular market crashes.

You cannot make up stuff this good.

Credit card problems aren't a joke if you have them, I know. And some reform of the worst abuses is both necessary and laudable. But often, our best way out of such jams is mostly things we need to do ourselves,as Associated Content contributor Ray Harris pointed out a few years ago.

CNNMoney.com last year looked at the pros and cons of 10 tools we might use to dig ourselves out of financial holes. And Forbes.com not long ago discovered SmartyPig.com., an online service that also is sort of a support group for the budget challenged. But what many of us figure out, after some trial and more error, is that you need to think beyond money to make it work. Financial-Choices.com outlines one way to do that, starting with protecting what you have before you start messing with improvements.

My credit card left home without me. Now what?

I try to never use credit cards to buy something that will be gone before the bill comes. It's a quirk, I know, but it probably spared me an awkward moment at the gas pump.

Citi apparently shut down a lot of its gasoline company credit cards without warning. That could be a nasty surprise if you just filled up as gas prices kiss $2.50 again. Leaving you with suddenlly worthless plastic is just one of many things card companies are doing before some new consumer friendlier regulations kick in, says Bill Hardekopf of Lowcard.com. And what is frustrating is that shutting off your credit unilaterally is neither illegal nor even among the worst things card companies can do before the new regulations take effect, consumer advocates say.

But what do you do if you've just pumped $30 in the tank, the only cash you have with you is small change in the ashtray, and your credit card is declined? Most immediately, if you don't have a second card to fall back on, talk to whoever is watching the gas pumps inside, have some photo i.d. ready that might convince them you aren't a deadbeat, and arrange to pay the $30 as soon as you can.

Next step, start some damage control. Cancelled credit cards will change your credit score, even if you didn't do anything to trigger the cancellation. Contributor W. Allen Morris to AssociatedContent.com outlines some of the math you will need to do and some of the ways you can use existing cards to patch any damage. Jim Wang over at Bargaineering.com offers some additional tips, though I'm personally more uncomfortable with debit cards than he seems.

And think about paying cash for your next fill up too. In addition to heading off credit card hassles, paying cash for everyday expenses is great way to control spending too.

Credit card reform, can it come quickly enough?

Junk mail makes for some pretty suspenseful reading these days. Those credit card company notices about fine-print changes in our card agreements that few of us read before, for example, now have more of us asking Congress to speed up credit card reform, a new Credit.com survey reports.

Discover this week sent the Ktnomics house four pages of bifocal-challenging small print legalese. Turns out it's the latest changes in our credit card contract that are being made before new credit card protections kick in. I get the gist of them, but I still have no idea what they've done to the grace period. I'll look more closely later. Yeah. Sure.

Other people are getting more jolting news. Bank of America is 'testing' new annual fees for cards that didn't have them before. Other banks have made other changes too. Some even seem consumer friendly, because banks are thinking about how they can compete after the reforms kick in. Others, not so much, says Consumer Federation of America. Litigation has already hit the court system.

Yahoo Finance contributor Laura Rowley notes that just taking a second look at what seems to be junk mail can help you save a few dollars in these tough times. Push a pencil and you might even find some fees are worth paying.

Blue Christmas - credit, debit or cash

Retailers are bracing for a blue Christmas this year - a one percent drop in sales from last year's miserably low business, according to one report. Some blame part of that on debit cards, which are becoming many consumers' next line of defense against growing credit problems.

Using credit cards and paying them off monthly still seems a better plan, if you can swing it. Debit cards offer fewer consumer protections than credit cards and there are some rules that make easier to inadvertently wrack up huge overdraft fees, as outlined here by Kiplinger.com's Joan Goldwasser. And here's a longer list of pros and cons recently outlined in USA Today. Prepaid debit cards, which might seem the safest, actually can spring the worst traps, reports Consumerloanwire.org.

Also credit card rules are changing and some lenders, including Bank of America, are pledging better consumer-friendly deals on both kinds of cards before the new rules kick in. One thing doesn't change though. You still need to read the fine print, advises Consumer Federation of America.

When good credit card strategies go bad

OK, we know don't put porn on plastic. Same way with booze, casino cards and even purchases down at the thrift store. Credit card companies in this recession are watching our spending patterns to see if any changes might suggest we may be bigger credit risks.

But what about inflicting damage on our credit scores the old fashioned way? Nasdaq.com recently ran a list of five ways wealthy people mess up their credit. They are things that any of us can do and probably have at some point.

Now it turns out that even going on the financial wagon can be a bad idea, reports Erin Joyce in a recent post to Investopedia.com. Even though some new, more consumer friendly credit card rules will be kicking in soon, staying out of trouble is still our best bet, advisers say.

I know your credit is okay, but check anyway

Pro-consumer Credit.com today unveiled a new version of its Report Card service, designed to give you near real-time feedback on how well you are managing your plastic. More information is available at www.credit.com.

It's a broad look. You plug in a bit of personal information, including your Social Security number, plus some stuff that only you can answer. Report Card then scans your files, gives you a rough estimate of what your credit score probably is, plus some A,B,C etc grades for how well you handle of the biggest forces that move your score. The price is right. It's free. But you will get pitches to upgrade. It's the same situation over at www.creditkarma.com, another site I checked out. They'll give you your precise score too.

These are both potentially helpful services as more of the credit card reforms enacted last winter start kicking in. Banks and credit card companies are rejiggering a lot of rules that they won't be able to change so easily later, the Consumer Federation of America and other advocates warn. Many also are rewriting your credit scores, which makes it tougher to be sure what your score is, reports USA Today.

Some things haven't changed though. The nation's only truly free credit report website, www.annualcreditreport.com, still delivers one free copy of your credit history from each of three main credit monitoring company. It doesn't give you scores, just what's in your records about you.

And paying on time is still the most effective way to preserve or improve those records, says Consumers Union. They've got more tips and a handy calculator here.

Debit card holders outspend credit card holders...and have more at risk

Thieves prefer stealing debit cards -or debit card identities- over stealing credit cards, reports NACSonline, an electronic newsletter published by the National Association of Convenience Stores.

The reason why, apparently, is approximately the same reason bandits Clyde Barrow and John Dillinger allegedly preferred V-8 Fords. They outran virtually every cop car on the road in the 1930s.

Debit card fraud is harder to detect because debit card companies by and large don't track suspicious transactions as closely as credit card companies do, writer Odysseas Papadimitriou reports on Examiner.com. And with debit cards outnumbering credit cards 176 million to 173 million by one federal count, more than half the nation's users of plastic are taking greater risks.

If someone swipes your credit card or your credit card identity, current federal law currently limits your loss to essentially $50. If the same thing happens to your debit card and you don't report it fast enough, you could be on the hook for whatever the thieves spend, the Federal Trade Commission says.

FTC and other authorities outline a bunch of ways to protect yourself against debit card theft. But many of them miss what I think is an obvious solution. Forget about debit, use credit and pay off the balance each month. You get the same results as with a debit card and you're only risking $50.

What's not in 58 million wallets and what you can do to fight back

Credit card issuers really whacked cardholders, FICO, the credit score people told the Associated Press recently. They've dropped some 58 million cardholders in the last year, including many with really good credit histories.

They're looking for a sweet spot in their customer base that will generate more profit with little risk, says the Gerson Lerhman Group consulting firm. Finding it is a bit tricky just now.

You can fight back, said John Ulzheimer, the consumer education chief at Credit.com with whom we talked recently. If you've got a decent credit history and a card you don't use much, blow the dust bunnies off those cards and pop for a few things - gas for the car or a dinner out -that you would spend for anyway and put those on the cards.

Just be sure to pay off the balances on time. Even though some consumer friendly credit card rules kicked in this week, one thing has't changed.

"Due dates are due dates, not suggestions," Ulzheimer said.

If your credit records are really skimpy, you even might want to open an account or two to stake out a history before further reforms kick in next February. Whether you're doing that or just trying to recover what you lost in the 58 million card flush, brace yourself for more paperwork, says Florida financial adviser Jean Mascary. These are challenging times on both sides of the loan desk.

Use your credit cards or lose them

Watch your wallet - and the mail - if you keep a spare credit card for emergencies. Another round of new credit card reforms, kicking in tomorrow, may snarl your planned financial lifeline.

Most of the changes are consumer friendly, Massachusetts regulators and other authorities conclude. What we don't know is what rate hikes or other changes credit card companies might make to finish molding their customer bases before some final and stricter rules take effect in February.

"Think Play-Doh," suggests John Ulzheimer, consumer education chief at Credit.com, an on-line consumer education and advocacy service.

Card providers basically will use the time between now and Feb. 23 to craft the most profitable customer bases they can, by cutting out slabs of their most likely-to-default overextended borrowers and their most unprofitable customers, who carry cards but seldom use them, Ulzheimer said.

Counseling, debt consolidation and other help abound for overextended borrowers. But hanging on to an emergency card you don't want to use requires different action. Your best bet will be to use the card enough to keep your account active but not enough to punch holes in your cash flow.

And if you do carry a balance, be conservative, authorities recommend. Two guidelines that are still good despite the change: Keep your total borrowing below 35 - 40 percent of your total credit limit. Keep your payments within 10 percent of your cash flow.

Keeping a card active won't take much, Ulzheimer said. Just a few transactions -and the fees they generate from merchants - will do the trick.

"We're not talking about buying a flat screen TV," he said. "Go out for dinner. Fill your tank. Then pay it off in full at the end of the month."

Now credit card traps run two ways

Used to be you only got in a credit card jam if you ran up a tab and didn't pay. Now you can get in trouble if you don't run up a tab too. And you still have to pay. That's progress.

I know it sounds screwy, but that's one outcome of a bunch of changes that credit card companies have been making ahead of new reforms kicking in next February, according to USA Today's Kathy Chu, ConsumerAffairs.com's Mark Huffman and other reporters.

The reforms shut off a lot of ways that card companies have been making money off regretably improvident consumers the last several years. So the companies are working between now and February to rejigger revenue streams from our accounts and, more equitably perhaps, tap prudent consumers too. That's why, for example, some are adding annual fees and various inactive account charges on cards we don't use much.

I can see their point. It probably costs the people at one my credit card companies more money to mail me zero-balance-due statements than they'll ever make off that account. We pay in full on those rare occasions we use that card. But I don't buy the point either. I don't want to pay $30 just to carry a spare card. Nor do I want to charge something just to avoid the $30.

Blogger Jim Wang at www.bargaineering.com offers one solution to this dilemma that seems emotionally satisfying if nothing else works. Order up enough of those hard-to-peddle circulating $1 coins from the U.S. Mint to meet your credit card company's transaction threshhold and pay with plastic. Then deposit the coins in your bank to help pay your credit card bill when the statement comes.

And don't forget your reward points on the way out.

Beer and profiling outside the White House too

Trying to settle a beef over a public beer has got to be tough. White House watchers were snarking because nobody bought American. That changed at the last minute, though. I don't think that's a big deal in a global economy, but then I drive a Subaru built in Indiana.

What's more interesting is what happens if President Obama, Professor Gates or Sergeant Crowley were to pay any part of the tab with plastic. Someone's credit rating could take a hit.

Alcohol, it appears, seems to be one thing on a growing list of purchases that credit card company gnomes are watching these days for warnings that we might flee to Tahiti with the remaining uncharged $13.29 or whatever on our credit card limits.

They watch what you buy, where you buy it and, increasingly, whether you buy enough. If they don't like what they see, they cut your credit and you get closer to being caught in a credit jam.

The gnomes like to think of this analysis as data mining, which they can do to help provide credit more efficiently and profitably. But as CreditCard.com's Connie Prater reported recently, critics say it is a lot like redlining too. To some, such mining seems a long way from the five basic credit habits that Fair Isaac Co. bases its FICO scores on.

So how do you protect yourself? Use all your cards regularly, but sparingly. Pay off your balances each month. And pay cash for stuff you don't want the gnomes, or your significant other, to know about.

Chump change from the credit card companies.

Our credit card cash-back earnings hit 63 cents this week. I expected rewards to go down as lenders and borrowers brace for new credit card regulations to kick in a few months from now. But 63 cents barely gets you change back from a senior-price cup of coffee. Sheesh.

Actually, there's more than the new credit card regulations going on here. We consumers are becoming more frugal, whether by choice, as Harris pollsters recently found, or because we have to, as the Federal Reserve reports.

Banks and credit card companies are scrambling to save as many billions of potentially lost dollars as they can before the full changes kick in, writes David Lazarus of The Los Angeles Times. So watch your mail the next several weeks for big changes and small ones that are in the works.

And start planning now how you might change some credit card habits as the new rules start kicking in. Many of our first impulses may actually make things worse, says John Ulzheimer of Credit.com. What you may want to do instead is diversify your credit card usage, adds Mark Huffman of ConsumerAffairs.com.

But don't go nuts, advises CNN Money. As always, you want to keep a healthy distance between the amount of credit you use and the amount that is available but which you don't use.

Torching your credit cards won't make you rich, but it might help

Credit cards begin melting at 360 degrees Fahrenheit, but don't actually start burning until 455 or higher. Never mind how I know.

I thought of that recently when Jim Wang at Bargaineering.com shared a nifty illustration from Mint.com, an online budgeting help provider, that tracks the descent into credit card hell. It's only funny if you haven't been there, however.

The bad news is that while new credit card legislation is changing some of the ways you want to manage your credit cards, which Leslie McFadden outlines at Bankrate.com., there aren't any new shortcuts out of a jam once you are in it. In fact, some once instinctive moves, like stashing away a card you don't use much, requesting lower interest rates, or bailing out of a card contract if the issuer offers an unwanted change in the terms, all can backfire now, she writes.

Basically, you have three ways to work your way out of a credit card pit. You can take out a consolidation loan. You can start using a secured card --on which you set the credit line with your own money until your records improve. Or if you have a decent low rate card on which you aren't maxed out or you can get one, you may be able to transfer some balances around to save a few dollars.

In any case, you need a systematic plan to pay down the debt as soon as possible. It probably will look a lot like this rolling down plan DePaul University once suggested.

You also may think at some point that credit cards seem tougher to deal with than the mortgage. That may be true. As Ray Bradbury vividly told us years ago, paper burns at Farenheit 451.

When credit cards are outlawed, will only outlaws have credit cards?

All Hades will break loose when the credit card reforms now whistling through Congress become law, our banking friends imply.

Worthy borrowers may find it harder to get loans, the American Bankers Association frets. The estimated 60 percent or so of us who pay off our monthly balances in full may be whacked with annual fees and other irritations like eliminating interest-free grace periods, other industry sources worry.

Yeah, maybe. But I'm not betting on it.

First, this isn't a new debate. It wasn't even new when Kiplinger quoted commentators mewling on it 11 years ago. The end of that world is a long time coming.

Also, card users who pay full balances on time are significant revenue sources for financial services providers. Each time we swipe a card, the financial services industry collects what's known as an interchange fee, usually equal to between 2 percent and 3 percent of the transaction's value. When I paid $173.83 for some auto maintenance a couple weeks ago, about $4.35 of the money went to some guy halfway across the country to cover handling.

We, and specifically the merchants who actually collect the money, paid the banks almost twice as much in interchange fees as the banks collect on penalties that Washington wants to crack down on, the Government Accountability Office calculated in 2006.

And while our two to three cents worth is far smaller than the interest banks collect on card balances, it's also far more dependable. Borrowers can welsh on loans. We pay the fees to use the cards. Lenders aren't going to walk away from easy money like that, say commentators such as Barbara Kiviak at The Curious Capitalist, Rick Newman at U.S. News & World Report and others.

Plus we have good repayment records, which means we generally get some first cracks at the best new offers the lenders make. So if someone tries to slap an annual fee on our cards, we'll walk. And if all the lenders start charging annual fees or abolishing grace periods, that's not a big problem either. Mrs. KTnomics and I are old enough that we get free checks from our bank anyway. They often have free pens in the lobby too.

What's rotting in your wallet?

Okay, so biodegradable credit cards don't work the way I hoped for a moment.

The idea of having a credit card that falls apart before you hit your limit seemed intriguing. But what Discover actually came up with a few months ago is a card that spiffs up the local landfill after expiration.

Some of the credit card reforms apparently headed for passage in Washington may be similarly misleading. Curbing some of the tackier things card companies do to consumers probably helps, but consumer watchers say we still need to take control of our credit ourselves.

Plus, the proposed reforms won't help one group of borrowers who are among the fastest growing users - nearly six in 10 small business owners who are using plastic to keep their enterprises going until the stimulus kicks in. These guys may be heading for a real jam, because a major lender announced it's cutting off credit to maybe a million of these businesses because of soaring default rates. That leaves borrowers scrambling for other sources.

The surest solution to potential credit problems, obviously, remains paying off loans on time. But if that isn't possible, know what you are getting into, financial author Jennifer Openshaw recommends. And start scouting for alternate credit sources ahead of time, she advises.

Three (credit) card monte...who gets stung?

Credit card companies don't really play three card monte with our plastic, of course. But some similarities to the classic street con are startling.

You've got dealers throwing out all kinds of offers hoping we'll think one of them is the elusive queen. You've got ropers, advertising the good life you can buy on borrowed time, and shills, living fantastic lives in those ads and whom we never see write checks for the stuff they charge. And there's muscle, those increasingly insistent calls and letters we get if we don't pay on time.

But now the game may be changing. Growing numbers of borrowers are having trouble paying on time. It's a blood-from-turnips problem with the recession, not irresponsibility on their parts.
So, more credit card lenders are hiking costs, which makes things worse for the borrowers.

Borrowers who can are fighting back. Basically, the financial system finds a lot more of us are using debit cards these days. There's no rocket science involved. As credit cards get more expensive, many debit cards are getting cheaper and more flexible.

There is a catch, though. It's harder to overspend with a debit card because your limit is what is in your account. And in a consumer-powered economy, it's tough imagining much stimulus from the few hundred dollars or less that may be left over when the plastic clears.

Anybody hear canaries coughing?