CardInform Blog

The Federal Reserve has finally announced that they will crack down on “unfair and deceptive” practices within the credit card industry.  Finally.

 After a lot of talk and interest rate cuts the Fed will finally fight for the rights of consumer…particulary those in debt.  In the US where saveings rate ranges from the negatives to 2% (China is at 35% for comparison) most households are living in debt and many in the form of credit card debt.  The article states that credit card debt in the US exceed $850 billion with average rates around 18%.  That’s a lot of interest payments.

Some items that will be regulated are:

- Payment allocation: the art of applying payments to lowest APR balances first

- Low grace periods: the time you have to pay until interest starts accruing

- Crazy rip off fees for over limit accounts

- and “deceptive offers”:  wow, who would’ve thought that deceptive offers should be eliminated?

It’s still early to see what gets passed to law and how the monolith of an industry fights back.  Expect a prolonged and heated battle and no real changes for some time to come.

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We all get them and I know I personally get them a lot. I’m talking about Purchase, Balance Transfer, and Convenience Checks.

So, what is the difference between balance transfer checks and convenience checks asides from the fact that they eat into your credit card line?

Purchase Checks:

• Deducts from your purchase credit line on your credit card up to your entire limit
• Tied to exact same Annual Percentage Rate (APR) as for your regular purchases
• Checks can be deposited into your bank account or cashed as regular checks
• Usually no grace period - finance charges begin accruing immediately after use

Balance Transfer Checks:

• Deducts from your regular purchase credit line
• Typically tied to a lower promotion interest rate from 3 months to 18 months
• The best rates are given when you sign up for a new card
• Usually no grace period - finance charges begin accruing immediately after use

Convenience Checks:

• Beware! Convenience Checks are tied to your Cash interest rate which is almost alway above 22% APR
• These look exactly like the checks issued for Purchase and Balance Transfers and intermittently mailed to confuse cardholders
• Usually no grace period - finance charges begin accruing immediately after use

As opposed to how it’s named, convenience checks are no more convenient than balance transfer checks except maybe for the banks.

Do yourself a favor next time before you sign on the dotted line, read the credit card mailing very carefully to determine what type of check you are signing. The text always makes it sound like a great deal; however, as always, when treating communications from credit card issuers, be skeptical.

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Here’s another long awaited installment of Creditpedia.  However, it’s more of a Q&A.

Given the blooming economy (sarcasm) I have received many emails asking about the effect of foreclosures and repos on your credit bureau.

If you are one of the unlucky many that have failed to make payments given the poor economy and job losses you are not alone.  Unfortunately something like a foreclosure or repossession is with you for a very long time.  Based on the Statute of Limitations the said event will be reflected in your credit bureau for 7 years (yes, a whopping 7 years) after the date it was first delinquent.

What does this mean?  Well it basically means that even if you pay off the bad debt you are gaining nothing (except eliminating phone calls from pesky collectors).  The stain on your credit report will still be there next year, and the year after, and the year after…you get the point.

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I recently got a credit card solicitation from Washington Mutual or more “cooly” known as Wamu. Now asides from Wamu’s abysmal earnings results, I instantly thought I was a great deal due to the envelop boldly stating:

“O% FIXED APR on Purchases until January 1, 2010″

WOW! 2010! But the key word (which I missed - their intention I’m sure) was “Purchases”.

What a scam! They are blatantly trying to use fuzzy verbiage to confuse the prospect into thinking that this is a great deal. The term went on:

“when you transfer a balance now.”

So essentially Wamu is expecting you to transfer a balance and pay a rate of 8.99% while giving you 0% on additional purchases. This is very damaging to your wallet since you have essentially locked in a balance at the full rate while padding on purchases. Due to payment allocation, this transferred balance accruing high interest charges will stay until you are able to pay everything else off including the 0% purchases. So, in the end not that great of a deal.

For your sake, please please please avoid this card at all costs.

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