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» The Ornery American Forum » General Comments » Got Perfect Credit? You Could Be Charged For It!

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Author Topic: Got Perfect Credit? You Could Be Charged For It!
philnotfil
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wcbstv.com
quote:
Earlier this month Bank of America started notifying customers like Mullen-Kress that they will be charged a new annual fee of $29 to $99.

"There is a big segment of their population that they will have never made money on, which is people who pay their bills on time every month," said Ben Woolsey, Director of Consumer Research at CreditCards.com.

Bank of America said in a statement: "At this point we're testing the fee on a very small number of accounts and haven't made any final decisions." Citigroup is also trying out an annual fee with some card holders, and analysts expect more banks to follow their lead.

The banks are starting to charge fees to reliable customers in response to a slew of new credit card industry regulations that will limit when banks can hike interest rates. Cardholders who get a new annual fee notice in the mail will be in a no-win situation.

"They can either pay that fee or they can close the account, and if they have had the account for a while and they close it, they are potentially going to hurt their credit card score," said Woolsey.

Got to make money somehow. Won't affect my family, we haven't had a credit card for three years now. The only difference we've noticed is that we have more money despite no increase in income.
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The Drake
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No win situation? I don't know why Woolsey thinks you're going to hurt your credit score so badly by closing your account.

35% is paying bills on time
30% is amount of money owed and available credit
15% is length of credit history - but this would include all creditors, including home and auto loans
10% is mix of credit (some timed payment, some revolving)
10% is new credit applications

So only a portion of 15% of the score is affected. Not enough to bring you down significantly.

source

The only way to send the banks a message is to cancel those accounts, people. I just dumped a Wells Fargo account because they tried to raise my rate 3%.

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IrishTD
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Closing the account could also have a big impact on the amount of money owed and available credit (utilization). That means closing a single account would play a role in 45% of what makes up a score.

Also note that the comment was "potentially going to hurt their credit card score".

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Peter
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How CCs Make Money

quote:

3. The card Issuer [the bank that issued the card and/or the issuer network ie: Visa, MS, American Express, JCB etc] makes a percentage of each item you purchase from the merchant who accepts your credit card. These rates range from 1% to 4% of each purchase.

So a person who spends $1000 each month on their credit card and pays that credit card off at the end of each statement still makes the credit card company somewhere b/t $10-$40 dollars that month. Let's say on average it's $25.

A person who keeps a revolving balance of $1000 each month at an APR of 19% (I believe I'm estimating high here, but had trouble weeding out trustworth sources for average APRs from all the Ads) would pay ~$15.83 every month in interest.

It seems to me that 'people who pay their bill on time every month' already make the credit card companies more than those that have purchased more than they can afford.

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Pyrtolin
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Don't forget plans afoot to charge people for not using their cards as well.
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JWatts
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The credit card companies can try to be greedy (greedier), but it's a very competitive marked and ridiculously easy to switch to a different credit card account.

And if that fails you can always use a debit card.

So let them bring it on.

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Pyrtolin
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quote:
Originally posted by JWatts:
The credit card companies can try to be greedy (greedier), but it's a very competitive marked and ridiculously easy to switch to a different credit card account.

In this market? It's damn near impossible. And there's nothing to choose between. You're talking like it's 5 years ago.

You can use a debt card, sure, but it doesn't serve the same purpose as a credit card- a way to spread out an emergency cost that's to high to bear out of pocket or swing the last few days on a tight pay period.

Debit cards are about using what you have on hand, credit cards are about smoothing the curve between income spikes.

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scifibum
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...still waiting for a spike.
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The Drake
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I guess I'll be finding out if it is hard to get new credit. I suspect it is harder to get the same limit with respect to income (or no income), but I don't imagine it is hard to get a reasonable amount of credit (maybe one month's pay).

What makes you say that it is near impossible, Pyr? I'm still being deluged in "pre-approved" literature/spam.

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DonaldD
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Well, I prepay most bills, never carry a balance on my cards, and almost never pay out a monthly balance late (usually by one day). They keep trying to increase my limits, though.

The card companies must make sufficient money from my activities by charging retailers transaction fees.

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yossarian22c
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quote:
Originally posted by Peter:
How CCs Make Money

quote:

3. The card Issuer [the bank that issued the card and/or the issuer network ie: Visa, MS, American Express, JCB etc] makes a percentage of each item you purchase from the merchant who accepts your credit card. These rates range from 1% to 4% of each purchase.

So a person who spends $1000 each month on their credit card and pays that credit card off at the end of each statement still makes the credit card company somewhere b/t $10-$40 dollars that month. Let's say on average it's $25.

A person who keeps a revolving balance of $1000 each month at an APR of 19% (I believe I'm estimating high here, but had trouble weeding out trustworth sources for average APRs from all the Ads) would pay ~$15.83 every month in interest.

It seems to me that 'people who pay their bill on time every month' already make the credit card companies more than those that have purchased more than they can afford.

There are usually two companies involved in making money off of credit cards. One is Visa or MasterCard who make money off by charging the company a transaction fee. The second is the bank (BoA or Citi) who makes money off of charging the consumer fees and interest. So even though Visa and MC make money off of customers who don't carry a balance the banks don't. So this explains why the banks want to start charging yearly fees for those customers.
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DonaldD
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Amex on the other hand (the exception, I suppose) is its own bank.
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Pyrtolin
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quote:
Originally posted by The Drake:
I guess I'll be finding out if it is hard to get new credit. I suspect it is harder to get the same limit with respect to income (or no income), but I don't imagine it is hard to get a reasonable amount of credit (maybe one month's pay).

What makes you say that it is near impossible, Pyr? I'm still being deluged in "pre-approved" literature/spam.

Pre-approved to get spam, not pre-approved to get credit (even if you talk about the rare honest offer that doesn't come with hundreds of dollars of fees built in) none of those offers is actually a guarantee of credit.

You get deluged in them because they cost practically nothing to send, and because they help maintain just that illusion that everything is like it used to be.

Good luck getting what you need, and watch out for AmEx, given that they seem to be the worst so far as arbitrarily cutting critical credit lines of good customers goes.

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Pyrtolin
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quote:
Originally posted by yossarian22c:
There are usually two companies involved in making money off of credit cards. One is Visa or MasterCard who make money off by charging the company a transaction fee. The second is the bank (BoA or Citi) who makes money off of charging the consumer fees and interest. So even though Visa and MC make money off of customers who don't carry a balance the banks don't. So this explains why the banks want to start charging yearly fees for those customers.

No- the banks absolutely do get a chink of the transaction fees. My credit union just sent out a letter to all of it members asking us to protest legislation that would try to cut them, because they're a primary revenue source for them. (Pointing out that losing the revenue would mean cutting a number of services and that stores would just eat the difference as profit, as they do every time hidden costs like that are eliminated, rather than returning it to the consumer in any way, shape, or form.)

Banks also make a sizable profit by tacking on additional conversion fees when their cards are used when out of the country.

And Credit Unions themselves stand as a good example as to exactly why this is pure opportunism from the credit card companies:

http://www.nytimes.com/2009/06/23/opinion/23kaufman.html?_r=1

The regulations impose standards that CUs have consistently been operating by and showing strong profits without any trouble. The only thing the CC companies are losing is part of their ability to abuse the market.

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Colin JM0397
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Speaking of BOA, if you use them for checking make sure you double-check your statements from the last few months for new fees.

I just spent 15 minutes on the phone trying to figure out why my previously "free" checking account has been accruing a $20/month fee for 2 months after never having one in the past. I keep this account just to have a local chk account, since I prefer my old bank in Ohio for day-to-day buiness. Therefore, I don't keep much in the BOA account.

After going around and around, they finally "discovered" that my mortgage account had been "unlinked" from my checking account. Having a mortgage or another account with BOA waives the standard monthly fees. So, magically, at some point a few months ago the linking of my accounts was deleted. Of course the bank can only waive current fees, so I'm SOL on the $20 from September.

Sneaky bastards!

If they didn’t have such a sweet mortgage program I’d close everything!

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Sauurman
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This is common sense. You put restrictions on U/W policies on existing lines of credit several things *must* happen.

Either the banks must further restrict lending standards or they need to charge additional fees to make up the lack of flexibility enforced by law.

This should shock and surprise no one.

That being said. Join a local bank or a Credit Union. You wouldn't get screwed. My own bank offers me free checking and my credit card has no annual fee and I doubt that will be changing soon.

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BobDylanThomas
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Wow, you sit there and wonder how they can get away with this ****?

I give you Sauurman.

You gotta figure whatever number he represents here on OA, what 1 in a 100, 200, and take that number out of 300 million.

Who to believe; Saur or Pyr? Hmm...

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Sauurman
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What are you talking about Bob? What part of the post are you disagreeing with?
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Pyrtolin
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quote:
Originally posted by Sauurman:
This is common sense. You put restrictions on U/W policies on existing lines of credit several things *must* happen.

Either the banks must further restrict lending standards or they need to charge additional fees to make up the lack of flexibility enforced by law.

Must? Can. The CUs make it clear that must is not true at all. They complied with the laws before they were even in place and ran smoothly without resorting to usurous fees and other dirty tricks.

The only major difference is their attitude toward their customers- with a CU the relationship is a cooperative one; their coal is to enrich their customers and make profit from that additional wealth. The CC companies, on the other hand, are run with an adversarial attitude- their goal is to redirect every penny possible from their customers to their investors as quickly as possible, with little regard for the long term financial health of their customers; they can count any debts run up, even unpayable ones, as short term assets to attract more money, so they have little motivation to keep fees reasonable, given that the fees coust them nothing, but can result in extra cash flow from those who struggle to afford them.

They try to spin restrictions on such practices as a threat to their operation, but the CUs solidly prove the lie there. And there's no way general competition will enforce better behavior, because the locus of competition is among investors, not customers- the demand for service is high enough that they can dictate the market terms.

Broad based regulation is the only way to fight back against that kind of market loop; all of them have to change at once or none will, because any individual who does will lose to those who continue with abusive practices.

It would probably be better if we forced the CC companies to comply with the laws of the states that they do business in, so that more fine tuning would be available based on local conditions, but as long as we essentially let the state with the weakest regulations control the game, then the only way to compensate is by pushing back at the federal level.

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Sauurman
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Credit Unions have certain tax advantages over banks.

But your missing the point. All things being equal if you restrict a banks ability to change rates on an open line of credit that increases risk. This will translate into one of two things occurring.

1. Lower risk taking via the shutting down of credit lines and more stringent U/W standards.

2. Increase fees/rates to take into account the higher risk.

Banks have in the past been pretty lenient in their U/W. Not so much now obviously but this leniency left them with a lot of *potential* and actual bad debt.

In the midst of a credit crunch it was precisely the WRONG time to further limit the ability of banks to price risk. It further escalates the problem and creates a drag on th economy.

People choose to bank with certain banks for a reason. Often times its the bank that will extend credit, other cases its because of their ATM network. If you want better service and less BS join a Credit Union or join a local bank. The bank I go to is a little different (I like to think of it is a quasi-Credit Union though its actually a bank) but unlike BofA I trust it and feel they will treat me fairly.

If you don't think the company that you are dealing with is treating you fairly why do people continue to do business with them. The reason is they offer something, typically laxer underwriting standards. Or ATMs.

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Funean
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I tend to agree with Sauurman here, inasmuch as any time you deal with a smaller organization you are more likely to get better service and more personalized attention. They tend to be leaner, hungrier, and just plain more local in their business practices. That said, the larger banks have considerably more power, a greater variety of services, and the ability to be a bit more lenient in their approach to risk. On the other hand, as Earnestine said of the phone company, "We don't care. We don't have to. We're the phone company."

I do, however, disagree strongly with allowing businesses to de facto change the terms of implicit and explicit contracts simply because they decide that the existing terms are no longer advantageous for them. It is infuriating to get a letter (or worse, not get a letter) from your credit card saying that they're increasing your interest rate 5-10% because, in effect, they'd like to make some more money. While I totally sympathize with that impulse, unless there are legitimate competitors (someone else willing to extend me the original credit, without charging me fees for doing so or capitalizing my current interest balance), and there generally aren't, this amounts to price fixing on a captive market. The megabanks affect everyone else in the food chain, and so what they do and are allowed to do matters all the way down the line, even if you choose not to do business with them.

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Pyrtolin
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quote:
Originally posted by Sauurman:
Credit Unions have certain tax advantages over banks.

Those are irrelevant, because they only translate into a percentage of net profits, not gross revenues. Losses are assessed before taxes, so it has no bearing on profitability, just the degree of profitability.

You'd have better ground with the comments about looser underwriting if the basic business model used was more honest, and, again, if competition was customer focused, not investor focused.

But as it stands, the looser standards arise from a fundamentally dishonest business model. The goal isn't to offer manageable credit, but to explicitly offer unmanageable credit- in small part by extending it to people who aren't quite qualified for it, but in large part by maneuvering them into a situation where they're actually receiving very little credit and mostly paying costless fees to the bank. There's practically no risk to the bank, and the law will help them collect the arbitrarily high fees that they've imposed.

Then, when restrictions to prevent such are put up, instead of focusing on the core, fully profitable business, they find new ways to impose similarly arbitrary fees and charges, because, again, their objective is not to provide manageable credit, but to squeeze as hard as they can get away with to maximize profits. On the consumer end there is little to no power of choice, because all of the offerings are effectively identical.

Spiders might compete with each other for flies, but the flies don't really see much of a benefit from thinking about which web they're going to fly into.

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