[Rail Paul]

Bloomberg has an article today about the new fees banks are adding to their credit cards.

The new fees address "inactive accounts" that are used rarely or occasionally. Under new protocols, banks would charge users $19 to $99 a year for the (non)use of their cards. This is aimed directly at people who hold several cards, but focus their activity on a single card to gain points, rebates, etc.

The new fees are in addition to the annual fees that many banks will implement on new and renewing cards, and have already appeared in some renewal notices.

One diabolical outcome is how this change affects the FICO scores used by many lenders to extend credit. In general, using a relatively small % of your total credit line on all cards, etc is considered good. Maxing out cards and using a high % of your available credit is considered bad from a credit risk standpoint. (But, good from the bank's profit standpoint, since you're paying high finance charges and other fees.)

If you cancel two rarely used cards, and cut $50,000 from your credit card total credit, and don't change your spending, your % of credit used will go up considerably. That LOWERS your attractiveness, and may preclude you from the most favorable, lowest, interest rates.

If you pay $25 each for 2 cards that you rarely use, you're out $50.

Expect to see more games, annual fees, etc as the banks gear up for the new credit card law's effective dates early in 2010. Interest rebates (pay a lot of interest and we'll give you a few cents back) are likely to spread, too.

Banks and their credit policies

[Lauren]

Bloomberg has an article today about the new fees banks are adding to their credit cards.

The new fees address "inactive accounts" that are used rarely or occasionally. Under new protocols, banks would charge users $19 to $99 a year for the (non)use of their cards. This is aimed directly at people who hold several cards, but focus their activity on a single card to gain points, rebates, etc.

The new fees are in addition to the annual fees that many banks will implement on new and renewing cards, and have already appeared in some renewal notices.

One diabolical outcome is how this change affects the FICO scores used by many lenders to extend credit. In general, using a relatively small % of your total credit line on all cards, etc is considered good. Maxing out cards and using a high % of your available credit is considered bad from a credit risk standpoint. (But, good from the bank's profit standpoint, since you're paying high finance charges and other fees.)

If you cancel two rarely used cards, and cut $50,000 from your credit card total credit, and don't change your spending, your % of credit used will go up considerably. That LOWERS your attractiveness, and may preclude you from the most favorable, lowest, interest rates.

If you pay $25 each for 2 cards that you rarely use, you're out $50.

Expect to see more games, annual fees, etc as the banks gear up for the new credit card law's effective dates early in 2010. Interest rebates (pay a lot of interest and we'll give you a few cents back) are likely to spread, too.

Banks and their credit policies

I was always told that the opposite is true. If you hold rarely-used cards with a total of $50,000 to borrow on, it counted negatively against your score because the lenders can't be sure that you won't go out tomorrow and use the full $50,000. Better to hold fewer cards with less liability.

[The Scream]

We cut up our credit cards years ago and never looked back.

[Rail Paul]

Bloomberg has an article today about the new fees banks are adding to their credit cards.

The new fees address "inactive accounts" that are used rarely or occasionally. Under new protocols, banks would charge users $19 to $99 a year for the (non)use of their cards. This is aimed directly at people who hold several cards, but focus their activity on a single card to gain points, rebates, etc.

The new fees are in addition to the annual fees that many banks will implement on new and renewing cards, and have already appeared in some renewal notices.

One diabolical outcome is how this change affects the FICO scores used by many lenders to extend credit. In general, using a relatively small % of your total credit line on all cards, etc is considered good. Maxing out cards and using a high % of your available credit is considered bad from a credit risk standpoint. (But, good from the bank's profit standpoint, since you're paying high finance charges and other fees.)

If you cancel two rarely used cards, and cut $50,000 from your credit card total credit, and don't change your spending, your % of credit used will go up considerably. That LOWERS your attractiveness, and may preclude you from the most favorable, lowest, interest rates.

If you pay $25 each for 2 cards that you rarely use, you're out $50.

Expect to see more games, annual fees, etc as the banks gear up for the new credit card law's effective dates early in 2010. Interest rebates (pay a lot of interest and we'll give you a few cents back) are likely to spread, too.

Banks and their credit policies

I was always told that the opposite is true. If you hold rarely-used cards with a total of $50,000 to borrow on, it counted negatively against your score because the lenders can't be sure that you won't go out tomorrow and use the full $50,000. Better to hold fewer cards with less liability.

I was always told the same thing, but I suspect the banks needed to have people go belly up to remind them why they should have been policing that aspect of credit risk.

Some banks addressed that problem by offering dramatically lower limits for cash withdrawals / advances against their credit cards. Your merchandise, etc limit might be $25,000, while your cash advance limit might be $10,000.

The term of art is (was?) a bust out. You open an account, run up the balance, and transfer the balance to bank B, while keeping the card A open. Roll B into C, with its good terms, buy lots of TVs or other fence-able goods. Take as much cash as you can from the still open A and B, sell the goods from C, and declare bankruptcy or disappear.

Banks love to do stupid things. We get the same real estate over lending crisis every 20 or so years, last two were 1991 and 1975. That's what we have tax payers or share (bag?) holders for.

[GG Mora]

We cut up our credit cards years ago and never looked back.

As did we. One of the smartest things we ever did.

[rancho_gordo]

Even without them, you pay. There's no real way to do business for us without accepting them and the costs from our end are insane. They're getting us coming and going. We've never had a real fraud and yet because we do business over the internet, there's an assumption that some of the cards are frauds so we never get the best rates like we do when we physically have the card, despite our history. All these charges go into the cost of business and we all pay. And pay.

[prasantrin]

We cut up our credit cards years ago and never looked back.

Did it affect your FICO score at all?

I'm afraid of giving up my one Canadian credit card (it's the only financial tie I have to Canada other than an RRSP I can't touch) because it might affect my FICO score too much. The balance of that and my Japanese credit cards are paid in full every month, though, so I don't ever pay interest or late fees. I do get a lot of air miles from my credit cards, though.

[The Scream]

<br />

We cut up our credit cards years ago and never looked back.

<Did it affect your FICO score at all? I'm afraid of giving up my one Canadian credit card (it's the only financial tie I have to Canada other than an RRSP I can't touch) because it might affect my FICO score too much. The balance of that and my Japanese credit cards are paid in full every month, though, so I don't ever pay interest or late fees. I do get a lot of air miles from my credit cards, though.

There are times when I get turned down for something because I don't have enough credit. Doesn't bother me, because it helps me keep to my basic philosophy. If I'm not willing or able to pay the whole amount upfront, I shouldn't be buying it.

There was a time when I had lots of credit, which meant that I was easily approved for more credit.

[Squeat Mungry]

We cut up our credit cards years ago and never looked back.

As did we. One of the smartest things we ever did.

Haven't had one for eons. The only thing I really miss is the convenience for booking travel (flights, hotels, cars). How do you guys handle that stuff?

[The Scream]

We cut up our credit cards years ago and never looked back.

As did we. One of the smartest things we ever did.

Haven't had one for eons. The only thing I really miss is the convenience for booking travel (flights, hotels, cars). How do you guys handle that stuff?

We book flights through a travel agent, better fares than anything we've found online. Hotels with a visa check card. Our bank has a pretty high per day spending limit for charges processed as a credit card that we haven't managed to exceed. And they are very good about billing issues, disputes and unauthorized charges.

When I had my own business I had tons of credit, including a Amex Platinum. But we're just not spending that kind of money these days. I don't need thousands and thousands of dollars worth of credit at once anymore, haven't for a long time and I like it that way.

[mongo_jones]

we use credit cards for convenience and pay off our balances in full each month. and the 1-3% cashback certificates we get from our amazon card please our silly hearts each time they arrive.

[The Scream]

Even without them, you pay. There's no real way to do business for us without accepting them and the costs from our end are insane. They're getting us coming and going. We've never had a real fraud and yet because we do business over the internet, there's an assumption that some of the cards are frauds so we never get the best rates like we do when we physically have the card, despite our history. All these charges go into the cost of business and we all pay. And pay.

Bullshit fees if the goods are going to the bill to address.

[Anthony Bonner]

we use credit cards for convenience and pay off our balances in full each month. and the 1-3% cashback certificates we get from our amazon card please our silly hearts each time they arrive.

Economically rational, responsible, convenient, etc, etc. But you miss out on the self-righteousness of telling people you don't use credit cards. Is it realy worth that?

[Orik]

Right, there seems to be an assumption that you have to pay to use credit cards, whereas in reality you can get paid about 2% of your spending (and occasionally much more), plus you gain 20+ days on your cash when compared to a debit/check card. Amazon, Continental, Delta, Discover (if you live in flyover states where it is somewhat widely accepted), some of the Amex cards, all seem happy to have you as a negative source of income hoping that one day you screw up.

[prasantrin]

we use credit cards for convenience and pay off our balances in full each month. and the 1-3% cashback certificates we get from our amazon card please our silly hearts each time they arrive.

Economically rational, responsible, convenient, etc, etc. But you miss out on the self-righteousness of telling people you don't use credit cards. Is it realy worth that?

Why does not using credit cards have to go hand-in-hand with self-righteousness?