How the Credit Card Companies Are Taking Your Credit Away

Did you know that the credit card companies are now reviewing credit lines and if your income is down, they can reduce your credit. You may think you are secure, but then get a letter in the mail telling you that the amount of credit available to you has been reduced. Or if you apply for another credit card, the bank will look at all of your cards, and your call may trigger this credit card reduction.

I know because this just happened to me with the Bank of America, which has recently acquired Countrywide, the largest holder of mortgages in the U.S. — and why it was on the verge of collapsing before being acquired. What happened is that I have a no-interest loan that is about to readjust in July after 5 years. And in today’s economy, it is virtually impossible to get refinancing for most loans. So one loan broker who couldn’t get me a new loan helpfully referred me to Countrywide’s department that is handling loan modifications, where you might be able to get an extension of the current interest rate.

As the woman who answered explained, basically, you need to provide a couple of months of bank statements, your tax returns for the last year, a list of month to month bills and expenses, and then your information will be reviewed on a case by case basis. At the end of the call, she helpfully explained that I might apply for a Bank of America rewards card that might help me with the payments, since it was a no-interest promotion for 6 months. And she could refer me to a credit card specialist who could give me an instant approval for the card.

Fine, I said, since it sounded like a great way to get some extra credit at no interest while my business picked up. But what she didn’t tell me is that the credit card specialist would be reviewing all of my Bank of America cards, and besides approving this promotional card, the specialist could reduce the credit available through these other cards. The upshot was that after granting me $5000 on the new card, she reduced a $30,000 credit limit on another card down to $15,000, and then reduced or eliminated the credit available on two other cards which a bank manager had signed me up for. So the net result was that I suddenly lost about $22,000 in credit by responding to an offer to help me.

When I protested that this wasn’t right — luring a long-time customer in to accept what seems like a better offer only to end up in a worse credit position, her explanation was that even if I didn’t call, the bank does periodic reviews and they might have reduced my credit anyway. Or maybe not.

In any case, the incident served as another warning about how not only banks but credit card companies are cutting down on the funds available to consumers today. Is this a good way to stimulate the economy by making it harder for people to have funds to make purchases, start businesses, or make investments, which is what is needed to provide that stimulus? I don’t think so.

So just be warned. You may think you have a certain amount of credit available to you. But it may turn out to be less than you think.

How the Sub-Prime Crisis Changed the Credit Card Game

Before the so-called “subprime loan crisis,” credit was easy and the percentage of loss in bank’s credit card divisions was compensated for by increases in market share. With banks taking multi-billion dollar losses as a result of fallout from that crisis, this is no longer the case. Instead, banks are doing everything they can to squeeze every ounce of profit and prevent taking on any additional risk in their credit card divisions. In other words, if you think credit card companies were sneaky before, you ain’t seen nothing yet.

This has resulted in several significant changes in offers for credit, particularly in offers for promotional credit rates on credit cards. The first of these changes is that most banks have significantly increased their up front balance transfer fees on promotional rate offers.

Prior to the crisis, it was not uncommon to see balance transfer offers with no up front fee. More commonly, the fee would be 3% with a maximum of $75 or $99. Now, not only is there usually no maximum on that 3% fee, but some banks have started to charge a 5% up front balance transfer fee with no maximum, resulting in actual interest rates almost as high as regular rates on credit cards!

The second change is that before the crisis, it would be common for accounts in good standing to offer 0%-2% interest promotional rate offers, including low interest “life of the loan” offers. The strategy of the credit card companies was to increase market share of debt, knowing that a certain percentage of borrowers would forget their promotional rate was ending, and therefore start paying regular interest for at least a month or two, or maybe more. Now, it is all but unheard of for people to get 0% offers on existing credit card accounts, and “life of the loan” offers, while still being offered are often at rates above those offered for home lines of credit.

It still is common for people to get 0% offers for opening new accounts, but frequently these offers are deceptive, because the balance transfer fee is – you guessed it – 3% up front with no maximum.

One strategy some have found effective is to cancel unused credit card accounts, and then apply for new ones. While it can get you better offers, it might also affect your credit rating, so beware if you are looking to buy a house, refinance, or finance a large item.

The third significant change is that credit card companies are doing their best to unhinge low interest “life of the loan” deals they made in the past. This is how they do it: Let’s say you owe $10,000 on a 1.9% promotional rate for the life of the loan. You will almost certainly be inundated by offers on that account for 0% interest loans for a short period of time, say three to six months.

The reason for this is sneaky, cleaver, and obvious. The bank hopes that you will take advantage on that 0% loan, and not pay it off before its due date. If you do pay it off completely before the revert rate, fine. If you fail to pay it off before the rate reverts to the regular rate of the card, you will find yourself in a classic credit card company trap: Because credit card accounts allocate all payments to pay lower interest balances before higher interest ones, all your payments above actual finance charges will go to pay off that low “life of the loan” 1.9% balance, leaving your regular rate balance earning high interest, perhaps as much as 18% or more for the credit card company.

In order to pay off that new balance costing you 18%, you would have to pay off the entire 1.9% balance in full. As I said, its one of the classic credit card company dirty tricks.

Frequently, banks make these offers not only with 0% interest, but without any balance transfer fees whatever. While these kinds of offers can be utilized effectively – if you know what you are doing and know how to plan effectively – one mistake, one lapse of attention that results in your not paying the complete balance of the 0% loan before it reverts will trap your balance at the high regular interest rate of the card until you pay off the low interest life of the loan balance.

In summary, read all promotional offers carefully, and do the math to make sure you really want it before taking advantage of it. And before doing any really tricky maneuvers, plan it out carefully – hopefully as a result of a long term strategy – before opening yourself to be slammed by yet another credit card company dirty trick.

Debt Solutions – How the Federal Government is Promoting Credit Card Help

Taking loans or any other form of debt is not a new thing. People all around the world have been taking financial liabilities to cover the expenses which they cannot cover with their earnings. Other than that people also use credit cards to have an alternate payment mode. Some people also do not prefer carrying cash and prefer carrying cards.

Recession as a issue has created problems in every part of the world. Most of these problems are related to monetary issues and have affected the earnings of the working class. Along with people doing regular jobs, small scaled traders and entrepreneurs have also have to battle financial complications.

In the United States, people have lost their jobs and companies have reached the stage of shut down. A large percentage of people have lost their jobs and have a large credit bill which they owe the bank. The situation is even more complicated as banks are facing sever financial crisis.

This is because of the credit process which they have. Money granting companies pay a large sum of their cash funds to loan takers. As more and more cash is spent in a liable form, the amount of charged interest increases and the bank earns more. During recession as well, the same strategy was used.

As a result of economic problems, a lot of people had lost their jobs and thus were weakened in monetary terms. This is not the only reason for being a defaulter and people do not manage their credit expenses and land up in a long liability. Debt Solutions were introduced by the United States to create coordination between the loan giving bodies and borrowers.

Now, let’s understand how debt solutions work. The initiation of the process is done by the loan takers. They search for a relief company to get them a reduction settlement. The first step in the procedure is to get a dependable settlement company. The relief firm is the key role player in the entire negotiation process.

Most of the hard work is done by the relief company which prepares all the parameters which have to be discussed. A lot of people have been fooled while selecting the relief company. This is because a lot of them do not have the technical knowledge to test the organization in the right manner.

Commonly, people just check whether the company is offering the required services or not. They do not even ensure whether the firm is legitimate or not. Haste is a very negative factor while searching for reliable debt solutions.