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How To Avoid Credit Card Cancellation

Posted by on May 28, 2011 No comments

Some people like to have their credit card available for emergencies — either at home or while traveling abroad. Be careful: that card might not be available to you, just when you need it the most. This article explores the various reasons why your charge card could be canceled on you, along with some tips to help avoid having your own credit card account canceled — possibly without notice.

I speak from experience: while traveling in Australia, I found out — the hard way, in the throes of an emergency — that my credit card had been canceled without notice, months prior.

I’m still here to tell the story though, so my emergency was not life-threatening. But I can’t possibly express the various shades of red I saw when I found out what had happened, and spent countless hours and days on overseas phone calls trying — unsuccessfully — to reinstate the card and rectify the situation.

True Horror Stories

A woman is vacationing in Europe when she discovers that her reward miles charge card is on the fritz. She is stranded and spends hundreds of dollars in cell phone calls to the charge card company and the banks, trying to get out of this bind. There is no retribution granted from the charge card account company who had canceled her card outright. To make matters worse, she loses out on the free companion ticket she had just earned with her rewards.

How about the person who finds that the gas pump won’t take their card? Nothing is amiss: they are in their home town, use their card regularly and responsibly, and maintain an excellent credit score too. But their charge card account is also canceled, without notice. The reason cited? “Something” on their credit report was amiss. However with a spotless credit record, the real suspected reason is that their account wasn’t profitable enough for the credit card account company to keep them on board.

What Gives? Reasons Charge Card Account Companies Will Cancel Cards

With the ability to change the terms and conditions at any time, credit card companies can cut loose card holders who aren’t making them cash, especially the ones who pose additional risk or are a financial drain to the company. And when times get tough financially, charge card companies tighten their belts along with everybody else. Here are some specific reasons why the credit card account company could cancel your charge card account.

Non-Use

This is the most prevalent of reasons why your card will be canceled, and also the most avoidable. Charge something to the card every few months (even something very small), pay it off right away, and you can largely avoid this pitfall.

Don’t settle for a phone call to the charge card account company. I had a special note put in my file that I was abroad and would only use the card rarely, in an emergency. The customer service rep I spoke to said that would not be a problem. Two months later, the card was canceled. My suspicion was that my card got canceled by an automated system and not a human being, so the preemptive phone calls and special notes in the file were worthless.

Your Credit Score Dropped

If your credit score has taken a hit, your credit card account account could be flagged.

Your Debt Increased

If you just took on a large amount of debt such that your credit utilization ratio is teetering, the charge card account company can make sure you don’t get in over your head — by canceling your card and eliminating the chance. (Ironically, this further increases your credit utilization ratio.)

Your Credit Increased

If you just applied for a line of credit or other credit vehicle that increases the overall credit available to you beyond a threshold that the credit company is comfortable with (regardless of whether you actually use that credit), they’ll take themselves out of your equation.

Market Conditions

Anything from house values dropping, to unemployment rising can affect your ability to hang on to that credit card.

Anything Else

Charge card companies like to keep their game faces on, and won’t always reveal the true reason why they are canceling your charge card account. That’s probably how our friend above had their card canceled due to “something” on the credit report, despite their spotless credit record. Ultimately, it boils down to their bottom line. Hey — that’s business. Let’s face it: owning a charge card account is a privilege, not a right.

Your Rights

Credit card account companies are required to give you 45 days notice for making significant material changes to the terms — such as a change in interest rates.

However, canceling cards isn’t actually considered a significant material change, and cancellation without notice is still allowed.

How it affects your Credit Score

More than an inconvenience, the cancellation of your charge card can negatively impact your credit score in a few ways.

Increase in Credit Utilization Ratio

If your credit card is canceled and you are carrying debt elsewhere, then that debt becomes a larger percentage of the overall credit available to you, thus increasing your credit utilization ratio. This decreases your credit score.

Decrease in Credit Longevity

Longevity of your credit vehicles is important; 15% of your credit score is attributed to longevity. If you have a charge card account that is 10 years old and others that are only a few years old, the cancelation of your 10 year old card will have a more detrimental effect on your credit score than the cancelation of one of the newer ones.

How to Prevent Cancelation

Once your charge card account is canceled, talking your way into having it re-activated requires a minor miracle. So knowing what we’re up against, here are a few preventative measures you can take to increase the chances that you aren’t stranded at the gas pump (or in a distant land), idle plastic in hand.

Use it or Lose it

Avoid cancelation due to inactivity by using the card every couple of months. The size of the purchase is irrelevant, and you can pay it off immediately too.

Pay Attention to Ratios

Maintaining a credit utilization ratio below 25% will keep your credit score high.

Focus on Longevity

If you have multiple charge card accounts, pay special attention to the ones you have had for a long time. Losing them will be the most detrimental to your credit score.

Please note that you can do everything right and still end up a victim of credit card cancelation. But hopefully these preventative measures will keep you out of the spotlight and off the top of their cancelation list.

What to do if your Credit Card is Canceled

If the deed has already been done and you’re looking for retribution, here are a few things you can do.

Check Your Credit Report

Order a copy of your credit report from one of the big three credit bureaus (Equifax, TransUnion, and Experian). You are entitled to one free report from each of the bureaus every year. You can also use a free service like Credit Karma. Make sure there aren’t any incorrect postings in there that have affected your credit score through no fault of your own.

Call Them

Nothing is lost (save for some time and possibly a chunk of your patience) by trying to call the charge card company. Who knows — they might take a look at your account and decide you’re worth keeping after all. You never know what you can get unless you ask. (A word of advice: be polite and friendly, and ask for the manager if you aren’t getting anywhere).

I’ve typically used one credit card account for all my expenses, keeping a second card in reserve for emergencies or when my regular card isn’t accepted. (When living abroad, charge cards aren’t infallible to dodgy local systems or tricky time zone glitches.)

But just because I’ve fallen victim to having a card canceled without notice (leaving me in the lurch no less), I’m not going to eschew the conveniences and benefits of charge card accounts that I’ve become accustomed to. To do so would be to shoot my own foot based on principle and anger, and I’m not into self-mutilation. Instead, I’ll make sure to use my backup card regularly and continue to pay the balance off each month. I’ll pay closer attention to the rules and fees, and be sure to stay on the same game page as the credit card companies from now on.

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Dealing With Charge Card Account Debt After The Holidays

Posted by on May 28, 2011 No comments

Here we are about a month after Christmas, and the first charge card account bills from the holiday season are starting to arrive. Many consumers are experiencing a little sticker shock at the extent of their overspending. According to Consumer Reports, shopping with charge cards during the holidays often leads to overspending by an average of 16%. This is part of the reason that the same Consumer Reports survey revealed that 13.6 million Americans were still paying off holiday purchases from 2009 in November of 2010.

The cost of charge card account debt is often a hidden expense, particularly for consumers who are juggling multiple charge card accounts. It is easy to overlook the total interest expenses when they are spread across three, five, or even seven credit card accounts.

But credit card interest expenses add up quickly. Having an average monthly balance of $3,000 may not seem like much, but at a 15% APR, it can cost you $450 a year.

Now is the time to assess the situation and make a plan to pay off the debt.

3 to 24 Months: Transfer Your Balance

If you know you can’t realistically do it in two or three months, seek out a credit card that offers a 0% balance transfer. With a balance transfer, you pay a small transaction fee, typically 3%, to move your high-interest debt to a card that charges no interest for anywhere from 12 to 24 months.

During this time of no-interest repayments, all payments you send to the charge card will reduce your debt directly. This will help you pay off the holiday debt faster than sending a minimum payment each month and paying interest all year long.

Balance transfers are a good option for consumers with good credit, but these offers should be used with caution. Refrain from running up new debt when you transfer the balance to a new card — and focus on paying down what you already owe.

The best way to deal with credit card debt after the holidays is not to have any. Many consumers find themselves digging for a credit card during the holidays. However, the consumers that come out ahead are the ones that only spend what they know they can pay off by the end of the month! Remember improper use of credit cards can lead to severe financial hardships including bankruptcy so it is important to use credit cards responsibly even during the holidays!

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A Few Tips To Help Consumers Get The Most From Credit Cards

Posted by on May 28, 2011 No comments

No amount of credit card reform is going to help if you don’t spend the time to make your credit card accounts benefit you. As with many things, credit card accounts can be wonderful if you are disciplined, but they can also backfire and create a huge financial hole for you to dig out of. (If the latter is more likely for you, may I suggest measures such as freezing your charge card?) Here are six ideas for how to benefit from your credit card.

1. Eliminate Annual Fees

You likely looked into this before you applied to your current card of choice, but is your charge card account still free to own? Many institutions started charging annual fees, and there’s a chance that yours does now as well. With companies likely adding the annual fee as a line item on one of your monthly bills, it may go unnoticed — so double check to make sure. (See also: Credit Card Fees: Hidden and Otherwise)

2. Pay Your Balances Off Each Month

I contemplated whether to put this one in, because it’s obvious. But it’s so important that everyone needs to hear this again and again. Don’t use a charge card unless you can pay it off each month. Got it? Now go read it again, and follow the rules.

If you don’t believe that it’s possible to live without borrowing, just remember that consumers were fine before the invention of debt! If you can’t afford it, just don’t buy it. (See also: How Much Does Your Charge Card Debt Cost You)

3. Stick With Cash-Back Rewards

There are zillion different ways to redeem your charge card rewards, but it’s probably best to stick with getting cash (or perhaps a statement credit) unless you were going to need to use it anyway. For example, getting a free airline ticket is good if you were going to buy the exact same ticket for the exact same price, but getting a $50 gift card and ending up buying $73.28 worth of useless junk is not worth it.

4. Know All the Benefits You Are Getting

It’s always a good idea to know every benefit that your card is providing. In addition to reward points, some cards get you into airport lounges, while others will double the warranty of a product. By knowing all the benefits, you won’t be paying extra for something that you can get for free. For example, one of my charge card accounts provides rental car insurance.

5. Write Down Why You Applied for the Card in the First Place

A good way to remember all those benefits is to actually write them down in simplified form somewhere, so you can look at it once in a while to refresh your memory. I know it is a bit of work, but I applied for one of my cards eight years ago. Would you remember all the details from eight years ago? Or let’s say you applied for a 0% balance transfer credit card. Now that the introductory 0% interest rate period is over, do you still need to keep it?

6. Use Charge Card Accounts Whenever Possible

This is only for those who can pay off the balance of course, but remember to use your credit card every chance you get! I know there are many people who like to make fun of those who use charge card accounts for the smallest purchases, but did you know that it is actually easier (and faster) for both the buyer AND the seller when small purchases are paid using a charge card account? When you don’t even need to sign for a purchase at some of these stores, using a charge card account is a no-brainer.

There are many more ways you can save with a charge card, but if your credit card isn’t working for you yet, start with the tips up above.

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Saving Cash With Charge Cards

Posted by on May 28, 2011 No comments

The most credit savvy among us have been able to use credit cards to their benefit in order to wisely and optimally save cash even while charging on their cards. If you are careful about how you use your credit cards, you may actually come out ahead by using them, rather than if you just stuck to cash. I’ve written about the perks of using cards before and why I prefer charge cards over cash, but this time, I’d like to share some actual strategies we can use to get the most out of our charge cards.

10 Tricks To Save Money Through Prudent Charge Card Use

1. Consolidate your credit card account debt with care.

Many consumers use a common strategy to trim what they owe on their cards: they use balance transfer charge cards, which offer 0% or low interest rate on the balance that is moved over, but for a limited introductory period. Make sure you perform a cost benefit analysis before executing this plan since most cards these days have a balance transfer fee (typically around 3% of your debt) that you’ll need to pay when you do the switch. You should also assess if you’ll be able to pay off your debt entirely before the promotional 0% rate period is up, in order to avoid any increases in the card rate. If you can’t make this work, it may still be worth doing a balance transfer if the new card carries a much lower APR than your old one.

2. Use rewards cards only if you can pay your balance in full.

I’m a huge fan of charge card account rewards. But to offset the rewards that they pay out, rewards cards tend to have higher annual percentage rates than regular charge card accounts. For instance, it would only make sense to earn American Express rewards if you intend to pay your balance in full each month, no fail.  If you can’t commit to such a schedule, then it’s better to apply for lower interest cards. 

3. Be careful about participating in credit card account arbitrage schemes.

Because of today’s more restrictive credit environment, it’s now tougher for shrewd cardmembers to execute any cash making schemes using charge cards. In the past, it was fairly easy to make cash with cards by taking borrowed funds and funneling them into a high interest savings account that sported an attractive yield. With savings accounts no longer yielding such great returns and balance transfer cards with awesome terms now dwindling in number, this strategy is no longer as lucrative as it once was. There are still consumers who play this game though, but it’s a game that requires top notch organizational skills since any misstep (say a forgotten or late payment) can cost you much more than you’d earn in this plan.

4. Pay more than the minimum and pay on time!

By simply practicing good payment habits, you’ll avoid exorbitant finance charges and penalties levied upon your account. It’s best to pay off any monthly balance in full, but if you can’t swing it, then paying more than the minimum will save you quite a bit in interest over the long term. There are also certain credit cards that will reward you for this type of good behavior (check out my Citi Forward charge card review for more details).

5. Do your research before applying for a card.

Compare charge card account offers before signing up for anything. Have you read the terms carefully? Based on your shopping habits, you’ll find that there are certain charge card accounts that will suit your spending patterns better than others.

6. Don’t own too many cards.

I’d avoid collecting rewards cards simply because owning too many may prevent you from optimizing your rewards on any one card. Also, having too many cards may just encourage you to charge more than you should and to overuse your credit.

7. Avoid relying on credit card accounts to cover an emergency.

Some consumers I know don’t have emergency funds and end up relying on their collection of credit cards to bail them out whenever the need arises. However, with no savings, you’re likely going to keep a balance on your credit card as soon as you use it for any unexpected expenses — and keeping a balance means paying extra in interest. So keep in mind that while depending on your cards as backup is quite tempting to do, it will certainly be expensive in the long run if you charge up a storm. 

8. Carry a spare credit card account.

Here’s a great compromise: if you are interested in taking advantage of rewards, you can still own a rewards card but use it only for those items that you’ll be able to pay off completely each month. You may want to consider applying for a second card which should be of the low interest kind; this is the card that you can afford to own with a balance given its lower rates.

9. Talk to your card issuer about lowering your rate.

If you’ve got a good history as a cardmember, you may have some leverage here. When you’ve been a customer for a while, give your card company a call to discuss the possibility of cutting you a break on the rates. They’re more amenable to this type of request than you think since card companies would love to hold on to their good clients.

10. Don’t use your card for cash advances.

Avoid using any free checks that come your way that draw from your charge card account account. And try not to use your card for any form of cash advance — it’s not worth what you’ll pay for the convenience.

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Banks And Home Loan Stress

Posted by on May 27, 2011 No comments

Many Australians are suffering from the cost of living pressures and the high interest rates putting them in danger of possible home loan difficulties. Australians’ pocket books are feeling a little lighter due to the increasing petrol and utility prices. Couple that with the natural disaster of the floods and the increase in interest rates and it is a struggle for Australians to keep up with their bills. Although the floods have contributed to financial distress, the evidence of this started before the floods.

During the time frame from October 2009 to November 2010, the Reserve Bank raised rates by 25 basis points seven times. This has put a strain on households who are already dealing with increasing costs for household essentials.

Lending growth is probably going to decrease in the near future even though the Australia and New Zealand Bank (“ANZ”) saw a 38% hike in profits. Home loans were in arrears in the amount of 41%, which constituted a $5.8 billion of loans that were 30 days delinquent. The bank reported also listed that $2 billion in loans that were 90 days overdue which was an increase of 26 percent. Domestic mortgages were the basic cause of these losses for the bank.

The looming interest rate increases by Australia’s central bank cause concern for the economy. The economy currently seems to be stuck on a plateau. Businesses have become more conservative, chosing not to reinvest in Australia’s economy and deciding to save any reserves that they have. With the flat economy, we are also seeing that consumers are spending as much. They are chosing to stay away from large purchases and saving funds or having to spend extra cash on the higher utility rates that we are currently facing.

With lending growth for homeowners slowing down, the Australian banks will see more difficulties with profit growth.

The banks realize that the mortgage arrearages stem from the higher interest rates and the rising utility costs. The high levels of arrearages are ones that have not been seen in Australia for qutie some time. The banks have expressed concerns over the arrearage but seem to think this conforms with the state of the economy. And even home loans comparison did not helped in the first step as much.

ANZ currently has a $165 billion mortgage book. Bank officials feel that this amount is realistic, giving the current economic condition with regard to the higher interest rates and hope that home owners can manage to keep the pressure of household expenses to a minimum.

There is concern regarding the national housing market but some believe that the bubble is non-existent at the moment because the declines in the capital cities seem to be in line with the current market.

Westpac Bank showed a more significant impact with 35 percent of mortgage payments that were overdue by 90 days. That estimates a 1.46 billion deficit in payments for Westpac since last September. It showed a good impact through compare home loans as well.

Anticipation for the crumbling of household credit is very prevalent. The constraints on households with the increasing utility rates and rising interests rates will most likely created a decrease in the price of homes for sale. Homeowners offering their homes for sale will probably not be offered as much as they anticipated therefore creating a buyers market. The buyers market, although may not increase greatly, due to the banks not offering home loans as readily and the rising interest rates. The big banks will witness the effect of this trend in regards to profit margins.

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Reduce Your Credit Limit To Avoid Overspending

Posted by on May 27, 2011 No comments

How much credit do you have? By this, I mean how much available credit could you go out and spend today if you really wanted to max all your credit card accounts to the hilt?

I’m actually surprised by the gradual increase in my credit limits, and by just how high some of them have gone. I try to spend no more than a few hundred on my charge cards at any time, and always make it a habit to wipe out my balances on a monthly basis. Still, my credit limits are maintained at around $6,000 per card. So what’s the concern? Well, with terms improving for many top credit card account rewards programs, it’s not surprising how tempting it has become to start piling on the credit…or worse, the debt.

All this makes me reflect on the importance of being comfortable with the amount of credit I have. Now if you have charge card accounts yourself, take a look at them now and review the credit limits you have on them. If you have more than one card in your possession, you could very well find that you have credit lines worth five figures at your disposal. And if you are tempted to spend more than you can afford, then you could end up accumulating credit card account debt over time and struggling with financial problems.

One simple way to avoid debt is to remove the temptation. You don’t need to cut up and cancel all your charge card accounts. But you can ask your credit card issuers to lower your credit limits.

A lot of card companies bump up the credit limit on your card without even asking whether you want this to happen. To my chagrin, I’ve had this happen on several occasions. But if you’ve got any issues with this, you can always just call your charge card company to discuss the possibility of lowering your credit limit.

This is one thing that a lot of consumers fail to remember when using their credit cards — that they can easily run into debt problems by allowing themselves to accept higher credit limits. Without imposing some set boundaries on our spending, it becomes way too easy for spending to lead to bigger balances over time. Charge card companies are very much aware of how human psychology plays into our spending behavior. As it is, we don’t all have the same levels of discipline to keep our spending patterns in check, so it’s wise to implement debt and credit management strategies that enforce actual limits to the things we do.

If you’re facing higher credit limits, take the responsible approach and call up your credit card company and ask them to lower it to a limit that fits your budgeting and spending plans. If you know you’ll only need $1,000 as a credit cushion instead of $6,000, then ask for it. You’re the customer and if they won’t address your concerns, then you can threaten to go elsewhere. In fact, it’s something I’d probably just go ahead and do if I find that my card issuer shows that much disregard for their customers’ requests. And when all is said and done, I feel better knowing that I’m taking steps to keep my credit use under control.

More Ways to Keep Credit Use Under Control

So what are some more steps that you can take to get a handle on your debt and to avoid falling into a tough financial bind? Remember that it’s easier to manage issues like this before they spin out of your control:

1. If you’ve got debt, stop using your cards or applying for additional credit until you’re comfortable with your situation.
2. Stop spending and go on a budget. If need be, use budgeting software to give yourself some spending limits. Simply learn how to say NO to yourself.
3. Check your credit situation by reviewing your credit scores and reports on a regular basis. Check AnnualCreditReport.com for free credit reports every year, and credit score products like myFICO, which can help monitor your credit information for a fee.

Most of us have made some credit-related mistakes at one time or another.& You may already have run into problems with paying back what you owe. While there is a lot of credit advice out there that can help you if you are in this situation now, it’s probably best if you first gauge and assess how your finances currently stand before you do anything else.

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