“Would you like to purchase an extended warranty, service protection plan or product replacement plan?”

And your answer to this question should always be the same: “Heck no!”

Retailers make big bucks off of extended warranties for several reasons. Most of all, it’s fear playing into their hands.

“For only $50 extra dollars, your product will be covered for any manufacturer defects for an additional one year.”

Standing at the front of the line at checkout with thirty-two impatient holiday shoppers, it can be hard to crunch the numbers, and most of us err on the side of caution. The question comes down to “Should I forfeit $50 dollars now and potentially save $200 when the thing craps out in four years or should I save my $50 and be out $200 if it turns out to be a piece of junk?”

But the fact of the matter is that if the computer, air conditioner or other electronic gizmo you are buying is a lemon, it’s likely going to eat it long before the manufacturer’s warranty (which is included free with your purchase and covers one to three years) runs out. In truth, you’re far more likely to get tired of your gadget, drop it in a puddle or be ready for an upgrade by the time your extended warranty kicks in – and none of those are covered by the retailer’s plan. At the end of the day, most people never exercise their extended warranty, making it pure profit for the retailer.

The probability that the extended warranty will be moot by the time it matters is one compelling reason to tell the clerk to take his service plan and shove it. But a better reason is that your credit card likely already entitles you to an extended warranty – for free.

Visa, Mastercard and American Express all offer free extended warranties on credit card purchases for most accounts. It’s absolutely free and will typically extend the warranty on your laptop, plasma TV or margarita blender for an extra year for plans that are three years or less. But there’s lots of paperwork involved.

Most of these services work roughly the same – but here’s the process from start to finish for Visa’s Warranty Manager, which is offered to Chase Freedom Visa cardholders.

Step One – Buy the Product with your Visa

After ringing up your purchase, make sure you get a copy of your receipt and the credit card slip that you sign. You may have to ask for it – especially since a lot of places (Best Buy, for example) use those Magnadoodle-esque digital signature pads. Other times, the signature will conveniently show up on your receipt. It’s important that you have a document showing the item purchased and the last four digits of your account number. You can also include your monthly statement with the purchase highlighted.

Step Two – Sign up for Visa Warranty Manager Service

Go to Visa’s Warranty Manager Service page and register your card. It’ll take you offsite to do this and you’ll be asked to enter your credit card number – but don’t worry. This is just to verify that your credit card carries the service. You won’t be charged.

Follow the on-screen instructions and you’re account will be all setup.

Step Three – Register Your Product

Once you’re logged in, you’ll see a link to “Register a Product” on the left hand side. Click it.

You’ll be asked to enter the type of item purchased, manufacturer, serial number, date of purchase and price of purchase (not including tax).

After you submit that information, they’ll mail you a PDF of the form that you have to verify, print out and mail through USPS to “Enhancement Services” out in Montana (?). Along with this form you have to include your receipt, the signed credit authorization slip and a copy of the manufacturer’s warranty. You can find the manufacturer’s warranty information included in the box somewhere – usually labeled as “coverage plan” or “warranty card.” This, they say, will “expedite” the process when you file a claim.

Step Four – File a Claim

When your product fails, you have 60 days to file a claim. You can do so at the Warranty Manager Service page by clicking “file a claim.” Once you file your claim, you’ll be assigned a claim number.

Most of the required documentation will already be on file from when you registered the product. Occasionally, the claims department will ask you to provide a repair estimate. You can get this by calling a “local authorized service center” – if you’re not sure what qualifies, call 1-800-882-8057 for a referral.

Step Five – Get it Fixed or Replaced

Your claim will be approved or denied within five business days. After that, you can:

• Mail your product in to have it fixed or replaced
• Have it repaired at an authorized service center and be reimbursed
• Purchase a replacement and be reimbursed

For the latter two routes, it’s important that you meet the program requirements – you may wish to verify the stipulations on the phone before going ahead with a purchase or repair. If approved, you’ll be mailed a check to reimburse you within five to seven days. The reimbursement cannot exceed the original purchase price.

And that’s it. You’ll likely never have to use this, since most manufacturer’s warranties are sufficient for the lifetime of a purchase.  But if nothing else, the free extended warranty offered by your credit card issuer should be one additional reason why you should never buy a retailer’s extended protection plan.

Have you ever filed a claim through your credit card’s extended warranty service? Tell us about your experience in the comments.

Related posts:

1. Readydebit Prepaid Visa Card Review
2. Trick or Treat?: Bank of America Rolls out Basic Visa Just in Time for Halloween
3. You’ve Got Service Charges! What to Do When Free Stops Being Free

Of course, all the historical basics are much the same– the boat still sinks and the steerage still gets locked below the deck as the water rises (women and children and the wealthy first, apparently) – but the biggest contrast is the scope of the drama. In James Cameron’s bodice ripper version, the camera homes in on a story of singular love and the tragedy is in the fleeting romance ended by unthinkable disaster. It is a story of heroic, selfish love.

But in the 1958 film, the heroes are the officers of the White Star Line, who, in spite of certain death, keep cool heads and dutifully and selflessly work diligently to save as many lives as possible.

The officers do an admirable job of keeping the panic in check. The gentleman calmly move about the ship, relating the captains orders to place the women and children in the lifeboats “as a mere formality. Meanwhile, the outwardly unshaken men wryly comment to one another, “I take it you and I might be in the same boat later?”

Even after the captain declares “every man for himself!” and widespread panic sets in, the officers continue to implore the crowd, “Don’t panic! Have some pride in yourselves! If we can get organized, we’ll survive.”

The hero in the 1958 film is the courageous, honor-bound staff of the White Star Line, not an uppity, handsome churl who wins the heart of an icy, high-bred maiden. Likewise, the villain is not a spoiled, jilted lover he’s a man who shamelessly sneaks onto a lifeboat, abandoning hundreds of women, children and his dignity on the sinking ship. This message is clear, as the camera frames his guilt-racked visage as the ship slips into the ocean in the background.

The Sinking Ship, The Grand Applause

Okay, so what does this have to do with credit cards? Nothing, really. It has more to do with the attitudes we take towards our occupations. As Hollywood reframes our historical tragedies – Pearl Harbor, Titanic – we make them interesting to modern audiences by making them very personal stories, where love and loyalties between individuals are more important than the suffering of society as a whole. It’s no stretch to compare the current state of our economy and the financial industry to a sinking ship. And who is at the helm of the consumer finance industry? Who are the White Star Line officers to the dire situation that is the credit industry?

As far as we’ve seen in America, there are none. From the outset, it has been “every man for himself!” In fact, even after the CARD Act was made law, one hundred percent of credit cards offered online by leading bank card issuers continue to include practices that will be outlawed once the Act takes effect next year.  (Pewtrusts.org) That shows that the lenders, the bankers, the credit card issuers will do anything that they can get away with to turn a buck, simply because that’s the American way of doing business. When the government clamped down on rampant unfair lending practices, the industry responded by ratcheting up interest rates an average of 20 percent while they still could, again, according to Pew Health Group.

Where is the dignity? Where is the concern for the fellow man, woman and child? How come the lifeboats are filled with the ones who steered us into this iceberg, while the steerage is left locked beneath the deck and the engine room workers are vainly attempting to bail themselves out?

Codes of Ethics

As we all know, when doctors graduate from medical school they traditionally take what is called the Hippocratic Oath. In a nutshell, it says that the doctor will be true to his practice, he will serve the sick before himself. Essentially, the individual says that he (or she) is a doctor before they are a human being with their own selfish wants, anxieties, political biases and families.

The Hippocratic Oath differs from the volumes of medical laws and legislation that protect us from medical malpractice and incompetence in that it is a code of ethics and is not regulated by the government. Depending on your ideals, those following a code of ethics answer to a higher power than the government. Like most industries, there is a heavy amount of self-regulation as far as professional ethics goes. But as we’ve seen from the recent failures in oversight by the SEC and the NASD (Hello, Madoff and Stanford)  it doesn’t always work to let criminals police themselves. But by failing to have a code of ethics, you send a tacit message to those in the industry: “Do whatever you can get away with. If the government doesn’t catch you, it’s fair game.”

Credit card and consumer finance legislation has received much coverage in the press and blogosphere. But what’s conspicuously absent from the conversation is the question of ethics. Where is the code of ethics among banks and lenders? Why didn’t somebody step in before the subprime crisis and say, “Look, this is going to hurt everyone in the long run. This isn’t right.” Who, within the industry, is denouncing the payday loans and refinancing and loan modification scams – which are baldly targeted at those who are already on the ropes, financially – being advertised on the television?

Where is the Hippocratic Oath equivalent for the credit card and consumer finance industry?

I bring this up now because, in the U.K., they’ve rolled out just that. While Americans are looking to Washington to deliver them from usurers, British banks and lenders have come together to enforce what they call The Lending Code. The Code is meant to protect consumers, “micro-enterprises” (i.e. small businesses) and charities from unfair finance practices associated with overdrafts, credit cards, charge cards and personal and small business loans. This is, however, a voluntary code of practice, and is overseen by an independent organization known as The Lending Standards Boards. Here is how they describe what they do:

The Lending Code covers good practice in relation to loans, credit cards and current account overdrafts. It does not apply to non-business borrowing secured on land or to sales finance.  The Code contains key commitments and detailed notes on how customers should be dealt with through the whole product life cycle, from marketing and account opening, maintenance and the provision of information on changes to term, conditions and interest rates. Important protection is also included to help when something goes wrong, including when someone is experiencing financial difficulties.

The code is sponsored by the British Bankers’ Association, The Building Societies Association and the U.K. Cards Association and it is, in every sense, self-regulation. How effective it is in actually serving consumers remains to be seen – but the mere acknowledgment that the industry needs to be watching out for the best interests of the consumer is a giant step beyond anything that the U.S. financial industry has done.

In the end, it boils down to this: You can legislate all you want. You can write laws and tie things up in red tape and deliver occasional regulatory slaps to the wrist. But as long as there are laws, there will be loopholes. And as long as there is money to be made, corporations and mammoth financial institutions will find ways to weave their profiteering through those loopholes. Laws are good, of course. But what the lending industry needs now is ethics. Because honor has no loophole.

Photo by vsmoothe.

Related posts:

1. Money and Ethics: Do They Mix?
2. The Lending Game: Part 1
3. Get Low Rate Loans From Your Peers with Lending Club

• Sign up is extremely quick and easy – my loan was live and open for funding in less than an hour.
• The community is very sharp – I fielded two very polite questions about my loan
• The staff at LendingClub is responsive and helpful
• Interest rates as low as 7.89% (though mine was 13.72%, probably on account of my crappy income)
• On-time payments are recorded as positive items on your credit report

Interest in learning more? You can sign up for LendingClub now or read about my experience below.

Sign up Process

LendingClub’s initial sign up is streamlined to get you up and running fast. At first, this seemed a bit fishy to me – the first form doesn’t ask for any personal information, just how much you want to borrow and your “estimate” of your credit score. Then they ask you to fill in your employment information. From this, they determine your rate and loan terms.

At first blush, this seemed rife for a “liar’s loan” situation, but LendingClub does state that they may verify employment status. Being self-employed, this didn’t really apply to me. They also will pull your credit report once you apply for the loan, but as one of LendingClub’s employees explained to me on the phone, this is a soft pull. Afterward, they do a monthly soft pull on your account, similar to the monitoring that your credit card issuer will do. Lenders (actually, they are technically “investors” at LendingClub) can see information derived from your credit report, including your debt-to-income ratio, your credit score range and your revolving debt balance, but they do not have access to your credit report.

Fees and Payments

Before you receive your money, LendingClub takes a cut via a non-refundable origination fee. Purusant to Truth in Lending requirements, all the fees and finance charges are broken down for you. In my case, I paid $32.50 in origination fees for my 13.72% APR loan. If I don’t prepay the loan, I’ll pay $219.42 total in finance charges.

My monthly payment is $32.97 and this is payable by ACH deposit. During signup, you link a banking account to LendingClub which is verified the same way PayPal does (by depositing a small amount and asking you to verify the amount deposited). You can make your payments by check, but there is a $15 charge for check processing.

Funding Your Loan

When you post your loan, you are given a little bit of space to explain your situation and what you intend to use the money for. Investors aren’t allowed to know your identity or vice versa, but they can ask you questions. I received two queries, one asking to describe my employment situation further and another asking me if I had considered paying down some of my revolving debt with my loan. The latter suggestion was pleasantly surprising – of course, he wanted to ensure that I’d have the money to pay him back in 3 years, but in a way, he was also looking out for my best interests (something you don’t often see from big banks).

Anyway, after explaining that my revolving debt is just my monthly credit card bill that I pay off every month in full, my loan was quickly funded in full. (On that note, I recommend waiting until you’ve paid down most of your revolving debt before applying for a loan at Lending Club). In the end, I got 10 different investors to fund my loan.

After my loan was funded, I received a call from LendingClub to verify my identity before they disbursed the funds to my bank account. The drill was the exact same stuff they do when verifying your identity when you sign up to get a free credit report – he just asked me about items from my credit report, including my past addresses and the balances on my credit cards. I couldn’t recall the balance on my credit cards, but after telling him information about my student loans, he was satisfied.

Summary

All in all, I would recommend LendingClub. The amount of my loan was admittedly very low and my credit score is fairly decent, but I received funding surprisingly quickly. One perk that LendingClub highlights – paying off loans successfully at LendingClub will increase your credit score. Because of that, it’s a good place for people with bad credit to get some positive items on their report.

I intend to keep the loan just to see how things go and then pay it off in full in 6 months, at which time I’ll likely post an update on my experiences of the entire process.

Sign up for LendingClub and tell us about your experience in the comments.

Related posts:

1. The Lending Game: Part 2
2. The Lending Game: Part 1
3. Nominal Interest Rate v. Effective Interest Rate

H.R.627 – Credit CARD Act of 2009

This bill (now law) has been talked about heavily in the media and the blogosphere. But have you ever taken a first hand look at what’s inside? This bill was spearheaded by Rep. Carolyn Maloney of New York (D), who is also sponsoring a bill to reform overdraft protection and a bill to expedite the CARD Act (see below). This, as you know by now, was signed into law on May 22, 2009 and seeks to stop lenders from arbitrarily hiking interest rates, charging over-the-limit fees and targeting college students, among other provisions. The rough thing, as we’ve seen, is that many of these perks for consumers don’t go into effect until February 2010, and the banks have been scrambling in the meantime to stack the deck in their favor before that time rolls around. Which leads to the next bill of note…

H.R.3639 – Expedited CARD Reform for Consumers Act of 2009

As the name implies, this bill seeks to move up the effective date of the CARD Act to December 1, 2009 and was introduced on September 24, 2009. This effort seems to be a situation of too little too late, though, as that’s only 2 months sooner than the February 2010 date and if this bill doesn’t get passed in the next two months, it’s hardly going to matter. Plus, by now, most credit card companies have already gone ahead and slashed all the rewards and switched all the interest rates to variable rates that they intend to. Still, may be interesting to keep an eye on.

S.1927 – Credit Card Rate Freeze Act of 2009

This bill was introduced by Sen. Chris Dodd from Connecticut (D) on October 26, 2009. This bill is a little bit more straightforward than the expedition bill and perhaps has a better chance of making a difference. The Baltimore Sun has an interesting writeup of the bill. Here’s a quick quote:

“No sooner had it been signed into law, credit-card companies were looking for ways to get around the protections this Congress and the American people demanded,” said Dodd, D-Conn. “This bill would end those abuses and further protect customers today.”

You may remember Chris Dodd’s letter from April urging Fed chairman Ben Bernanke to regulate banks, in which he said:

Credit card providers have been aggressively raising rates on consumers now to avoid the ramifications of this rule when it goes into effect next year.  Companies have increased interest rates across the board now, to increase interest rates before the new rules go into effect.  Consumers describe situations to our offices in which the interest rates on their accounts have doubled or tripled overnight, without any misconduct on their part.  This kind of practice clearly violates the spirit and intention of the rules, even if the delayed implementation date has the effect of making such behavior legal.

This bill basically urges the same thing.

H.R.3904 – Overdraft Protection Act of 2009

This bill was introduced on October 22, 2009 and represents Rep. Maloney’s continued efforts to protect debit card users from exorbitant overdraft fees. We talked about Maloney’s crusade against overdraft fees here at MYC back in September 2009 back when the cause rallied under H.R.1456 – Consumer Overdraft Protection Fair Practices Act. This new bill doesn’t seem much different and seeks to:

• Compel banks to allow customers to “opt in” to overdraft protection, rather than signing up for it by default
• Give debit card holders the decision to reject overdrafts at the register when they have insufficient funds
• Limit overdraft penalties to 1 per calendar month and 6 per year
• Reduce the amount levied for overdraft fees

Other Bills

There are tons of other bills relating to credit cards and the credit industry. Click here to view all credit related bills at OpenCongress.  You might want to check out H.R.3214 – Rating Accountability and Transparency Enhancement Act which seeks to reform the credit rating system and H.R.3126 – Consumer Financial Protection Agency Act of 2009, which seeks to establish a Consumer Financial Protection Agency, as the name implies.

Already following a bill or legislation? Let us know which laws matter to you in the comments section.

Related posts:

1. The Credit Cardholders Bill of Rights
2. Credit card bill on the way… (We hope!)
3. Defeat Overdraft Fees and Debit Card Trickery Using Credit Card Smarts

Highlights of Chase Freedom Card

• 10% to 20% cashback on purchases from selected merchants
• 3% cashback on rotating categories
• 1% cashback on every purchase with no caps
• $50 cash rebate after first purchase
• 0% APR for the first 6 to 12 months
• Access to Chase’s BluePrint budgeting suite
• No annual fee

$50 Cashback

First off, switching to Chase Freedom isn’t a bad idea because of the $50 you get after you make your first purchase.  You can get this $50 applied to your normal rewards or you can be cut a check that arrives in 6 to 8 weeks.

%0 Introductory APR

Like most competitive cashback credit cards, Chase Freedom comes with a 0% introductory APR. How long it lasts depends on your credit history. If everything checks out, you get 12 billing cycles of 0% APR. Otherwise, you can get as low as 6 billing cycles with the 0% APR. Also, regardless of your credit score, if you are delinquent or late on a single payment you immediately get popped over to the “default rate.”  After the introductory period, you get a 23.24% variable rate, unless your credit score is tip tops. For “elite” credit scores, you get 13.24% variable and for “premium” you get 18.24% variable.

Chase Freedom Categories Explained

With the new Chase Freedom card, it’s all about the categories. All of your purchases wind up falling into one of 15 different spending categories.  Like Discover More Card, the categories are picked (seemingly) arbitrarily each quarter and there is a posted schedule when you log in so you can plan for the changes. Currently, when you log into your Chase account, it just lists out the 15 categories, which include:

• Movie Theatres
• Gym Memberships

• Gas Stations & Convenience Stores
• Pet Stores & Veterinarian
• Phone/Cell Phone Bills
• Quick Service & Fast Food Restaurants
• Utilities (Gas, Electric, etc.)
• Drugstores
• Cable/Satellite TV & Internet Providers
• Department Stores
• Beauty Salons & Spas
• Movie Rentals
• Dry Cleaners
• Local Commuting
• Grocery Stores

Online Cashback

Where the real cashback earnings kick in is through the online shopping portal. This is somewhat standard practice for cashback cards and can be a quite lucrative way to save on common purchases (as long as you remember to check the Chase portal before making big purchases). To accrue cashback rewards from Chase’s partners, all you have to do is shop through https://www.rewardsplusshopping.com/ and browse through the retailers. There are some pretty big names here, such as Barnes and Noble, Target, HP and Hotels.com, so it’s worth a gander if you’re planning on a big purchase. According to Chase, there are merchants that offer up to 20% cashback but most hover between 6% and 12% (which ain’t bad).

BluePrint

Chase cardholders also get access to BluePrint, which is basically a suite of budgeting tools. They advertise it as a way to pay no interest on certain purchases, but really, the reason you don’t pay interest on those purchases is because you pay them off before the grace period is up. It’s more of a self awareness thing than an interest break, but it’s kind of neat nonetheless. Check out our inside look at Chase BluePrint for more information.

Also, as one MYC reader (john) pointed out:

The possible catch to the program is this. In general, charges begin accruing interest from the date of purchase (assuming you had a balance at the beginning of the billing cycle). If you pay the full blue print payment, you will avoid paying interest on the full pay items. HOWEVER, if you do not pay the full blue print balance, there is no “fee” or “penalty” (as in you’re credit won’t be harmed), but you will be charged interest from the first day of the billing cycle on those charges, instead of from the date of purchase. This results in a slightly higher interest payment if you fail to pay the full pay payment.

So, take note. Plus, it’s always better to pay off more than your minimum balance, fancy software suite or not.

Balance  Transfers

Balance transfers and cash advances come with a 3% fee with no apparent cap, so be careful. If you’re moving around $5,000, you’ll pay a $150 fee.

All in all, the Chase Freedom card remains a fairly decent cashback credit card. She ain’t quite what she used to be, but with $50 cashback after the first purchase and plenty of opportunities to get over 5% cashback, it’s certainly nothing to turn your nose up at. In fact, it’s still the card that’s in my wallet.

Apply for the Chase Freedom card now.

Related posts:

1. Credit Card Review: Chase Freedom
2. Credit Card Review: The New Face of the Discover® More(SM) Card
3. An Inside Look at Blueprint: Full Pay

Take Fifth Third Bank, for example, which got fined $880,000 by Visa for failing to update its system which helped Gonzalez and his cronies make off with millions of credit card numbers. And while this particular gang of thieves is behind bars now, that certainly doesn’t mean that the war on identity theft is winding down.

Check out the latest news:

• Credit Cards Stolen From Brevard Hospitals, Medical Offices
• Credit cards stolen from employees at Lake Elmo Elementary
• Police: Hancock shoppers are card theft victims
• Gulf Shores accuses former accounting clerk of theft
• Huntsville Police see rise in identity theft
• Local Girl Scout employee charged with using fellow employee’s stolen credit card for spending spree

I could go on, but I won’t.

In response, more banks are looking to provide more secure options for their cardholders. This is good for them as well as us. Fifth Third recently signed on with RevolutionMoney, purveyors of the RevolutionCard and the Revolution MoneyExchange (a PayPal alternative). The RevolutionCard differs from your typical Visa or MasterCard in that it uses a PIN rather than a signature. So, would-be credit card thieves would need to steal your card number as well as your PIN in order to make a purchase.

This is seemingly more secure than signature authorizations. For credit card purchases, thieves can go ahead and forge your signature and as long as the clerk doesn’t compare the signature to the one on the back of the card (and when do they ever?) it’ll go through. The fraudulent charge isn’t rectified until you dispute it and by then, the money and the crook are gone. You get your money back, but the bank is out of luck.

So, really, the PIN protection of the RevolutionCard is better news for the banks, like Fifth Third, than the consumers. But one interesting and relevant perk that comes with the RevolutionCard: no interchange fees. Here’s what a Business Wire press release says:

With no interchange fees, RevolutionCard creates substantial cost savings for merchants – savings they today are passing back to consumers in the form of loyalty programs and incentives. As the first PIN-based credit card,RevolutionCard provides cardholders peace-of-mind knowing that if they lose their card an unauthorized person cannot use it without their PIN. Additionally, RevolutionCard reduces the chance of identity theft as the card does not display a cardholder’s name or signature. These consumer-oriented security features benefit merchants by helping to reduce chargeback and fraud risk.

We’ve heard that “savings will trickle down” before – whether or not that’s true is hard to measure and remains to be seen. But it is notable that the RevolutionCard seems to provide more protection for merchants and retailers, who are often independent franchisees and small business owners. And now as big banks, merchants and card issuers are equally feeling the strain from identity theft, it’s likely that we’ll be seeing card companies beef up their security measures. In fact, we’ve already seen European nations embrace the Chip and PIN card, which integrates a security chip as well as requiring a PIN for authorization and renders many U.S. credit cards obsolete.

RevolutionCard and other PIN cards may be the “missing link” between a credit card system that authorizes by signature and the next evolution of identity theft prevention technology. Luckily, there are numerous merchants that already accept the card in the U.S. and you can easily apply for one online. True, requiring a PIN for purchases isn’t particularly innovative (after all, that’s how debit cards work already) but the shift  may be a first step towards a big change in the way we check out at the register.

I say “first step” because it is important to note that a PIN isn’t foolproof. We already have a set of security numbers that is designed to protect us from fraudulent purchases – it’s called the CVV code and they are the 3 little numbers on the back of your card. Merchants aren’t allowed to store these numbers, just like they aren’t allowed to store PIN numbers, but that won’t stop skimmers and phishers from tricking you into handing them over as well. Getting you to disclose your PIN number to the wrong person could just as easily be done.

What are your thoughts on the RevolutionCard? Would you use a PIN-based credit card? Would it make you feel safer? Is the PIN mightier than the pen?

Image by MShades

Related posts:

1. Identity Theft Part I: Tricks of the Trade
2. Stealing Your Cards The Low-Tech Way
3. How to Protect Yourself From Credit Card Skimming

There are sound arguments for both. Conventional credit card wisdom is that closing a credit card account will adversely affect your credit score by skewing your credit utilization and debt to credit ratio. But there are some equally compelling reasons to say goodbye to a particularly bothersome piece of plastic. Let’s begin by outlining what will likely happen when you close your account.

How Closing a Credit Card Affects Your Credit Score

Closing your account with a credit card issuer does not close the case on your credit history. If you have  late payments, delinquencies or other negative items, these will not go away when you close your account. (See: Experian’s criteria for deletion of information from your credit report.)  Likewise, if you have positive information that won’t go away as soon as you close your account either. What will go away is your credit line. And that matters.

The consensus among lenders is that a low debt to credit ratio is an indicator of low credit risk. So, if you have two cards, both with a $3,000 credit line and a $500 balance, you are sitting relatively pretty at a 8% utilization ratio. But eliminate one of those cards without reducing your balance and you’ve jumped to 16%. Not good.

Another thing that lenders look at: track record. The longer you go without defaulting, they assume, the better your chances of continuing on without issue. Lenders take a look at your credit accounts and average their lifespan. So, if you’ve got a spiffy new card that’s been open for 6 months and a card you’ve had since college 7 years ago, and you close out your old card, you can imagine how that affects your average.

Lastly, most people will point out that if you don’t carry a balance on a card, it certainly won’t hurt to hang on to it, even if the interest rates get jacked up. That’s true, in a way. In fact, Kiplinger flatly states that closing a credit card never helps you and always hurts your credit score. But let’s look at why you might want to close a credit card account.

Reasons to Close a Credit Card Account

Number one reason to close your credit card account: security. Check out these news stories:

• The Inside Story of Wal-Mart’s Hacker Attack
• Thousands of Debit Card Numbers Stolen From Colorado Springs Liquor Store
• Atlanta men sentenced for credit card fraud
• Pair who swiped credit cards from hospital staff face prison
• 30 Napa victims say their ATM card data were stolen
• Cyberthieves find workplace networks are easy pickings

That’s just from a cursory Google News search. There are thousands of more cases and countless stolen credit card numbers that are yet to be reported.

Each credit card account you have is another opportunity for identity theft. The fact that you aren’t using it regularly, thus not regularly checking your online statements – heck you might not even know where the card is – means that it’ll be even easier to steal – especially if it has two or more authorized users. Close the window to keep the burglars out.

Another way credit cards can sabotage you: temptation. Some of us have way too many credit cards. Maybe we desperately needed them when times were tough. Maybe we signed up for one or two or three in order to get free sandwiches and pizzas on campus. Maybe we kept signing up for new credit cards to get rewards but never cancelled our old cards  because we heard that it was bad for our score.

At any rate, for someone who has had problems with debt in the past, keeping a bunch of credit cards lying around is a bit like an alcoholic hanging out in a bar. With so many opportunities to spend, it’ll be easier to relapse. Remove the temptation by removing the extra plastic from your life.

Also, if you have a decent credit history and you aren’t planning on making any big finances soon, it probably won’t be a big deal. It won’t make or break you, especially if you won’t be applying for a loan tomorrow. And if you are, simply close out your credit card after you close on your mortage. The effects of closing an unused, risky card aren’t permanent. And they are certainly easier to recover from than identity fraud or an account that lapsed into delinquency because you forgot about it.

If you are still worried about the adverse affects from closing your credit card, you can ask to extend your credit line on the cards that you are keeping. Closing out one card and doubling the credit limit on another card effectively reduces clutter, temptation and security breach opportunities without screwing with your utilization ratio.

What are your thoughts? Is it better to get rid of unneeded, unwanted credit cards? Or is it better to hang on to it for those few extra FICO points?

Related posts:

1. How To Cancel a Credit Card Without Hurting Your Credit Score
2. Balance Transfers: How They Work and Do They Help?
3. 15 ways to improve your Credit score (Part 2)

1. Visit SmartCredit.com

Click here to sign up for the free trial at SmartCredit.com. You will be prompted to enter your name and e-mail address, as well as your zip code. Click “Start Free Trial” after you have done so.

2. Enter Your Information

Next, you’ll be asked to enter some additional basic personal information. Do so and click “CONTINUE WITH FREE TRIAL.”

3. Enter Your Billing Information

After you click through, you will be presented with additional fields to set up your login information. Enter your desired username and password and click “CONTINUE WITH FREE TRIAL.” Finally, you’ll also be asked to enter your credit card information, but don’t worry. This will only be charged if you fail to cancel within 5 days. They will, however, send a $1.00 authorization through just to make sure that the card information is correct. Before clicking “ACTIVATE FREE TRIAL” make sure you check that you agree to the terms. IMPORTANT: Leave “upgrade to enhanced membership” unchecked. Checking this box will immediately sign you up for the premium membership, thus skipping your free trial.

4. Click “ACTIVATE”

On the next screen, you’ll be given your registration confirmation. Click “ACTIVATE” to activate your membership. Note that you’ll also be asked to add do-not-reply@SmartCredit.com to you spam exceptions. Do so – most e-mail services, such as Gmail, will place messages from SmartCredit.com in your spam filter.

5. Enter your Social Security Number

You’ll next be asked to confirm your personal details again and enter your Social Security number and date of birth. Don’t worry – this information is necessary to retrieve your report and verify your identity. Take comfort in the McAfee Secure and GeoTrust logos at the bottom of the screen. Click “CONTINUE” to go on.

6. Verify Your Identity

Next you’ll be given a little quiz about your credit history. They will ask you questions about previous addresses and accounts you’ve opened. Oftentimes, the answer is “none of the above,” so don’t be thrown when none of the options look familiar. Click “SUBMIT” when you are done.

7. Click “CONTINUE”

The next screen merely tells you that you’ve activated your account. It will also tell you about Credit Report Lock, which alerts you whenever new credit is opened in your account. Sign up for it if you like, but it is not free.

8. Click “VIEW YOUR SMART CREDIT REPORT”

The next screen gives you a tutorial on how to navigate your SMART credit report. The navigation is pretty self explanatory, but if you’d like a rundown, feel free to peruse it here. If you are ready to go on, click “VIEW YOUR SMART CREDIT REPORT.”

9.  View Your SMART Credit Report

Congratulations! You are now viewing your SMART credit report. The first screen is your summary, which gives you an overview of your credit report. You can filter the view using the buttons on top. Or you can simply cycle through the pages in order by clicking the arrow on the right.

10. View Your Credit Score

One feature that isn’t included on most free reports is the Credit Score view. By clicking “Credit Scores” you can see a breakdown of your credit score, your auto score, your insurance score and your employment score.

11. View your Credit Accounts

You can view specific information on your accounts by clicking the name of the creditor at the top. This shows you information such as account status, creditor remarks and your payment history.

12. View Inquiries

This section is also of particular interest. Inquiries show you when companies or lenders pull your credit report. These credit inquiries can affect your score and may be indicative of identity theft, if you do not recognize them.

There you have it – a free credit report and credit score! Don’t forget to cancel your account within the 5 day period or you’ll be charged.

Instant Free SMART Credit Report

Photo by me and the sysop

Related posts:

1. Guide to Getting Your Free Credit Report from GoFreeCredit.com
2. A Step-By-Step Guide to Getting Your (Actually) Free Credit Report without Accidentally Signing Up For Extras: Part Three Equifax
3. A Step-By-Step Guide to Getting Your (Actually) Free Credit Report without Accidentally Signing Up For Extras: Part One – TransUnion

Balance-Transfer Cards

Consumer Reports likes American Express Clear, PenFEd Visa Platinum and People’s United Bank Platinum MasterCard. These cards have APRs hovering between 12.24% and 17.24% with the People’s United Bank card having a 13.99 variable rate. What makes these cards attractive for balance transfers is that they have low APRs and fees for balance transfers. The Amex carda nd the Peoples United Bank card both have 0% introductory periods, and the Amex card has no balance transfer fee. The PenFed card, one of the most popular credit union credit cards – there’s no introductory rate for balance transfers, but you get a low 5.99% rate for life. Of course, you’ll have to pay $20 to join the credit union – but that’s small potatoes (especially considering many credit card companies are now levying annual fees anyway, such as Bank of America).

As far as rewards go, the People’s United Bank card has none. The Amex card gets you a $25 gift card for every $2,500 in purchases and a free annual credit report with score (neat!). The PenFed card gives you 5% cash back on gas, 2% on groceries and 1.25% on all other purchases, which rivals one of our favorite rewards cards, the Discover More Card.

Low Rate Cards

If the interest rates are killing you, Consumer Reports recommends holding on to Iberiabank’s Visa Classic and Simmons Frist Visa Platinum.  Of course, getting your hands on these cards isn’t as easy as your typical card. The Iberiabank card requires you to show proof of income and to disclose your employment history for the last 6 months.

The Simmons card is nice because it has a low default rate of 16.25% which only kicks in after 2 late payments within 6 months. None of these cards get rewards, but the money you’ll save on finance charges is a reward in itself.

Cash Back Cards

For responsible (or perhaps just wealthy) card holders who pay off their cards in full each month, cash-back cards are the way to go. Consumer Reports recommends the Amex Blue Cash, Capital One No Hassle Cash Rewards, Fidelity Rewards American Express and Schwab Invest First Visa. The last two are interesting choices – they are linked to your account with Fidelity or Schwab and are clearly more geared towards folks with some money to plunk down on mutual funds or stocks. All these cards get 2% cash back except for the Amex card which gives you cash rewards up to 5% after you spend over $6,500 for the year. Another perk: the Capital One and Schwab cards have no foreign transaction fee, a rare feature these days.

Other Tips

Aside from their recommendations, Consumer Reports suggests getting “association cards” through employers, unions and other affiliations. For example, the USAA offers favorable cards for veterans. Teachers can get good deals from the National Education Association.

And as we have mentioned earlier, credit unions are an excellent way to go. Because they are member owned, their interests are more skewed towards card holders (rather than investors) and they typically tend to have less fees.

You’ll also want to make sure your credit score is in good shape if you decide to jump ship. Remember: closing an account can adversely affect your credit by skewing your debt to credit ratio. If your rates were raised based on your credit rating, the chances of you finding another, more favorable card may not be very good – especially after closing your account.

If you’re shopping for a new credit card, you should also check out some of these other resources:

• MYC’s Discover Escape Card Review
• CreditCards.com: Weekly Credit Card Rate Report
• MYC’s Discover Miles Card Review
• BankRate’s National Credit Card Rate Averages
• MYC’s Chase Freedom Card Review

Photo by .larry page

Related posts:

1. Debit Cards Vs. Credit Cards: Plastic Showdown
2. The Best and Worst of the Credit Card Industry
3. How much is your loyalty worth?

Still Getting Screwed

PressofAtlanticCity.com has a reader writing in to complain that, in spite of the new CARD Act, they are still getting jacked around by credit card companies, namely Chase and Capital One. The reader had their minimum payment raised from 2 percent of the balance to 5 percent, which doubled it from $300 to $785. And on a different card, the interest rate leapt from 9.99% to 17.99%. Yowza.

Essentially, we’re seeing the credit card companies getting in their last jabs before the ref breaks us up. Sucker punches, I’d call them. February 2010 is looming, and the window of opportunity for fiddling with terms is closing. Some legislators are moving to move up the effective date, but given the speed of bureacracy, relief may not come any sooner. PressofAtlanticCity raised an interesting point about the reader’s right to opt out:

But you have the right to opt out of paying the new rate by sending a letter. Then the company must give you a reasonable time to pay off existing balances at the old rate. However, you would not be able to make any new charges on the card, and once it was paid off, it would be closed. Make sure to stop any automatic payments on the card, as new charges will make the opt-out null and void. [My emphasis]

That’s something that card users may not have thought about. It’s sort of like those free AOL memberships where you can cancel, but as soon as you accidentally log on again, it’s reactivated again. Beware.

Here Come the Fees

Bank of America has spent a lot of time in the press buttering up customers by promising easy-to-understand credit card terms and no interest rate hikes and adjusted overdraft policies. But all that, it seems, were just so many spoonfuls of saccharine in an attempt to help the medicine of their next announcement go down: annual fees for cards.

Associated Press said that BofA was going to start charging annual fees between $29 and $99 on cards selected based on “risk and profitability.” Translation: If BofA can’t make a buck off you through finance fees, they’ll ding you with annual fees. A punishment for good behavior. Here’s another quote from the BofA :

“We are making this change in response to market conditions, new federal laws and regulations, and the increasing costs of providing unsecured credit,” states a letter sent to a Bank of America credit-card customer and obtained by The Associated Press.

Customers are told that they can reject the fee, but will subsequently have their account closed. The deadline to reject the change of terms is Dec. 16.

Closing a credit card account can come with repercussions to a person’s credit score, since it would lower the amount of available credit a person has access to.

No Luck for Retailers

The war over interchange fees seems to be skewing in favor of the credit card companies. Reuters has a story that points out that legislators are currently a bit busy with other pressing matters, such as healthcare and regualtory reform, and the fight that 7-Eleven brought over swipe fees may be pushed into the background. Per Reuters:

Merchants contend the fees, which range from about 1.6 percent to 2.5 percent, unfairly cut into their margins and drive up prices for consumers.

Financial services companies argue that the payments system is based on a pricing system that benefits businesses and their customers. Banks also said that in Australia, where interchange fees were limited a few years ago, consumers did not benefit and credit card fees rose.

Both groups have been lobbying intensively in recent months, but most observers believe the credit card companies have the upper hand.

“We believe that this legislation has no chance of passing this year,” Credit Suisse analyst Moshe Orenbuch said in a research note.

Debt free at $5 a day

Over at NoCreditNeeded, NCN talks about how making micropayments helped him understand the realities of money management and take down a fair chunk of his credit card debt. It’s a hybrid of the snowball method with a little bit of latte factor figured in. Check it out:

For thirty days, instead of focusing on the big-picture, I focused on the very, very small things.  If I wanted a soda, I had to remember the $5.  If I wanted a newspaper, I had to remember the $5.  If I wanted to rent a movie, I had to remember the $5.  This silly little experiment (which, in the end, wasn’t really all that sill), helped me learn the value of every dollar that comes in to my life.

If I had it to do all over again, here’s exactly what I would do – and it’s what I do when making micro-deposits to my savings account:

1.  I would set a goal of saving $5 each day.

2.  At the end of the week, I would send a micro-payment (or micro-deposit) of $35.

3.  A couple of days after sending the micro-payment, I would check my credit card balance, just for that emotional boost that comes with seeing my debt reduced.

Have any of you tried something like this? Does it work?

Chase Stepping Up

The other day while flipping through Wired, I came across a lovely full page ad for Chase Sapphire, the new luxury card from JPMorgan Chase with “ultimate rewards.” It looks fun, according to the ad. CreditCardGuide.com breaks down all of the new and improved Chase cards in their blog posting:

They are known as the following:

• Slate with BluePrint
• Chase Sapphire with Ultimate Rewards
• Chase Freedom Credit Card
• Ink with Ultimate Rewards
• Ink Plus with Ultimate Rewards
• Ink Cash Business Card
• Ink Bold with Ultimate Rewards

Credit Card University

There’s a new resource for college students looking for a primer on credit card usage over at CreditCardUniversity.com. Our recommendation: start with the seven part series on “Why We Get in Debt.” Topics include:

Why We Get in Debt, Part 1: Behavioral Economics and 5 Types of Apathy

Behavioral economics looks at how we make poor decisions — even though they may not be rational.

Why We Get in Debt, Part 2: Lack of Self-control

Short-sightedness is one of the main reasons that we get into debt.

Why We Get in Debt, Part 3: Cumulative Cost Neglect

Cumulative cost neglect can take its toll on your personal finances: Small, Daily Purchases with the Credit Card Can Add Up.

Why We Get in Debt, Part 4: Procrastination

Putting Off the Credit Card Bill Can Result in Late Fees and Charges. It is important to make payments on your credit card bill — and to do it on time.

Why We Get in Debt, Part 5: Unrealistic Optimism

Unrealistic optimism about what we can pay back can lead to debt.

Why We Get in Debt, Part 6: Keeping Up with the Joneses

Miswanting and a desire for status can lead to expenses that we cannot really afford.

Why We Get in Debt, Part 7: Know Yourself and Your Limitations

Be honest with your limitations, and avoid things that tempt you into spending more with your credit cards.

Meanwhile, for the rest of us, you may want to brush up on the 8 most important credit card terms, courtesy of learncreditcards.com.

Stoozing Still Possible

Stoozers and credit card arbitrage practitioners have had a bit of trouble making money with their credit cards lately, but The Digerati Life has highlighted a few of the remaining 0% interest 12 months balance transfer cards. Anyone else know of any good deals?

That’s all for today. Be sure to share your links with us in the comments section.

Photo by Logan Antill.

Related posts:

1. Annual fees and why they’re silly
2. In Defense of Credit Card Fees
3. 20 Common Credit Card Fees to Watch Out For!