Credit card companies buckle down

Marketplace Staff Dec 5, 2008

Credit card companies buckle down

Marketplace Staff Dec 5, 2008


Tess Vigeland:For a lot of Americans, being underemployed is just one of many financial setbacks. Another is the credit card bill that keeps arriving in the mail — not just the balance on it, but the new strings attached to it: Higher fees, higher interest rates, lower credit lines, all this at a time when consumers need that cushion and the economy needs them to spend.

Credit expert Liz Pulliam Weston is here with us and I have to ask, why are card companies doing this?

Liz Pulliam Weston: Banks need money and they’re worried about risk, so they’re trying to reduce their risk by raising interest rates and lowering rates on people they think are they greatest risks and also doing the same for people they think won’t push back. And the reality is, most people won’t push back. Even if they have good credit, they won’t realize that they have an alternative. What they don’t realize is if they have good credit scores, they don’t have to live with it. They can push back. They can take their business elsewhere.

Vigeland: Is that the easiest way to do it? Just say, “OK bye-bye?”

Weston: Well, it’s easiest to abandon them, yes, but you should at least try to push back. So if you have good credit, you want to gather some of the offers that you’re probably still getting in the mail or go to,, see some of the competing offers, call your credit card company and say “Hey, look. I’ve got great credit” — or good credit, whatever the case may be — “I can take any one of these offers.” If they don’t give you what you want, then you threaten to close the account. You don’t want to actually do that, because that could hurt your credit report, your credit scores, but you threaten to do that.

Vigeland: Let’s talk about this notion of closing your accounts. We’ve had many people write in who have heard from Chase, from Citibank. What these folks are wondering is… one of the outs is that you can write back to the credit card company and say “I decline the new terms of my credit card.” They basically freeze you where you’re at, you have to pay off the credit card, and then they close your account. What are the down sides, what are the up sides to going ahead and closing an account?

Weston: Well, the obvious upside to closing that account is that you can typically preserve the rate and terms that you had. The downside is that closing an account cannot help your credit score and it may hurt it.

Vigeland: But if you’re not planning to buy a home anytime in the near future or a car, should you be worried about your credit score?

Weston: Your credit score is actually involved in a lot more decisions just that whether you get credit and how much it costs, although it’s key to that. In many states, insurers can use it to determine the premiums that you pay. Also having good credit can be important for getting an apartment and for jobs. A lot of employers want to look at your credit report to see how well you’re doing. Now the credit limit issue and how many open accounts is going to matter much less to an employer than it might to a landlord or to a credit card company or other lender that’s looking just at your score.

Vigeland: We’ve mentioned the drop in limits and higher interest rates. The other thing we’ve been hearing from listeners is their minimum payment amount has been hiked. It’s not longer, say, 2 percent, 3 percent. It’s going up to say 5 percent, where you are required to pay more on that credit card. I wonder if that’s a good thing?

Weston: We’re really going back to the old. That was the way it was in the ’70s. If you had a credit card, your minimum payment was at least 5 percent and could be higher. That ensured that you were paying down the principal that you owned and here’s the problem we have — a lot of people that are paying just the minimums are already stretched to their limits. So I would say, if you’re in a position where you’re struggling to pay your minimums now, now is the time to talk to a legitimate credit counselor, because really, if you can’t afford those minimums, you’re in pretty deep trouble.

Vigeland: Liz Pulliam Weston is a personal finance columnist for MSN, a good friend of the show here. Also the author of “Your Credit Score,” coming out — third edition?

Weston: Third edition probably in February. That’s what it looks like now.

Vigeland: Terrific. Well, thanks again for coming in.

Weston: Thank you Tess.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.