Early this year, financial prognosticators were saying that the credit card industry was not going to go the way of the mortgage industry (i.e. totally implode) because credit cards had a better financial base.  After all, if a credit cardholder decides to “foreclose” on a credit card, it’s not nearly as damaging to a credit card company as foreclosure on a house.  A mortgage can run hundreds of thousands of thousands of dollars. Anyone with hundreds of thousands in credit card debt is in serious financial trouble.  $30,000 is a lot for a credit card, while that’s dirt cheap for a house.

Add to that the fact that credit card companies are making a relative killing on interest rates and you’d think that credit card companies would be able to weather the financial crisis.  If only that were so.  There’s continuing talk that the credit card industry will be the next big thing to fall apart.  Not only are credit lenders tied to losses in the mortgage industry, but credit cards are having problems all their own.  Recent news from American Express is likely the first in a long line of potential problems.

Amex’s Problems

American Express recently requested $3.5 billion from the Feds as part of the bailout package.  Amex has stated that they’re suffering from lost revenue due to the credit crisis.  In the past, Amex has remained liquid by packaging credit card debt and selling them to investors in the securitization market.  If this sounds eerily familiar, this is what led to the subprime mortgage meltdown, as bad credit mortgages were also packaged and sold to investors and then lost value.  The market for credit-card back securities is fading.

It is surprising, in some respects, that Amex is having trouble.  While spending is down overall, it would stand to reason that credit spending is up due to people not being able to afford necessities with cash.  Buying groceries on credit may not be so financially wise, but for some people it’s the only option.  Alas, it turns out that people are cutting down on spending both with cash and on credit.  Couple that with increased defaults and it is not surprise if credit card companies are feeling the hurt.  For American Express, third quarter profits fell 24 percent, or 70 cents a share.

What Does This Mean for Credit Card Holders?

OK, that’s all well and good.  Amex fell 24%.  What does that mean for your current credit cards, or if you are looking to apply for a card in the future?  Is everyone going to get a 30% APR?  Does good credit matter anymore?  Here are some answers.

If you have an Amex card, you may already be feeling the heat.  Amex recently lowered credit limits for 10 percent of their cardholders.  Don’t rely on notifications because it is possible your credit limit may go down without your knowledge.  What will happen is that you’ll go over the limit and have to pay the resulting fee.  As most credit card terms state that the issuer can change rates or fees “at their discretion,” your APR and fees could very well go suddenly up.  Fact is, if you have an existing balance, there’s not much you can do about this, as it’s written in the card’s terms and conditions.

Your credit cards will still work, however.  One of the fears pre-bailout was that any inaction would totally freeze credit markets so your credit cards would be worthless.  That didn’t happen and it likely won’t happen in the future.  But whenever a lender is taking a hit, be certain that they’re going to raise rates and fees to make up the difference.  This is even the case if you’ve hunted around for the best credit card deal, you have

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About 12 years ago, I started my first business with 0% loans from my credit cards. I had good credit and received at least 5 pre-approval offers per week. So I decided to use my good credit to finance my first business. I needed $20K so I charged all the start-up cost on my credit cards. When the first bills arrived, I applied for two new 0% balance transfer credit cards. When those promotional rates ended, I simply transferred the remaining balances to a new 0% credit card. Those offers saved me thousands in interest and helped me get my first taste of entrepreneurship. Without it, my life could have been very different.

I’m sharing this to illustrate that balance transfers can be a very useful way to save money if you are responsible and diligent. But I’d like to be very clear, I’m NOT advocating people do this as it was very risky for my credit, my business, and my family.

Today, credit card companies have added balance transfers fee and instituted other terms to discourage my past behavior. But savings still abound if you know how. Here are some tips and secrets to making the most from balance transfers credit cards.

• Different Rates for Purchase and Balance Transfers. One of ways credit card companies make 0% balance transfer rates profitable is that they charge a higher rate for purchases since they pay down the balance with the lowest rate first. The credit card companies hope you use your new card for purchases as well as the balance transfer. That way, all your groceries, gas, and other new purchases will be accruing interest while your payments are applied against the 0% offer. My suggestion to circumvent this pitfall is to use different cards for different activities.
• Balance Transfer Fees. Most credit card companies now charge a balance transfer fee of 3%. While this makes your balance transfer less valuable, a 3% unsecured loan is still great (assuming 12 months at 0%). In addition, many cards will have a max fee of $90 so if you transfer more than $3,000 you will essentially be lowering the balance transfer fee rate.
• Pay your Bill On Time. Many cards will immediately cancel your balance transfer rate if you are late on a payment. In fact many, credit card companies count on it.

Finally, use your credit responsibility. You should only go down this path if you know you have the self discipline to pay down your debts. Another word of caution is that balance transfers will most likely lower you credit score since you will have an inquiry for a new credit card also credit cards with high utilization will lower your score. But in many ways, credit is supposed to be used for your financial advantage. I personally don’t mind lowering my credit score temporarily for a few hundred or thousand dollars in savings.

Yesterday, the Fed lowered the federal funds rate rate to near zero in an attempt to bolster the sagging economy. The federal funds rate is an overnight lending rate that banks use to set rates for a variety of loans such as adjustable rate mortgages, credit cards, and home equity lines.

For many consumers with variable rate loans, they should see a monthly savings. For example, a family with a prime indexed home equity line of credit would see their interest rate lowered from 4.00% to 3.25%. On a $50,000 draw, their minimum monthly payment would decrease  from$167 to $135.  The same types of saving could be seen in variable rate credit cards however the effect may not be as pronounced since credit card rates have a higher prime plus index.

For the consumers who wonder if this is a good time to refinance their homes, the answer is not so clear. While the goals of the Fed is to lower long term interest rates, their recent moves only lowers short term interest rates. 30 year fixed mortgage rates are consider long term interest rates and often indexed to the 10 year treasury. While the rates on the 10 year treasury are also at historic lows, the credit credit crunch has more lenders charging higher premiums eroding the value of the historically low rates.

So what should you do in this environment to save money? Here are some tips:

If you have a home equity line of credit, consolidate your bills. If you have good credit and an open HELOC, consider consolidating your credit card bills and other expenses. With a prime rate of 3.25%, you will rarely get another opportunity to get such a low priced loan. The caveat is that rates may rise in the future so make sure you have flexibility to move debt around. You are also using your home at collateral so be careful.

Shop for credit card rates. Not all credit card interest rates are variable. If you have a fixed rate credit card from when prime was 6% or 7%, this could be a good time to look into a new card with a lower rate.

Stay on top of this market and interest rates. We are at an historically low interest rate period. As the Fed looks to unfreeze the credit markets, there could be unprecedented opportunities to refinance or purchase a home assuming you have good credit. This period won’t last forever so be savvy, stay on top of the market, and look for your opportunity to save.

As 2008 winds to an end, we have learned that good credit is more important than ever for both lenders and consumers alike. As you think about your 2009 New Year’s Resolution, improving your credit should be at the top of your list for a prosperous 2009.

Consumers considering large credit purchases or those concerned about high monthly payments should make their credit score a top priority. A good credit score is as important as a trusted financial advisor to building and maintaining financial security. Below are are the top ten ways to being the process for better credit.

1. Review your credit report for accuracy: This is the easiest and most basic step in trying to improve your score. Request a free credit report from www.annualcreditreport.com, and then review it to make sure your bank accounts, any late payments, and all other information is listed correctly. If not, report it immediately to the proper bureau. They are required to respond within a month.
2. Pay your bills on time: Just one late payment can reduce your credit score and affect the interest rates you pay on current and future accounts. Keep accurate records and pay your bills on time. These are reported in 30-day cycles so you should check your score at least once a month.
3. Keep credit card balances low or pay down high credit card debt: The amount of credit card debt you carry in relation to your total credit limit is called your utilization rate. The lower your rate, the better for your credit score.
4. Avoid Derogatory Records: Late payments, collections, and charge-offs will lower your overall credit score and can remain on your credit file for up to 10 years. If you are concerned, consider alternatives such as a debt consolidation loan before you miss that first payment. Once the negative marks are part of your file, only time can remove them.
5. Utilize the 100-word credit bureau statement: This is a little known way to help improve your credit image. Under the Fair Credit Reporting Act, consumers can add 100 words to their credit bureau file. A well crafted statement about your unique circumstances or credit worthiness could positively influence a lender. But keep in mind that lenders could still bypass this statement and only consider your score.
6. Avoid excessive shopping for credit cards: A number of inquiries for additional credit looks bad on a credit report. Those inquiries that result in a hard credit pull will also lower your actual credit score. Be sure to research credit cards or loans first and apply only to those that are necessary and for which you are qualified.
7. Avoid retailer credit cards: Retail credit cards can be useful for high credit score customers in search of discounts, but for most customers they are a bad idea. These cards limit purchasing to a specific retail outlet, and the fees or higher interest rates charged for missed payments are often higher than normal credit cards. This can effectively wipe out any discounts offered through the card.
8. Don’t put your credit in a drawer: Many consumers concerned about their credit make the mistake of freezing spending. This can have a negative impact on your credit score because bureaus look for consumers that use credit responsibly. By ignoring your credit, you are not giving lenders current data to consider as a counterbalance to past negative factors. Be sure to use cards at least once every six months and pay off balances.
9. Maintain old lines of credit and accounts: Bureaus consider a long-standing credit line to be a positive factor in your credit score. Even if you no longer use a credit card or line of credit, keep it open. Closing it could have a negative effect on your score. You should also consider using it once every six months to show activity.
10. Protect yourself from identity thieves: Monitor your score monthly for fluctuations that might indicate identity theft. Also be sure to look at every piece of mail you receive and shred those with sensitive information or credit card offers. Identity thieves can ruin your credit score in a matter of minutes.

If you want to avoid paying higher interest rates, and you want to increase your chances of getting a loan, it is important to have the best credit score possible. For many Americans, debt and the problems in the housing market have taken quite a chunk out of their credit score, but luckily, there are many ways that you can easily manage your credit score and start to see some real benefits from your efforts.

The first step to take before you get started is to set up a credit score monitoring service. This will help you see what you are working with and give you incentive to keep on going. The best monitoring services will give you a daily look at your credit score and you can see the changes on a daily basis. This will help you gauge the efficacy of your efforts and help you craft a better strategy for managing your credit score.

Once you have a monitoring service in place, you can begin to work on your credit score. You’ll want to target any existing collections, if you have them, since these can really drag your credit score down. Go over your credit report and see if you have any on file. The report should include contact information for the collections agency and you’ll be able to see how much you owe.

Instead of immediately sending off a check to the agency, you’ll need to first put together what is called a Pay for Delete letter or PFD. This basically informs the agency that you are willing to pay off the debt, but only if they agree in writing to remove the record from your report in exchange. Do not send payment until you get the signed agreement back in the mail. This can be forwarded to the credit reporting agencies if the collections agency fails to remove the record after you’ve paid.

The next step in raising your credit score is to lower your overall balances. If you have a high ratio of debt to available credit, this is going to affect your score adversely. You don’t necessarily need to pay off all of your balances, but you should get them as low as possible. If you have a good payment record with a creditor, you can also request a credit limit increase, since this will make your ratio more favorable.

During the time when you are trying to manage your credit score, it is best not to apply for any new credit. This creates what is called a “hard pull” on your credit report and this can result in a reduction in your overall score. It is best to wait until you have your credit score where you want it, and even then, you’ll want to limit your requests for new credit to around two or three a year.

Following these simple strategies can help you see a large change for the better in your credit score. Staying current on all of your bills is the next step to maintaining that score.

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The worst negative record that you can possibly have on your credit report is a bankruptcy. The impact that a bankruptcy has can last for many years, as this negative mark on your credit report can last for as long as a decade. You may not be able to get approved for credit or a loan at all during the first few years after you have filed for bankruptcy, because it has a very large and very negative impact on your perceived capability to repay an obligation.

Despite the negative impact that bankruptcy has on your credit, it is still an option to consider if you find yourself in very serious debt that you cannot seem to get yourself out of. If you are living from one paycheck to the next and have no way of paying off old debts, then bankruptcy is an option that it may be worthwhile to look at. Your credit rating is definitely going to be in ruin while you recover from your bankruptcy, but it will also allow for you to finally dig yourself out of what is a certainly overwhelming hole, reestablishing good credit over time. At the same time, filing for bankruptcy can stop collection agencies from calling and harassing you, and can stop other debt related problems from plaguing your life as well.

However, you need to realize that bankruptcy is not an easy way out of your debt, or a quick fix either. The procedure associated with filing for bankruptcy can be truly emotionally draining for many years. Following a bankruptcy, you will be ineligible for loans, credit cards and many other types of credit. There will also be additional restrictions that you need to adhere to. You could also face rejection when it comes to finding a job, because employers are legally allowed to check your credit when they decide whether or not to hire you.

Before you decide to file for bankruptcy, it is vital that you sit down and discuss your situation with credit counselors working with reputable counseling organizations. They have the experience needed to advise you on steps that you can take to fix your situation, as there may be alternatives to bankruptcy that you can try before you completely destroy your credit report in favor of a fresh start. If bankruptcy truly is the only option, then they will tell you this, and will advise you on how to go through the process.

Bankruptcy can be a depressing process but it can give you the chance to begin again with a fresh credit report and without the debt burden that you had before. You should begin your credit repair campaign now, and continue even after filing bankruptcy. As you cultivate healthy money management habits like saving and budgeting, you will find it easier to keep yourself from going into debt again.

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Everyone knows credit scores are critical to accessing credit whether it’s a home loan, credit card, or even a car loan. What people don’t realize is credit scores have become incorporated into many other aspects of consumer’s everyday life. Insurance companies use them as a component of their pricing engines assuming high credit scores are predictors of less risk. Employers use them to screen employees and landlords demand a peak of your credit file before they’ll make a decision to rent that perfect apartment to you. It’s not surprising that credit scores are now popping their head up in vacation rentals as well.

Vacation rentals are an emerging lodging alternative to hotels which provide families more space, superior amenities and often more affordable nightly rates. Most second home owners occupy their vacation homes less than one month of each year, so to help pay the mortgage on the investment property owners will rent their homes to other vacationing families. It’s a great way for second home owners to receive additional income, but there is one major sticking point…. You have to be comfortable with strangers staying in your home.

Opening your home to stranger can be a little daunting, so why not ask prospective guests for additional information to feel more comfortable. Vacation rental sites like Flipkey.com are introducing free credit score sites to vacation rental owners and managers and suggesting they provide small discounts or incentives to renters who are willing to share a simple screenshot of their recent credit score with the rental owners or managers. A simple sneak peak of the credit score can provide an additional layer of comfort when you are handing the keys to a home over to another family.

Having a high credit score does not guarantee the perfect guest, any more than it guarantees an individual will not default on a loan, but it certainly can help reduce the chances of a disrespectful guest and provide some peace of mind.

Maintaining a household budget entails a lot more than just taking care of basic necessities and ensuring that there is money left over for the purposes of entertainment. In fact, maintaining your budget in this fashion is what is going to get people into debt. Most people earn money and then end up spending it right away, letting every dollar that comes in go out just as quickly. Individuals are beginning to consume every single penny that they earn, and many people even spend more than what they are earning, spending far beyond their means which allows them to fall into a serious hole of debt. A household budget is actually a powerful, effective tool for overcoming debt, reducing debt and staying on track financially.

Household budgets are excellent for helping to reduce debt.

Your household budget is essentially designed to be a set of instructions that you and your family can follow. This will allow you not only to maintain your current expenses, but also to reduce your debts as quickly as you possibly can. The faster that you are able to pay down and pay off all of your debts, the sooner you will be able to breathe easy, knowing that you will get to keep more of the money that you earn than ever before. More important than ever, imagine how much money you will be saving without having to worry about finance charges, late fees, interest rates and other completely unnecessary expenses every month.

The longer that your debts are able to remain in force, even if you are making payments against each of your debts, the more money you will end up paying in interest. Interest accrues against outstanding principal debts based on percentages. If you have less outstanding principal on your debts, then less interest will end up accruing. The faster that you are able to reduce all of your debts, the more quickly you will be able to stop paying all of that interest. Creating a household budget, then, will essentially allow you to create a debt reduction budget. It will allow you to make sure that you are getting your debts paid down and paid off completely much more quickly than without having such a budget in place. What this means for you, is that you will save as many as several thousand dollars simply by cutting off that accrual of interest as quickly as you possibly can.

There are many benefits to implementing a solid household budget, because it will do more for you than simply aid in reducing your debt. Implementing a household budget will also help you build up your savings, and will give you the ability to buy things that you need without using credit. Having a good household budget will also assist you with long term savings so that you can deal with unexpected expenditures no matter what happens over time.

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Retail stores have databases compromised and online retailers have personal information hacked into on a fairly regular basis these days. 9.3 million people fell victim to identity theft in 2004 alone, which is an indicator that above all else, we absolutely need to learn ways to avoid identity theft and protect the integrity of our credit and credit scores. Here are ten ways that you can better protect yourself against having your identity stolen, ensuring that your credit is safe and protected.

1 - Take your bills and statements online rather than opting for paper versions.

Even with shredding machines, determined individuals will still be able to retrieve enough information to steal your identity.

2 - Scrutinize your bank statements and bills every month.

Identifying identity theft early is the best chance to ensure that the minimum amount of damage occurs to your accounts and credit score.

3 - Use your passwords responsibility.

Don’t give them out freely or write them down where others will find them. Be sure to choose hard to guess passwords, avoiding simple phrases or whole words.

4 - Be careful how you use your social security number and shield it whenever possible.

This number alone is all someone needs to steal your identity. Do not give it out to someone you don’t trust implicitly.

5 - Read every piece of mail you get rather than throwing it away.

You do not know if the piece of mail contains your personal information, a pre-approved credit offer, or anything else needed to steal your identity.

6 - Keep credit card offers at bay as effectively as you possibly can.

Sign up for anti-junk mail services and request to be removed from pre-approved offer lists from all of the banks and distributors from which you get the offers.

7 - Lock up your mailbox to keep people from stealing your mail.

If you have a box in front of your home, get the kind that allows you to keep the mail behind a locked panel. Also, make sure not to put outbound mail until right before the mailman arrives.

8 - Know where your mail is all the time, even when you are out of town or out on vacation.

Have a friend pick up the mail for you and keep it safe, or request for the post office to hold the mail, which will do it for up to a month.

9 - Defend your credit card numbers from strangers who may be listening.

Do not give you card out readily on the phone, unless you are in a private place, and only if you have to. Instead of giving the number, ask if the other company can send a bill, or has an online, secure web page.

10 - Shred whatever evidence is going to be thrown away before you let it leave the safety of your home.

Shredding is a deterrent that stops the vast majority of identity thieves. Determined individuals will still find the information, but shredding the documents is a minimum amount to ensure that you identity remains safe.

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Have you ever been told to “always look your best”? The same should be true for your credit. You should work to make sure that your credit always looks its best as well. Here are ten ways that you can approve the appearance of your credit.

1 - Pay down your debt.

This is one of the fastest ways to improve your credit by decreasing your credit available to credit used ratio, paying down the balances on the higher interest credit accounts first. If you are using more than 50% of your credit, then you are using too much and need to start paying some of it off for better results.

2 - Use secured cards to make an entrance into the world of credit.

Most banks and credit unions offer secured credit cards, which are excellent for helping you build credit even if you don’t have much to speak of just yet.

3 - Apply for a passbook loan.

These are month to month loans that use your savings account as a means of collateral, which is a great way to show lenders that you are capable of paying off the loan even if your credit is less than ideal. Some banks don’t report passbook loans to the credit bureaus so check with yours.

4 - Utilize retail store credit cards wisely.

These cards are relatively easy to get and can help to build your credit appeal. You can use these cards for purchases that you can pay off right away and build credit in the process.

5 - Keep old accounts open.

Closing an old account is something that you will regret, so even if you are not using the account, leave it open or it could have a negative effect on your credit.

6 - Properly utilize the 100-word Statement.

Under the Fair Credit Reporting Act, you are allowed to add 100 words to your credit bureau file, and this can be utilized to improve your credit image. Just keep in mind many lenders will just review the credit score and ignore any statement.

7 - Perform occasional checkups on your credit report.

By reviewing your credit report from time to time, you will be better able to keep track of changes to prevent negative things from showing up.

8 - Protect yourself from identity thieves.

Identity thieves can wreak havoc on your credit, so it is vital that you take steps to prevent your identity from being stolen if you want your credit to be appealing to lenders.

9 - Maintain good record keeping habits.

This is going to mean attending to your checkbook as often as possible, devising a bill paying system that works for you, and above all else, always paying your bills off on time, every time.

10 - Get professional help, if all else fails.

The two primary sources of help are your attorney, and a legitimate credit counseling company. If you cannot make your credit more attractive on your own, these two sources of help could be just what you need.

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