If you were hoping that Congress would cap the recent raising of credit card interest rates, don’t hold your breath. Federal efforts to impose stricter limits on credit card interest rates, which have been skyrocketing up to 30 percent in anticipation of the credit card regulations that goes into effect in February, are running into some political speed bumps trying to find support with Democrats and gain majority for approval. Congress’ hands might be tied in protecting consumers, but check out the following round-up for what you as a consumer can do about your credit card and your debt.

Credit Card News

• CNN Money offers tips on how to make money in 2010 with your savings and credit.
• Some enlightening reading for all those who are thinking of ditching the MasterCard or Visa in favor of debit: Credit to debit: should you make the switch?, asks SmartMoney.
• A boost for credit cards from Moolanomy Personal Finance’s blog on why credit cards rule over the inferior debit card.
• New York Times reports, New overdraft rules: what consumers need to know. A short but helpful read especially if you swipe your debit card or go to the ATM frequently.
• Or, if you want to get ahead of the game like Consumer Reports, here’s how to avoid debit-card overdraft fees ahead of Fed’s new rules.

Debt News

• Five Cent Nickel wonders, how much does your debt cost? Figuring out how much it is costing you every month for someone to lend you money might nudge you to pay down debt faster.
• NY Daily News reports that Obama warns the U.S that too much debt could fuel ‘double-dip recession’.
• Can you leverage debt to help improve your credit? Rich Credit Debt Loan explains.
• Get out of debt faster - no more excuses! Debt Free Adventure does the number-crunching to show you how a little repayment can add up to a lot.
• Celebrate with Clever Dude because he is finally free of consumer debt! Find out how he paid down a $113,000 debt load.

If you own a credit card or read this blog regularly, you should be familiar with the restrictions and fees credit card companies have been imposing on cardholders in recent months. Cardholders have been complaining about jacked-up interest rates, sudden fees, lowered credit lines, closed accounts, and unfair penalties. These changes to the terms on your user agreements for credit cards may not necessarily be due to your poor credit management or late payments; another reason is that banks have been trying to increase the profitability of consumer accounts before the reforms of the Credit Cardholders’ Bill of Rights take effect in February 2010.

With the credit crunch and rising consumer defaults, banks are doing what they need to do to stay in business. Consumers need to look out for the fine print on any notice of changes to your credit card from your issuer, like the one that Bank of America customers received, and see what you can do to protect your credit and your credit score.

ATM surcharge and fees

The Cost: As high as $5 per transaction. Every time you go to use another bank’s ATM for quick cash, you are likely to get slapped with increased fees from both ends of the transaction—the ATM’s bank and your own bank. You have to pay an average surcharge of $2.22 to use another Bank’s ATM, up nearly 13% since last year according to Bankrate.com. Then there is the fee your own bank will charge you for using another bank’s ATM, which has risen to an average of $1.46 from last year’s $1.25.

How to Avoid it: You can only plan ahead and be prepared with cash, or you can switch banks. If you want to stick to your bank, the best way to avoid this fee is to estimate how much cash you need for the day and withdraw what you need from your own bank’s branch so won’t be desperate for cash and tempted to use any ATM. If you’re sick of surcharges and fees, opt for an online bank, such as ING Direct, Bank of the Internet, NetBank, and First Internet Bank, that will reimburse ATM surcharges up to amount per month. Charles Schwab Bank and E-Trade off unlimited rebates for ATM surcharges.

Annual Fees

The Cost: Anywhere from $29-99. Bank of America announced last week that they plan to tack on a $29 to $99 annual fee to an undisclosed amount of its credit accounts starting in February. If cardholders don’t voice too much of a protest, other banks may follow in BofA’s steps very soon.

How to Avoid it: BofA calls the annual fees an “experiment”, so complaining might get some results. If you have an excellent credit score in the mid 700s range, you are in luck. You can try and negotiate with your issuer and even mention that you will take your business elsewhere; chances are they will want to keep a reliable customer like you. If you have poor credit, you can close your account to dodge the fee, but your already-low credit score will take a hit. If the account happens to be your oldest credit card, you might want to consider paying the fee because your credit score will take a big drop with closing your oldest credit line.

Reduced Limits

The Cost: None, but you will have lowered credit limits and a potentially lowered credit score. About 20% of U.S cardholders between October 2008 and April 2009 saw their credit card limits slashed involuntarily, and in some cases, their accounts arbitrarily closed, according to a FICO study. However, 73% of the cardholders complained that they were penalized with no apparent credit problem. Lowered credit limits means higher credit utilization (a ratio of your current credit balances against your total available limits) which unfortunately also means an average of a 20 point drop on a credit score; that could be the difference between being approved or not approved for a loan.

How to Avoid it: You can fight back, or at least make the most of it. Try calling your bank and asking to have your credit limit increased, especially if you are in good credit standing. Otherwise, you can minimize the damage to your credit score by lowering your credit utilization accordingly and paying down your balances. Make sure you don’t go over your new credit limit or maintain a high credit utilization rate—your funds and credit score will shrink.

Overdraft fees

The Cost: As high as $35 per overdraft. If you make several purchases on an overdrawn account in a single day, banks often charge more for repeat overdrafts. That means that you don’t just pay an increased fee on overdrafts—you’d pay it several times over in a single day. Some issuers, including JPMorgan, Wells Fargo, and Bank of America, are planning to reform overdraft fees following criticism from Congress over the exorbitant practices.

How to Avoid it: Monitor spending on your debit card or stick to using a credit card. When you do get overdraft charges, especially if it was multiple charges in a short amount of time, call your issuer and try and pare it down to a single fee–sometimes issuers will do 4 overdraft fees in a single day while the customer doesn’t even realize they overdrew on their account. Avoid using this by using a credit card so you can’t overdraw your account–however, make sure you pay off your balance in full each month and don’t exceed your credit limit or else you’ll be paying fees all over again.

Interest rate hike

The Cost: As high as a 29.99% interest rate hike. Issuers have been squeezing in interest rate hikes for the last few months and will continue to do so in the upcoming months to profit as much from consumer accounts before the credit card reform legislation sets in. Rates rose by 20% just in early 2009, which is already taking a big financial toll on consumers who rely heavily on credit cards or with outstanding balances.

How to Avoid it: If you have good credit, try calling your issuer to have the interest rate dropped. Doing a balance transfer to another credit card with a lower interest rate is another option to ease your payment charges; make sure you don’t get hit with a transfer fee on the new card. However, the best, long-term way to avoid getting burned with these ever-increasing rates is to pay off the debt you have and to hold back on spending so you don’t carry a balance from month to month.

If you want to know more specifically the changes on credit cards each issuer is taking, check out Credit Card Changes by Issuer and Date for a good list of the fees that you might be unaware you are being charged. As banks look for ways to make a profit on plastic while they still can, these fees and hikes might be a red flag to ease up on your credit usage to avoid unnecessary charges all together.

Are you as credit savvy as you think you are? Did you know that the average consumer credit card debt in July was $6818, or that your credit report could shape the approval and account terms when you apply for a credit card, home loan, and auto loan? If you’ve been keeping up with our blog, you probably know many of the ins-and-outs of the credit world, but take this quiz to see if you have the financial know-how to keep up with your credit health.

1. Income is a key component of your credit score? True or False
2. What state had the highest average credit score in July?
   A. California
   B. Colorado
   C. Illionois
   D. New Jersey
3. What is the amount of credit card debt you currently have divided by your total credit available?
   A. Credit Card Utilization
   B. Credit Card Default
   C. Credit Limit
   D. Credit Charge-Off
4. What are the first two changes of the Credit Card Bill of Rights? Choose two:
   A. 30 day advance notice for arbitrary interest rate increase
   B. Issuers must deliver billing statements at least 21 days before due date
   C. Co-signer necessary for credit card applicants under 21
   D. Double-cycle billing no longer permitted
5. What credit card is best to help consumers start building or rebuilding credit?
   A. Unsecured Credit Card
   B. Student Credit Card
   C. Rewards Credit Card
   D. Secured Credit Card
6. What credit card do you rarely, if ever, want to close?
   A. Any unused credit card
   B. Most used credit card
   C. Oldest credit card
   D. Most recently opened credit card
7. Credit scores can impact your credit limit? True or False
8. Once a creditor charges off an account, the consumer is no longer responsible for payment of the debt. True or False
9. When does the $8000 First-time Homebuyer Tax Credit expire?
   A. November 1, 2009
   B. December 1, 2009
   C. December 31, 2009
   D. January 1, 2010
10. A co-signer on a loan or credit card account can expect to:
    A. Pay-off the account if the primary accountholder cannot
    B. Have the credit line added to their personal credit history and report
    C. Have their credit score affected if the primary accountholder defaults
    D. All of the above

Answers

1. False. Your credit score is determined by several factors including the length of your credit history, on-time payment history, credit utilization, total accounts, and number credit inquiries. Consider using the Credit Report Card to see a summary of your key credit factors as well as how you compare to other Credit Karma members.
2. D. New Jersey. New Jersey’s average statewide credit score for July was 694. Credit Karma’s national average consumer credit score in July was 674.
3. Credit Card Utilization. Credit card utilization basically tells you how much of your available credit you are actually using. Try to keep your total credit card utilization to 30% or less. The credit card utilization ratio of your total debt to available credit determines roughly 30% of your credit score.
4. A & B. One provision of the Credit Card Bill of Rights will be an additional 30 days advance notice for arbitrary rate increases, credit limit change, or any other ‘significant’ change to your credit card’s terms. The other provision to go into effect is that credit card issuers must deliver billing statements at least 21 days before the due date (previously 14 days). These changes go into effect August 20, 2009.
5. D. A Secured Card. A secured card is designed to help consumers build a credit history by providing them the opportunity to demonstrate responsible credit usage and regular on-time payments. A secured card requires a security deposit from the cardholder that functions as cash collateral which sets the credit limit and helps keep consumers from defaulting on their payments.
6. C. The oldest credit card. Age of credit history is a key component of your credit score, so closing your oldest card will likely shorten your credit history and could cause a significant drop in your credit score.
7. True. Credit card companies use a consumer’s credit score as a prediction of how much risk they will be as a cardholder, and determine a cardholder’s credit limit based on this assessment.
8. False. When a credit card company charges-off your debt, meaning they declared it a loss for the company, the consumer is still responsible for paying off the debt. The credit card account will be closed so the cardholder will not be able to charge to it and interest will no longer accrue on that debt, but you will still receive bills until and the creditor will attempt to collect until the entire debt is paid off.
9. B. December 1, 2009. While the deadline is a few months away, consumers are advised to begin shopping for their home now because complications like getting approval for a loan, negotiating a mortgage rate, navigating inspections, managing paperwork with escrow, and the closing process of the Tax Credit could take months to complete and first-time homebuyers definitely do not want to miss out on this opportunity.
10. D. All of the above. As a co-signer, you contractually agree to pay off the account if the cardholder does not and you are obligated to the account until it is paid off in full. Any delinquent actions reported on the account will affect your credit score as if you defaulted on the payments yourself.

Scoring:

If you missed 0-2 questions , you are a credit know-it-all and chances are you have a good credit score. But don’t sit back and think that you and your credit score are safe. Make sure you put your credit know-how to good use by being diligent about keeping your credit health in check.

If you missed 3-4 questions, you are on your way to knowing more about credit. You might know the basics of how credit works, but empower yourself to learn more specifics about your credit report, the Credit Card Bill of Rights, and more details about how to manage your credit score in the process.

If you missed more than 5 questions, you may be a New Kid on the block when it comes to credit. The ins-and outs of credit scores and credit reports may be a bit fuzzy for you. The first step towards getting a good credit score is to understand how credit works, so keep learning and build a more solid foundation of what credit is, how to use it responsibly, and how to maintain healthy credit.

For an online bank that claims to “value integrity as much as deposits”, newcomer Ally Bank actually has the customer-friendly services to deliver. With competitive rates, straightforward and simplified terms, as well as live round-the-clock customer service, Ally Bank breaks away from its previous ties with GMAC Financial Services while also breaking away from traditional banking.

Their pro-customer attitude towards banking, with a name change like “ally” to fit the bill, promises no monthly fees, no minimum balances, and no minimum deposits. But is too-good-to-be-true Ally Bank better than all the brick-and-mortar and online banks already out there?

One of the best APY rates available

Ally Bank has an edge in offering 1.95% APY (as of 7/13/09), the highest savings rate you can get with no minimum balance or monthly fees, and also a rate double that of the national average. The closest competition with similar no minimum balance and monthly fees is HSBC Direct with 1.55% APY and ING Direct with 1.65% APY.

Ally’s all-online functionality allows for streamlined, cost-effective operations which passes it’s saving on to you directly through its high yield savings rate. This means you get to earn as much as you can by the simple act of saving your money with Ally.

APY rates and no penalties for CDs

Your best bet with Ally Bank is the No Penalty 9-month Certificate of Deposit with 2.00% APY. Simply put, you won’t get charged for withdrawing your money even if you withdraw within the first 9 months. While most banks carry high fees for withdrawing your money before the CD matures, Ally’s gives you a painless option for you and your savings without a fear of fine print.

If you don’t think you’ll be withdrawing prematurely, then enjoy an even higher rate of 2.10% APY with Ally’s 12-month classic CD. With one of the highest rates in the market and no minimum deposit restrictions, this makes it a product consumers should consider.

Unheard of in the market before, Ally’s CD rates stay high regardless of deposit size. Also, all APY rates, including that of the savings account, have interest compounded daily.

Looking out for you, the consumer

Small yet differentiating changes such as 24 hour telephone customer service, above average rates, and a vow of no “sneaky disclaimers” is quickly making Ally Bank a reliable place for better banking.

Ally Bank has been making a large investment in branding through a strong TV commercial and online advertising push that shows off its pro-consumer approach. If you haven’t seen their Pony commercial poking fun at traditional banks by commenting that, “Even kids know it’s wrong to hold out on somebody, why don’t banks,” Ally’s doing-it-right, straightforward mentality aims to let consumers feel that it’s safe to trust again.

Does the revamped look and philosophy work?

It’s going to take time and good customer experience stories, but in this day and age, finding a bank that claims to be accountable and honest may just be as easy as winning customers over with Ally’s simple, anti-gimmick philosophy to offer the best rates with customer flexibility.

It’s a great option that you can profit from and begin to feel secure again about the future of your savings.

Mortgage rates have skyrocketed recently, jumping nearly a full point from last month’s low to this month. In Freddie Mac’s recent survey of mortgage rates, the benchmark 30 year fixed rate averaged 5.29%; compare that to last week’s 4.91%. This is the highest average rate since December 2008. The 15 year fixed rate was 4.79%, up from 4.53% the previous week. Freddie Mac chief economist stated, “the 30-year fixed-rate mortgage rates caught up to the recent rise in long-term bond yields this week to reach a 25-week high.”

These higher rates may mark the end of the current refinancing boom. The current boom is being fueled by borrowers with high credit scores and low loan to value; as they are the few that are qualifying for loans. Obama’s Making Home Affordable plan is predicated on the fact that the homeowner is gainfully employed. As unemployment numbers stay high, more and more potential borrowers are being squeezed out by either high rates, or failure to qualify based on income for the federally backed programs.

The Fed needs to keep interest rates low in hopes of stimulating the housing market, but their rate cuts and other efforts to buy up bad debt are not having as much impact on the end mortgage rates as they were earlier in the year. The Fed will continue to try to keep rates low, but we may have seen the lowest of the low rates last month.

Last week saw mortgage rates jump up a half point or more on Tuesday and Wednesday, startling many mortgage professionals and causing borrowers who waited to lock their loans to lose out on their low mortgage rates. When you are financing your home, for either a purchase or a refinance, you will be given the chance to ‘lock your loan’ after a preliminary review of your application. While additional underwriting and paperwork is processed, you can choose to “float” or “lock” your loan.

Floating your loan is betting that rates will get no worse than they are today, and hopefully will go down while your loan is in process. When rates go down, borrowers are very happy that they choose to float. If you choose to lock you loan, you will be securing the rate for your mortgage while the paperwork is completed. You won’t lose out if the rates go up, and if they dip, you’ll be stuck with the higher rate you locked in.

A good mortgage professional will advise you of the current rate you are qualified for and present your options. It is a no-win situation for them to advise borrowers on whether to lock or float. If they tell their customers to float, and rates go up, they will be upset. If they tell their customers to lock, and then rates go down, they will be upset. Most brokers do not like to predict rates for their borrowers; they will give clients their options, and then allow them to make an educated decision for the best course of action.

Of course there are unscrupulous brokers who will claim they locked your own, but in actuality are floating; hoping for better rates so they can make some additional yield spread as commission. If the rates go up, you’ll be in for a surprise when the interest rate is delivers. In some cases, the rate may rise enough that your refinance no longer saves enough money a month to be worthwhile. In order to prevent these types of interest rate surprises, always make sure to get a copy of the lock confirmation from your mortgage professional to ensure you have locked in the rate you expect. Lenders will provide a lock confirmation sheet for your peace of mind.

Overall, it should be interesting to see how the rates move in the next few months. Rates have been so low for so long, it seems like the only way is up. However, home sales are still sluggish, condo sales look like they won’t be getting better any time soon, total employment numbers haven’t improved, and Fannie/Freddie and the mortgage lenders are still tinkering with their risk-based adjustment fees. These factors should keep interest rates low, but 50 year all time low rates may be gone for a long time.

Condominiums are becoming more difficult to purchase as lending guidelines are changing to offset what Fannie/Freddie are calling a higher risk of lending to those looking to buy a condo. These new risk adjustments for condo specific loans are part of a larger effort for Fannie/Freddie to limit their exposure in an area of real estate that has been hit particularly hard by the housing downturn.

I currently own a condo, and am hoping to weather this downturn long enough to make a profit when I sell in a few years. These new higher loan fees and regulations do not make buying a condo more appealing to prospective buyers, thus hurting my chances to sell at a higher price. Fannie/Freddie are imposing higher down payment amounts on purchases, requiring at least 20% down, as well as adding additional risk fees to the loan. These risk adjustments will cause a buyer to have to pay additional closing costs, or take a higher mortgage rate than he would typically receive if he were to buy a single family residence.

The reasoning behind these adjustments is that just a few condo foreclosures in a building can affect the entire complex’s value. Also a factor is the condo fees which typically go unpaid when a condo is foreclosed on; these fees will pile up and cause additional debt for the complex that will affect their ability to manage the property in a fiscally sound manner.

These changes seem very problematic in terms of re-energizing the housing market. Most first-time homebuyers look to condos as a viable way to enter the market with condos’ lower prices and lower maintenance. If someone is qualified to receive a loan, it seems unfair to penalize that person for wanting to buy a condo instead of a single family home. Having a 20% down payment is a huge barrier-to-entry, and then enforcing higher loan fees and rates will cause prospective buyers to forgo complicated condo financing and continue to save for a larger home.

Fannie/Freddie are playing a dangerous game right now; their loans are being modified with government assistance into below market terms, while they raise standards and rates on incoming purchases and refinances to offset their increasing losses. With these new regulations, there will be drop off in the amount of condominium sales which will stagnate the housing market as condos make up a significant portion of the housing market in many metropolitan areas.

Each day there are new headlines out there proclaiming the latest lowest interest rates. While it is true that the rates are falling and mortgage applications are up across the board, there still underlying issues with the housing market beyond the lowest interest rates available.

Unemployment rates are still at close to an all time high, and until those numbers are going in a positive direction, it is almost irregardless how low the interest rates go. Lending guidelines have changed drastically in the last few years in order to curb the predatory lending that was rampant in years past. These new, stricter guidelines cause a vast majority of these applications to become declined.

The major reason why the low interest rate doesn’t help as much as you would think is the depressed house values. The loans with the lowest interest rates typically at limited to 80% loan to house value. Most houses have lost so much value that even if you bought your home several years ago and put 20% down; you still not qualify for this loan. What’s the point of a really low interest rate if only a select few can actually qualify?

When the rates come out next week, we might even see another small dip in the 30 year fixed to the 4.7 range. The economy needs more jobs for the record amount of unemployed entering the ranks. More jobs would mean more money being invested back into the financial markets as well as the housing market. But until people stop losing their jobs, these small decreases to the record low rates don’t help the average American or the health of the housing market.

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With all the stories about how credit card companies are lowering credit limits and raising rates, we thought it would be refreshing to talk about a credit card company doing the right thing for their customers. We looked to the Credit Karma Community for bright spots in a dim market.

Low credit score borrowers know all too well that most sub-prime products are costly with high APRs and riddled with every imaginable fee possible. In one sub-prime credit card comparison, we showed how one bank was charging $265 in up-front fees for a credit card with a $300 credit limit. At the same time, that same card had an additional $230 in annual fees, did I mention the APR for the card is 19.92%. With products like these, we wonder how any consumer can improve their score without paying an exorbitant penalty.

That is where Orchard Bank steps in. Serving the same sub-prime market, Orchard Bank has developed a sub-prime secured credit card that is actually in our opinion good for consumers. In stark contrast to the credit card above, Orchard Bank provides a secured card with 7.9% APR, a $35 annual fee (waived in year one), and no processing fee.

Our members and other consumers seem to have nothing but praise for the Orchard Bank card, their credit limit increase, and their general approach to helping consumers improve their credit. Comments in our Orchard Bank review range from stories of good customer service to a credit line increase program designed to help consumers move off the secured credit card.

• “…this card is so great at rebuilding credit that Chase recommended it to me. [They] said to start with this card before getting their card.”
• “Orchard Bank is probably the best place to start building credit. They helped me. I started with a secured card with a $200 deposit and a $35 annual fee… After about a year, their parent company, HSBC sent me a pre-approval for an unsecured card.”
• “I’ve been with Orchard for several years now. They have been good to me and stuck with me even through some financial challenges.”

Other sites seem to suggest the same.

To be fair, some members do complain about the quality of the customer service which is out sourced to India, but the complaints are about the communication not the service. Also, we have seen a few reviews about a steadfast over limit fee they apply to their customers.

In general, we don’t normally promote a particular bank. But with all the bad news about how banks are abusing their customers, we thought about it would be refreshing to hear about a bank who is doing the right thing for their consumers. Let us know if you have had similar experiences with your credit card providers.

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With interest rates so low, and the unstable housing market, many people still in adjustable rate mortgages have been attempting to refinance into a 30 year fixed mortgage to lock in their rate. However, there is a considerable amount of people who are still in their ARM and wondering what to do with an upcoming interest rate adjustment. If you are in this position, you should take the time to investigate your mortgage and the options available to you.

The first thing to do is get out your loan papers and find out exactly what index your mortgage has been tied to and what is your add-on rate, also known as margin. Read closely, as most conventional loans are tied to the LIBOR index, but there are several different LIBOR rates as well as different indexes and you will need to know exactly which one applies to your situation. LIBOR stands for London Interbank Offered Rate, and is an index set by a group of London based banks and used as a base for U.S. based adjustable rate mortgages. So for example, with the LIBOR at 2.12, and your loan papers state your loan will adjust based on the 1 Year LIBOR with an margin of 4, your new interest rate will be 6.12%.

There are other specifics of your loan that will be in your mortgage documents. Some loans come with a 2% adjustment cap, such that your rate will not adjust more than 2% in any given adjustment. Some loans have a hard interest rate cap, but these are usually in the 10% range. Also you will need to see if there is a pre-payment penalty for refinancing. This is typical of subprime loans, but if you do have one, you will need to time your refinance to avoid the penalty and be able to refinance into a loan that makes sense for you. If you have a conventional ARM from a Fannie/Freddie lender you should have more favorable index rates, add-ons and less stiff prepayment penalties. If you have a sub-prime loan, it is more likely that your adjustment will be more severe.

There is a certain percentage of the population that has ARMs and is unable to refinance due to factors such as tighter income restrictions, declining house values, and damaged credit. If you are in this situation, you need to get out your loan documents and do some investigating. With rates still low, refinancing your mortgage might not be the best option for you, taking the adjustment may actually get you a lower rate than you would be eligible for in a refinance situation.

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