More and more credit card companies are taking steps to ensure that all of their credit card accounts are profitable and that means cutting credit limits, raising interest rates, charging annual fees and initiating inactivity fees.
Up until recently, credit card inactivity fees were a rarity in credit card terms of service agreements. Most customers avoided credit card offers with these fees in the same manner they avoided credit card offers with annual fees. So credit card companies would instead use other tactics, such as canceling or suspending inactive accounts. However, as credit card companies have begun to look for new streams of revenue using loopholes contained in new CARD Act regulations, they are now eying account inactivity fees.
The Rationale
Banks believe that inactivity fees are easily justifiable. In the world of banking, if you pay your bills without accruing interest -you are viewed as a dead-beat. They aren't making money off of you, so they need to find ways around that. If they are issuing you a credit card, they want something in return. Credit card companies make a profit on virtually every credit card transaction made. These profits should more than cover any costs of mailing your bills to you, providing customer service to you, and doing basic account maintenance for you. However, they don't agree.
So What's the Problem?
Many consumers, who have had the same credit card accounts for years -even though used rarely, hold onto the cards to keep their credit score from taking an unfair nosedive. Credit score algorithms use factors that include the length of time you have had an account and the amount of available credit you have. If you close out a credit card it can negatively impact your credit score.
Secondly, customers may not notice the one line in their latest terms of service agreement alteration that says an account maintenance fee will be charged for inactive accounts. They also may miss seeing the definition of an inactive account, which can vary from a credit card used less than once per year to a credit card used less than three times per month. That is quite a variance.
In requiring greater clarity about fees, the new CARD Act regulations are helping somewhat but more accountability and oversight are needed. Many people don't worry about reading any changes in terms that come for credit cards they rarely use, thinking that the fact they rarely use such cards makes changes to the terms inconsequential. that's no longer true. It's important to try and read all changes in credit card terms of service agreements very carefully.
If you know about the inactivity fees, and the required activity level is merely that you use your card once or twice per year, you need not be inclined to worry about the inactivity fee or run out and cancel your card. However, if the account inactivity definition is too burdensome, you need to know that so you can determine whether or not to cancel the card.
Protecting your credit score
Your credit score can determine whether or not you get a car loan, get approved for a new apartment lease, or even find a job. Your credit score is based on your credit history. The score, usually a number between 350 and 850, represents how reliable you are as a debtor, and is used whenever you apply for credit.
5 Factors that affect your credit score
1. Credit Payment History: Making up 35 percent of your credit score, your history of making payments is the single most important factor. Whenever you make a payment on time, your score gets better. Whenever you miss a payment, it gets worse. Having a long history of steady, regular payments is bound to help your credit score and make your life a lot easier. In other words, make your payments. It is the single easiest way to get a better credit score.
2. Debt Owed: How much money you owe is the second most important factor, accounting for 30 percent of your score. Having credit cards that are maxed out, for example, will hurt your score. On the other hand, carrying a card balance that's less than between 30 and 35 percent of the card's limit generally increases your score. Keeping the amount of credit you carry relatively low is very important. Not only does it allow you to make payments on time, but it will directly affect your credit score for the better.
3. Length of Credit History: Making up 15 percent of your score, the amount of time you've had a particular kind of credit is the third most important factor. Having the same credit card for many years, for example, will give your score a little bump, while having a bunch of new kinds of credit will lower it.
4. New Credit: The number of new credit lines you have, or have applied for, accounts for 10 percent of your score. Opening several new credit lines at once is not a good thing for your score, while getting a new form of credit every so often can be a benefit.
5. Types of Credit: The final 10 percent of your score is based on the kinds of credit you have. Having only credit cards is not good, while having a few cards, a home loan, a car payment and maybe a personal loan is a good mix.
Knowing the five factors that go into your credit score can help you understand how this score works, why it is important, and how to make it better.
Up until recently, credit card inactivity fees were a rarity in credit card terms of service agreements. Most customers avoided credit card offers with these fees in the same manner they avoided credit card offers with annual fees. So credit card companies would instead use other tactics, such as canceling or suspending inactive accounts. However, as credit card companies have begun to look for new streams of revenue using loopholes contained in new CARD Act regulations, they are now eying account inactivity fees.
The Rationale
Banks believe that inactivity fees are easily justifiable. In the world of banking, if you pay your bills without accruing interest -you are viewed as a dead-beat. They aren't making money off of you, so they need to find ways around that. If they are issuing you a credit card, they want something in return. Credit card companies make a profit on virtually every credit card transaction made. These profits should more than cover any costs of mailing your bills to you, providing customer service to you, and doing basic account maintenance for you. However, they don't agree.
So What's the Problem?
Many consumers, who have had the same credit card accounts for years -even though used rarely, hold onto the cards to keep their credit score from taking an unfair nosedive. Credit score algorithms use factors that include the length of time you have had an account and the amount of available credit you have. If you close out a credit card it can negatively impact your credit score.
Secondly, customers may not notice the one line in their latest terms of service agreement alteration that says an account maintenance fee will be charged for inactive accounts. They also may miss seeing the definition of an inactive account, which can vary from a credit card used less than once per year to a credit card used less than three times per month. That is quite a variance.
In requiring greater clarity about fees, the new CARD Act regulations are helping somewhat but more accountability and oversight are needed. Many people don't worry about reading any changes in terms that come for credit cards they rarely use, thinking that the fact they rarely use such cards makes changes to the terms inconsequential. that's no longer true. It's important to try and read all changes in credit card terms of service agreements very carefully.
If you know about the inactivity fees, and the required activity level is merely that you use your card once or twice per year, you need not be inclined to worry about the inactivity fee or run out and cancel your card. However, if the account inactivity definition is too burdensome, you need to know that so you can determine whether or not to cancel the card.
Protecting your credit score
Your credit score can determine whether or not you get a car loan, get approved for a new apartment lease, or even find a job. Your credit score is based on your credit history. The score, usually a number between 350 and 850, represents how reliable you are as a debtor, and is used whenever you apply for credit.
5 Factors that affect your credit score
1. Credit Payment History: Making up 35 percent of your credit score, your history of making payments is the single most important factor. Whenever you make a payment on time, your score gets better. Whenever you miss a payment, it gets worse. Having a long history of steady, regular payments is bound to help your credit score and make your life a lot easier. In other words, make your payments. It is the single easiest way to get a better credit score.
2. Debt Owed: How much money you owe is the second most important factor, accounting for 30 percent of your score. Having credit cards that are maxed out, for example, will hurt your score. On the other hand, carrying a card balance that's less than between 30 and 35 percent of the card's limit generally increases your score. Keeping the amount of credit you carry relatively low is very important. Not only does it allow you to make payments on time, but it will directly affect your credit score for the better.
3. Length of Credit History: Making up 15 percent of your score, the amount of time you've had a particular kind of credit is the third most important factor. Having the same credit card for many years, for example, will give your score a little bump, while having a bunch of new kinds of credit will lower it.
4. New Credit: The number of new credit lines you have, or have applied for, accounts for 10 percent of your score. Opening several new credit lines at once is not a good thing for your score, while getting a new form of credit every so often can be a benefit.
5. Types of Credit: The final 10 percent of your score is based on the kinds of credit you have. Having only credit cards is not good, while having a few cards, a home loan, a car payment and maybe a personal loan is a good mix.
Knowing the five factors that go into your credit score can help you understand how this score works, why it is important, and how to make it better.
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