Universities are profiting from student credit card debt

Credit card debt is a growing problem for college students, but not for their universities. Dozens of universities are making millions of dollars on deals with credit card issuers, profiting from student debt. Here's my story on universities pushing credit cards, including highlights of of USF's $4.1-million deal with Bank of America. You can find FSU's contract on the Consumer Warning Network site. FSU, in response, says it is teaching students to be responsible users of credit.

Here are some tips for managing a credit card in college:
•Shop online for a low-interest rate card with no annual fee, but don’t fall for a teaser rate that expires in a few months. Certainly don't assume that the card with your school's logo is the best.
•Keep track of your charges to avoid any unpleasant surprises.
•Read your statement carefully (or monitor your account online) and call right away if you see anything questionable.
•Pay your bill on time to maintain your credit rating.
•Pay your balance in full every month. Can’t pay? Stop using the card until the balance is paid off. The first "rule of holes" is to stop digging when you're in one.

 

A couple of updates on Lou Pearlman and credit cards

The Chicago Tribune, which has MB Financial and investor David Mathis as hometown victims, is catching up with the Pearlman story with this report.

Also, last week I wrote about proposals to rein in credit card abuses. Here are some comments that Tampa Bay residents sent to the Federal Reserve about the issues. You can submit your own comment here. If you want to read more about the Federal Reserve proposal, go here.

It's time to rein in credit card abuses

The Federal Reserve and Congress are finally taking a look at the way credit card issuers abuse consumers, from jacking up interest rates without provocation to questionable billing practices. My column this week is about the reform effort. If you want to read more, see the Federal Reserve proposal and some information about HR 5244.

Here are comments the Federal Reserve has received.

Worried about identity theft? Read what one reporter did in a data breach

Fellow Gator grad Leslie McFadden was among more than 11,300 University of Florida students (current and former) to have their personal information posted online for several years without password protection. The security breach was recently discovered, although there is no evidence anyone took advantage of it.

McFadden, who writes for Bankrate.com, decided to take steps to protect her credit just in case any thieves might have used the unprotected information (including her Social Security number) to steal her identity. Here she describes what happened and what she did. It makes very interesting reading. I would not have taken the drastic step of freezing my credit without some evidence that someone was using or trying to use my credit. However, anyone who has been the victim of a data breach should become more dilligent about regularly checking his or her credit reports. They're available from each of the three major credit bureaus once a year. You can check one every four months on a rotating basis.

Here's a great opportunity to learn about money

Could you use some help managing your money? If the answer is yes and you live in Tampa or have transportation to get there, you might want to look into classes being offered next month by Tampa Bay Saves. Dates and topics are: June 10,  Developing a Financial Plan; June 17- Evaluating Credit Offers & Credit Scores; and June 24- Using Financial Institutions & Achieving Financial Goals. The classes will be held from 5:45pm – 8:00pm. Cost is $7. Location is the Family Support & Resource Center, 7520 W. Waters Ave., Tampa. Childcare and refreshments are provided. For more information, call the Hillsborough County Extension Service at 813-744-5519 x 137. Here's the registration form.

Has your credit card company jacked up your rate for no apparent reason?

Some card issuers are raising rates for some customers even though the customers have never had any late payments. This Business Week story says Bank of America appears to be doing its own internal review of customer credit, raising rates on factors such as higher balances even though the customer's credit rating and payment history are unchanged. If you write the bank a letter and don't put any new charges on the card, you have the option of paying off the balance at the old rate. If you fail to do that, both your old and new balances will accumulate interest at the new rate, which may be as high as 28%

Based on the problems we've seen in the credit markets, banks should have tougher lending standards. However, it seems very unfair to entice customers into building big balances with easy terms, then suddenly change the rules. They certainly will push up their default rates as a result, but I guess they think the extra interest they're going to get will be worth it.

Check the interest rate on your credit cards

The Federal Reserve's rate cutting has mostly had a positive effect on credit card interest rates. However, not every card issuer is following the Fed. Bill Hardekopf of LowCards.com points out that while the Fed has cut rates 2.25 percentage points since September, some card issuers actually increased their rates. He said the rate on the Chase Freedom card went up, from 14.24% to 17.24%. Citi Platinum Select's rate went down, from 10.24% to 8.49%. The moral of the story: Unless you pay off your card balance in full each month, pay attention to what's happening with the rate you are being charged.

If your rate has not fallen, call and ask the card issuer for a lower rate. If you're turned down, it's time to go card shopping.

How's your fiscal fitness?

I put together a little quiz offering an opportunity to rate yourself on 10 key points of financial well-being. If you're up to the challenge, click here.

How should I pay for my new roof?

Q. I have recently discovered that I need a new roof on my small home. Estimates are coming in around $6,000 and I don’t have a liquid $6,000.  I have an IRA and a 403B rollover, each with approximately $6,000, but I don’t think I can take any money out of these accounts without a penalty. Is there a better option between a home equity loan, a home equity line of credit, or simply spreading the $6,000 across my two credit cards?  I’m not fully clear on the definition of home equity, but I think that I have a sufficient amount of equity as my home is valued at $160,000 and I only owe about $40,000 on it.  Any advice?

A. Don't cash in your retirement accounts. You would owe income taxes on the money plus a 10% penalty if you are younger than 59 1/2.

Home equity is simply the value of your home minus the amount of your mortgage. You have equity available and a home repair or improvement is the most legitimate use of home equity. The general rule is that a home equity loan is best when you have a single expense you'll be paying for in a lump sum--your roof repair is a perfect example. A home equity credit line is best when you'll be borrowing at various times. A credit line is often more convenient but it has a couple of drawbacks. One is that the interest rate is adjustable and could go up. The other is that it makes it very tempting to spend more than you originally intended until you have maxed out your credit line.

A credit card is the best option only if you've been offered a low rate that's locked in for a while. A "teaser" rate good for just a few months is worthless unless you think you can pay off the loan very quickly.

What should you do if you are facing foreclosure?

If you can't afford your mortgage, don't wait until you are several months behind on your payments before trying to do something about it. Your first step should be to call your lender and ask to speak with someone in the "workout" or "loss mitigation" department about modifying your loan terms. Even if you previously were given the cold shoulder, I recommend trying again, because pressure is increasing on lenders to work out terms with homeowners. Step two is to speak with a housing counselor. (Or try here or here.)

If you have an adjustable rate mortgage, you may be eligible for the new FHASecure refinancing program.  Here are some other good tips from Bankrate.com. Whatever you do, don't fall for a "foreclosure rescue" scam.

(Photo credit: Getty Images)

Should I keep my credit card account open even though it's costing me a fortune in fees?

Q. Last fall I went through a Chapter 7 bankruptcy due to medical bills. I've worked very hard since then to rebuild my credit, and I'm doing pretty good now. I've paid all my bills on time, and I am even making extra payments on my car loan. In February I received my first "pre-approved" credit card notice in the mail. The card, with a $400 credit limit, had about $200 worth of fees tacked on just to open the account, plus a monthly $9.95 "Maintenance fee."  I went ahead and got the card, because I knew I had to start rebuilding my credit somewhere. Now I have received another offer for a card with a $500 credit limit, but with no annual fees and no monthly maintenance fees. Would it be damaging to my credit rating to close the first account (because I'm losing $120 a year in fees) and open the new one?

A. Apply for the no-fee card and once you have it, close the other account. If there were no fees, I would recommend keeping the first account open with a zero balance, but under the circumstances, you should close it. It will not affect your credit score significantly to close it because it's a new card rather than one you've had for years and it has a low credit limit. Credit scores are partly based on the length of your credit history and the amount of debt you have in relationship to your available credit. The two things that are helping your credit the most are the passage of time and your responsible behavior in paying your bills on time. Once you have this card, wait for a while before applying for another one. Frequent card applications are negative for your score and as time goes by, you will be getting better offers.

(Photo credit: Getty Images)

Should your credit score have anything to do with your car insurance premium?

Tying car insurance coverage and rates to credit scores makes sense for the industry, but ends up hurting minorities. That's the rough conclusion of a new Federal Trade Commission study of credit-based "insurance scores". The commission said credit scores can be used to predict the number and frequency of claims. However, the use of credit scoring means African Americans and Hispanics pay more for their car insurance than Asians and non-Hispanic whites. Critics of credit scoring say it's simply not fair when two people have the same driving and accident record to charge one more based on late credit card payments.

Here's the insurance industry's take on credit-based insurance scores. Here's the critics' view. What do you think?

Stay alert for signs of identity theft

Today's paper has a story about yet-another-example of the theft of personal information from companies trusted to protect it. This one involves Certegy, a credit card and check processor based in St. Petersburg. The good news is that it is not believed that the information has (yet) been used for identity theft. However, it's another reminder for all of us to be on the alert for signs of ID theft. Paying close attention to statements -and noticing if one doesn't arrive- is by far the best way to detect problems in your existing accounts. However, we need to be alert to signs that new accounts have been created in our name, ideally before we start getting dunning phone calls from lenders wanting to know why we haven't been making payments. You can order a free credit report once every 12 months from each of the three major credit bureaus. Staggering the reports and ordering one every four months will allow you to stay on top of your credit year round. When you visit these sites, you do have to be alert so that you don't accidentally order a credit score or credit monitoring service or some other product unless you actually want it.   

Should I keep my old credit card active?

Q. I'm 24 and got my first college student card from Visa in 2001. It expires in March, and I guess they will then close my account. I have not used the account for a year or two now as I've gotten other cards (my second one in 2003). Should I try to get this card renewed even though I don't ever use it or would it be better to close it for my credit score?

A. It would be better for your credit score to keep the card. Even though you haven't used it, your card might be renewed without any effort on your part. But my recommendation would be to use the card a couple of times a year to keep it active. That is positive for your your credit score in two ways: First, the older card increases the length of your credit history. Second, it improves your credit utilization ratio, the amount of your debt compared to the amount of your available credit.

(Photo credit: Getty Images)

New card comes with parental controls

Here's the latest MasterCard version of the popular Visa Buxx card. Called the Allow Card, it's a prepaid MasterCard with parental controls that allow you to set daily spending limits and even stop it from being used at certain types of merchants. You can load your kid's allowance on the card instead of handing over cash. Another card aimed at kids is the PAYjr card, which also carries a the MasterCard brand. I thought these cards sounded like a pretty great idea for older teenagers and young adults until I went to the Allow Card Web site (click on the "parents" tab) and read about the cost: $23.95 to get the card in the first place and $3.50 a month after that, plus a bunch of other fees. The place you can find a complete rundown of fees is the "cardholder agreement," found on card Web sites. In some circumstances, a card like this might be worth paying some fees--when your child is going out of town for example, and you don't want her carrying a lot of cash. But you'd think credit card sponsors would make these programs really low cost in the name of "business development." After all, these are credit cards with training wheels, and the kid who uses one as a child is likely to grow up to be an adult customer.

(Photo credit: Allow Card)

Need an umbrella?

If you're looking for help weathering the financial storms of life, Consumer Credit Counseling Services of Central Florida & the Florida Gulf Coast hopes you'll consider its umbrella. It offers budget and housing counseling and debt management programs. The new logo is part of an image upgrade that also includes a redesigned Web site.

(Photo Credit: Consumer Credit Counseling)

Serious financial troubles, but no money for a lawyer

Q. I am a elderly woman on a fixed income with no savings or assets. I've gotten myself into serious finanical trouble. I need advice and help but have no money to hire a lawyer. Can you give me some direction in order to get some help?

A. A good starting point would be to talk to a counselor at a consumer credit counseling agency. Find one affiliated with the National Foundation for Credit Counseling.

If you need legal help, you might make an appointment with the legal aid organization serving your community. Gulfcoast Legal Services serves Pinellas, Manatee and Sarasota counties, Bay Area Legal Services serves Hillsborough County and here are links to services in other areas. You also could call the local bar association serving your area and ask for a referral to a lawyer who has no charge for an initial consultation. Any of these approaches should get you started.

Since you have no assets, you probably are "judgment proof," which means there is nothing for creditors to seize or any way they can force you to pay. You can read more about it in this article about alternatives to bankruptcy. A lawyer who knows more about your circumstances can advise you on this.

Are points or cash better card rewards?

Here's a new twist on reward cards. Chase Bank USA is offering consumers not only the ability to choose cash or points, but the ability to switch from one to the other if they change their minds.  The card pays 3% cash or points on purchases at gas stations, grocery stores and fast food restaurants (limited to $600 per billing cycle) and 1% on other purchases. The points can be redeemed for air travel.

I always choose cash on my reward cards and I don't imagine I'd change my mind. How about you? Cash or points? Is the ability to switch something you'd even care about? More details on the card can be found here.

(Photo credit: Chase Bank)

I want my free credit reports one at a time

Q. I'd like to order my annual free credit reports separately, staggering them out a few months apart. I don't want to do this online; I prefer to phone in my request for a report by mail.

It seems impossible to find the appropriate phone number for this. I spent half an hour on the Experian website alone and then gave up. Any number you call leads you ultimately to the (877-322-8228) at which you can only order all 3 together. Do you know the right phone numbers for this?

A. You have found the one and only phone number that I know about for ordering free credit reports by telephone. If that doesn't give you what you want, I suggest that you click here, print out the order form and order your reports by mail. Here are the full instructions for ordering the reports online, by telephone or mail.

Should you freeze your credit files?

Starting July 1, Floridians have the option of putting their credit files in the deep freeze.

The question is whether it's a good idea. PRO: No one can steal your identity and open credit cards or take out other loans pretending to be you. CON: You can't get credit either without lifting the freeze. Unless you are at least 65 or a victim of identity theft, it will cost you $10 per credit bureau (there are three big ones) to freeze your files plus $10 per credit bureau every time you want to temporarily lift them to apply for credit yourself.

A freeze is a great idea if you are an identity theft victim and perhaps if you are older and settled in your credit ways - you've got all the credit you want now, you pay cash when you buy a car, etc. And I have to say it's a pretty good curb on impulse spending when you have to wait several days for credit to come through. However, it could be very inconvenient and expensive for those whose financial lives are still in flux. A credit check is pretty common if you move and open utility accounts (not to mention renting an apartment or taking out a mortgage.)

You can read more about this in my column in today's paper. I'd welcome your comments on whether you plan to freeze your files.