Credit Card Debt Management

I really love this story! It seems Oklahoma State University law school students and faculty spent more than a year conducting a study of on-campus credit card solicitations aimed at students. The results landed several companies in court.

Attorney General Marc Dann’s office said Wednesday it is suing New York-based Citibank, Philadelphia-based Campus Dimensions Inc., Chicago-based Potbelly Sandwich Works LLC and local restaurant OSU La Bamba Inc. after two recent events near campus in which students allegedly were offered free food at La Bamba and Potbelly in exchange for signing up for a credit card. The lawsuits, which claim the companies violated Ohio’s Consumer Sales Practices Act, stem from the fact that the sign-up stipulation allegedly wasn’t disclosed in advertisements.

According to the story in Columbus Business First, the state is trying to stop the companies from repeating their shameless ways by:

Free food for starving college students? Really? Have they stooped that low? We knew the credit card industry was hurting, but offering free food is a new low. It is now painfully obvious how desperate they are to get consumers right out of the gate, before their credit gets tarnished.

I have experienced the hunger pains of college, the fifth day in a row of Easy Mac microwaveable macaroni and cheese. I would’ve done about anything for a nice, healthy, wholesome meal. In fact, junior year I did choose which church I would visit based on who bought lunch for college kids.

These credit card companies sense that vulnerability in college kids and they prey on it! Free food … Ugh, and to think all they ever gave me was a free t-shirt! California legislators have taken their battle against student credit card solicitations a step further. They are currently awaiting Gov. Schwarzenegger’s signature on a bill that would bar all credit card companies from using “free gifts” to entice credit card applications from college students on campus. Maybe there really is more to California than fruits and nuts. It’s brilliant and all 49 other states should follow their lead ASAP.

The Associated Press had an interesting article about how the credit industry has been affected by the Federal Reserve’s recent decision to lower the federal funds rate to 4.75 percent. The federal funds rate is essentially the interest rate banks charge each other for loaning money to each other through the Federal Reserve. The new rate is a welcome relief after a steady climb over the last year, and it no doubt has financial institutions and lenders clicking their heels in delight.

According to the Associated Press, the lower federal funds rate is expected to be “reflected immediately” when commercial banks pass their savings on to consumers through lower prime lending rates.

The credit card companies have enjoyed seeing their stocks climb, largely as a result of the Fed’s decision.

American Express Co. saw a 5.1-percent climb.

Mastercard Inc. saw a 6.7-percent increase.

Capital One saw a 5.3-percent increase.

Discover Financial Services saw a 7-percent climb.

Of even greater interest is the fact that American Express is exiting the international banking business to focus on its core product, credit cards. The times, they are a-changin’. It will be interesting to see how the credit card companies will join in the interest rate free-fall, if they do so at all.

Bad credit is no fun - that goes without saying. But don’t make the mistake of assuming your credit is improving, based on the number of credit card offers you receive in the mail on any given day.

My really bad-credit friend said this once: “I guess my credit score must be improving because credit cards are starting to send me offers again. I get them all the time.” No, in this case that probably means my friend’s really, really bad credit had improved to just bad credit status. After all, credit card companies have also been known to inadvertently offer credit to a 13-month-old.

All the offers being sent to my friend were secured credit cards that switched to unsecured over time (with good customer history). Not that there’s anything wrong with that! In fact, that may be one of the best ways to improve bad credit. It essentially means your card has a credit limit equal only to the amount of the deposit you put in the bank that issues the card to you. It works much like a reloadable prepaid debit card, the main difference being that a secured credit card can improve (or hurt) your credit score and a debit card really has no such effect.

Unsecured credit cards, on the other hand, are a whole different ball of wax. They are the ones everybody else gets, but customers with bad credit typically get much higher interest rates and annual fees attached. Mr. Credit Card provided a very thorough answer to a reader question along these lines, along with a list of bad credit offers. This fine Banks.com article will also teach you more about credit card offers for those with bad credit.

Whatever “bad credit” improvement method you choose, examine what is often the root problem - controlling monthly spending. That will help you have enough money to pay your credit card bill on time, one of the strongest determining factors in whether a credit card will help or hurt your credit rating. The other thing to remember: check your FICO score on your own, and don’t assume that your credit score is climbing because credit card companies suddenly have renewed faith in you as a customer.