Credit Card Debt Management

Vermont merchants are pushing for legislation to plug what they see as a virtually endless flood of cash going to major credit card companies to pay transaction fees. And they are not alone. Merchants across America agree that credit card fee increases, coupled with the simultaneous rise in popularity of credit cards, has simply become too much to handle.

The problem is especially notable for convenience stores selling gasoline, because credit cards have become the payment method d’jour for about 80% of the population, particularly as gas prices skyrocket. The popular notion of paying for gas using a rewards card hurts even more because this type of card charges the highest merchant fees, according to the Burlington Free Press.

All the Vermont state legislation would do is increase awareness among merchants of the different fees they might face so they might be better prepared. The Free Press reports that Chris D’Elia, president of Vermont Bankers Association, “said he understands merchants are frustrated, but the state legislation is ‘a bad bill because it’s not going to accomplish anything.’ The printed rules for some credit cards are easily more than 1,000 pages, he said, and available online.”

Some merchants would like to see federal regulation of the fees they can be charged by credit card companies. However, the majority of merchants do not favor regulation, but simply want to create a free market approach to setting the fees, which are currently determined primarily by Visa and MasterCard.

Seeing as how gross profit margins have dropped by more than half, they may have a point. However, many merchants are combating the problem by either advertising a discount for customers who pay in cash (difficult to do with gas purchases) or by increasing prices on their goods and services.

No more pins and needles. Your life will be a lot less worrisome if you have already been practicing good money management habits, like paying bills on time and spreading debt around without overextending your debt-to-credit ratio. Fair Isaac Corp., that baffling company responsible for the FICO score, is adding a little bit of leniency into the system it uses to determine a person’s credit score. Here are some of the most significant changes, according to Money magazine:

Isolated late payments are less damaging: Any time you make a habit of paying bills late, it’s going to be ugly. However, if you’ve done that only once or twice a while ago, but are in good standing otherwise and have a lengthy credit history (10+ years), you’ll probably be in the clear. “In fact, you could see a one-time boost in your score with the new formula,” Walecia Konrad writes in Money.

Multiple credit inquiries are less damaging: Within a 45-day window, you can undergo several credit inquiries with little or no effect on your credit report. “The change is a reflection of the fact that the average person has more credit accounts and loans today than in the past,” Konrad writes.

Multiple debts? No problem: Rather than determining how many accounts you have, what will be more significant to your credit score is how close those accounts are to being maxed out. Accounts that are nearly maxed out will drop your score by several points, but successfully managing (and not maxing out) a mixed bag of loans and lines of credit will boost your score. Therefore, Konrad recommends spreading debt over several credit cards to keep debt-to-credit ratio down.

At the risk of appearing overly suspicious, are these changes a subtle way to try to boost the economy and lenders’ profits? At any rate, no complaints here. It will be nice to see that late payment on the Kohl’s credit card from 2003 finally drop off the credit report!

Did you ever wonder what your credit card number means? It’s not random selection, unlike the way your interest rate may often appear to be. The numbers do have meaning, according to Best of Me blog:

The first digit or two will show what network your card belongs to. Three is for travel and entertainment cards. Four is for Visa. Five indicates MasterCard and six indicates Discover. A 37 at the front of your credit card number indicates American Express, while Carte Blanche and Diners Club use 38.

American Express: The rest of the credit card number includes one digit indicating the type of card and one digit indicating the currency, followed by a seven-digit account number and a three-digit number indicating the card number within that account. The 15th and final digit is a “check digit,” which validates the authenticity of the credit card’s number.

Visa: After the number showing what network the card belongs to, there is a five-digit bank number. This is followed by an account number of six digits or, in some cases, nine digits. Of course, the card is completed with a check digit at the end.

MasterCard: After the network number, this card features a bank number of anywhere between two and five digits. The rest of the digits, except the last one, make up the account number. The last digit is the check digit.

And there you have it! Everything you (never) really wanted to know about the convoluted formula that is your credit card number. Consider yourself informed.