Credit Card Debt Management

Citibank’s mtvU is getting a ton of attention these days, thanks in large part to a CNN report naming it one of the “best student credit cards.” Why all the love from critics? This card knows its target audience all too well. That intuitiveness is something MTV has long bragged about, and now they’re packing their knowledge of the coveted 18-26 demographic into small, power-packed plastic packages.

The card offers five Thank You points for every dollar spent at restaurants, bookstores, record stores, video rental stores and movie theaters. It also give students one point for each dollar spent elsewhere. It offers five percent back on all Amazon.com purchases and a whopping number of points for staying under limit, paying the bill on time and bringing in good grades each semester.

Although it’s refreshing to see a credit card with such an apparent level of social responsibility, mtvU has also been in the news lately for some shady recruiting tactics involving free food. So it’s apparent that they are preying pretty heavily on the college crowd, but that makes sense in light of the fact that college students are the only ones allowed to have this card. Besides, many people consider credit cards just as integral to college life as microwaveable food nowadays. So for those who subscribe to that belief, mtvU is a pretty unbelievable bet. However, before signing up, consumers may want to consider that getting approved for this card can be a fairly rigorous process.

In fact, some say Citibank has applied new verification rules to all its student services. The guidelines require a photocopy of a student ID and a current enrollment sticker, or a copy of the current semester’s paid tuition bill with the student’s social security number on it, printed out directly from the school web site with the URL listed. Also required: proof that the student has a landline phone with the bill in their name. If the bill is not in their name, then a copy of a bank statement from within the last 90 days will suffice.

For those students willing and able to jump through Citibank’s many hoops, mtvU looks to be a very good card indeed. But don’t overlook the interest rate - 0% in the first six months and thereafter a variable rate of more than 17% on purchases and balance transfers, and 22% on cash advances.

From a no-frills, low-interest perspective, students may be better off to use the other two credit cards mentioned in the CNN Money article. That is the Ohio Savings Bank Student Platinum Plus Visa or MasterCard at 13.99% APR, or the Sovereign Bank Student Visa or MasterCard at only 9.9% fixed. The catch on that last one is that the 9.9% Platinum Plus account with Sovereign Bank is granted only to those deemed to have “credit worthiness,” according to Sovereign Bank’s terms and conditions.

Those without “credit worthiness,” like entry-level college students who often don’t have any credit built up yet, will be bumped up to a higher interest credit card with Sovereign Bank. At any rate, responsible use of a low-interest, low limit credit card is the name of the game for college students, and responsible use does not mean swiping the card at every video store or restaurant you can find.

Interesting trend here. UK-based HSBC, having recently dropped all subprime mortgage lending because that division of its American business is “no longer sustainable,” has decided the American subprime market is still worthy of credit cards. Lots and lots of credit cards. Subprimers are statistically more likely to make minimum monthly payments and rack up late payment fees, analysts say.

According to the Sept. 4 edition of The Boston Globe, credit card issuers like Capital One have in recent months drastically ramped up their credit card mailings wooing subprime borrowers. Leading the charge? HSBC, with subprime credit card mailings in the first half of 2007 that more than doubled the number sent out in the same timeframe a year ago.

Meanwhile, Washington Mutual, whose web site boasts an effort “to be a leader in the subprime mortgage industry,” is also scrambling to downsize its subprime mortgage marketing efforts. That company has also increased subprime credit card mailings, by about 35 percent.

At least Washington Mutual claims to be targeting the upper end of the subprime market, consumers with credit scores of 600 or above. Perhaps this is what the company meant when it told the Associated Press earlier this month that it has been “anticipating and preparing” for the subprime mortgage fallout for the last 18 months. The company claimed to have taken “strategic actions” to “weather this market” and “take advantage of growth opportunities.”

Let them all have credit cards! How generous. While credit card companies have been trying so hard to hand out more debt opportunities to subprime consumers, the number of credit card offers they’ve mailed out to those with good credit has decreased significantly, according to the Globe. Makes perfect sense. Washington Mutual, HSBC, they’re all bloodsuckers. You’d think they would have learned their lesson, but there is currently no way for subprime consumers (or subprime lenders) to benefit from mortgage refinancing so credit cards have become a cash cow.

This goes back to what I said in a former post: Never assume that because credit card companies are mailing you offers again, your credit score is improving. There is always an agenda, and consumers must be savvy enough to identify it.

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.