Credit Card Debt Management

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.

When I read Zac Bissonnette’s latest post on BloggingStocks.com, taking Citibank to task for commissioning college students to prey on their peers — it brought back memories.

My own naive student credit card application experience – for which I got a university t-shirt and a record on my credit report but no actual credit card — was similar. He was the cool guy with the red afro. These forms must be legitimate if he was hawking them. He was, after all, the fearless leader of the student section at all the university basketball games. Seriously — that was my thought pattern.

In retrospect, I have to wonder how the outgoing redhead came to be involved with the student credit card business. Bissonnette’s post sheds light on the possibilities, with Citibank now paying college-aged headhunters between $5 and $10 per college student they can convince to complete a student credit card application. Fast, easy and tempting cash for a broke kid.

I, like the many students profiled in the Business Week articles to which Bissonnette’s post refers, had no clue about consumer credit! Not till several years later did I even give the student credit card account a second thought. Thankfully, it still had a zero balance and I closed it with ease.

Not every college student is so fortunate to escape relatively unscathed. Business Week even profiled a teen claiming to have dropped out of college his sophomore year to pay down his $3,000 student credit card bill, tired of living in fear of creditors’ calls. The article states that college student credit card use has skyrocketed over the course of one generation, and gone from 67% in 1998 to 75% presently.

Warn the kids, everyone! Education on such matters need to start in high school, long before these naive consumers hit their 18th birthday. Teach responsible money management habits and the ins and outs of credit cards sooner rather than later so they aren’t taking away loads of consumer debt along with their diploma.