79.99% Interest Rate Cards

You have to read the fine print to make sure you don't get something that is not beneficial to you. In a recent article, it mentions a credit card that charges 79.99% interest rates!

NEW YORK —

It's no mistake. This credit card's interest rate is 79.9 percent.

The bloated APR is how First Premier Bank, a subprime credit card issuer, is skirting new regulations intended to curb abusive practices in the industry. It's a strategy other subprime card issuers could start adopting to get around the new rules.

Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25 percent of a card's credit line.

In a recent mailing for a preapproved card, First Premier lowers fees to just that limit — $75 in the first year for a credit line of $300. But the new law doesn't set a cap on interest rates. Hence the 79.9 APR, up from the previous 9.9 percent.

"It's the highest on the market. It's the highest we've ever seen," said Anuj Shahani, an analyst with Synovate, a research firm that tracks credit card mailings.

The terms are eyebrow raising, but First Premier targets people with bad credit who likely can't get approved for cards elsewhere. It's a group that tends to lean heavily on credit too, meaning they'll likely incur the steep financing charges.

So for a $300 balance, a cardholder would pay about $20 a month in interest.

First Premier said the 79.9 APR offer is a test and that it's too early to tell whether it will be continued, according to an e-mailed statement. To comply with the new law, the bank said it will no longer offer the card that has $256 in first-year fees as of Feb. 21, 2010. However, customers will still be able to use their existing cards. The bank said "no final decisions" have been made regarding any rate changes for those cards.

First Premier noted that it needed to "price our product based on the risk associated with this market."

The bank declined to specify how many people were offered the 79.9 APR card.

According to First Premier's Web site, the credit cards are serviced by its sister organization Premier Bankcard. The company, based in Sioux Falls, S.D., says Premier Bankcard is the 10th largest issuer of MasterCard and Visa cards in the country, with more than 3.5 million customers.

In a mailing sent to prospective customers in October with the revamped terms, First Premier writes "...you might have less-than-perfect credit and we're OK with that." The letter notes that an online application or phone call is still required, but guarantees a 60-second status confirmation.

The letter also states there are no hidden fees that aren't disclosed in the attached form. That's where the 79.9 percent interest rate and $75 annual fee are listed. There's also $29 penalty if you pay late or go over your $300 credit limit.

Even if First Premier doesn't stick with the 79.9 APR, it will likely hike rates considerably from the current 9.9 percent to offset the lower fees, said Shahani of Synovate.

The revamped terms may not be the only changes; First Premier also appears to be moving away from the riskiest borrowers.

The bank typically mails offers to subprime households, meaning those with credit scores below 700. In the third quarter, however, 84 percent of its offers were sent to subprime households, down from 91 percent the same period last year, according to Synovate.

First Premier could be cleaning up its credit card portfolio since the new regulations will limit its ability to raise interest rates. That could mean First Premier won't issue cards as liberally to those with bad credit.

As harsh as First Premier's terms seem, that could be a blow to those who rely on the card, said Odysseas Papadimitriou, CEO of CardHub.com.

"Even when the cost of credit is astronomical, for people in true emergencies, it's much better than not having access to credit," said Papadimitriou.

Until Feb. 21, First Premier is still offering its even-higher-fee card online. So the price for credit the bank charges is at least $256 in first-year fees.

Why is my interest rate going up?

The laws have passed and will soon be in effect. There will be many emails and letters sent out to numerous customers letting them know their interest rates will be going up.

You might be wondering why was I targeted? I haven't made any late payments, never been over the limit, and have a long credit history with that credit card company. The reason lies not in your credit profile, but in the actual credit card company itself.

But here's what the new law won't do: It won't prevent interest rates from going up for the vast majority of customers.


Credit card rates: Nowhere to go but up

Even after Feb. 22, holders of so-called variable-rate cards can expect to see increases. Variable rates are based on the prime rate and meant to follow the rise and fall of that index.

The problem for consumers is that the prime rate is at 3.25%, an historic low. It will almost certainly go up, experts say. And so will credit card rates, which currently average 14.9%, according to the Federal Reserve.

"It does leave a lot of room for growth and prices will go up," said Joshua Frank, a senior analyst for the Center for Responsible Lending.

While most credit card holders already have variable-rate cards, banks have been busy these past few months making sure nearly all customers have those kinds of cards. In addition, some banks are setting a floor on certain accounts to prevent rates from sinking below a minimum level, according to a Pew Charitable Trusts study.

"The credit card reforms outlawed some seriously abusive practices, but the cards will still be loaded with other tricks and traps," said Harvard University professor Elizabeth Warren, an advocate for consumer financial protections.

Indeed, the expectation that interest rates will tick higher exemplifies the difficulty lawmakers faced when crafting the new rules: They wanted to protect consumers without killing credit availability at a time when bank loans are already choked.

Basic Credit Card Annual Percentage Rate

One of the most basic credit card stuff you need to understand is annual percentage rate. This is not just the nominal interest rate. Interest rates are what you are charged for purchases and cash advances.

However, the annual percentage rate (APR)includes annual fees, late fees, over the limit fees, and any other fees the credit card companies charge. All these charges are just a form of interest, so when you add these fees in as interest the APR increases dramatically. All fees are a cost of borrowing credit. Once you pay any fee, the APR increases accordingly.

Wikipedia:

There are at least three ways of computing effective APR:

* by compounding the interest rate for each year, without considering fees;

* origination fees are added to the balance due, and the total amount is treated as the basis for computing compound interest;

* the origination fees are amortized as a short-term loan. This loan is due in the first payment(s), and the unpaid balance is amortized as a second long-term loan. The extra first payment(s) is dedicated to primarily paying origination fees and interest charges on that portion.

For example, consider a $100 loan which must be repaid after one month, at 5% interest, plus a $10 fee. If the fee is neglected, this loan has a (year-long) effective APR of approximately 79% (1.05^12 =~1.7958). If the $10 fee were considered, the interest increases by 10% ($10/$100) for the month, with the effective APR being approximately 435% (1.15^12 =~5.3502, as 535%-100%=435%). Hence there are at least two possible "effective APRs": 79% and 435%.

More Basic Credit Card Reasons For Card Cancellations and Limit Reductions

It is amazing how fast the credit environment has changed in the last 2 years. Everyone had become more credit savvy and understood the term and conditions of cards, annual percentage rates, FICO scores, debt to income ratios, and most things you could think of. We managed our credit cards and paid them all on time to maintain the best credit profiles as possible.


And yet all this effort seems for nothing. The banks and credit card companies are doing something unprecedented. They are taking preemptive action to eliminate risk regardless of the individual's personal situation. Across the board, they are cutting credit card limits and canceling cards because the recession dictates it. There are many stories of people getting their credit cards canceled or credit limits drastically reduced.

Federal Reserve Study Shows Banks Tightening Credit Card Approvals, Increasing Rates and Fees

The Federal Reserve issued a statement this month that essentially agrees with the findings of private studies and journalists about the state of the credit card industry. Releasing results from its quarterly survey of banks to journalists, the Federal Reserve noted that more banks rely on fees and finance charges from cardholders in good standing to offset losses from defaulted accounts.

Therefore, according to the Fed's survey results, many banks intend to increase annual fees, raise interest rates, and pursue more service charges on most credit card accounts. Some survey respondents told researchers that some of their companies' actions were prompted by pending credit card regulations. However, most bank officials responding to the Fed's request noted that credit card account changes were mostly designed to insulate lenders from the effects of a sour global economy.

Roughly one in four banks responding to the Fed's survey reported tightening their credit card approval standards in the past quarter. While that figure may sound high to casual observers, industry analysts note that a similar survey conducted in the summer of 2008 resulted in a 75% affirmative response to the same question. Lending industry observers note that this trend represents a more prudent approach to offering credit cards and setting credit limits, compared to the loose market of only a few years ago.

HIgher interest rates on the way for everyone

In the past credit card companies would base your interest rates on your personal credit profile, job stability, and net worth (assets minus liabilities). That was the past and under the new economy, they are making decisions across the board on their entire credit card portfolio.

Frankly, the credit card companies are bleeding losses through charge offs that reflect the current unemployment rate of +10%. That is an extremely high number and will continue to go only up in the near future. Thus, the credit card companies have to make up the money through higher interest rates and fees on the remaining credit card customers.

New York Times:

In their defense, banking officials say they have no choice but to raise rates and limit credit. Because of the new rules and the prolonged economic malaise, they say it is now far riskier to issue credit cards than it was just a few years ago.

“We sell credit; we don’t sell sweaters,” said Kenneth J. Clayton, senior vice president for card policy at the American Bankers Association. “The only way to manage your return is through the price of the product or the availability.”

The nation’s largest banks are scrambling to figure out a new business model that fits within the new rules and current economic conditions. Those banks made handsome profits over the last decade by charging high interest rates and penalty fees to a small group of customers who routinely paid late or exceeded their balances.

Already, banks are shifting to a model in which a smaller pool of Americans will be eligible for credit cards, and customers with cards will probably pay more for the privilege through annual fees and higher interest.

Citibank closing credit card accounts

If you are a Citibank credit card holder and find that your credit card is now closed, don't take it too hard. There are basic reasons why a credit card company will close on an account. Some of these basic card card reasons are delinquent account, change in financial status, change in credit reports, change in income, and change in FICO scores.

You may not fall under one of these reasons and may in fact have been loyal, never been late, and have a solid job, income, and assets. Then the other reason is your bank is simply struggling.

MSNBC:

NEW YORK - Shannon Burdette tried to pay with her Shell Mastercard after filling up her gas tank this weekend but found the card rejected.

Confused, she called the customer service line on the back of the card, issued by Citibank, and was told the account was closed because of something that appeared on her credit report. But when the Sykesville, Md., resident got a copy of her credit report online, the only negative thing she saw was "closed at credit grantor's request" on the Shell MasterCard account.

"They said there was a routine review," said Burdette, who maintained that she and her husband, Brian, used the card regularly and always paid the bill on time.

Burdette isn't alone. People across the country have been reporting similar experiences in postings on various consumer Web sites.

Citi confirmed the basics. The bank said in a statement it "decided to close a limited number of oil partner co-branded MasterCard accounts." That includes not only Shell, but Citgo, ExxonMobil and Phillips 66-Conoco cards

Basic credit card reform

Credit card reform is on the way. The reforms are to protect consumers from the abuses that take place now from credit card companies. Basically the credit card companies can raise interest rates, minimum payment amounts, or any terms of the contract at any time, but with the new laws enacted the credit card companies will be required to give written notice.

Channel3000.com:

The Credit Card Act of 2009 is being hailed as the largest reform ever imposed on the credit card industry, and the move is meant to increase consumer protection -- but it could also have some negative effects for those with good credit.

In the current fast-paced world fraught with economic challenges, paper or plastic has taken on a whole new meaning. More and more people are relying on plastic for their purchases, but credit cards as we know them today are undergoing a big change.

"It's going to be a different playing field," said Michael Johnson, finance instructor at Madison Area Technical College. "It's not going to be quite as easy to get into trouble as it has been in the past."

The Credit Card Act of 2009 is 33 pages of very complicated material, but it is full of important information for those who use credit cards. For example, under the legislation, 18 to 20 year olds will no longer be able to get a credit card without a co-signer.

Another change aimed at protecting consumers adds the right of the cardholder to reject an interest rate hike.

Starting in February, when the legislation takes effect, credit card companies must inform you in writing that they're going to increase your rate -- and you can say no. The rejection would close your account, but would still allow you to continue paying off the balance at the current interest rate.Another thing that will change is how credit card companies apply your monthly payments to your credit card balance.

Unfortunately, the credit card companies have already taken preemptive action to get around those new laws. Specifically, they have already raised interest rates and payments, and changed fixed rate to variable interest rates.

Credit card limit reductions and cancellations

If you have a perfect credit history and received a notice from your credit card company detailing information of a credit card reduction or cancellation of your card, then there is no need to panic. This is just the economy squeezing the credit card companies to take action to maximize profits and reduce liability. Unfortunately, you have become the victim of the economic downturn.

Not too long ago, the banks and credit card companies would look at your overall financial picture. They would take into consideration your employment and how long you have worked there, your income and how steady it is, and your payment history through credit reports or your FICO score. Now, they are under such great pressure to stay above water, that if you live in the wrong zip code or shop at the wrong place, then your credit card is adjusted.

Philly.com:

According to FICO's study, card issuers sliced credit limits for an estimated 33 million U.S. card holders between October and April.

An estimated 24 million consumers saw their credit limits reduced despite the absence of any new "risk triggers" during the study period. Those card holders generally had low balances, didn't use up a lot of their available credit, had very few - if any - reports of missed payments, and had a long credit history.

About one-third of the group, or 8.5 million, saw their credit scores drop after their limits were cut, typically less than 20 points, FICO said.

The cuts had "negligible impact" on the scores of about 3.5 million people, and 12 million consumers saw score increases.

The best credit cards right now

Everyone has credit cards for different reasons. If you do use them, then you can take advantage of the perks they offer by understanding your own spending habits.

This was actually a nice summary I found at Money.com and wanted to share it with you. Each picture links to the credit card summary from the actual money article.

• 
  Simmons
• 
  Schwab
• 
  Citi
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  PenFed
• 
  AmEx
• 

Why was my credit card limit reduced

We live in an unusual time as far as the economy is concerned. It seems like normal financial advice dished out by the money experts no longer apply. During these recessionary times, this one specifically, all credit card companies without exception are doing things that they normally don't.
Credit card companies are reducing credit card limits without any regard to consumer credit profiles, credit scores, or financial situations based on debt to income ratios. The banks simply have taken many more losses than in normal times, so they have to tighten credit standards to reduce losses. They are far from the customer service era of doing things to satisfy customers. They have changed their attitude and focused everything on the bottom line. Banks do not care if they piss off loyal customers paying on time because they are being buried in losses and just trying to stay afloat.
If you find your credit limit reduced and your financial situation has not changed, then chances are you are simply a victim of the credit card company reducing limits based on entire portfolios being minimized for loss exposure. It doesn't matter if your FICO score is high, you have no other debt or no debt at all, or if you have a high net worth. I know it is hard not to take it personal and become angry, but the fact of the matter is credit card companies are reducing every one's credit. The idea is if you have no more credit available, you can't default on it. It doesn't make any sense in the big scheme of things, but the credit card companies aren't looking pass today in making their credit limit decisions.

Basic Credit Card Relief

In the environment we live in, we have been taught to pay our bills on time and if possible pay them off in full every month. Unfortunately, during these recessionary times you may find yourself overextended because of job loss, hours cut, spouse's job loss , or simply reduced income for whatever reason.

The number one priority is taking care of your family that includes making sure they have a roof over their heads, food on the table, and money to pay all the utilities. Keep you car loan current so you have a vehicle to get back and forth to work. The credit cards should be the least of your worries.

You can call the credit card companies and ask to for reduced rates and reduced payments. They generally will not accommodate you if your payment is on time and your account is current. However, once you fall behind and talk to a collections representative, they will have programs to get you current.

I was surprised to see Suze Orman with her latest advice which I agree with. In these hard times if you don't have a big emergency cash fund, then pay only the minimum on your credit cards. This is advice I would recommend from Suze.

Suze Orman and the New Rules of Credit Card Debt

"If you have an unpaid credit card balance [and] not much saved up in emergency savings, I need you to listen up. My advice has changed. I want you to only pay the minimum due on your credit card balance, and instead, make it your top priority to build as much of an emergency cash fund as you can," Orman said on the program.

Telling her fans not to prioritize paying off credit card debt is quite a shocker since her focus has long been about getting out of debt. In her latest book, 2009 Action Plan: Keeping Your Money Safe & Sound, she dedicates an entire chapter on the subject. But Orman says that now, with the number of unemployed Americans rising, having an emergency savings fund is even more important than being debt-free. "The sad reality is that the credit card industry is taking actions to protect themselves with no regard to your needs or how good you have been in paying your bills on time," she said, referring to the fact that credit card companies have been lowering credit limits, increasing interest rates, and revoking credit cards altogether.

That means that many Americans could find themselves without any access to credit following a job loss, when they need it most. If someone finds themselves out of work and without a credit card, then Orman worries about her ability to put food on the table. That is why an emergency fund is key, she says. So instead of prioritizing paying of debt, Orman says that all spare dough--after making the minimum payments--should go into an emergency savings fund. Ideally, she says, that fund should contain eight months worth of living expenses.

While this approach makes sense for those living with little or no savings, consumers who already have a significant emergency fund should still focus on paying off credit card debt. That's something Orman, along with other financial experts, really emphasize. For those with rainy day funds large enough to last eight months, these more familiar rules still apply:

If you are just in over your head and can't take the nonstop calls you get from your credit card companies, then you should explore bankruptcy as an option. Yes, your ego may hurt, but you should put this aside for the sake of taking care of your family. You don't want to become a casualty of the recession/depression we are in and become homeless on top of being unemployed.

Basic Credit Card help or assistance

In the climate that we are in, it is to your advantage to know basic credit card stuff, since it is easy to fall into a hardship caused by a change in income. There can be a death in the family, a layoff, an injury or illness, and numerous other reasons to fall behind on your credit card payments. Credit card companies are actually willing to help you.

There are companies who can help or assist you with consolidations but I would recommend you do it yourself. It will take some time waiting on the phone but it will be worth it. You may not get the result you want with the first call but something can always be worked out.

In this environment we are in, it is not only the consumer that is having cash flow problems but the credit card company themselves. They all want your money and if you call in and can get the right person to speak with, you should get some positive results.

Before calling in, you should have an idea of what you want to accomplish. The goal should be a payment plan that will fit into your budget. Assuming your income is back to normal and you are just behind a few months, try to get the credit card company to "recast" your credit card back to a current status without coming up with the payments in arrears. The credit card company will want at least a payment to get you back into a current payment status before putting you in a current payment status. Some credit card companies may even put your account temporarily at 0% interest rate.

Now, if your income is reduced permanently, then you need to put a budget on paper to see what you can reasonably afford. That means take you take home income after taxes and subtract on the necessities: mortgage/rent, car payment and insurance, utilities, and money for food. Take the amount that is left over, and divide that with the number of credit cards that you have. This is the goal you are shooting for, and when you talk with the credit card company, the representative may actually ask you for all this information anyways.

There are some situations where you can actually ask for a forbearance such as your student loans. Just ask if it is available on your credit card and what the requirements are to qualify.

If you are in the military, you can let the credit card company know you want to take advantage of the sailors and soldiers relief act.

The Soldiers' and Sailors' Civil Relief Act (SSCRA) of 1940 is essentially a reenactment of the 1918 statute. Experience during World War II and subsequent armed conflicts made certain changes in the statute necessary. The first of these amendments became law in 1942. In amending the Act, Congress was motivated, in part, by the desire to override court decisions that, in some instances, had led to restrictive interpretations of the Act. The latest amendment occurred in 1991 as a result of Desert Shield/Storm.

Reservists and members of the National Guard (when in active federal service) are also protected under the SSCRA. SSCRA (for all) begins on the first day of active duty, which means when the person ships out to basic training (Basic Training, and job-school are considered active duty for Guard and Reserve personnel, as well as active duty personnel). Some protections under the act extend for a limited time beyond active duty discharge or release but are tied to the discharge/release date. Additionally, some of the Act’s protections extend to the members’ dependents.

Whenever you get a payment plan or arrangement set up with the credit card company, please be sure to get it in writing. This will avoid any misunderstandings and protect you in the future in case the representative you worked with is no longer with that company.

One thing I would like to say most people would not agree with is don't access your IRAs, 401Ks, or other retirement accounts to pay off your credit card accounts or loans. Those are long term savings that should be left alone until you are ready to retire. It may be tempting to pull out those funds, but there are tax implications that will work against you.

If you have no income after your home payment and the basic necessities to take care of your family, then you might want to consider seeing an attorney in regards to filing bankruptcy. This is not an easy thing to do, but you should put your pride aside and make sure taking care of your family is the number priority.

0% interest rate credit cards still exist

Even though credit card companies are lowering credit limits and even raising interest rates for their current customer for one reason or another, there will always be other credit card companies looking to sign up new customers.

If you are one of these customers who have maintained a great payment history and it reflects in your FICO score and experian, transunion, and equifax credit reports, then definitely explore your options to get the best rates for yourself. There are a ton of credit card companies who offer 0% interest rates that are good from 6 months to a year. I am still aware of one card issuer who still offers 0% for 15 months.

Another great reason for getting cards with lower interest rates is saving money. If you carry a balance, this is a great way to save money every month and help pay down balances faster.

Watch the latest videos on YouTube.com

Credit card videos

There is a ton of information about credit cards on the internet. It is sometimes difficult to read and understand the terms of agreement that come with credit cards. Most of them are basic and are intended to protect the credit card companies.

The credit card agreement is a contract that allows the credit card issuers to charge off the account (write off the credit card debt) for non payment, transfer or sell the card to another bank or card issuer, change the terms and conditions, as well as sue you for default or breach of contract.

The video below helps explain financial terms to help you understand better how your credit cards and other loan products work.

Watch the latest videos on YouTube.com