Two cycle billing, also known as double cycle billing, has become a major problem within the credit card industry. This negatively effects consumers but does a lot of financial good for the credit card companies. Fortunately, this is something that is on its way out the door. Thanks to the new Credit Card Reform Act two cycle billing will no longer be a “trick” that credit card companies can take advantage of. From a consumer point of view this is something to get excited about.

The new rule makes it illegal for credit card companies to go back to past billing cycles when calculating interest to be charged for the current billing cycle. Consumers who pay off their bill in one cycle, but maybe not the next, have been hurt time after time by this practice. In the future, credit card companies will no longer be able to take advantage of two cycle billing which will financially benefit the consumer.

Does your credit card company currently use a two cycle billing method? Chances are that you don’t know the answer to this question. At this time it is legal for companies to use two cycle billing, although many have never done so. Some companies rely on single cycle billing, and those that do will not have any problems making a change in July 2010 when the new Act goes into effect.

Two cycle billing allows a credit card company to use two months to calculate the average daily balance. In the short term two cycle billing may appear to be beneficial, but over the long haul the credit card companies are the ones that come out on top.

Once the Credit Card Reform Act becomes effects in July 2010 credit card companies will no longer be able to use the two cycle billing method. 

Many consumers find it difficult to stay on task when it comes to making credit card payments (which can result in late fees, missed payments, and bad credit scores). This is particularly true when dealing with more than one balance. The Credit Card Reform Act is set to change this in July 2010, and in the long run consumers should benefit in a number of different ways.

Generally speaking, this section of the act states that a credit card company must fairly apply payments made by the consumer to balances with different interest rates. In turn, this works out for the consumer because credit card companies will no longer be able to leave high interest debt in place while dealing with lower rates that earn them less money.

There are two ways in which credit card companies can apply payments that are in excess of the minimum requirement:

1. The entire payment can be applied to the balance with the highest APR. Again, this helps the consumer pay down high interest debt above all else without the lender having a say on where the money goes.

2. The payment can be split proportionally among the balances. This is known as the pro rata rule.

As a consumer who makes regular credit card payments you may never have given the above information a second thought. And while there may not be much you can do right now, when the Credit Card Reform Act goes into place in July 2010 you will be more protected than ever before. 

Soon enough, any payment you make over the minimum will be divided among balances with different rates, if available. This may not sound like a big deal but it is sure to work in your favor if you are carrying more than one balance with different interest rates. 

Are you one of those consumers who always have a difficult time making their credit card payment on time? If credit card late payments have become a big part of your life you are not alone. And while a lot of this problem may fall back on you, there is a good chance that your credit card company is not making things any easier. After all, if you send in a late payment there is a good chance that your credit card company will make even more money by adding fees, etc.

Fortunately, the new Credit Card Reform Act is going to make it easier for consumers to pay their bill on time. Credit card companies can only mark a payment late if the bill is put in the mail and delivered 21 days prior to the due date. This rule will give consumers more time to not only receive their statement, but to also get together the proper amount of money to pay. 

One thing to keep in mind is that some credit card companies have decided to only offer electronic delivery. In this case the company can deliver the statement less than 21 days before the due date. 

At this time, most credit card companies have one due date that acts as date in which late fees can be assessed as well as the expiration of the grace period. Currently, credit card companies must mail the statement at least 14 days before the grace period expires. When the new reform kicks in the grace period can expire seven days before a payment can be considered late, but to protect the consumer both dates must be clearly marked on the statement. 

This part of the Credit Card Reform is sure to make life easier on consumers who have found it difficult to pay their bill on time in the past. 

Due to deceptive and unfair practices within the credit card industry federal regulators were prompted to implement new rules to protect consumers. While many of the rules and stipulations may never effect you, there are quite a few changes that may work in your favor. No matter who you are, if you a carry a credit card it is important to be aware of this reform and how it will change your financial situation.

Before getting into the details it is important to note that the new Credit Card Reform rules do not go into effect until July 1, 2010. Until then the current rules of the industry will stay in place.

There are many ways that the new rules of the Credit Card Reform will protect consumers. Some of the most important include:

1. The elimination of two cycle billing.

2. Ensuring that payments are divided among available balances.

3. Ensuring that consumers have enough time to make the minimum payment.

4. Restricting the ability of credit card companies to increase the APR on an existing balance.

5. Credit card companies can no longer finance fees and charges for opening an account. 

As you can see, the above five details are sure to protect the majority of credit card holders. That being said, there are some details that the new Credit Card Reform will not cover. They include the size of penalty interest rates, reductions in credit limits, the issuance of cards to consumers with low income, and fees for paying online among many others. It is important to be aware of both the changes that will be in place as well as the details that will not be affected.

It is easy to see that the new rules of the Credit Card Reform are suited to benefit consumers. If you carry a credit card you will benefit from these changes when they go into place on July 1, 2010. 

The credit card reform rules passed by the OTS bans lots of deceptive (and expensive) practices that credit card companies have used lately to make more mone from customers (such as raising the interest rate on an existing credit card balance when the consumer is paying the credit card bill on time).

“I am extremely proud that OTS leadership has culminated in this important rule to ensure fair treatment for the millions of Americans who use credit cards,” said OTS Director John Reich.  “The rule will enhance public confidence in financial institutions and establish a level playing field for institutions that want to do business fairly without suffering competitive disadvantages.”

The credit card reform rules require that consumers receive a reasonable amount of time to make their credit card payments, prohibits payment allocation methods that unfairly maximize interest charges and, in the subprime credit card market, limits fees that reduce the credit available to consumers.

The rule is scheduled to take effect on July 1, 2010 (although credit card companies are being urged to adopt the rules sooner).

Yes!  A win for the American consumer. 

The report on identity theft, issued by the Federal Trade Commission in December 2008, concludes that nationwide standards need to be adopted for how businesses verify the identity of new and existing customers.  This will make it harder for identity thieves to use social security numbers ("SSNs") and other stolen, private, information to commit fraud.

“The first step in minimizing the role of SSNs in identity theft is to limit the demand for SSNs by making it more difficult for thieves to use them to open new accounts, access existing accounts, or obtain other benefits or services,” the FTC states in the report. Currently, the only private-sector organizations subject to nationwide authentication standards are financial institutions regulated by the federal banking agencies. The FTC’s report recommends that Congress consider establishing similar standards to cover all private-sector entities that maintain consumer accounts. Such standards would require organizations to adopt reasonable procedures for authenticating customers, but also would allow them to adopt a program that is compatible with their size and the nature of their business, the report states.

The FTC report also recommends that steps be taken to reduce the unnecessary display and transmission of SSNs, but noted that such restrictions must be approached carefully. A number of important functions in the U.S. economy depend on use of and access to SSNs, and the report concluded that overly restrictive attempts to limit the availability of SSNs could unintentionally curtail those functions. Finally, the report recommends steps to improve data security, increase outreach to consumers and businesses on the protection of SSNs, and enhance coordination and information-sharing among organizations that routinely use SSNs.

You can view a copy of the report here.

In May, the Federal Reserve Board proposed rules to prohibit unfair practices regarding credit cards and overdraft services.

The rules were primarily intended to protect folks from unexpected increases in the rates charged on their pre-existing credit card balances.  The rules would eliminate the practice of the use of ”universal default” clauses in credit card agreements, as well as a number of other pro-consumer changes.

The rules also would prevent banks from imposing interest charges using the “two-cycle” billing method and would require that consumers receive a reasonable amount of time to make their credit card payments, and would prohibit the use of payment allocation methods that unfairly maximize interest charges. They also include protections for consumers that use overdraft services offered by their bank.

“The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate,” said Federal Reserve Chairman Ben S. Bernanke.  “Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.”

The proposed changes to the Board’s Regulation AA (Unfair or Deceptive Acts or Practices) would be complemented by separate proposals that the Board is issuing under the Truth in Lending Act (Regulation Z) and the Truth in Savings Act (Regulation DD).

The FTC Act proposal includes five key protections for consumers that use credit cards:

1. Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time.
2. Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges.
3. Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.
4. Banks would be prohibited from imposing interest charges using the “two-cycle” method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.
5. Banks would be required to provide consumers a reasonable amount of time to make payments.

The rules also address subprime credit cards by limiting the fees that reduce the available credit. In addition, banks that make firm offers of credit advertising multiple rates or credit limits would be required to disclose in the solicitation the factors that determine whether a consumer will qualify for the lowest rate and highest credit limit.

The rules are a great step towards improving the credit card situation in the U.S., making credit card disclosures and agreements more consumer friendly.  The rules, in many ways, overlap the terms of the Credit Cardholder’s Bill of Rights Act passed by the U.S. House in September. 

]]> Credit Repair Credit Scores Credit Reports Bad Credit 2008-12-14T13:45:37-05:00 http://creditscoreaide.com/s/blog/credit-cardholders-bill-of-rights/ http://creditscoreaide.com/s/blog/credit-cardholders-bill-of-rights/ In September 2008, the U.S. House of Representatives passed (by a large margin) legislation designed to protect consumers from abusive lending practices of credit card companies.  The bill didn’t receive a huge amount of press attention given the other financial news this fall.  The “Credit Cardholders Bill of Rights Act” (HR 5244) passed the House 312-112, with 228 Democrats and 84 Republicans voting to support it. 111 Republicans and one Democrat voted against the bill. 

Below is a brief summary of the provisions of the Credit Cardholder’s Bill of Rights Act, as it was passed by the House.  The Act is now before the Senate (which will likely not take it up until 2009).  The changes would dramatically affect the rights of credit cardholder’s in the U.S. 

• Amends the Truth in Lending Act to prohibit a creditor from increasing any annual percentage rate of interest (APR) applicable to the existing balance on an open end consumer credit card account unless specified conditions are met.
• Prescribes the treatment of existing balances following a rate increase.
• Allows a creditor to increase an APR on the existing credit card balance only if the increase is due solely to: (1) the operation of an index not under the creditor’s control and available to the general public; (2) expiration of a promotional rate, or loss of a promotional rate for a reason specified in the account agreement (e.g., late payment); or (3) the consumer’s minimum payment has not been received within 30 days after its due date.
• Requires a 45-day advance notice of credit card account rate increases. (This is effectively a prohibition of the practice of ”universal default” provisions).
• (Sec. 3) Prohibits imposition of a finance charge, with certain exceptions, upon a credit card account balance that is based on balances for days in billing cycles preceding the most recent billing cycle (double cycle billing).
• Prohibits the imposition of a fee on an outstanding credit card balance, at the end of a billing period, that is attributable only to interest accrued during the preceding billing period on an outstanding balance fully repaid during that preceding billing period. Declares that any failure to make timely repayments of such a balance shall not constitute a default on the account.
• Requires each periodic statement of account to provide the telephone number, Internet address, and Worldwide Web site at which the payoff balance may be requested.
• Grants a consumer the right to reject a new credit card before the creditor notifies a consumer reporting agency of its corresponding account.
• Details mandatory pro rata payment allocations by a creditor where an outstanding balance accrues interest at two or more different APRs.
• Sets forth special rules for accounts with promotional rate balances or deferred interest balances.
• Prohibits a creditor from denying a cardholder a specified payment grace period if the cardholder takes advantage of a promotional rate balance or deferred interest rate balance.
• Requires creditors to send a periodic credit card statement of account to the consumer at least 25 calendar days before the due date for the next payment on the outstanding balance.
• (Sec. 4) Authorizes a consumer to opt-out of creditor authorization of over-the-limit transactions if fees are imposed.
• Limits any imposition of an over-the-limit fee to once per billing cycle.
• Prohibits imposition of any over-the-limit fee if the credit limit was exceeded due to a credit hold, unless the actual amount of the transaction for which the hold was placed would have resulted in the consumer’s exceeding such credit limit.
• (Sec. 5) Prescribes the contents of credit card price and availability information which the Board of Governors of the Federal Reserve System (Board) must collect and make public semiannually.
• Requires the Board to report to Congress annually on estimates of the approximate, relative percentage of income derived by the credit card operations of depository institutions from designated sources, including interest rates and fees imposed upon cardholders.
• (Sec. 6) Prescribes a standard for the initial issuance of subprime or “fee harvester” cards (accounts requiring first-year fee payments in excess of 25% of the total amount of credit authorized).
• Prohibits payment of any such fees (other than late fees or over-the-limit fees) from the credit made available by the card.
• (Sec. 7) Prohibits extensions of credit to consumers under age 18, unless they are emancipated under state law.

It’s time for some big changes in the credit card industry.  The Credit Cardholder’s Bill of Rights Act goes a long way to getting us there!

]]> Credit Repair Credit Scores Credit Reports Bad Credit 2008-12-14T13:28:15-05:00 http://creditscoreaide.com/s/blog/instant-credit-offers-and-your-credit-score/ http://creditscoreaide.com/s/blog/instant-credit-offers-and-your-credit-score/ ‘Tis the season for holiday shopping.  It seems every big merchant has an “instant credit” offer.  Amazon.com offers a credit card.  Walmart offers a credit card.  Even PayPal offers a way to get “instant credit”.  Before accepting these offers, make sure you consider how the application will affect your credit score.

Ready to click a button to accept a “PayPal MasterCard”, a “BillMeLater” instant credit offer, or some other easy credit?

Consider this first—will clicking the button hurt your credit score?  If you are in the process of trying to improve your credit score, you may want to think twice.

Most credit applications end up on your credit report as either a “hard pull” or a “soft pull”. Most applications for instant credit will show up as a hard pull (or a credit inquiry initiated by you).  Too many of these applications will cause your credit score to drop.

A “hard pull” usually refers to credit inquiries that are initiated by you. For example, if you apply for a credit card or a car loan, a creditor “pulls” your credit report to see if they should give you the loan or the credit card (and at what rate).  When you click the button to accept an instant credit offer online, you are applying for credit, and the lender will pull your credit report. 

Sometimes, not every credit inquiry (even those initiated by you) is considered a “hard pull”.  These are called “soft pulls”.  They are still voluntary inquiries, but do not affect your credit score in the same way.  They are often used by companies when they send you a pre-approved credit offer, or when they are simply trying to verify your identity. 

Typically, clicking “accept” or “apply” for an online credit offer results in a hard pull.

As a result, the inquiry will show up on your credit reports.  All three major credit bureaus report both “hard pulls” and “soft pulls”, although each bureau uses different terms to describe them.  For example, TransUnion calls them either “regular inquiries” (similar to a hard pull… they stay on your report for up to 2 years) or “account review inquiries” (similar to a soft pull ... these are not shown to others, and are only displayed to you). 

Both Experian and Equifax use similar techniques to track hard pulls and soft pulls.

Think before you click “accept” on an online credit offer.  If your credit score is already good, and you are not working to improve it, go ahead and accept the offer if it is a good deal.  If you are in the process of trying to improve your credit score, you may want to think twice.

]]> Credit Repair Credit Scores Credit Reports Bad Credit 2008-12-10T14:29:51-05:00 http://creditscoreaide.com/s/blog/watch-out-for-credit-repair-companies-that-promise-instant-results/ http://creditscoreaide.com/s/blog/watch-out-for-credit-repair-companies-that-promise-instant-results/ Recently, there have been a number of lawsuits filed by States and Federal Agencies against Credit Repair companies that make promises that they can’t keep.  The companies make claims like “guaranteed perfect credit score” or “instant results”.  Here’s what you need to watch out for when you are trying to decide how to improve your credit.

The key to getting a car loan, home mortgage or any other loan is having good credit.  In this economy, good credit is more important than ever. 

When people are desperate for help, there are always unscrupulous companies who take advantage of them.  Here are a few tips you can use to make sure that you avoid credit repair scams.

First, follow your judgment—if a credit repair offer sounds too good to be true, it may be.  Remember, no one can remove accurate negative information from your credit report.  (Negative inaccurate information can be!). 

If you see a credit repair offer, here’s how to tell if the company behind it is up to no good:

* The company wants you to pay for credit repair services before they provide any services. Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the services they have promised.
* The company doesn’t tell you your rights and what you can do for yourself for free.
* The company recommends that you do not contact any of the three major national credit reporting companies directly.
* The company tells you they can get rid of most or all the negative credit information in your credit report, even if that information is accurate and current.
* The company suggests that you try to invent a “new” credit identity — and then, a new credit report — by applying for an Employer Identification Number to use instead of your Social Security number.
* The company advises you to dispute all the information in your credit report, regardless of its accuracy or timeliness.

Also remember this—if you follow illegal advice and commit fraud, you may find yourself in legal trouble.  It is a crime to lie or misrepresent yourself on a loan or credit application.  Always make sure to be truthful and accurate.

Not all credit repair companies are unscrupulous—but there are a few of them out there.  Follow these tips, and use your judgment.  You can improve your credit, you just want to make sure to do it properly.

]]> Credit Repair Credit Scores Credit Reports Bad Credit 2008-11-24T10:55:36-05:00