Checking My Credit Score + Closing a Credit Card? (Citi)

[mscriv]

Credit card's newest trick: 79.9 percent interest

NEW YORK (AP) -- 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.

Just another examples of the "passive" credit card industry. A 79.9% interest rate!

LINK

 

[Gelfin]

There are plenty of ways to get screwed with a credit card, but having credit is still necessary.

A large part of your credit score is the proportion of total credit to credit in use. Closing credit cards as soon as you pay them off is like attacking your credit score with a boa constrictor. Every time you breathe out, it squeezes a little tighter so you can't breathe in again.

When building credit, the only reason to close a card is if just keeping it open (without spending anything) is costing you an outrageous amount of money. There are lousy credit card companies, particularly those that cater to "high risk" customers, that will do exactly that. They're essentially offering to improve your credit score for a hefty fee (provided you do the right things), but you'll have to decide how much that's worth to you.

OP, do not close that Citi card just because the web site is confusing and the representatives often unhelpful. You've just experienced what it's like to have any credit card. Next, examine those "random, hidden charges." Make sure you understand what they are. You said you aren't too aware of how credit cards work, so some of them could be entirely legitimate, and even avoidable depending on your behavior. Others, well, for example credit cards love to sign you up for expensive "credit protection" partner services that really do nothing for you, and it's hard to get out of them. That should annoy you, particularly if the fee for the "service" is a substantial fraction of your credit limit.

You might think to keep the card open but just not charge anything on it, but that's a problem too, because the company will close your account for inactivity after a certain time that varies from card to card.

If I were trying to build a credit score right now, and didn't feel I had the necessary discipline to spend responsibly, what I would suggest is to pick some cheap recurring bill that offers to automatically charge your balance to a credit card each month. The most likely target would be your cell phone bill. If necessary, though, subscribe monthly to something so cheap you won't really miss the money, which charges to your credit card. Take up World of Warcraft or something. Check your statement and take note of the exact day of the month on which that bill hits your credit card.

Next, go to your bank's web site (not your credit card provider). Most banks these days offer free online banking (saves them money on tellers), and it's fairly easy to find one with free bill pay (at your age, look for "college accounts," but avoid "free with minimum balance" offers). Go to your bank and switch over to such an account if necessary.

Once that is set up, set up your credit card provider as a bill pay recipient, then schedule a monthly automatic payment in exactly the amount of the recurring charge a few days before the charge is scheduled to appear on your credit card statement, so that the payment arrives at worst simultaneously with the charge. Even if your card offers no "grace period" this should avoid a finance charge. Your credit card may still find a way to charge you something, in which case you'll still have a small amount to pay on your credit card bill, but it should be vanishingly small, on the order of pennies. Pay that manually through your bank's bill pay website.

Your credit card company also will have an "automatic online payment" option. Don't use it, because they will not offer you the option to synchronize the payment with the charge the way we're doing above. They'll take the payment around the bill due date, which (depending on billing dates and terms of your card) could maximize finance charges.

Make sure your bank emails you every time it submits that payment, and especially if it can't due to lack of money in the checking account, and get in the habit of not ignoring those emails. But more importantly, train yourself that it's the end of the freaking world if you ever let your checking account get below the fifteen bucks or whatever needed to pay that bill every month. If you get one of those emails telling you the bill couldn't be paid, that's an emergency. Find the payment, get it into your checking and manually submit the payment as fast as you can. Imagine your credit card company is charging you for the luxury of laziness here, because they sort of are.

But provided you can manage to keep that payment money in your checking account, your credit rating will improve without you even thinking about it further. At that point you can go with the old trick of dropping your credit card in a tupperware full of water and tossing it in the freezer if it helps. Wait until your credit rating improves and you have a little more income, and apply for another card with better terms. Don't close the original card until it's a negligible fraction of your overall credit.

Of course, you may never have to. I am still using a several generations removed descendent of the Citi card I got in college. The terms get better as you get more established.

 

[barkomatic]

I agree. You have to have credit to get by.

This is a line that has been fed to the American people for years by the credit industry and its simply not true. You don't need credit to "get by".

Somehow, people in this country paid cash for their consumer purchases, homes, education, and automobiles in the past--and they weren't wealthy.

 

[barkomatic]

Just another examples of the "passive" credit card industry. A 79.9% interest rate!

LINK

This doesn't surprise me at all. The credit industry wants us to be what amounts to a modern day version of a slave.

 

[Gelfin]

This is a line that has been fed to the American people for years by the credit industry and its simply not true. You don't need credit to "get by".

Somehow, people in this country paid cash for their consumer purchases, homes, education, and automobiles in the past--and they weren't wealthy.

You don't need credit to get by, but you do need a credit score. Yes, it's sleazy and wrong, but it's a fact of modern life. Your ability to rent an apartment and establish utility service, how much you pay for insurance (particularly car insurance), and even your ability to get a job are affected by your credit rating.

The easy availability of credit has done a lot to inflate the prices of things commonly bought on credit (homes, cars, education in particular), but how things ought to be is a whole different discussion from how they are.

The trick is not opting out in protest, but working the system so it benefits you more than it does them.