credit card problems


Face Credit Problems Head On

Unfortunately, even in a time of a short term financial crunch the damage done to your credit rating can last for years.  Your credit rating affects more than just getting a loan or refinancing your mortgage.  If you apply to rent a product or an apartment - your credit is checked.  If you buy car insurance, get cable TV, or buy at 90-days-same-as-cash - your credit is checked. (more below)

There are few of us that do not have credit problems at some time in our lives.   Temporary job loss, and accident or illness - anything that disrupts our ability to earn a living or to keep to our budgets can cause havoc on our credit reports.  If the problem is a temporary one, it's common for people to juggle the bills, pay what they can and assume that as soon as they catch up everything will be normal.

A low credit score means you pay more for insurance might be required to make substantial deposits or may be turned down for a credit card or a home loan.  As critical as those things are, there is a serious financial hazard that is seldom mentioned that is a direct result of damaged credit.

Did you know your credit card interest can go as high as 36%?  In 1978 the Supreme Court decided that interest rates could be based on the rates allowed by the state where the credit card company did business.  Prior to that, banks issuing credit cards could charge no more than the usury rate (the highest interest rate allowed) for the state were the customer resided.  The was a sweeping change - and is the reason so many credit issuing banks are located in states such as Delaware and South Dakota where high interest rates are allowed.

The huge problem for you is that one late payment on one credit card can result in all of your credit cards having the interest rate raised to more than 30%.  There was a time when you could call your creditor and have a late payment approved but the sheer size of the credit industry now doesn't allow for personal consideration.

You might think you are protected because you've had the same credit cards for years and have faithfully paid month after month.  You would be wrong.  Initially, credit card companies were not quick to raise rates on good customers and if you were late on a couple payments you might see an increase of 2-3% in the interest on your credit cards.

For years, banks and credit card institutions focused on giving customers as much credit (and sometimes more) as they could handle.  The monthly payment on these revolving accounts was only 2-2.5% of the balance plus the monthly interest.  In 2005, Federal Regulators called on these corporations to raise the payment to 4% of the balance plus the interest rate.  This caused monthly payments to be higher for consumers.  Shortly after that, the financial corporations began the current practice of changing the interest rate of a customer to the highest allowable rate (30-36%) immediately after any sign of financial weakness in the customer's credit.

In reality, the result is that $10,000 on credit cards at 9% in 2004 required a payment of approximately $285 a month.  That same $10,000 of credit card debt can now require as much as $675 as the monthly payment.  Such an increase is more than many budgets can handle, and the predictable result has been an increase in bankruptcy filings directly due to credit card debt.

Knowing your credit rating and what can affect it is no longer an option - it's a necessity.  Understanding how credit works, where to find credit when you have a less than stellar credit report and learning how to improve your credit score will put you in charge of your finances and could save you financially when you are face with credit problems.