Gym’s business model is to overcharge customers
Dear Liz: We’re having trouble with a gym that won’t stop charging our credit card. My husband has contacted them multiple times about canceling our membership, but the charges just keep coming. The contract we signed is really confusing, but it clearly states the gym can take 10 payments from our card. They have now taken 13 payments from our card. I just don’t know what to do to stop them.
Answer: Some gyms make their money by providing workout facilities. Others make their money by signing people up for contracts, then continuing to charge credit cards or bank accounts even after those people cancel.
This isn’t a mistake or an isolated incident. This is the gym’s business model, and it will continue to charge you until you push back—hard.
Don’t make any more phone calls that will just be ignored. Start by sending a letter to the gym by certified mail, return receipt requested, repeating that you want your membership cancelled. Keep a copy of this letter and the green receipt you get back in the mail as proof you provided proper notice. If the gym requires that you give 30 days’ notice, and many do, you may have to pay one more month’s charge.
If the gym charges your card after that, however, contact your credit card company and send them the proof you canceled your membership. You also should contact your local Better Business Bureau and your state attorney general to file complaints about this gym.
In the future, avoid gyms that push contracts. Instead, look for one that allows you to pay on a month-by-month basis. Many communities have non-profit YMCA or similar organizations that provide workout facilities at reasonable cost—no contract required.
Credit scores include your business cards, too
Dear Liz: When your credit scores are determined, do the formulas consider your business credit cards or just your personal cards? If I’m carrying balances on both types of cards, does it matter which I pay off first if I’m concerned about my scores?
Answer: If your business cards show up on your personal credit reports, and they often do, then those accounts are used to help calculate your credit scores.
You can see what accounts appear on your reports by using www.annualcreditreport.com, the only site that offers your federally-mandated, annual free look at your credit files.
The FICO scoring formula, which creates the numbers used by most lenders, doesn’t distinguish between business and personal accounts. If you’re carrying debt on both types of cards at similar interest rates, you should pay down the account that’s closest to its limit if you want the best chance of improving your scores.
“Piggybacking” can pose a serious risk
Dear Liz: You’ve written about helping teenagers get started with credit. One of your suggestions to parents is to consider adding the youngster to one of their credit cards as an authorized user. I agree with the spirit of the suggestion (that it will help the parent monitor any irresponsible spending), but I think in practice that can be dangerous to the kid.
At 16, my then-stepmother added me as an authorized user on her credit card “for emergencies.” I never used the card without permission, and I learned that credit cards are not free money. When I was in college, she and my father divorced, and we lost touch. I haven’t used that account in more than four years. Last fall I applied for a new credit card to use for business expenses and was rejected. I checked my credit report, and lo and behold, the account I am an authorized user on is now in serious straits.
Apparently after the divorce, my former stepmom had some financial trouble and eventually ran up that card to its limit, then filed for bankruptcy in 2010, leaving a glaring (and, according to the bank, immutable because the account is closed) spot on my credit. I have very little else as credit history, which makes this an even larger problem. My fiance and I are planning on buying a home in the next few years, and we’ll probably have to leave my name off to avoid serious increases in interest or even face being turned down for a mortgage.
In uncertain financial times even for the responsible, parents who add their children to their accounts need to know they are signing up to pass on all of their credit history, good and bad, to their children. Sometimes that’s more of a burden than a blessing.
Answer: Your experience shows the real potential downside for anyone who is added as the authorized user of a credit card. But you shouldn’t accept the bank’s initial response as final.
You can be removed from this account if the bank is willing to do so. Take your case to the bank’s chief executive. You can find his name and the bank’s corporate address on the bank’s website (check its regulatory filings under “investor relations” if the bank doesn’t make the information obvious).
Your experience also shows the importance of checking your credit reports at least once a year, since you could have spotted the problem and asked your former stepmother to remove your name from the card long ago. Also, it’s important to build credit in your own name rather than continue to rely on the record of someone else.
Debts rising? It’s time to cut spending
Dear Liz: You’ve made it clear that we should try to keep our credit card balances to no more than 30% of the credit limits. Many of us haven’t been able to do that because we’ve needed to put charges on or take cash advances from credit cards while we’ve had no work, so 50% was the revised goal. However, if still more charges or advances have to be done, is it better to still spread them around so that all credit cards are over 50% but below 60%, or is it better to just “max out” one card and keep the rest of them under 50%?
Answer: How about plugging the leaks that are causing your financial ship to sink, rather than musing over how much water you can take on before you’re swamped?
Steadily growing credit card debt is a clear sign it’s time to make changes to get your spending in balance with your current income. That’s because carrying credit card debt is simply too dangerous to your financial health and can lead you straight to Bankruptcy Court. It’s too easy to see something as a “need” and charge it, rather than make the tough decisions to cut back on what you can no longer afford.
For credit scoring purposes, it’s better to spread out the balances. For life purposes, it’s better to stop charging.
How credit card balances affect your scores
Dear Liz: I am confused about how my credit limits and balances are affecting my credit scores. I haven’t paid any interest on my credit cards in more than two years because I always pay off my balance before the due date. Then I figured out that the issuer was reporting my balance on the last day of the previous month instead of on the due date, so it looked like I was carrying high balances. So I started paying the balance in full before the first.
The first time I did this, my Experian FICO score shot up 30 points. But the next month I did the same thing, and it dropped back down. I was told my score was lowered because it “shows no recent balances.” Is this valid? Does it mean I should be paying the balance minus $20 before the first, then pay the rest after the first? This seems like making a system overly complicated.
Answer: First of all, the credit score you’re monitoring is not a FICO score. Although Experian sells FICO scores to lenders, it sells other scores to consumers. What you’re probably looking at is a PLUS score, which isn’t currently used by lenders. So any gyrations you’re seeing don’t necessarily reflect what’s happening with your FICO scores — and your FICO scores are the ones most lenders use. Although you can’t buy a FICO score for Experian, you can get FICO scores for the other two bureaus at MyFico.com for $19.95 each. Along with the three-digit numbers, you’ll get reasons behind your score and suggestions for improvement.
And paying down a balance before it’s reported to the credit bureaus is one way to improve your FICO scores, since it’s the reported balance that’s used to calculate your credit utilization — an important part of the FICO scoring formula. But you also can improve your credit utilization simply by limiting how much you charge to any card in a given month. A limit of 30% is good, and 10% is even better.
