Ask Liz Weston

Dear Liz: I am 20 and trying to build my credit. I rented an apartment for a year, and I bought a car last year but needed a cosigner to get the loan. It seems like none of this is factoring into my credit score, because I can’t get a credit card! I applied for one through my credit union and was denied.

Is there any other credit card I can get besides a secured card needing a deposit? I want to refinance my car to get the cosigner’s name off it, but if I have zero credit I’m not sure I’ll be able to.

Answer: You’re right that your apartment rental probably isn’t being factored into your scores. Landlords typically don’t report rental payments to the credit bureaus. But your car loan should be helping build your credit as long as it’s being reported to the bureaus and you’re making every payment on time.

The fact is, building credit when you’re young is tough — and it’s about to get tougher for people under 21, because of new restrictions on credit card issuers that just went into effect.

The Credit Card Accountability, Responsibility and Disclosure Act requires issuers to make sure people under 21 have an independent source of income before giving them a card. If the applicants don’t, they’ll need an adult cosigner.

But credit card issuers were tightening their standards even before the CARD Act was passed last year. Even credit unions, which traditionally have been easier places to get credit, raised their standards for who could get a card.

So unless you can find someone to add you to an existing card as an authorized user, or who is willing to cosign an account to make you a joint account holder, a secured card is probably your best bet.

You’ll want a card that reports to all three credit bureaus and that has an annual fee under $75. You can find offers at CardRatings.com, CreditCards.com, LowCards.com and the Index Credit Cards site

On Monday–the day the final portions of credit card reform go into effect–CreditCards.com is hosting a live town hall meeting with White House economic adviser Austan Goolsbee about the sweeping changes authorized by the new law.

You can ask questions during the event, which starts at 2 p.m. Eastern, or submit them in advance at www.creditcards.com/askthewhitehouse. You can also submit questions via Twitter using the hashtag #cardlaw.

I hope you’ll tune into this event. I also hope Goolsbee or someone else at the event will dispute the widespread notion that credit card reform somehow triggered the Great Credit Slamdown we’ve been seeing lately, with issuers raising interest rates, lowering limits and closing accounts. That was well underway before Congress even began considering the CARD Act, as you can read in my February 2008 column, “The credit card party is officially over.”

Dear Liz: In a recent column, you wrote that if a credit card due date falls on a banking holiday, the due date is moved to the next business day. I found myself in exactly that situation in November, because my due date fell on Veterans Day, and my credit card issuer refused to remove the late fee. It would be helpful if you would clarify exactly how due dates work.

Answer: Most of the provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009, including many of the new rules about due dates, don’t go into effect until Feb. 22. Some issuers changed their policies to implement the changes earlier, but others did not.

ear Liz: As a customer service representative for a credit card company, I enjoy your articles on the credit card industry. But I wish you would do an article from the credit card companies’ point of view. While I agree that many credit card practices are unfair, a lot of the customers I speak to are oblivious to basic credit card rules. Many people do not understand why they cannot charge on an account that has not been paid in three months, or why they get a late fee when they fail to pay on time. Just like a store raising prices to cover the cost of shoplifting, credit card companies make their policies based on their worst customers, not their best ones. If you are a great customer and usually pay on time, just call and the fee may be waived. Credit cards are a confusing business. You are good at helping consumers know their rights, but I think they need to know their responsibilities.

Answer: Your point is well taken. Paying on time is an important responsibility, and one that became easier with the Credit Card Accountability Responsibility and Disclosure Act of 2009, which banned arbitrary deadlines, such as considering late a payment that arrives after 1 p.m. on the due date. (Any payment received by 5 p.m. on the due date is now considered to be on time.)

Card issuers also are now required to mail statements at least 21 days before the due date (up from 14) and to make the due date the same day each month, rather than moving it from month to month. If the date falls on a Saturday, Sunday or banking holiday, the due date is moved to the next business day. These rules should make it easier for responsible users to avoid late fees.

photo credit: barsen

A credit card industry insider recently made an interesting argument that it is.

If you remember, Bank of America pledged on Oct. 6 to stop raising interest rates, then turned around and announced it would start adding annual fees to some customer accounts next year (although from the mail I get, some customers have already been told their accounts will be subject to the fees).

Odysseas Papadimitriou, formerly of Capital One and now CEO of CardHub.com, argued at WalletBlog.com that under laws regulating credit cards, fees and interest rates are considered essentially the same thing. (You can trace this to the 1996 Supreme Court case Smiley v. Citibank.) He calls Bank of America’s actions a marketing bait and switch, and says if the bank proceeds with its plan to implement annual fees it will in effect be raising the costs on existing balances–something that’s prohibited under the credit card reform act now scheduled to go into effect next year.

Papadimitriou points to Chase’s aborted plans to add “inactivity” fees to low-rate balance transfer accounts as another example of promise breaking.

What I’m reminded of, though, is all the times in the past when issuers tried to foist stupid fees on its customers–inactivity fees and fees for not carrying a balance being two of the most egregious examples from the 1990s.

The savviest users always bolted and issuers had to back down. The fees that remained–late fees and overlimit fees, in particular–were mostly paid by the less-savvy consumers.

An issuer that drives away all its smart, credit-worthy customers won’t be in business for long. Previous generations of credit card executives had to learn this lesson the hard way. Looks like the current generation will, too.

photo credit: barsen

Expect fees to proliferate as credit card companies cope with coming federal regulation that limits how much they can hike rates. Here are some to watch out for:

Annual fees
You’ll usually find these attached to reward cards or secured cards, although they’re likely to start popping up on all kinds of cards soon.
How to avoid it: If it’s a frequent flier card, you’re probably stuck with the fee, although it may be waived for the first year. Otherwise, ask the card issuer to waive the fee or if it offers an alternative card with no fee. Or, simply look for a card that does not charge you an annual fee – ever. If you have good credit, you should have plenty of options.

Application fees
Some secured cards charge for an application fee, but you shouldn’t pay one.
How to avoid it: Once again, ask the issuer to waive the fee. If it won’t, take your business elsewhere and shop for a card that doesn’t charge for the application.

Balance-transfer fees

Once upon a time, credit card companies either waived balance transfer fees or capped them at $100 or less. These days, expect to pay 3% or 4% of the amount you’re transferring. If you’re looking for a balance transfer offer to lower your interest rate, you really need to do the math to see how much of those savings will be offset by the fee.
How to avoid it: Look for deals that cap fees (there are still a few out there; check CardRatings.com and CreditCards.com for offers). Check with your current issuers to see if they’re offering any special deals or capping or waiving fees.

Cash advance fees

You’ll pay a fee of 1% to 3% if you use your card to get cash, plus a high interest rate that kicks in the moment you get the cash (no grace period).

How to avoid it: Avoid using your card for cash advances, if at all possible (although a credit card is typically a better option than a super-expensive payday loan).

Foreign transaction fee

It used to be that using your credit card was the best way to pay in foreign lands, since your plastic gave you access to the best institutional exchange rates. Card issuers have offset that advantage by piling on a 3% fee for the privilege of using your card abroad (or even for purchasing items from a foreign vendor while you’re at home).

How to avoid it: Capital One is the only major issuer that doesn’t charge the fee. Discover charges 2%, but acceptance of the card is somewhat limited outside the U.S.

Insufficient funds (NFS) or bounced-check fees
This can be a real pain in the you-know-what to clear up, so don’t bounce a check in the first place. The credit card issuer’s fee is $30 to $40 and most banks will charge an additional NSF fee of $25 to $30 per invalid check or transfer.
How to avoid it: Make sure you have true overdraft protection that links your checking account with a savings account, credit card or line of credit so that transactions don’t bounce. Check your balance frequently to make sure you have enough funds to cover your transactions. Also, find out how long a “hold” your bank puts on large deposits–a bank can often take days before it will let you draw against an unusually large deposit.

Late fees
Credit card issuers make a mint from these fees, and have been accused of changing due dates and times just to wrack up additional revenue. The new legislation will put an end to those games, but you still have to beware, since the typical fees is now over $30 and many cards will jack up your interest rate if you’re late.
How to avoid it: Set up automatic debits with the card issuer so that at least the minimum payment is taken out of your checking account each month. If you don’t like automatic debits, you can use your bank’s online bill payment system to set up recurring payments so that a set amount is sent to your issuer or simply send the payment in as soon as you get the statement. Don’t mail checks if you can avoid it, since those can be delayed in the mail and don’t leave an electronic trail behind them that allows you to prove the payment was sent on time.

Overlimit fees

This is a fee for making a purchase that puts you over your card’s limit. Nope – no one will tell you at the cash register that your card is over-the-limit. You’ll just get that bill.  And – here’s a twist: Recently, some card issuers have lowered credit limits, sometimes lowering account limits before an existing balance. Tricky, eh? So some borrowers who thought they were above their credit limit, suddenly find themselves exceeding it.
How to avoid it: Keep your balances significantly lower than the credit limit. It’s a good idea to use 30% or less of your credit limit and to sign up for email reminders from your issuer that notify you when your balance exceeds the limits you’ve set. And remember – under new rules signed into law this spring, borrowers must opt in for over-limit access.

For more credit tips, check out my latest columns:

• 7 fast fixes for your credit score
• Low rate balance transfers can hurt credit
• People with $100,000 credit card bills
• Fewer credit card offers, higher fees

Dear Liz: I am a business manager and in the last month, three of my clients have received letters from major banks reducing their credit card limits to about $250 above their current balances.

None have ever been late on a payment and all pay well over the minimum each month. Also, none of them were using more than 40% of their previous credit limits. Now they will be shown as using more than 90% of their new credit limits, which will affect their credit scores.

This is patently unfair. Credit card companies should not be allowed to reduce credit limits on good paying clients. Do you agree?

Answer: The credit card reform law that goes into effect next year restricts many card issuer practices, but the practice of reducing credit limits isn’t one of them.

Soaring default rates and the credit crunch have led card issuers to reduce their risk exposure on all fronts. Unfortunately, that means even good customers are feeling the squeeze.

If your clients have good credit scores, they can apply for new accounts with other lenders. People with FICO credit scores of 740 and above are still in great demand. If your clients’ scores are lower, they may have to put up with the lower limits, but they should pay down their balances to free up more of their credit and reduce the damage to their scores.

Dear Liz: Can you tell me if the new credit card reform bill will apply to interest rates that were raised in the past? In other words, if a rate was unjustly raised, will the card issuer be obligated to lower it when the new law begins?

Answer: No. Credit card companies won’t have to adjust rates and can continue to raise rates for any reason until the law goes into effect in February 2010. At that point, issuers will be restricted from raising rates on existing balances unless the increase is because of a change in the card’s variable rate, or the rate was in a promotion period which has ended, or the cardholder is 60 days or more late with a payment.

Card issuers will be able to raise interest rates on future purchases but will have to give 45 days’ notice before doing so. The coming restrictions mean card issuers are likely to continue jacking up rates and fees while they still can, industry experts say.