Author Debbie Dragon Archive

During the 2007 Christmas season, an estimated $26.3 billion was spent on gift cards at retailers. Gift cards are the gift people choose when they’re just not sure what to buy someone on their list — but they can become a problem for gift card holders if the retailer goes bankrupt before the gift card is redeemed.

When a retailer goes bankrupt or begins closing stores in an effort to downsize, the Bankruptcy Court considers gift cards “unsecured debt.” This means they don’t always have to honor them once they file for bankruptcy protection, or they may be able to pay them off at much lower values. For example, Consumers Union said an estimated $20 million in unused gift cards were left behind when Sharper Image filed for bankruptcy protection this year; Bombay Company paid gift card holders 25 cents on the dollar when they closed 388 stores.

Some stores that have filed for bankruptcy or are closing stores to downsize operations include: Sharper Image, Bombay Company, Fashion Bug, Lane Bryant, Linens ‘n Things, Levitz, Domain, Fortunoff, Harvey Electronics, Lillian Vernon, Zales, Ann Taylor, Foot Locker, and Circuit City.

With the economy in a state of decline, you might want to consider your gift card purchases carefully this holiday season. If a store is doing poorly, skip the gift card, since there’s no federal protection for consumers to recover that money if the store closes its doors the next day. If you receive gift cards, don’t toss them aside — use them immediately to make sure you can redeem them.

Understand the terms and conditions of gift cards

• Fine print. Gift cards have terms and conditions similar to credit cards.
• Exceptions. Some companies only allow you to use gift cards for in-store purchases but not for online purchases. Other exceptions can apply, too, so be sure you know how and where you can use the card.
• Expiration. Almost all gift cards have expiration dates, regardless of whether the retailer is in financial trouble.
• Fees. There are even gift cards that charge activation fees, transaction fees, inactivity or monthly maintenance fees that reduce the actual value of the card. Ask before you buy — you may not see this information printed on the card itself.

Everyone with a credit card or loan of some kind understands that making a late payment or missing a payment altogether will hurt their credit score. In general, when we talk about a credit score, we’re referring to the FICO score, the three-digit number calculated by a formula created by Fair Isaac. But some companies rely on their own formulas for score calculations that are then used to make decisions about consumers and their credit worthiness (or lack of it!).

For example, your mortgage interest rate, credit card maximum limit amount and the amount of money you pay for automobile insurance premiums may all be a result of proprietary scoring models created by statisticians for the companies you do business with. The trouble with such systems is that consumers don’t have any idea what factors are playing a role in their financial futures. How can you work at managing your credit if you don’t even know what companies use in their calculations?

There’s currently a Federal Trade Commission suit against CompuCredit’s Aspire Visa card. The credit card is intended for risky borrowers and falls under the classification of a subprime credit card. The card, like all credit cards, claims you can use the credit card anywhere. The problem is, CompuCredit conveniently left out the fact, that if you use your card in certain locations, your credit line could be cut. A reduced credit line often results in a lower FICO score, as it reduces the amount of credit you have available to you while simultaneously increasing the amount of available credit you’re utilizing.

What purchases are punished by CompuCredit? Any purchases made through tire retreading shops, bars, marriage counseling offices, billiard halls and massage parlors, to name a few.

Is it possible your lifestyle and credit score are working together to influence other lenders as well?

Finding loans you can afford during a recession can get complicated, if not downright impossible. Depending on how bad the recession becomes, you may not be able to obtain a loan at all. During a recession, creditors tighten their purse strings, and people who would have normally qualified for loans in the past suddenly become ineligible for lending. If you find you’re unable to secure a new loan due to the recession, take the time to maintain and improve your credit score to increase your chances of getting a low-interest loan a few months down the line.

The absolute best tip for finding an affordable loan in a recession is to take the time to shop around. Compare lenders and the interest rates they’re offering, and only apply to the lenders offering the best rates based on your situation. It takes more time than calling your local bank, but if you can get a lower interest rate somewhere else, the money you save over the term of that loan will be well worth the extra effort.

You’ll also want to know what your credit score is before applying. This can save you time and “hard pulls” of your credit report. If you get your score and view your credit history, you’ll have a good idea whether or not you are likely to get a loan. If you’re not likely to qualify, save the hit on your credit score — don’t apply for any new credit until you’ve raised your credit score to a more attractive number.

With the exception of bouncing checks left and right, bank fees aren’t necessarily going to “break the bank” – but at a time when everyone is trying to cut back and spend less, saving money on unnecessary bank fees can add up to savings over time. Here are some tips for avoiding bank fees:

• Use a bank with free checking. There are so many banks offering checking accounts without a monthly maintenance fee that you’re probably wasting your money if you’re paying a fee to keep an account at a bank.
• Forget about “float.” It used to be that you could write a check and know you had a good week before it would get cashed! These days, checks can be processed as quickly as swiping your debit card.
• Stop paying ATM fees – use your ATM card at your own bank only. Why give another bank $1.50 to $3 to withdraw your own money?
• Know your bank’s policy regarding using your debit card for shopping – some banks charge a fee when you swipe the card and use your PIN (debit) but charge nothing if you choose “credit” at checkout!
• Give yourself your own overdraft protection by depositing an extra $100 or so (don’t record it in your check register). If you make a mathematical error, you’ll have a buffer of your own money to rely on rather than having to pay the bank bounced check fees.

If you’re one of the two million people who’ve received a foreclosure notice this year, you might be concerned regarding your ability to vote on November 4. Concerns were voiced after a report noted that GOP officials in the state of Michigan planned to use the list of foreclosures to challenge voters’ eligibility at the polls.  (The GOP has since announced that it wouldn’t do so.)

With the number of foreclosed homes in the United States at an all-time high, the potential confusion voters may have over this issue might keep them from hitting the polls next week.

Rosemary Rodriguez of the United States Election Assistance Commission states that foreclosure does not take away the right to vote. If your home has been foreclosed on, or if you’ve received a foreclosure letter, you can still vote. If a poll worker should attempt to deny you a vote, and you believe you are a registered voter, challenge the poll worker to prove that you’re ineligible to vote.  (This year, there should be any number of people at various voting locations across the country who’ll be happy to help you defend your right to vote.)

If worse comes to worst, simply ask for a provisional ballot.  (The problem with that is that provisional ballots are much more likely to be cast aside uncounted than a regular ballot is.)

Finally — at a time when everything else seems to be increasing in price and becoming more difficult to pay, there is some relief in sight — for students, anyway. While the cost of higher education certainly hasn’t decreased, the cost of repaying loans for school is becoming just a little more affordable for college students. The changes will impact students in lower- and middle-income families the most, as these are the families hit most by the increasing costs of living.

As of August 5, 2008, subsidized Stafford loans for students originating for the 2008-2009 school year will experience interest-rate declines from 6.8% down to 6%. It’s expected the interest rate will drop to 3.4% for 2011-2012 school year.

According to U.S. Public Interest Research Group, the average four-year student taking out subsidized Stafford loans who starts their college career in the 2008-2009 school year will save around $2,570.

Considering that over 5.5 million students rely on Stafford loans each year to help finance the cost of higher education, the savings are substantial. Interest doesn’t start accruing on subsidized Stafford loans until the student has graduated or left college.

Lower interest rates on Stafford student loans is part of the College Cost Reduction and Access Act of 2007. In addition to providing lower interest rates, the act is also helping students in other ways, including:

Increasing Borrowing Limits

Undergraduates can borrow an extra $2,000 per year through unsubsidized Stafford loans, making the amount available to freshman up to $5,500 in federally funded loans, sophomores up to $6,500 and upperclassmen up to $7,500.

Tuition Assistance to Teachers

For students who commit to teaching in high-poverty communities or subjects that are considered “high-need,” there will be tuition assistance provided to undergraduates.

Complete Loan Forgiveness for Public Servants

Students who work over 10 years as public servants will be given loan forgiveness.

Increased Pell Grant Scholarships

Starting in 2008-2009, the maximum Pell Grant scholarship limit will be $4,731, which is $490 more than previous years.

A "pull" on your credit report is when someone looks at your credit history and views your credit score. There are two types of pulls, or inquiries, that can be made on your credit — a hard pull and a soft pull, and there is a major difference between the two.

What difference does it make whether you have a hard pull or a soft pull on your credit, and why should you care? A hard pull will actually reduce your credit score, while a soft pull will not.

Hard Credit Inquiries

Hard pulls on your credit report are the inquiries you want to keep track of and be aware of. They reduce your credit score. When you apply for credit, you give permission to the lender to pull a copy of your credit history and/or credit score, in order to determine whether or not you qualify for credit. When a company checks your credit, the hard-pull inquiry will remain on the report issued through all three credit bureaus for other potential lenders to see for a period of one to two years. Each hard pull will also lower your credit score up to five points and keep it lowered for six months or so! Think about this the next time you apply for credit.

The following situations result in a hard inquiry to your credit report:

• Applications for any new credit; credit cards, loans, mortgages, etc.
• Opening a bank account
• Activation of pre-approved credit card offers

Soft Credit Inquiries

Any inquiry made to your credit report that doesn’t affect your credit score is considered a soft pull. Most of the time, when your credit is looked at, you aren’t even aware that it’s happened! Every time a company reviews your credit history, a notation is made in the file that you can see (but other lenders viewing your credit history or score would not see the soft inquiries made to your credit).

There are a number of situations that would result in a soft pull, including:

• Credit card lenders who make initial credit report checks in order to send out pre-approved credit offers
• Pre-approvals for mortgages and loans
• Any credit report or credit score you request on your own
• Background investigations by potential employers or landlords
• Credit report checks by companies you already have accounts with, including credit card or insurance firms

What Can We Do About It?

Credit cards were once considered “easy money” by most people, and were used whenever they didn’t have the cash on hand to pay for their bills or make small or large purchases. Now, with consumer debt reaching all-time highs, the credit card companies are tightening the purse strings and reducing the credit limits on cards — often without so much as a warning to consumers about the changes.

The laws governing the notification policy may need to be looked at and revised, to say the least! Banks and mortgage companies are required to notify their customers within three days of making changes to the credit limits of their customers holding home equity lines of credit; credit card lenders, on the other hand, have up to 30 days after making the credit limit change to notify their cardholders of the change.

What happens when cardholders aren’t aware of their credit limit decrease and continue to use their card within that 30-day time period before they’re notified? Best-case scenario is that the cardholder experiences mild embarassment when their card is declined when they try to use it, but more commonly the purchase will go through and the cardholder ends up having to pay an over-the-limit fee for every month the balance of the account is over the new, lowered limit.

The lowered credit limits have long-term effects on consumers, as well. In addition to making it more difficult for a customer to pay bills or make purchases in an already difficult economic time, lowered credit limits can result in lower credit scores. Considering that the calculation of the FICO score takes into account how much of your available credit you’re currently using, lowered credit limits will have an unfavorable impact on the magic number that all lenders rely on to determine your creditworthiness — and the interest rate you’ll receive. As your credit limits are decreased, the percentage of available credit you’re using increases, which results in lowering your credit score by several points.

Lowered credit scores can affect the accounts you currently have — your existing creditors are likely to check your credit report on a regular basis to note any changes in your financial situation or level of assumed “risk.” If your credit score is lowered, chances are your existing accounts will start raising your interest rates on the money you already owe.

If you think having excellent credit and no late payments will save you from having your credit card limits lowered, think again. Individuals holding Visa, MasterCard and American Express cards can have their credit limits lowered simply for living in an area that’s being hit hard by what experts call the “housing crisis,” regardless of what your payment history or credit score looks like. In fact, the terms of the card you sign when applying clearly state that your credit limits can change at any time, and most include a statement about changing the limits based on “market conditions.” Also, individuals who are self-employed in industries considered to be high-risk — such as any business tied into the real estate industry — are prime targets for credit limit decreases.

Unfortunately, there doesn’t seem to be much consumers can do to prevent their credit limits from being lowered, but there are some steps you can take to reduce the impact that a lowered credit score can have on your financial situation:

1. If your card provides it, sign up and view your balance in your online account manager. If the available balance changes, you should pick up on it quickly if you’re regularly viewing your account information and can avoid spending over the limit, therefore avoiding over-the-limit fees and over-utilization of your available credit limit.
2. When your credit card statements come in, be sure to look them over carefully for any changes to your credit limit. Also open and read all documents from your credit card lenders, to see if any of the mailings are to notify you of a credit limit change.
3. Adjust your card use accordingly to ensure you’re using less of your available credit. This will lower the impact on your credit score. Try to keep your balances paid off each month; if that’s not possible, keep your balances under 30% of your available credit limit. As your credit limits are lowered, make larger payments on your credit cards to reduce the amount you’re utilizing and to keep your credit score from dropping along with the credit limits.