attack-of-banks

Attack of the Ridiculously Over-Funded Bank

FADE-IN: INT. FOYER OF RANKIN NAASEL HOME – MEDIUM SHOT KENRYA RANKIN NAASEL – EARLY EVENING
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KENRYA RANKIN NAASEL, age 27, walks from the front door of her New York City apartment to the table on the opposite wall, mail in hand.
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CLOSE-UP – ENVELOPE
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The envelope is from Bank of America, addressed to Kenrya. We SEE KENRYA’S THUMB slide under the flap to rip open the envelope and pull out the letter within.
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CLOSE-UP – KENRYA’S FACE as she reads the letter.

KENRYA (yelling)

You’ve gotta be fucking kidding me!

She throws the letter to the floor and runs to her laptop.

And, scene! Sounds like the beginning of a high-octane, tent-pole summer flick, right, lol? Well, that’s exactly what played out in my apartment Monday. But what pissed me off enough to cuss at an inanimate object like a crazy person?

Bank of America nearly doubled my interest rate on my credit card! Yup, my APR for “new and outstanding purchases” jumped from a fixed 5.9% to a variable 11.65%. Not because of late payments. Not because of spending beyond my limit. Just because of a “change in our business practices.” This from the bank that was awarded $25 billion (billion with a “b”) in bailout funds earlier this year.

And I’m not alone. The Consumer Action 2008 Credit Card Survey found that 77% of credit issuers answered yes to this statement: “Can you increase my APR or change my terms ‘any time for any reason’?” When asked why they might raise rates, “market conditions” was listed by many companies. Translation: Business is bad, so we’re going to charge you more for credit—even on the stuff you’ve already bought.

Of course I could have it worse; many folks have seen their credit limits slashed, had their accounts closed and had been stuck with universal default rules. (Universal default is a policy that says if you are late by one day on one payment to one creditor, all your creditors can choose to raise your interest rate. The average adjusted rate? 26.87%.)

So what can we do as these failing banks pick our pockets coming and going? A few things, actually:

  • Just say no. BofA actually listed a provision by which I could call in and “reject” my APR “amendment.” The catch—if I ever use my card again, the rate will go up automatically. I made the call so that the balance I’m carrying wouldn’t be subject to the new rate. Once I pay it down, I’ll use the card as cash only, paying it off each month the way I’m supposed to, so the APR won’t matter to my bottom line. (For the record, my balance is from some unexpected dental work!) If you get an APR adjustment notice, read the fine print to see if your bank will let you reject the increase.
  • Keep it open. If you decide to stop using a card, don’t close it. This is a common mistake people make, one that can adversely affect your credit score. How? A full 30% of your score is determined by the percentage of your available credit that you’re currently using. So if you’re using 50% ($2500) of your total available credit of $5000, and you close a card with a $1000 limit, you’ve just upped your usage to 62.5% ($2500 of $4000) of your credit. Not a good look. Just cut up the card and forget the account exists. Your score will thank you.
  • Transfer your balance. If you can’t pay it down, find another card with a lower rate. They do exist, even if it just has a lower introductory APR—it’ll buy you some time to pay off your balance. Check out creditcardclients.com to find the best card for you.
  • Pay that bad boy off. Send in as much as you can afford to each month and step away from that abusive relationship.

The good news: Congress passed a bill last December that will limit some of the credit card drama: Universal default (for payments that are late by fewer than 30 days), retroactive interest rate increases and automatically applying payments to the balances with the lowest APR will all be illegal. The bad news: As of now, the law won’t go into effect until July 2010, but a Credit Cardholders’ Bill of Rights was recently introduced to move up the start date. Oh, and it will probably make getting credit even harder…

What credit drama have you experienced since the banks starting looking for handouts?

—Kenrya

If you like Kenrya’s opinion, check out the rest of her posts here.

Last 5 posts by kenrya

  • Tina

    Some of the banks have the nerve to now want to give the government bailout funds BACK because they will be held to a few real “standards”- ain’t that some ‘ish? Bank of America is not one of the banks believed to try and give the people’s money back to the gov’t because they really do need it…this is the crap they are pulling doubling folks interest rates? The banking system is a joke!

  • julie

    Ken, sorry for your bank drama, hope it all works out, and i hope you won’t have to do any dental work any time soon (or have any type of med-related spendings…)

    Luckily for me, i don’t have any bank drama to share, but I do have a credit card -related question.
    I have heard somewhere (or read, I can’t recall) that if you have a credit card and you don’t use it at all, it will lower your credit score bec the usage is what actually counts in your favor. But it does get tricky bec you need to watch out how much of your credit limit you are using on average. If you use too large of a % of your credit limit (comulatively on all cards you have), that will bring your credit score down. So, the question is, is it true that if you don’t use your card it will lower your credit score and what % of your credit limit is safe to use to be able to keep your score up?

  • Diane

    Jules – you’re talking the debt to credit ratio that works on your FICO score. It takes all the credit you have (based on limit amounts) and factors in how much is available (meaning, subtract what you’ve got outstanding on the balance). Then they wave a magic wand, and they apply this ratio towards the FICO. If all your cards gives you a total limit of, say, $20k – and right now you have $10k used – your ratio is 20 to 10 – which is like 50% – which pretty much sucks in their eyes. Pay something down quick.

    If you don’t use a card – they’re freakin closing them down. So if you’ve not used a card in a while – do so. Then do so again in a couple of months.

    Store cards are not immune either. Macy’s (had the card since, um, the dawn of time – started working there at 17…) upped me to their ‘black’ card when I bought all my furniture. OK, so yeah, don’t expect that kind of expenditure year after year. But the other day I got my new card – oh yeah… It ain’t black, it ain’t even platinum, it’s Gold – sounds good? Well, that’s two levels DOWN – meaning, available credit to me just went down by THOUSANDS of dollars. Thanks Macy’s.

    K – sorry to hear about the mouth… hope all is ok now.

    Bank of America – took over Countrywide – who bought my mortgage (I did not choose them), who then hired an unworthy employee who stole the information of thousands of us – and what did they do? They made us jump through hoops to get into some ‘credit reporting service’ to ensure our lives aren’t stolen. Niiccee – and since that stops in 2 years – the gang who bought the info from that employee will be able to destroy our credit/lives soon thereafter.

    Thus… this is what you do. You lock down the three reports. $10 to do – and a pain if you need to reopen them for a legitimate credit check. But no one will be able to go into your credit reports, for anything.

    So ends the only lesson I can help y’all with today.

  • Tahad

    The banks are basically saying,” do you want us to take you to the streets, homeless with nothing to eat, cutting off your middle class lifestyle; or tax your income slightly enough to keep your security safe. “Pay to live” that’s the motto of uncle Sam liberty, his funny money help to paint your dreams like van gogh, because money is the mighty power in your hand, and he chooses the amount of power to give, as long as your plan is to stay a slave.

  • krankin

    Hey, Julie. First of all, credit card companies have indeed been closing people’s accounts citing “non-use” as the reason. THIS alone does not automatically lower your credit score. However, the shift in your debt utilization ratio (what Diane explains so wonderfully above) will likely result in a downward revision in your FICO score.

    As for simply not using your card, that will NOT result in a lowering of your score—unless the bastard credit card companies close your account, in which case the above scenario will apply. 😉

    If you’re worried about your idle card being closed, use it like cash, ie: use it and pay it off the same month so you don’t incur interest charges. This is an especially good strategy if you get points or cashback on your card.

    I hope this helps!

  • krankin

    Here, here, Tahad!