Ask Dr. Don
By Don Taylor, Ph.D., CFA • Bankrate.com
Today, Dr. Don explains fixed rates
on credit cards and post-bankruptcy checking accounts.
Fixed rates on credit cards
Dear Dr. Don,
How can credit card companies offer a fixed rate and then increase
the rate later?
Confused Consumer
Dear Confused,
Unlike a fixed-rate car loan or mortgage loan, where the interest
rate can't change during the life of the loan, the interest rate
on a fixed-rate credit card can change. In fact, the company has
to provide only 15 days' notice of the change. Read your cardholder
agreement to find out how much notice your credit card company will
provide before a rate change.
Remember there's not a single rate attached
to a company's credit card. The rate on your credit card is determined
in part on your credit history. A person with a poor credit history
will have a higher interest rate than a person with a good credit
history. The credit card companies have gotten very aggressive in
reclassifying your credit risk based on payment history and may
even consider late payments on other credit cards as a reason to
increase your interest rate.
Credit card companies can change their fixed-rate
cards for any reason they like. Some of those reasons may include:
expanding their market by extending credit to people with worse
credit histories, the increased cost of money or reduced competition
in the marketplace. Most consumers are aware of the changes in the
prime rate during the past year because of the Federal Reserve's
actions in increasing the Fed Funds rate. Consumers are more accepting
of credit card rate increases because of the news coverage of those
rate hikes. The average standard fixed-rate card carried an annual
percentage rate of 13.18 percent a year ago March and was at 16.58
percent this March.
If your credit card company has increased your
rate, then it's time to go shopping. Consumers can put pressure
on the card companies by voting with their feet. You can shop rates
on this site. Try the page showing the Best
Annual Percentage Rate when intro rate expires. Just don't apply
for 20 different cards; it will show up on your credit report and
make you look desperate for credit, causing lenders to reject you.
Select one or two firms and request a credit application.
You also can call your current card company
and say that you're going to jump ship if you don't get a better
interest rate. It may not work, but it's worth asking. I would apply
to the other firms first, so you know that you can transfer your
outstanding balance, before negotiating with your existing firm.
Post-bankruptcy checking accounts
Dear Dr. Don,
I recently filed bankruptcy and now I am having difficulty finding
a bank that will open a checking account for me. I need a checking
account because my company only pays its employees by direct deposit.
Where can I find a bank that will accept me, and what other first
steps can I take to recover from this financial disaster?
DDA Payday
Dear Payday,
It's probably not the bankruptcy that's stopping you from opening
a checking account; instead, it may be a bad check written on your
old bank account. Bad checks won't show up on your Experian or Trans
Union credit reports unless they were turned over to a collection
agency, or as a civil judgment if you were sued for payment. Bad
checks may show on an Equifax credit report -- at least one did on
its sample credit report. That's not surprising since Equifax also
runs a check authorization and reporting service.
Most banks rely on a check authorization and
reporting agency called ChexSystems to provide them with the check-writing
history of prospective account holders. Bad checks could be the
cloud that's keeping you from opening a new checking account. Paying
off the bad checks will clean the slate with these firms and should
allow you to open a checking account with the bank of your choice.
ChexSystems requires that you have a copy of
your report before they will address your problem. ChexSystems'
consumer report can be ordered online. It costs $8 unless you
indicate that you have been denied an account at a bank or credit
union within the past 60 days. With a denial, the report is free
of charge.
For an overview of how ChexSystems works, check
out Holden Lewis' story, "Bounced
from the bank."
There's enough of a consumer backlash out there
that a Web site called ChexSystemBites
exists. It lists
consumer friendly banks and credit unions in your state that
either don't use ChexSystems or don't automatically deny accounts
to people with bad reports.
Alternately, try talking to a customer service
representative from your firm's bank and explain your need for an
account. If they are unwilling to open a checking account, then
suggest a savings account. It won't be convenient, but at least
you'll be getting your paycheck.
Bankrate.com writers base
their answers on our editorial content and advice of financial professionals.
We make no claims or representations about the accuracy, timeliness or completeness
of such content, advice or the answers provided to you. Our content, advice
and answers are intended only to assist you with your financial decisions. However,
by its nature such information is broad in scope. Your financial situation is
unique, and our content, advice and answers may not be appropriate for your
situation. Accordingly, we recommend that you get different opinions and seek
the advice of your accountant and other financial advisers before making any
final decisions or implementing any financial or investment strategy.
-- Posted: June 23, 2000
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