Be Treated like a Credit Card Superstar

Credit Card companies are raising their rates, service fees and anything else they can, especially those that need to pay their way out of the sub-prime loan mess they created. Guess who is paying for that mess...you. That is unless you stand up for yourself.

In 2004 the average cost of customer acquisition for a regular credit card was $100-$120. A Platinum level customer $150-$200! And this was before the credit crunch. These figures are going up...way up.

It is the law of diminishing utility. Less available good customers are available, as they already have cards, multiple actually. However the credit companies have to still hit their numbers for Wall Street so what did the do, they expanded the available customer pool by lowering barriers to entry. Lower income, lower FICO, etc.. But now that has backfired so what can they do...steal each others customers and charge their current ones as much as they can.

Have you seen your offers lately? Are they getting bigger or smaller? It is a great way to see how creditors see you and your file. Read them! Look at the offers and rates. Are the terms generally improving? If so you are one of those that they want. Now that you know it, it is time to get a little Lindsay Lohan on their butt :)

Let me stop here and explain something...to have leverage, you have to have to be one of those coveted customers. Good (but really doesn't have to be too high) income, good credit (720 FICO) and a decent amount of credit longevity, say 5-10 years of paying regularly and only 35% or less utilization of the credit. If you aren't start working to get your FICO up to that semi-magical 720.

So ,you just got the BofA letter that says the charges are all going way up, what do you do? First really review the changes and see how they will impact you. No use getting upset if they just increased your late fee, and you are never late! However, this doesn't mean that you should call.

• First know what you want, or what you will take instead. - They can't take the charges away, OK, what can they do with the APR% to compensate! Can you get a longer Grace period? What else (bonus points) can they do?
• Call Customer Service - Explain that you do not want to be affected by these changes, and if they insist you are considering closing the account. Usually they will send you right to retention. If not, be very pleasant and ask customer service what they can do, if they say that they really cannot do anything it is policy, etc..Ask to speak to the manager. Once again as pleasant as possible!
• Management - Explain again in detail what was discussed, they will usually have the information, so don't try to stretch the truth at all. They will 99% of the time cough something up. Usually a few APR points to retain you. Bargain for as much as possible! If they just shut you down, explain that you are very disappointed and that you will have to really consider closing the account (But do not close it!)
• Work your Competing Offers - If they didn't do what you needed the next time you get an offer from a competing bank that is close, call them and ask them to beat your deal! For example, "Tom I really like the offer, but I get 3% better from BofA and xyz bonus, what can you do to get my business!"

The point is YOU have the leverage not them, there are a lot of banks that want your business...including your own! Get what is yours and don't just accept your fate! My point isn't to pick on BofA, this is and will happen with all major banks, just remember, if they lose you it costs them $200 to replace you!

Over the course of 20 years being proactive to get the best deal, with a little negotiation, can save your budget and you significant money.

720 FICO and Beyond

Given that Mortgage, Auto and Credit Card Rate are coming down it is getting to be time to think about refinancing...but only on two conditions.

1. It is to swap higher loans for lower ones
2. It is not used to clear credit so you can charge again

If you are planning to clear the card and not chop them up, then pay the higher rate you are now, go off somewhere and really think if you really want to get out of debt.

If you do, then to get those sub-6% rate we are all hearing about (and maybe lower) you are going to have to have a FICO score above 720, and 750 might be the new 720 soon thanks to tighter credit restrictions and FICO 08.

First, go check your FICO score. I use www.truecredit .com because you can track your report from all three major bureaus; Trans Union, Experian and Equifax. It is important to check all three as they can be vastly different from each other. (This is NOT a pay per post, I really use them)

Now that you know where you are, if your scoresare generally over 720, or even better,750, you can go shopping for refinancing, if not,it is time to get serious about your score.

A note of warning: The Debt Snowball that Dave Ramsey and I advocate (OK he advocates and I agree!) can slow your progress in raising your Credit Score. That system advocated paying one debt off at a time then applying the balance to the next debt. The problem with FICO it looks at your debt utilization per card. So while you may have 100% paid off CC 1,2,3,4 and numbers 5 and 6 being maxed, or just higher then the optimum 30%, it will still hurt you.

Here is what your score is currently made up from:

• 35% - Payment History - On Time - Even 30-days late once can kill ya
• 30% - Amount owed - Back to utilization again
• 15% - Length of History - Longer is better
• 10% - New Credit -How much and what kind
• 10%- Types Used - Looking for a balance

So using this info from myFico, you have 850 points tops, if your payment history is bad the best you could get would be 600...if everything else was perfect!

So here are the tips per type:

• Payment History - PAY YOUR BILLS ON TIME :) pay them a bit early if it ensures they get there on time. Even one 30 day late can flip you from Good to Fair credit, costing you thousands. So what if you did, how can you fix it..."I will go to that ad that says they can erase it!" Not gonna happen, they just flood the banks with denials and hope they won't reply. It is an old tactic and doesn't really work anymore.
• Amount Owed - Less then 30% per card is the Best. Smacks against Ramsey, but is you have to get a house loan or refinance, you may have to "Gazelle" them down to this level.
• Length of History - This is the one that good meaning people hose themselves on everyday. They pay off the Credit Card then cancel it...hurting their FICO number two ways. First if this was an older card your length of history just shrunk...you guessed it lowering your score. Second, your utilization was hurt in that you had a card that had 0% used...now you don't. You irresponsible, little... :)
• New Credit - Do not (if possible) do anything to get a "Hard Pull." This means they run a check on your report. To many of these (more than (2-3 a year) and it looks to them like you are trying to load up on credit. Danger sign!
• Types Used - They like to see a responsible mix. Revolving (Credit cards) Mortgages, and store credit.

Time is your friend. I have seen people (me!) with sub 520 scores work their way up by just making their payments. If anyone tells you they can take a 500 score and make it a 700 right away, they are lying, scamming, monkey dogs...Run Forest!

I am NOT a financial analyst, just a guy who has done wrong and now rides a pale horse to towns to bring help...oh... Sorry, that was Clint Eastwood. But really read for yourself, your score is really important.

That being said, I would NOT abandon your Debt Snowball to jack your scores, just because. Only if you are going to need credit in the next 3-6 months would I change tactics.

Follow this advice and you'll have great credit in no time!