Americans older than the age of twenty five may recall acquiring their first credit card through a parent’s mailbox unsolicited around age 18, enabling them to be a credit card holder and to incur any debt associated with it.  In the past, young adults received credit cards having no credit history and no proof of income.  As late as 2009, it was very easy for people under the age of 21 to be approved for credit cards upon simple application.    

Controversy surrounding credit card use by those under 21 has received attention as more and more Americans are haunted by bad credit. A recent study concluded that 9 out of 10 students attending college admitted to charging school expenses to their credit cards.  The trend remains as school costs continue to rise while teen and college employment remains on the decline.  College students once often fell victim to incentives used to entice them to sign up for cards.  While arguably a great way to build good credit, credit card possession came at too high a price for many young people who spent more than they could pay back on school expenses, cell phone bills, cars, dinners out, and other luxury items.  For many, this has resulted in severely damaged credit reports, low FICO scores, consequent inability to get home, auto, or business loans even after they’ve out of college, responsible, and ready.  Recently, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act was approved by the house to protect current young adults from this situation.    

 New regulations state that credit card issuers must now verify proof of income or otherwise require a co-signer before issuing a credit card to consumers under age 21, credit card issuers cannot send prescreened card offers to those under 21 unless they have consented to receive offers, card issuers cannot raise the credit limit on an account for persons under 21 with a co-signer without written permission from the co-signer and lastly, that Credit card issuers are prohibited from providing free items in exchange for applications when marketing to students on or near campus.  For many in their late 20’s, early 30’s, and even 40’s this regulation has come too late.  At this stage, financial counseling by a Credit CRM specialist is recommended.

Today’s credit crunch really has anyone looking for a new home loan in a pinch.  With banks nervous to lend money to individuals, both first time and experienced home buyers are faced with great scrutiny when trying to obtain a mortgage today.  Government sponsored Fannie Mae and Freddie Mac, responsible for establishing underwriting standards for the majority of the nation’s mortgages, have made important policy changes that went into effect on June 1, 2010 and have been affecting borrowers ever since.  These new laws have been instated to help avoid worsening the foreclosure crisis. 

Known as the “Double Check Policy,” The June 1^st adjustments state that lenders must do a second credit check immediately before the closing on a home.  Taking on an even medium sized debt prior to the the closing will raise red flags and delay a closing possibly even causing potential buyers to be denied.  If a borrower’s credit score drops by even a point, the new law states that loan terms must be reassessed, possibly causing the borrower to take on a higher interest rate.  In other words, If the income to debt ratio is too heavily modified, FICO score may be changed and different loan thresholds will be instated. 

The new law requires lenders to pull no less than two credit reports for each mortgage transaction and to perform additional verifications of borrowers’ occupancy plans for the property, social security numbers, and tax payer identification numbers.  Lenders will also check to see if any jobs have been lost or changed.  Any new credit accounts opened will be scrutinized.  Everything will be looked up right up to the day of the closing and considered in the final loan analysis.  Regulations also mandate a three-day waiting period for borrowers whose interest rates have changed by more than an eighth of a percentage point.

Not just good, but excellent credit is essential for getting a mortgage loan in today’s economy.  Before facing costly and inconvenient delays and even denials, seeing a financial counselor is a good precaution to take.  Resist the temptation to shop for large purchases before your closing and remember to communicate with your lender.  Pre-approval does not mean a borrower will be approved at closing.   With the “double check” policy, failing to disclose will no longer aid an unqualified buyer in obtaining a mortgage today.

In an apparent effort to recoup some of the losses suffered under enactment of new financial reform laws, some banks are manipulating the order in which they process bank account transactions to maximize the number of overdraft fees they can charge customers.

Here’s one of the scenarios reported by irate bank customers:

Say you have $500 in your checking account on a day that your bank receives four debits against your account:

$5 latte
$220 groceries
$80 veterinarian
$565 auto insurance

Your total debits for the day total $870 against a balance of $500, overdrawing your account by $370.

If the bank debits the three small purchases totaling $305 (easily covered by your $500 balance) before it processes the larger $565 insurance debit, you would incur a single overdraft fee. However, if the bank debits the larger purchase first, causing your account to be overdrawn, it can charge an overdraft fee for each subsequent debit. At the end of the day, you’ll pay 4 overdraft fees instead of one! At $35 a pop, that’s a loss of $105.

Bank customers expect their accounts to be debited in the order purchases are received. Consumer credit repair experts, however, have found that many banks — 25% according to a 2006 FDIC survey — shuffle debits received in the same day to maximize overdraft fees, generating significant profit for banks.

In our example above, if the insurance transaction arrived at the bank early in the day and was processed before the other transactions occurred, most consumers would agree that, while onerous, the bank is within its rights to impose 4 overdraft penalties. However, when the three smaller purchases occur before the insurance debit arrives, consumers rightfully argue that they should only be charged a single overdraft fee. When banks processes debit transactions out of order to rack up fees — known as “high-to-low” check clearing – consumers are understandably outraged.

Wells Fargo bank was recently called to task for high-to-low check clearing by a California judge who called the practice “gouging and profiteering.” Wells Fargo was ordered to pay $203 million in restitution to customers who had been unfairly charged. While the U.S. District Court ruling applies only to Wells Fargo bank, it is considered an encouraging sign for similar suits in other states.