We’re officially four months away from the Credit Card Holder’s Bill of Rights going into effect. And, if certain Democrats have their way, we’re only thirty days away.

The mainstream card issuers have a shrinking window of time to remold their cardholder base to their liking. This means consumers will continue to suffer the at the hands of their credit card companies, unless they employ one or more of the following strategies.

1. Don’t Not Use Your Card – Ok, the poor grammar was intentional and corny but I think I’ve made my point. Credit card issuers are in business to make money and make a profit. They can’t do either unless you are using your credit card. And, the best news is that you do not have to carry a balance from one month to the next in order to drop a few dimes in your credit card issuers’ pockets. Each time you use your credit card the merchant (aka the place you used the card) has to pay the bank a fee. This fee is called interchange. It technically comes out of your pocket because many retailers will build the assumed fee into the price of the merchandise but it sure doesn’t feel that way when we buy stuff with our credit cards.

2. Shut Up! – In the past a viable strategy to get fees waived and interest rates lowered was to call your credit card issuer and complain or otherwise plead your case. That’s still a decent strategy but beware. Your credit card issuer might turn the tables and start asking YOU questions in order to determine whether or not they still want to do business with you. If you call them and THEY start asking questions about your job status and salary then hang up or you might just end up with a closed credit card.

3. Open Another Card, NOW – One of the worst strategies I see people employing today is the 1-card strategy. This is a consumer who has swallowed the Dave Ramsey gospel hook, line and sinker. The problem is that it’s unrealistic and appealing only to the lowest common credit denominator. You should have MORE cards, not fewer cards. Clearly this is a credit score play as well since having more available and unused credit limits are always good for your credit scores. So, if you have one or two credit cards right now, think about opening at least one more. This gives you options in case one of your credit card issuers starts behaving badly towards you. Nothing is more empowering than saying “I’ll take my business elsewhere” and then actually doing it.

4. Don’t Hide Behind Great FICO Scores – FICO published a study earlier this year and the findings showed that the median FICO score for a consumer who has seen his or her credit limit reduced was 770. A 770 FICO score is fantastic in any lender’s book and especially in this credit environment where lenders are gravitating to stronger borrowers. What this means is that just because you have great FICO’s it doesn’t fully shield you from adverse treatment from lenders.

Stay tuned for Strategies 5 through 7 coming soon!

It’s late 2009 and the consumer credit world is still in turmoil!  You have MANY new changes:

 1)   You have a new credit law, The Credit Card Accountability Responsibility and Disclosure Act of 2009, which partially became law in August 2009 and will completely become law in either February of 2010 or December 1, 2009 if Democrats have their way.

2)   You have a new FICO® score, FICO 08, which is now live and commercially available at all three of the credit reporting agencies. This new FICO score promises to do a better job of predicting future credit risk.

3)   You have millions of credit card holders who have seen their credit limits reduced, accounts closed, interest rates increased and/or their minimum payment requirements increased.

4)   In addition you have billions in lost home equity, which means no more safety net for those consumers who have excessive credit card debt.

5)   You have debt settlement companies aggressively marketing their services like vultures circling a dying carcass without fully disclosing the downside of possible lawsuits and severe credit damage to their customers who use their services.

6)   And finally, you have media and the undereducated that are spreading fallacies about the credit world, and are causing panic.

All in all, it’s a tough environment to survive and thrive in. Here are what I believe are the most important things that we consumers should be focused on over the next 24 months:

• Continue to Improve Your Credit Scores
  • Continue to make your payments on time regardless of what you read or hear – Debt settlement companies would have you believe that the best way to serve you is to suggest that you stop making your payment to your credit card issuers. The theory is that a lender who isn’t getting paid might be more flexible for a consumer who isn’t making their payments. I guess it’s the “I’m lucky to get something” hypothesis. The problem is that many credit card issuers will gladly work with their debtors and work out settlements or payment plans directly, without the intervention of debt settlement companies.
    This helps them to collect more than what they’d get from a 3rd party settlement company and it will also mean that you are paying them more of what you owe them, which is a good thing. It will also protect you from litigation should the credit card issuer grow tired of you avoiding them at a debt settlement company’s request.
  • Pay down your debt to no more than 10% - The new FICO score, FICO 08, is more sensitive about your revolving utilization percentage, which is the relationship between your balances and limits on credit card accounts. This means those of you who are highly utilized will suffer more as lenders continue to convert to this newer credit score, and many have already made the switch.If you can’t get your balances to less than 10% of your credit limits then get them as low as possible and your score will benefit. Why is this important? It’s simple. Lenders are being more critical about credit scores than in the past 36 months. A good score, say 700, two years ago would have gotten you approved at their best deal a lender had going. Today it will get you approved but not with the best terms. Shoot for 750 to ensure you of the best terms. And, be aware that mortgage lenders not only want 750 but they also want a larger down payment in many cases.

• More Cards Are Better, Shoot for Five –This is counter intuitive but we’re living in a bizarre credit world. Those of you who have less than five credit cards are in a bad position. A bad position because of a couple of reasons, which are:
  • You have fewer options if one of your credit card issuers changes your terms – Tens of millions of consumer have seen the terms of their credit card accounts changed adversely over the past 18 to 24 months. This means lower credit limits, higher rates, higher minimum payments and closed accounts in some cases. If you have only one or two cards then you leave yourself without options should one or more of your credit card issuers start misbehaving. And for those of you who think you’re immune from this because you have good FICO scores, think again. FICO released a study several months ago that showed that, at a 2 to 1 ratio, cardholders who saw their credit limits decreased had median FICO score of 770. Nobody is immune.With more cards you give yourself the option to move your business elsewhere and not lose the access to the capital that a credit card provides.
  • Think About Litigation If You Know You’re Right –
    Fair Debt Collection Practice Act (FDCPA) lawsuits are going to eclipse 8,500 this year, which will easily be a record. According to John Ulzheimer, a professional expert witness, “many consumer are finding that they can’t get legitimate errors corrected on their credit reports. The choice they have is to live with it for seven years or take someone to court and force them to listen.”Many collection agencies are finding it hard to avoid lawsuits despite a huge growth in outstanding delinquent receivables. Some are calling for a revamping if the FDCPA but any politician that chooses to reduce consumer protections at this time in history is asking to be voted out of office.

Most people assume that if you make a lot of money, you’ll automatically have great credit scores. This is a common misconception about credit scores and it’s easy to understand why one would think income would be a factor. It sounds reasonable …and makes perfect sense, so why wouldn’t we assume that income plays a part in our credit scores?

The fact is, income is not a factor in determining your credit scores. In all actuality, it’s impossible to use income in the credit scoring calculation. This is because the information used to determine your credit scores is derived solely from the information contained in your credit reports. It’s also important to understand that just because it can go into your score doesn’t mean that it actually does go into them. The information must be predictive, legal, and it must be readily available on your credit reports.

Let’s take a quick look at exactly what makes up your credit reports. All credit reports can be divided into the following sections:

• Personal Identifying Information – this section includes your name, address, social security number and date of birth. It can also include employment information, previous addresses and other known aliases. This information is reported by your creditors and comes directly from the applications that you submitted when you applied for credit with them.
• Account Information – this section includes all of your credit accounts – which are also commonly referred to as trade lines. This is the bulk of the information that makes up your credit report and contains the type of account, the date the account was opened, the credit limit on your revolving accounts or the loan amount on installment accounts, the balance and your payment history – all of which are used in determining your credit score.
• Public Records – this section includes bankruptcies, judgments and liens. There are many other types of public records but these are the only ones that are reported in your credit report and therefore, are the only ones that are used in the credit score calculation. A word of advice: public records can never be good – they are always bad so you should avoid them at all costs.
• Collections – this section includes collection accounts that are reported by collection agencies. As with public records, collections are never good and they are most certainly used in the credit scoring calculation.
• Inquiries – this is a listing of anyone that has accessed your credit report and on what date. Inquiries remain in your credit report for two years and occur whenever you apply for credit. These hard inquiries are included in the credit scoring calculation but only those that have occurred in the last 12 months. You may also see promotional or soft inquiries, which occur whenever a lender orders your report in order to make a pre-approved offer of credit in the mail. These types of inquiries are not counted in the credit score calculation.

Now that we know what’s included in your credit reports, let’s go over what’s NOT included. Your race, your salary and your level of education – all of these things are not included in your credit reports. As such, none of these things can be used in the credit scoring calculation. Some people would argue that your salary, race, and level of education have an indirect impact on your credit scores because they play a part in how you establish and manage credit. This is probably true, but the fact remains the same. Race, salary, and level of education are not on your credit reports and therefore do not have any overt impact on your credit scores.

The bottom line is that your credit score only looks at information that is contained in your credit reports. And guess what? Your income is NOT included in your credit reports. You could be the world’s richest person but if you don’t manage your credit wisely, you could also have one of the world’s lowest credit scores.