Michelle Singletary, who writes the nationally syndicated column, “The Color of Money,” is my favorite personal finance writer. She dispenses down-to-earth advice for the average person, and it is usually spot on. So in December, when she featured a new book on credit cards in her column, I took note.
The book, Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made, by Beverly Harzog is a cautionary tale by someone who got themselves into serious credit card debt, and managed to dig her way out. What was shocking to me, was that Ms. Harzog was a Certified Public Accountant when she found herself drowning in debt. Speaking from her personal experience as well as her professional expertise, Ms. Harzog’s book discusses:
- The seven ways to use a credit card to rebuild credit
- How to get out of debt using a balance transfer credit card–and pay zero interest while doing it
- Credit card strategies to save on groceries, gas, and travel
As someone who tries to keep to a budget and never charges anything I don’t have the money to cover, I could not really identify with Ms. Harzog’s story of extravagant spending on designer clothing, which she relates in the early chapters of the book.
Where the book really shines, however, is in the plain English discussion of the laws governing credit card issuers, and in particular, the different regime covering personal and business credit cards.
Harzog details consumers’ rights under the Fair Credit Reporting Act (FCRA). For instance, if you are denied credit, the lender must inform you why, and identify which credit bureau provided the credit report that was used to make the decision. You have 60 days within which to request a free credit report from that bureau.
She details how to obtain free annual credit reports from the three major bureaus, what to look for when reviewing them, and discusses the different proprietary models used to generate credit scores.
Most interesting to me were the reforms included in the 2009 Credit Card Accountability Responsibility and Disclosure Act (The CARD Act).
Personal Credit Cards
The CARD Act protections are only available if you are using consumer credit cards. Business credit cards are not covered.
The CARD Act requires:
- No APR increases during the first 12 months
- Protections for underage consumers
- Caps on high-fee cards
- No inactivity fees
- Credit card companies must mail your statement at least 21 days before the bill is due
- No universal default
What is universal default?
Before the CARD Act, your credit card issuer could increase your APR on your credit card if you showed increased risk with another lender. For example, if you missed a payment on your car loan, a bank could increase the APR on your credit card. This is still allowed for small business credit cards.
45-Day Notice Requirement for Changes to Terms of Personal Credit Cards
Issuers must give 45-day advance notice if they plan to:
- Increase your interest rate.
- Change or add fees (for example, add an annual fee).
- Make major changes to the terms and conditions.
There are two major loopholes in the 45-day notice requirement:
- The 45 day notice of an increase in your APR only means that you get 45 days before you have to actually pay the extra money. Interest on new purchases starts accruing 14 days after the postmark date of the notice.
- If you’re more than 60 days late with a payment, your new APR can be applied to your entire outstanding balance.
Note that some banks may go beyond the minimum requirements of the CARD Act.
Small Business Credit Cards
In contrast, legal consumer protections that business cards don’t get, include:
- APR increases can be applied to your outstanding balance.
- Payments over the minimum may not go to highest APR balances first.
- There’s no requirement for statement mailing dates. Your bill could be due less than two weeks after you receive the statement.
- Double-cycle billing isn’t banned.
- No protection against universal default.
Business credit cards may lack other features such as purchase protections and extended warranties.
The Need for Full Disclosure about Affiliate Relationships
One aspect of the book that I found wanting was the failure to discuss affiliate marketing of credit cards.
The book refers readers to various websites for further information, including her own blog. These websites, like Fishing4Deals, receive a commission if a reader applies for a credit card through an affiliate link and is approved.
Travel blogs that focus on strategies for accruing and using points and miles have come a long way toward full disclosure in the last couple of years, thanks to the efforts of Travel Blogger Buzz, and many members of the Flyer Talk Forum. But personal finance bloggers are way behind when it comes to transparency. They comply with the FTC’s minimal disclosure requirements, but only in the fine print.
If you are in the miles and points game, you probably make a habit of reading everything you can get your hands on — blogs, message boards, and Terms & Conditions — to keep abreast of the current offers. You should always consider the source and carefully evaluate their claims!
In brief, I learned a lot from reading Confessions of a Credit Card Junkie.
Disclosure: I received a review copy of the manuscript. If you purchase the book from Amazon.com, I receive a small commission.
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