Credit card debt jumps 9%. Bad sign? Depends on your credit score

The average debt on U.S. credit cards has climbed 9 percent in two years after a big pullback following the financial crisis nearly a decade ago, a new federal report says. Total revolving debt has increased very close to pre-recession levels of about $1 trillion.

Slouching toward a new debt crisis? Depends on where you fall in the great credit-score dividing line around 720. If you’re above it, on a typical industry scale that runs up to 850, a close look shows not all of the increased charging likely means “new” debt.

Why? People with good credit scores are increasingly likely to put more things on plastic that they would pay anyway, like routine shopping formerly paid by cash or check or monthly charges for utilities, consumer services, and so on. That’s because it’s a golden age for credit card rewards, and those with the good fortune and discipline to pay it off monthly can come out ahead.

Average credit balances topped $4,800 by the end of 2016, a high since the last recession, according to the Consumer Financial Protection Bureau.

But that does not mean all of it is “new” spending, CFPB figured.

“This high is driven in substantial part by an increase in the average debt level of consumers with superprime credit scores,” meaning 720 or above, the CFPB report released Wednesday said. “Given that these consumers are very likely to transact on their credit cards, this likely represents less a shift in consumer indebtedness patterns than in purchase behavior.”

For example, the report said, “consumers who cease making purchases with cash or check, instead migrating their purchase volume to a credit card that they pay off in full each month, may double their average monthly credit card balance without actually altering their personal balance sheet meaningfully.”

Consumers with “prime” scores, 660 to 719, actually carry the most credit card debt, more than $8,000 per cardholder in the four most recent quarters.

But they pay a steep price if they don’t pay off balances each month. At a typical 19% interest rate, they pay about $127 in interest charges each month.

In contrast, the “superprime” cardholders hover around $4,000 in debt (that they often pay off each month) and folks with “deep subprime” scores, 579 or less, average less debt, about $2,700.

Delinquency and charge-off rates are ticking upward slightly, even with the unemployment rate low and no obvious signs of problems in the larger economy.

“Total outstanding credit card debt has continued to grow since our last report and is now at pre-recession levels,” the report notes.

Whether that’s a problem seems to be a tale of two pools of credit scores.

For folks with scores above 720 — about 56 percent of the scored population, according to this report — the growing debt isn’t necessarily a worry and may not even represent new debt, but a shift in how they pay for things.

Those with “prime” or lower scores, however, run the greatest risk of paying sky-high interest charges and sinking into trouble when debt loads rise.

Credit score tiers

Group/Share of U.S. population with a credit score

Superprime (scores of 720 or greater) 56%
Prime (660 to 719) 17%
Near-prime (620 to 659) 9%
Subprime (580 to 619) 7%
Deep subprime (579 or less) 11%

Source: Consumer Financial Protection Bureau

Find out where latest skimmers were detected in Palm Beach County

The Florida Department of Agriculture and Consumer Services said it found two gasoline pump skimmers within the last week in Palm Beach County. They were both discovered in West Palm Beach at:

  • 7-Eleven Inc., 3035 N Military Trail, West Palm Beach
  • Texaco/Sunshine #37, 2274 Okeechobee Blvd., West Palm Beach

The skimmers were found as part of a statewide sweep of gasoline stations in popular spring break destinations. In our area, inspectors probed pumps at 51 service stations, finding the two skimmers in that search.

Getting gas at the Shell station at 5980 Okeechobee Blvd in West Palm Beach, Florida, April 13, 2016. (Allen Eyestone / The Palm Beach Post)
Getting gas at the Shell station at 5980 Okeechobee Blvd in West Palm Beach, Florida, April 13, 2016. (Allen Eyestone / The Palm Beach Post)

Across Florida, state officials said they inspected 500 gasoline stations in the targeted markets, yielding a total of eight skimmers.

The state estimates that for each skimmer undetected, as many as 100 consumers can have their credit card information stolen — leading to an average of $1,000 worth of fraudulent transactions.

“From Okaloosa County to Miami-Dade County, these skimmers are being placed on gas pumps and stealing from unsuspecting residents and visitors,” said Commissioner of Agriculture Adam H. Putnam. “We will continue to crackdown on these devices – and the criminals responsible for them.”

Since early 2015, the department said it has detected more than 430 skimmers across the Sunshine State. The areas inspected in this sweep, the number of facilities inspected and numbers of skimmers found are as follows:

  • Panama City Beach/ Panhandle –77 facilities, 0 skimmers found
  • Orlando area – 128 facilities, 0 skimmers found
  • Clearwater / St. Pete Beach – 66 facilities, 4 skimmers found
  • One Stop, Giant BP #109, 6151 4th St N, St. Petersburg
  • One Food of Pinellas Inc. #23, 901 4th St N, St. Petersburg
  • Quick Mart of Largo, 1990 West BAY Dr., Largo (2 skimmers)
  • Ft. Myers Beach – 36 facilities, 0 skimmers found
  • Daytona Beach/ Cocoa Beach/ Flagler Beach/ New Smyrna Beach – 75 facilities, 1 skimmer found
  • Sunoco Food Mart, 5625 N Atlantic Ave., Cocoa Beach
  • West Palm Beach – 51 facilities, 2 skimmers found
  • Mobil/7-Eleven Inc., 3035 N Military Trail, West Palm Beach
  • Texaco/Sunshine #37, 2274 Okeechobee Blvd., West Palm Beach
  • Ft. Lauderdale – 25 facilities, 1 skimmer found
  • Valero, 1 N Federal Hwy, Pompano Beach
  • Miami – 21 facilities, 0 skimmers found

 

State officials issued these steps they say consumers should follow to protect themselves:

  • Pay in cash inside the store to ensure the credit card information stays safe.
  • Check to make sure the gas pump dispenser cabinet is closed and has not been tampered with. Many stations are now putting a piece of security tape over the cabinet to ensure it has not been opened by unauthorized individuals.
  • Use a gas pump closer to the front of the store. Thieves often place skimmers at the gas pumps farther away from the store so they are not noticed as quickly.
  • Use a credit card instead of a debit card. Credit cards have better fraud protection, and the money is not deducted immediately from an account.
  • If using a debit card at the pump, choose to run it as a credit card instead of a debit card. That way, the PIN number is safe.
  • Monitor bank accounts regularly to spot any unauthorized charges.
  • Consumers who suspect their credit card number has been compromised should report it immediately to authorities and their credit card company.

 

For more information about the Florida Department of Agriculture and Consumer Services, visit FreshFromFlorida.com.

What does Federal Reserve’s interest rate hike mean for you? Heed this credit card advice.

creditcards

Use cash or a debit card until your credit card debt is paid off,

LowCards.com advises.

What does the Federal Reserve’s decision to raise interest rates by a quarter percentage point mean for you?

For one thing, there will be a rate hike for nearly every credit card in the next few weeks, says Bill Hardekopf, CEO of LowCards.com.

Almost 90 percent of credit cards in America have variable interest rates that will increase by 0.25 percent.

In general terms,  consumers will be paying about $25 in the next year for every $1,000 in credit card debt.

Hardekopf advises that consumers can do several things to minimize their credit card interest payments in 2017:

* Stop using your card until you no longer carry a balance on your account from one month to the next. The new charges you put on your credit card just add to the balance and increase the difficulty in paying off the debt. Put the card away and use cash or a debit card for your purchases until the debt is completely paid.

* Pay off the debt as quickly as possible. Pay as much as you possibly can toward the balance each month. The average credit card interest rate is currently 14.75 percent so that is the financial penalty you are paying each month. There are very few investments that are paying 14.75 percent, so if you have any extra money, use that to pay down the credit card balance.

* Make micropayments throughout the month. Many people falsely believe they can only make a credit card payment on their due date. You can actually make smaller payments, online or by mail, throughout the month which lowers your average daily balance. This, in turn, will lower your monthly interest charges.

* Consider transferring the balance to a lower interest rate card. There are a number of cards that have very attractive promotional offers on balance transfers. The Citi Diamond Preferred and Simplicity cards currently offer 21 months of 0 percent interest on the amount that is transferred. But there is a 3 percent balance transfer fee on the amount transferred. Do the math to see if this is a wise financial move for your particular situation. In many cases, this can save a significant amount of money on interest payments.

* Contact your credit card issuer to see if you can obtain a lower interest rate on your card. There are no guarantees this will be granted, but it does not hurt to ask, especially if you have been a solid customer. Explain you have offers from other competitors with lower rates but that you’d like to stay with your current issuer if you can lower the interest rate. If you are turned down by the first person, politely ask to speak to their supervisor and explain your situation again. Any lowering of the APR can be very beneficial to your financial health.

LowCards.com  is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates.

Should you say yes to a new credit card? New cards double during holidays

Should you add one more to your stack of credit cards?
Should you add one more to your stack of credit cards?

Whether you’re shopping online or in a store, you’ve probably been asked whether you want to open a credit card specific to that retailer to qualify for a deal or discount.

Should you? Experts say it might not be the smartest move because it can hurt your credit score.

The holiday shopping season is prime time for shoppers to open yet another credit card, even though their wallets are already bulging with a colorful collection of plastic.

In fact, TransUnion, one of the nation’s three major credit bureaus, said this week that for big box discount retailers and online retailers, the number of new accounts often doubles during December. Jewelry stores experience new card openings close to that level, and for department stores, it’s 1.5 times the level of the non-holiday season.

The number of consumers with “private label” credit cards jumped from 123.7 million in December 2014 to 124.8 million in December 2015. As of the third quarter of this year, the number of consumers with retail cards grew to 135.2 million and will likely “grown substantially” during this year’s holiday season, TransUnion says.

More cards and more shopping results in, you guessed it, more delinquent payments.

Nidhi Verma, senior director of research and consulting at TransUnion says, “Typically, retail card delinquency rates are highest during the fourth quarter of every year, as some consumers may face challenges after shopping or opening new cards.”

Some consumers forget they opened a new card and miss the first payment, Verma said, cautioning consumers to not overextend themselves during the holiday shopping season.

The experts at MyFico.com, the consumer division of FICO, which issues the credit scores that are the global standard for credit risk, say that consumers should only apply for credit they need and  plan to use.

Saving 10 percent on a purchase doesn’t qualify as needing credit, MyFico advises. Often, the initial 10 percent savings is offset by high interest rates. Opening unnecessary accounts can also backfire when you need to make a big purchase and find that your score has dropped and that you no longer qualify for the best rates.

“There is no “golden number” of charge cards, but opening cards just to gain a small savings is usually a bad idea,” MyFico says.

For more information about credit scores from MyFico, click here.

 

 

 

Credit card agreements too difficult for average American to understand

We're pretty sure this toddler can't understand a credit card agreement. Sadly, neither can the average American.
We’re pretty sure this toddler can’t understand a credit card agreement. Sadly, neither can the average American.

If you have difficulty understanding your credit card agreement, you’re not the only one.

Most credit card agreements are beyond the reading ability of the average U.S. consumer, according to CreditCards.com, which analyzed more than 2,000 current card agreements. It found they’re written at an 11th-grade reading level on average. About half of consumers read at a ninth-grade level or below.

For more information, click here.

“Unreadable contracts really hurt consumers because if you don’t understand what you’re signing up for, it can end up costing you a lot of money,” said Matt Schulz, CreditCards.com’s senior industry analyst. “If you don’t know all the fees that come with a card, for example, how are you supposed to work to avoid them?”

CreditCards.com found that 46 percent of credit cardholders “never” or “hardly ever” read the legal agreements that come with their cards.

The problem also has to do with the fact experts say the average American reads two or three grade levels below the highest grade they finished in school. So, even if they tried to read it, a lot of it would simply go straight over their heads, Schulz said.

By comparison, “Harry Potter and the Order of the Phoenix” is written at an eighth-grade reading level; the Book of Exodus in the King James Version of the Bible is written at a 10th-grade level and the U.S. Constitution is written at a postgraduate level.

 

 

Americans on track to reach $1 trillion in outstanding credit card debt

Americans excel at using credit cards.
Americans excel at using credit cards.

Americans are good at racking up credit card debt, and because of our out-of-control spending habits the nation could reach a dubious milestone.

By the end of 2016, Americans will have roughly $1 trillion in outstanding credit card debt for the first time ever, CardHub projected Wednesday.

That would bring the amount owed by the average indebted household to more than $8,500.

U.S. households paid down roughly $26.8 billion in credit card debt during the first quarter of this year, but that follows a year when they added an astounding $71 billion to their tab, CardHub said.

That’s the smallest first-quarter paydown since 2008 and nearly 25 percent below the post-recession average.

Here are some of the findings by CardHub, a website where consumers can find the credit card that’s best for them.

  • With eight of the last 10 quarters reflecting year-over-year regression in consumer performance, evidence is mounting to support the notion that credit card users are reverting to pre-downturn bad habits.
  • Although the average indebted household’s balance dipped to $7,597 during the first quarter, this still represents a 6 percent increase relative to the first quarter of 2015. It’s also just $831 below the tipping point CardHub identified as being unsustainable.
  • Despite credit card debt levels trending significantly upward, charge-off rates remain near historical lows. When a creditor charges off a debt, it means the creditor has given up on trying to collect an unpaid debt.
  • The first quarter of 2016 shares a lot of similarities with the first quarter of 2007, including the pay-down amount, its size in relation to the previous quarter’s build-up and the charge-off rate at the time. That is not good news for consumers, considering the financial turmoil that followed the last time around.

To view the full report, go to http://www.cardhub.com/edu/credit-card-debt-study/

More than 40 percent of retailers are not chip-card ready, survey says

Here's what a chip card looks like. More than 40 percent of people say they don't have one or don't know if they have one.
Here’s what a chip card looks like. More than 40 percent of people say they don’t have one or don’t know if they have one.

To swipe or not to swipe?

Every day consumers encounter smart-chip credit card terminals that aren’t activated, despite the Oct. 1, 2015 deadline Visa  and MasterCard set for the transition away from magnetic-stripe card security.

Usually, store employees tell the shopper whether to insert their card with the shiny computer chip or to swipe it the old-fashioned way.

Consumers are encountering a mixed-bag of options because a surprising 42 percent of retailers have not updated the terminals at any of their stores to enable  “chip and PIN” or “chip and signature” technology, according to a  CardHub survey released Monday.

CardHub conducted a nationally representative survey of 55 major retailers and 1,000 individuals about what’s known as EMV technology. Named after its original developers (Europay, MasterCard and Visa), the technology features cards with embedded microprocessor chips designed to store and protect cardholder data.

CardHub says the retailer response is problematic considering merchants that have not implement the new system are liable for fradulent purchases made in their stores.  The roughly $8 billion in fraudulent purchases made in the U.S. each year certainly represents a “mountain of risk for resistant retailers,” CardHub says.

What do consumers think? The survey found that 56 percent of people don’t care if a retailer’s payment terminal is chip-enabled, and 62 percent don’t understand the difference between the two security standards.

Even worse, 41 percent of people say they don’t have, or don’t know if they have, a smart-chip credit card.

Sadly, 41 percent of people falsely believe debit cards  protect them from fraud better than credit cards.

Among the retailers surveyed whose stores are 100 percent EMV compliant are  WalMart,  Target, Home Depot, Walgreens, CVS, Best Buy, Macy’s, Kohl’s, Dollar General, Gap, Nordstrom, Trader Joe’s and Michael’s.

At the other end of the spectrum with 0 percent of their stores EMV-compliant as of this month are Publix, Pizza Hut, Whole Foods Market, J.C. Penney, 7-Eleven, Bed Bath & Beyond, Ace Hardware, Family Dollar, Wendy’s Staples, Burger King and Neiman Marcus.

To read the survey, go to cardhub.com/edu/emv-adoption-survey/