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Banks Charging Inactivity Fees to Credit Cards but Holders Cannot Opt Out Yet

By Sally Maison
Published: Wednesday, December 9th, 2009

Since April this year, card issuers saw an increased number of delinquencies because of the economic downturn that started hitting America in 2008. But banks managed to find a way to cut losses and keep the money flowing in. This includes implementing additional charges such as inactivity fees. This June, Fifth Third Bankcorp began charging its cardholders with a $19 inactivity fee to make up for the increase in servicing costs. Cardholders are naturally reluctant to pay, but they cannot just cut their card for fear of its damages to their credit score.

Banks Charging Inactivity Fees to Credit Cards but Holders Cannot Opt Out Yet Consumers know that reducing debts on their plastic could help their credit score and improve their chances of getting good loan deals. That is why they have cut down their card debts by 1.7 percent last month, with their debts totaling at $842.6 billion as of November 18.

According to Nick Bourke of the Pew Charitable Trusts in Washington, consumers would rather pay their balances off than cancel their account because a cancellation would hurt their credit score. Canceling a card will increase their utilization rate, which is determined by the amount they owe in relation to their available credit. This could hurt their credit score by several points.

Larger issuers are experimenting with clients whom they think are not using their cards well enough. Citigroup, for instance, is charging clients based on how often or how seldom they use their plastic. The changes began last month when Citi began sending letters to customers informing them of the new fees.

Bank of America followed suit and began charging clients with fees running from $29 to $99. BofA says the fees are only charged to less than a percent of its customers but has not announced yet if they will impose similar fees to more of its cardholders. Customers who are currently carrying the new fees are those who are struggling with their credit score.

Moody’s investor services recently reported that loan delinquencies, those that are 30 days past their due dates, rose to 6.12 percent in October. Those delinquencies were at 5.97 percent last September and analysts fear that many consumers are in danger of default. Finance advisers remarked that a delinquency could batter their credit score for as long as seven years.

Consumers who do not want to face new charges may cancel their accounts but they will still be required to pay off their balances. However, some consumers say they would hold on to their card for now since they do not want any decrease in their credit score.

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