Credit Score News, Tips & Advice
Website CertifiedPrivacy Protected

Consumers Held Hostage over Credit Score

By Sally Maison
Published: Friday, October 23rd, 2009

Many consumers feel that they are being held hostage over their credit score when banks started reviving annual fees. Cardholders say they want to have their credit cards cut but they cannot freely do so because of its serious implications on their scores. Specialists say recent changes were made because banks are anticipating loss of profit in the next few months.

Consumers Held Hostage over Credit ScoreBank of America (BofA) started charging new annual fees this week that run between $29 and $99. As noted by industry experts, those fees are a rarity today but card issuers are reviving them to make up for billions of dollars they will lose as the Credit Card Accountability Responsibility and Disclosure (CARD) Act hits full stride next year.

Starting February 2010, banks can no longer market to students below 21 years old. Lenders will also be banned from charging new interest rate hikes on existing balances. Additionally, banks can no longer charge fees if clients go over their limit. Instead, new regulations mandate them to give consumers choice for opting out if debts exceed their credit.

But banks will not just give away profit that easily, analysts say.  Before BofA imposed new charges, Citigroup already took first steps by notifying several clients about annual fees that they will have to pay soon. Experts explained that creditors are still on the experimental stage so not all consumers experience additional fees yet. As of now, banks are trying to see how much profit they can make out of clients without driving them away. That is why they are charging varying fees, depending on a person’s level of risk and profitability. Bankers refuse to give out specifics but announced that the practice may have to be permanent if it proves successful.

Meanwhile, many consumers think about closing their cards but they are beset with another dilemma. If they cut their cards now, especially those with excellent payment history, their credit scores will definitely go down. Length of payment history and available credit are just two of the things consumers have to consider when cutting a card.

Experts explain that consumers would have to bear higher interest rates if their score diminishes. If they do, it could cost them hundreds of dollars as well.

In Washing, the American Bankers Associated says it has not recorded yet any data regarding the return of annual fees. But insurance experts say those fees are likely to pop up in their industry next year.

Creditors say they are still studying how consumers will react before making further decisions.

No Comments

No comments yet.

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.