Student Credit Card and Credit Education Blog

Warning, there’s trouble ahead. There’s a strong chance that a serious batch of credit problems are headed straight for students which threaten to swamp their ability to get student loans and credit cards. A series of changes in the economy could result in student credit scores dropping more than 100 points overnight as well as those of their cosigners. On top of this lenders are battening the hatches by raising credit requirements. If student credit scores drop at the same time requirements increase its going to sink millions of students who rely on student loans and credit cards to help them through college. The storm is a product of the struggling US economy and the mortgage crisis.

Rolling Thunder: Dropping Credit Scores

FICO 08, the new credit scoring formula Fair Isaac (creator of the FICO formula) is pushing out to the major credit reporting agencies is expected to drop the credit scores of more than 75 million consumers, many of whom are students. The new formula is specifically targeting some activities used to build credit such as being an authorized user on another person’s account. It is also going to be much stricter about repeat late payments and also about not having a good mix if different credit trips which students usually don’t. Fair Isaac is doing this in response to fall out from the mortgage crisis. See the article What FICO 08 Means for Students for more details.

Lightning: Lender’s Raising the Bar for Credit Score Requirements
All lenders including those that offer student loans and consolidation loans as well as credit cards are becoming far stricter about what scores they require for approval. This means that you may have been approved a year ago and now very soon you could be declined with the exact same score. Lenders are doing this in response to the tightening of the economy.

Punishing Wind: Cosigners Not in Any Better Shape than Students

Traditionally when a student’s credit score is too low to qualify for a loan, they have the option to apply again with a cosigner. There are also standards for what the cosigner’s credit score must be and these are generally pretty high. Now with the lender criteria raising cosigners are also going to experience the impact of credit scores dropping due to FICO 08. This means suddenly you might have a serious problem even getting a cosigner.

It All Adds Up to the Perfect Storm

We can see a scenario where your credit score drops below the level needed to get school loans, you then will not be able to get a credit card to help rebuild your credit or a school loan. When you try to use a cosigner to at least get the school loan, their credit may also have been effected (remember this is going to hurt over 75 million people!). This could leave you in a really bad situation through no fault of your own.

How to Stay Afloat

The best advice we can give you now is to find out what your credit score is, expedite applying for any loans or credit cards you had been intending to apply for before your credit score potentially is hit and finally if you haven’t already, start educating yourself about your FICO Credit Score and take steps to improve it right away.

StudentPlatinum.com offers the Student Credit Forum for your specific questions as well as the Student Credit Education directory and reviews of the top Student Credit Cards. For help acquiring student loans or consolidation loans you can visit our partners at the Student Loan Network.

Platinum Stud assured me people read this blog when he left. I’m not so sure. Not that I’ll stop writing it, I just may stop using spell check if I’m writing for myself. Anyway I figured today I would perform a little test to see if I actually have any readers. Here’s how it will work:

If you read this blog go to the Student Credit forum at http://forum.studentplatinum.com and post a reply including the sentence “the Student Credit Blog rocks” in the Announcements section to my post about this blog. In a few days I will send everybody who has posted there a secret code good for 25 points and www.ScholarshipPoints.com.

You use these points for 25 entries into a monthly scholarship for $1,000. This month’s winner had only 15 points so 25 is a giid deal for something so simple.

Good luck!

This is a very humbling blog post. It’s humbling but I also recognize that it’s an incredibly valuable lesson, particularly those with less credit experience than me or who are just starting out. Before I begin let me boil it down to one sentence for those of you in a hurry. READ EVERYTHING YOU GET FROM YOUR CREDIT CARD COMPANY IN DETAIL NO MATTER HOW INSIGNIFICANT IT MAY SEEM.

The Background

In February 2007 I decided to get a Chase Rewards Card in order to take advantage of a 0% APR for 6-months balance transfer option. I wanted to consolidate some smaller debts and free up some cash to pay down other debts faster. My plan was to pay only the minimum for 6-months while cleaning up the other debts and then when the normal APR kicked in I would have compounded available cash from the paid off debts to knock the Chase balance off in about 3-4 months.

I was diligent with my plan and executed it to perfection. When the regular Chase APR kicked in last summer I was ready to go and proceeded to make two consecutive quadruple payments. As I often do I called them one day to ask if I qualified for a lower APR since I was such a good customer (paid on time, more than the minimum, had a good credit score and history, etc.) The rep informed me that not only didd I not qualify for a lower APR but that they were going to move my APR from 11.9% to the maximum of 24%. I asked them why and was told it must be something on my credit report. I had a credit score of 730, no late payments in over 7 years, a great mix if credit including mortgage, auto loan and credit cards older than 10 years. The agent insisted that she didn’t know why then and there was nothing I could do about it.

I strongly suspected the reason that my APR was jacked up was because Chase made no money on me for the first 6 months due the 0% APR offer and some report revealed that I was a classic “gamer”. A gamer is somebody who takes advantage of low intro APR offers and never ends up paying the credit card company much in interest because they pay off or move their balance too fast. Companies who derive tons of money from fees and interest hate gamers.

The next day I made a balance transfer from my Chase Rewards card to my American Express and included an extra few dollars to cover any residual interest. Then since it was a new card anyway I cancelled the Chase Rewards card. I won’t have a long term relationship with a company who pulls out all the stops to earn fees off people unfairly rather than promote a lifetime business relationship.

Fast Forward to Today

All the Chase drama happened in November. I got a statement or two afterwards and tossed them assuming they owed me money and I enjoy when that happens because they owe me a few bucks and then have to spend money every month to tell me. Hey it’s a few cents every month but a small victory nevertheless.

Through American Express I have a service which alerts me of any changes to my credit report. It’s great, I like to tinker and see if I can always move my FICO credit score up but I have never received an actual alert- until today.

My alert informed me that I had a derogatory statement put on all three credit reports. I immediately logged in and saw to my disbelief that I am more than 30 days past due on my Chase bill. How can this be? I logged into my old Chase account to see that my “extra” payment made back in November was a couple dollars short of the interest charge. I had a balance of $3 which I didn’t pay for 2 months in which time it accumulated $60 in late fees and got me a negative comment on my credit report.

The credit report service from American Express allows you to also calculate your FICO credit score on the fly so I did that…30 points on average between the 3 credit agencies. My credit score got blown out of the water from this one thing!
I immediately paid Chase online and then called them to see if there was anything they could do about the negative report to the credit agencies. They passed me around to a couple of different people before informing me: Too bad, late is late and it’s your problem not ours.

So Chase got the last laugh. I now have to work even harder to get my score back up. I’m hoping the change will not be permanent and in a month or two when the balance shows I paid them their $3 and the account is closed it reflects that. I’ll let you know. In the meantime here again is the lesson learned.

READ EVERYTHING YOU GET FROM YOUR CREDIT CARD COMPANY IN DETAIL NO MATTER HOW INSIGNIFICANT IT MAY SEEM.

This goes doubly if you’re a gamer and move balances around frequently! Oh and I would personally not recommend getting involved with Chase for any number of reasons mentioned in this post.

Back in December of 2007 I posted a blog titled “Post Holiday Credit Card Trouble Ahead” warning that the economy will slide a little more quickly in early 2008 and your credit card situation could get tricky. I had suggested you get on top of your balances, APRs, etc. Well, did you?

According to a February 5th 2008 article in the Wall Street Journal, Credit Card companies are buckling down and making it harder to get credit, decreasing limits, raising fees and in general giving you a lot less breathing room if you’re a person will bad credit, limited credit or are a little under water. Here’s a summary:

Despite recent dramatic Federal Reserve interest rate drops, credit card companies are tightening their standards. Big issuers such as Citigroup and Bank of America are offering lower credit limits and requiring higher FICO credit scores. Others like Capital One are limiting credit line increases and even decreasing credit lines for people who are now considered risky (who may have not been considered so in 2007).

Companies such as American Express and JP Morgan have increased their late fees and the fees for balance transfers and across the board credit card companies are expected to make some adjustment to fees. Why would they raise fees to protect themselves you ask? In 2007 Americans paid $18.1 billion in late fees alone. Whoa. See the more they expect people to default and not pay them anything, the more they will try to recover that loss from those that will. That’s the cost of getting into bed with the devil, and that’s exaclty where you are if you are carrying high balances and are close to your limits.

So what can you do? Well the fist thing you can do is to know your credit score and work on getting it up and keeping it up. Most of this is going to effect those with medium to low credit scores. Here is a link to a service we use to monitor our credit scores: Equifax Credit Score and Credit Watch. This service will give you your credit score and some ideas about how to repair it. You can also check out our articles in the Credit Education Directory.

Next you can make sure you limit your credit applications. One of the things that could flag you as a person who a credit card company needs to be concerned with (and lower your credit limit or raise your apr) is several new credit applications. This can happen very easily. Let’s say you respond to a balance transfer offer then the next day go to Target and get offered a Target Rewards card, well that’s 2 inquiries in a month and that could be enough to flag you. In general I say no to all store credit offers and only apply for other loans or credit cards when I decide I want them, not in response to them wanting me.

Finally you should get a budget and a solid plan for getting out of bed with the devil, i.e. knocking down the credit card debt. I’ve put together this handy little program for you that I guarantee will work if you follow it. I gave it to my own sisted and am happy to say its working for her! Its called the Student Credit Card Debt Reduction Plan.

Good luck and I hope you don’t experience any of these things. If you want to comment or ask additional questions feel free to do it here or even better, in the Student Credit Forum.

As the subject of this blog post indicates, my esteemed colleague “Platinum Stud” has moved on to fulfill another calling. No he’s not running an orphanage in Tibet or building irrigation ditches in Antarctica or running a mission in the Amazon. He’s actually joined the circus. I appreciate his hard work and hopefully his readers do as well.

I’m kidding. He moved on to a new career track and so I’ll be taking his regular spot in the Student Credit Card and Credit Education Blog. I’ve done a couple of guest posts and I hope they were thrilling. Some of you might know me from my work in the Student Credit Forum (http://forum.studentplatinum.com) there I answer your specific questions and moderate the discussions.

I’ll try to keep this fresh and interesting and I’ll probably throw a few “best of the forum” posts your way. There are some great questions being asked there although I wish we had a few more members but alas these things take time.