Basically what you do is send back a professional letter to the address on your denial. State your case, and why you're a good credit risk. Point out the specific factors in your credit history that show you are a good debtor. This is what Frugal Travel Guy's letter looked like:

To: Blah Blah Blah

RE: Credit Card Reconsideration Request

To Whom it May Concern:

I was surprised to receive an online denial of my recent SPG Amex card application reference # 123456987654.

I am asking you to reconsider your decision based on the following facts:

My wife and I are both employed full time as professionals and have an annual income in excess of $___________.

Although our past credit is limited, you can see from our credit report, we have never missed a payment or been late. I know, as I checked my credit score just before applying for your card to insure it's accuracy. I note the current credit score is 745 which is better than over 55% of the public and is considered good credit by the credit reporting agency.

We are not heavy users of credit and never plan to be, but have heard from many sources that your card is the best rewards card on the market today, and we believe we are responsible credit risks and deserve a chance with your card.

We do not need a large credit limit and would be happy with a small credit line at first to prove to you our reliability.

Although I am not including our most recent paystubs, I can send them to you if you need them.

I look forward to your reconsideration and receipt of my new Starwood Preferred Guest Amex card.

Respectfully

Josh Xxxxxxx

And it worked, his son was approved after they got this letter.

Have you ever tried a reconsideration letter? How did it go?

I'm Proud of Me Today a Successful Reconsideration Letter [Frugal Travel Guy] (Photo: the prodigal untitled13)

Despite the credit crisis, there are a lot of credit cards still offering new accounts a special bonus. Some award you points after your first purchase. Others offer you cash back after you spend more than a certain dollar amount. In fact, New York Times money blog Bucks reported that the British Airways Visa Signature card would soon be offering a staggering 100,000-mile promotion, worth two round-trip tickets, to new cardholders, making it one of the richest offers I've ever seen.

It sounds like a win-win situation right?

Unfortunately, every time you take advantage of one of these offers your credit score takes a punch to the face. Everytime you apply for a card, your credit report gets hit with a hard inquiry and those hard inquiries negatively impact your score by a few points. The exact number of points it goes down is unknown but you can rest assured it will go down.

If you're not planning a major purchase within six to twelve months, it's not a big deal. If you are, you could see much higher interest rates on those loans... making that bonus look really stupid.

Are there offers that won't ding your credit? Yes.

In general, promotional offers from banks and brokers will not hurt your credit. Since there is no extension of credit, banks and brokers usually won't pull your credit but you should call to confirm this. Banks will not conduct a hard inquiry unless you open a checking account with overdraft protection. Brokers will usually not do a hard inquiry unless you open a margin account. In both cases the bank or broker may find themselves lending you money for a short period of time, which is why they do a hard pull.

Outside of those two more common scenarios, they will only do soft pulls to confirm your identity, as required by law. Bank offers will usually be in the $100 range and you'll be expected to maintain a sizable deposit, setup bill payments, and establish a monthly direct deposit before they'll pay out a promotion. Brokers will usually require a minimum deposit and at least one trade. The promotional requirements are usually not terribly onerous.

With the economy starting to recover, I think you'll start seeing more and more of these offers.

Jim writes about money at personal finance blog Bargaineering.com.

(Photo: armydre2008)

If you have a good credit score, you're already saving money on things like rent, so this article will be of little help to you. If you had a weaker score and just recently improved it, here are some ideas of how you can cash in on your good behavior.

If you're renting and put down a security deposit, ask for some of it back. There are two main reasons why landlords retain a security deposit - to protect against damage and to protect against non-payment of rent. If your score was lower, the landlord probably asked for a larger deposit. Now that you've improved your score, ask if you can have some of the money back. This works better with individual landlords rather than management companies because of the red tape. (while you're at it, you can always try to negotiate your rent)

Shop around for insurance. Take a few minutes (fifteen is all it takes according to Geico!) to shop around for your car insurance because credit plays a role in determining your premiums. You might find savings just by shopping around after an increase in your score. You won't be able to get your current insurance to lower your premiums until the next renewal but most insurance policies do not penalize you for switching.

Try credit piggybacking. Bankrate published an article on credit piggybacking and described how it worked. Someone with a good credit score, our credit score seller, would add someone with a bad credit score, our credit score buyer, as an authorized user on their credit card. The buyer wouldn't get the card or get access to the line of credit, they benefited by having that account appear on their report. Cost? Bankrate cited around $200 per user. FICO considered negating the effects of piggybacking with their FICO 08 score but backed off, so piggybacking can still improve your score and you can still make money off it. (there are risks to this, the buyer will know the bank, how much credit is available, and other details but not the card number)

Here's one technique that won't work now but might make a comeback - keep this in your back pocket. Years ago, you could play the balance arbitrage game of taking out a 0% APY balance transfer and depositing it into a online bank account. Many credit cards didn't charge you a fee for the balance transfer so you were basically borrowing at 0% and earning 5% interest on the savings. Nowadays, savings interest rates are lower and balance transfers carry fees, making it a losing proposition. While we don't yet know if this is the end of the 0% balance transfer era, it's still good to know this strategy in case it makes a roaring comeback.

Do you know of any other ways to cash in on good credit? Have you sold an authorized user spot in a piggybacking scheme? Did you get in on the balance transfer arbitrage craze a few years ago?

Jim writes about personal finance at Bargaineering.com.

(Photo: frankieleon)

Companies use it to decide whether to give you a job. Insurers use it to set your insurance premiums. Before long, I wouldn't be surprised if people start using it before blind dates! (Oh wait, that's what Facebook is for).

That last one was a little tongue in cheek because, by law, you aren't allowed to pull someone's credit to see if they'd be a good date. The law that prevents that is the Fair Credit Reporting Act, which specifically states what a credit report can be used for under §604:
• Applications for credit, insurance, and rentals for personal, family or household purposes.
• Employment, which includes hiring, promotion, reassignment or retention. A CRA may not release a credit report for employment decisions without consent.
• Court orders, including grand jury subpoenas.
• "Legitimate" business needs in transactions initiated by the consumer for personal, family, or household purposes. (litigation is not legitimate by 3rd parties)
• Account review. Periodically, banks and other companies review credit files to determine whether they wish to retain the individual as a customer.
• Licensing (professional).
• Child support payment determinations.
• Law enforcement access: Government agencies with authority to investigate terrorism and counterintelligence have secret access to credit reports.

(courtesy of the Electronic Privacy Information Center's page on the FCRA)

You might only agree with the first item on the list, the only one that uses the word "credit," but the FCRA grants pretty wide rules for the use of credit reports (sorry, dates not included). Credit reports and credit scores are becoming far more important than they were ever intended, having a good understanding of what is legal helps curb the more creative uses.

This is especially important for anyone being harassed by debt collectors. Debt collectors, in their zeal, will sometimes violate the FCRA when pulling someone's credit report. If they pull your credit report under false pretenses and use that information against you, you can be awarded damages. A good example is if they threaten to have you evicted because they find out that you own a house (mortgages are listed on report). That's illegal under the FCRA.

Do you think credit reports are becoming too pervasive? Credit scores far too important?

Jim writes about money issues on a daily basis at personal finance blog Bargaineering.com.

(Photo: jadedhalo)

As a personal finance blogger, I see a lot of shady stuff floating around the Interwebs. Whether it's some crazy Google get rich quick scheme or fake ads touting President Obama giving out more stimulus checks, there's always some sort of scam out there waiting to snag a few unsuspecting consumers. Lately, there have been a lot of no-name companies offering to sell you your credit report or your credit score. Don't buy anything from them.

If you want your credit report, go to AnnualCreditReport.com. The Fair Credit Reporting Act gives you the right to see your credit report every twelve months. The government set up the AnnualCreditReport.com website for you to request these reports. Don't go anywhere else and don't pay for what is yours for free by law.

If you want your credit score, you'll have to pay for it. The FCRA doesn't give you the right to see your credit score every twelve months, just the report. You can buy your score from the bureaus or from MyFICO, which is Fair Isaac's consumer facing corporation for credit products. All of the bureaus offer a trial service, usually of an identity theft monitoring product, that let's you see your FICO credit score if you sign up for that trial.

Do not buy your credit score from a company other than the three bureaus or Fair Isaac. If you aren't dealing with Experian, Equifax, TransUnion, or Fair Isaac directly, stop immediately. There are two reasons why:
- The other companies selling credit reports and bureaus are usually not affiliated with the three bureaus or Fair Isaac and they intend to sell your information to the highest bidder. Whereas the bureaus intend to make their money on people sticking around for the trial service, these independent companies profit off selling your information.
- The bureaus and Fair Isaac already have your personal information, why give your sensitive information to yet another company that doesn't need it? When I give Equifax my social security number, it's used as a way to look up my credit report. Who knows what happens when I give it to some fly-by-night company?

To recap: If you want your credit report, which you should review once every twelve month, go to AnnualCreditReport.com. If you want your credit score, go to one of the three bureaus or Fair Isaac.

If you want a happy life, try to avoid the whole credit and debt game entirely and it's one less thing to worry about. :)

Jim writes about money issues at his personal finance blog Bargaineering.com.

(Photo: jadedhalo)

I just received a notice from FIA Card Services regarding my (Formerly PNC) Worldpoints Visa Card.

"Your card will now be assessed an annual fee of $99, which will be billed on your Febuary statement each year. We appreciate your business and look forward to continuing to meet your credit card needs. If you accept this change, you will continue to enjoy valuable benefits such as the WorldPoints(R) rewards program, which lets you earn points you can redeem for travel,, merchandise, gift cards, cash and limited-edition memorabilia...

... You have the right to reject this change. INstructions are included in the enclosed Amendment. If you choose to reject this change, your account will be closed, and you must continue to make regular payments until your balance is paid in full..."

A little background info: This is currently my only credit card and is the single oldest thing on my credit report. Closing this card will most definitely adversely affect my credit score. A $99 annual fee seems absolutely outrageous to me. Is this sort of change allowed and is there anything I can do to prevent paying this fee aside from closing the account and taking the hit on my credit score? I'll be shopping for student loans next year and need my score to be as high as possible.

This is a tough situation. The company is essentially holding Michael's credit score hostage. Calling and asking for a waiver of the fee probably won't work, since more credit cards will be adding annual fees. The threat of switching to another card doesn't have the same impact that it did in, say, 2006.

We would suggest trying to negotiate with the company—ask if he can switch to a different card type, without reward points, but maintain the same account.

Any advice for Michael, or similar experiences to share?

(Photo: frankieleon)

"Prepaid, but Not Prepared for Debit Card Fees " [New York Times]

My fiance and I are currently in the market for a new home. We found one in a great neighborhood that we absolutely fell in love with and decided to get pre-approved for a mortgage. Imagine our surprise when our mortgage counselor informs us that my fiances credit is less than desirable. We are both working professionals with long credit histories who pay on-time. When we asked what the problem was, she told us that the Juniper credit card that my fiance used to purchase an Apple computer earlier in the year was showing as more than 30 days late.

When we contacted Juniper about the issue, we were informed that my fiance had paid the month in question too early to be credited towards that billing cycle. How early? 3 hours. She paid the card off three hours too soon. And not at some random, early morning hour. The payment posted at 4pm and was technically due at 7pm. Who would have thought that a bank would post a payment at COB? I guess not Juniper. As a result, late fees began to accumulate and they reported her to the credit agencies. When speaking with them on the phone, she repeatedly got the "canned answer" from their representative as they denied any wrongdoing. Where does that leave us? Out of the housing market. Thanks, Juniper.

In the hopes that others won't get caught in a trap like this, I wanted to share with you guys.

We recommend that John and his fiancee not take this sitting down. Her case seems ideal for a credit report dispute, or escalating her case as high within the company as she can.

RELATED:
How To Fix Your Credit Report When Creditors Won't Admit Their Mistakes
EECB Finally Gets Someone At Bank Of America To Listen, Admit Responsibility
Asking For Lower APR Gets Juniper iTunes Rewards VISA Card Closed Against Man's Will

(Photo: Nesster)

FICO stands for Fair Isaac Corporation and refers to the algorithm they use to calculate your credit risk and credit worthiness. There are three credit bureaus collecting and collating your credit information (Equifax, Experian, TransUnion) and a FICO score is calculated using that information in Fair Isaac's proprietary equation.

So what are FAKO credit scores? It's a play on the FICO acronym but its a derogatory term for any credit score that isn't a FICO score. For example, the three bureaus tried to get together and create a VantageScore to compete with FICO. Also, each of the bureaus produces their own score, only one of which is truly FICO:
- Equifax produces a score called BEACON which is a true FICO score based on information in your Equifax credit report. (I originally erroneously called BEACON a fako score, thank you to readers who corrected me)
- Experian produces its own score called the Scorex and Scorex PLUS, again it's their own calculation based on information in your Experience credit report.
- TransUnion produces its own credit score called the Transrisk New Account score. It's their own calculation based on information in your TransUnion credit report.

The reason they are called FAKO credit scores is because most lenders and credit grantors use FICO scores, not the proprietary ones. Knowing your FAKO score maybe helpful but when you could get a FICO score for the same price, why bother?

You can always get your credit report for free from each of the three bureaus every twelves months through AnnualCreditReport.com. Your score, however, won't be free. The only way to get that is to sign up for a free FICO credit score trial and cancel after you see your score. If you aren't planning on trying to obtain credit, I recommend using a credit score estimator, they are accurate enough.

If you enjoyed this article, you can see more from Jim at his personal finance blog, Bargaineering.com.

(Photo: pyxopotamus)

...mortgages will stay cheap, provided you have the stellar credit needed to get one, and savings accounts will continue to generate low, but safe, returns. They also said rates will stay low for an "extended period." Growth may be picking up, but unemployment remains high. August home sales fell, too, for the first time in four months. It seems the slog to economic recovery will be anything but short.

Fed Signals Growth Return Not Enough to End Stimulus [Bloomberg] (Photo: frankieleon)

How so, you may ask? It's those greedy banks that are making a host of credit card rules changes to try and earn more money for themselves (gasp!) Smart Money highlights six steps many credit card issuers are taking that can become traps for peaceful, charge-loving shoppers. Their list:

1. Higher rates for everyone
2. Moving from fixed to variable rates
3. Annual fees
4. Usage fees
5. More junk mail
6. Reward hoops

More costs, more hassles, and less rewards. Ugh. If they don't watch it, they may wean us off credit altogether.

Oh, we long for the glory days of free t-shirts on sign up, 0% balance transfers, and 10,000 miles credited for blowing your nose. Yes, those were the days.

6 Credit-Card Traps to Avoid Now [Smart Money]

— FREE MONEY FINANCE (Photo: yksin)

[Paul] spoke with a customer service representative who identified herself as Lisa, who "told me that the reason [his credit limit] was cut back was due in part to the financial situation in California. Also in Nevada, Florida and Arizona."

MSNBC contacted HSBC for confirmation, but the bank only provided an intentionally vague response that neither confirmed nor denied whether the state you live in might impact your ability to get credit.

"Living in California Bad for Your Credit?" [MSNBC] (Thanks to Alicia!)
(Photo: paalia)

The sites give you access to a wide range of your personal information, with links to your free annual credit report, past insurance claims, health history, checking account info, background checks, previous purchase returns, and your rental history.

Because some of these were new to us, we decided to go through the whole list and try out all of the links Consumer Reports provided. (We didn't try the free credit reports from annualcreditreport.com, with which most readers should already be familiar.)

ChoiceTrust, which provides free reports on personal property and auto insurance claims, as well as bankruptcies, liens, and any licenses (e.g., firearms, admission to a state medical board, etc.) you have, gave us accurate information quickly.

Chex Systems, which offers free reports on checking and debit history, over drafts, unpaid charges, and so on, was accessible, but does not offer online reports; ours will be arriving in the mail next week. TeleCheck, which provides similar information, had a buggy website that kept clearing form values when we clicked Submit. Encouraging sign from a company that has access to your checking account.

The Retail Equation provides your return history, used by stores to spot potential refund/return scams, but you can only access a free report online if you've been denied a return and have a refusal code, otherwise you'll need to contact them by phone to get your report.

SafeRent and RentBureau both provide consumer information to landlords and property management companies when prospective renters apply for housing. Both sites offer free reports, however, you have to print out and mail in a form to receive your report.

The CR article also offers several phone numbers for companies that maintain your medical records, although when we tried, it was such a formidable labyrinth of phone trees and automated prompts that we up for going through it all.

Taking control of your finances and your personal information requires knowing what agencies are saying about you. Use these resources to spot any fraud, incomplete information, or legitimate red flags that will pop up when you apply for credit, a mortgage, or an apartment.

Big Brother Is Watching [Consumer Reports Money Adviser]
(Photo: frankieleon)

For example:

We'll give you $4,000 for your trade no matter what the condition: This ad is infamously known as the "push-pull-or-tow-it-in" concept, which dates back to the 1950s. If you believe this ad, you have to believe the dealer is so stupid and so eager to sell cars that he is going to pay you far more than that old clunker is worth. Don't believe it. If he's paying you too much for your trade-in, he's adding that and more to the price of the new car and taking away your negotiating power at the same time. The best defense to this ploy is to become aware of the value of your car through such Web sites as Kelley Blue Book and Edmunds.

All of this is interesting but we still prefer to "shop like a millionaire," and avoid car dealers.

Beware Bogus Advertising Slogans [Yahoo!]
(Photo:frankieleon)

TMZ says:

TMZ has learned that in 2007, Jacko's average credit score was 563.67 (Equifax 592, Transunion: 524, Experian: 575) which most experts consider very low. (According to creditreport.com, the average credit rating for people in California is 672.)

He apparently had some delinquent accounts and Barney's supposedly shut down his credit line after he charged more than $224,000 in on a single billing cycle.

Michael Jackson Flunked His Credit Report [TMZ]

While the answers to these questions may be easy: Plastic, mustard and Veronica, the decision of whether to use credit or debit is not. One method spurs ludicrous overdraft fees, the other ignites ridiculous interest charges. One keeps you honest by forcing you to spend money you have, while the other is more liberating because it lets you spend money you don't have.

USA Today tackles the debate and understandably doesn't find resolution. But it does comprehensively break down the pros and cons of each method and may help you decide which route is best for you.

The story asks you to consider the none of the above:

Brian Riley, research director for the TowerGroup, says consumers should pick the card that's the best fit for their specific needs: convenience, low interest, fraud protection, rewards or even as a help in taming your inner spendthrift.

First step, though: Consider cash for the purchase. Cash is the simplest transaction and comes with no strings, fees or delayed costs.

Ah, so it was a trick question then.

But cash is hardly realistic in today's society. Who wants to carry change? It's just something I can't believe in.

I'm a credit card man. As long as you keep tight control on your spending and pay off the balance every month, you can't go wrong with magic plastic insta-debt. In addition, because of the way our laws are structured, credit cards give you bit more protection against fraud.

For example:
The Fair Credit Billing Act protects you from suffering damages due to unauthorized use of your credit card. If you report a lost or stolen card before anyone uses it, you are not responsible for any charges. If you do not report it before an unauthorized use you are liable for a maximum of $50.

Debit cards and ATM cards are covered under the Electronic Fund Transfer Act, and your liability depends on how quickly you report the loss. Unlike credit cards, debit and ATM cards can have unlimited liability in certain circumstances.

Debit or credit? Let how you spend decide [USA Today]
(Photo: The Consumerist)

EQ stands for Equifax, TU for TransUnion, and EX for Experian.

FICO Risk Factor Reason Codes [Bargaineering]
(Photo: Egan Snow)

Hiring consultant Nancy Schuman explains:

Some companies believe they can deduce how a person will handle their job responsibilities based on how they handle their personal finances. Others use the information to gauge how long a person might stay in a position if their debt load is higher than a position pays. It is also used to verify employment history and a social security number.

There is no clear connection between a credit history and job performance, and many job seekers consider it to be an unfair way of screening candidates, however, no Federal discrimination law specifically prohibits employment discrimination on the basis of a bad credit report. The Fair Credit Reporting Act (FCRA) and state credit laws help to regulate how an employer can obtain and use their findings. An employer must gain your consent in writing to do a credit check and the report they receive is different than one viewed by a credit agency or an individual. Full account numbers are not revealed and they won't see a credit score, but they will be able to see late payments, collections and bankruptcies. If you are actually denied employment because of your credit report, the company must notify you so that you may view the report on which the decision was based.

An accurate credit report is best defense against a discriminating employer. Every year, consumers find 13 million errors staining their credit reports. Request a copy of your report from each of the three credit reporting agencies at AnnualCreditReport.com (not FreeCreditReport.com!) Challenge anything that looks like an error. If you can't scrape strikes from your report, talk to your potential employer clearly and honestly and help them understand what led to financial transgression, and explain how it is completely unrelated to your future job performance.

Does Bad Credit = A Bad Candidate [Long Island Press via Fair Credit Reporting Act]
PREVIOUSLY: Repair Your Credit By Disputing
Check Your Credit History Year-Round, For Free
(Photo: ninjapoodles)

Bob was a local banker. He lived in the same town where his bank was. He was a loan officer, probably a Vice President, and worked for the bank for years. Bob married his high school sweetheart, raised four or five kids in the town you lived in, belonged to the local optimist club, and attended a local church every Sunday. Bob showed up at most of the civic events in town. You saw him at many of the weddings, christenings, and funerals in town too. Bob knew everybody who was anybody in your town. He also knew a lot of nobody's as well, but that didn't matter to him – anybody or nobody, you were from his town and he was the banker.

Bob viewed himself as the guardian of the bank's money, and the reputation of the bank in the local community was very important to him. When people needed money, they would come to Bob to apply for a loan. There was paperwork to fill out, but it usually wasn't very extensive. Bob looked at the paperwork to be sure, but Bob knew you, he knew your parents, he knew where you worked, and he knew how much money you made. Most importantly, Bob had a pretty good idea what sound financial practices were and he cared about your financial well-being because it was tied to his bank's reputation.

If you tried to borrow money to buy a house or a car you couldn't afford, Bob would take you aside, puffing on his cigar, and say, "Son [a term applied to all males under 50 years old, sic] there's no way I can loan you this money because you can't pay it back. If I have to foreclose on you, my name will be mud in this town…"

Hey Nostalgists, your drugs aren't wanted here! Maybe next year if Bank of America stops trading at $13 we can afford your family trip back to Pleasantville.

Bring Back Bob the Banker [Credit Slips]

A colleague recently suggested this approach, which has the advantage of not just stopping illegal activity, but stopping those responsible for it. No other approach seems to attack the root of the problem: those driving predatory activities. They may be the heads of large, national banks, but also the heads of small mortgage brokerages or closing companies.

While banishment could be used on large-scale consumer predators, it should also be used on small-scale operators. A few examples: bait-and-switching mortgage brokers, small-time predatory credit card lenders (those with $250 limits that begin with $200 in fees, for example), lending redlining (and reverse redlining), and others.

The Consumer Financial Protection Agency (CFPA) proposed by the Obama Administration is supposed to be a consumer watchdog agency, responsible for ensuring financial products are safe much as the Consumer Product Safety Commission (CPSC) does for physical products. It will be in the best position to supervise financial services vendors, large and small, and impose banishment when appropriate.

It may be that enabling the CFPA to banish the worst offenders as an extreme sanction is the best way to give the new watchdog real teeth.

Sam Glover is a consumer rights lawyer, enemy of shady debt collectors, previous Consumerist contributor, and writes the Caveat Emptor blog. His column appears monthly.

(Photo:

)

Is a true that after 7 years your bad credits go away?

By credit you mean debts, and, for the most part, the answer is yes. However, it depends. Some negative information can stay on your report for up to 15 years. Here's a breakdown of how long each of 10 different kinds of negative items stay on your report, aka, drag down your credit score:

Delinquencies (30 – 180 days): Up to 7 years after the first missed payment, the original delinquency date, after which point you never caught up on your payments again. A 30 days late stops mattering after about a year or two, but 60+ days can last for a long time, notes commenter FDCPA Guy.

Bankruptcy: Ten years from date of discharge for chapter 7, 11, and 12. Seven years for chapter 13. Any accounts involved in the bankruptcy stay on for seven years.

Collection accounts: 7 years from the original delinquency date (ODD).

Charged-off accounts (when the original lender figures they're never going to get money from you and writes it off as a loss and sells it to a collector): 7 years from the ODD, even if payments are late made (this is important to remember because some collectors try to say that by making a payment with them you've reset the debt clock. We covered this more in this post).

Closed accounts: 7 years from date of reported closing if they have delinquiencies, 10 years if there's a positive balance.

Lost credit card: 2 years, if there's no delinquienceies. If there are, then 7 years from ODD.

Child support judgments: 7 years from date judgement is filed.

Small claims and civil judgments: 7 years from date judgement is filed.

Liens: 15 years for unpaid tax liens. 7 years for paid liens.

Hard credit inquiries: 2 years.

Paid positive accounts: 10 years.

Positive open credit information: forever.

That many years sounds like a long time for a lot of these items. How will I ever get credit? Don't worry so much, says commenter Stephmo. They note that a lot of credit-scoring models just look at the last 24 months, "meaning that if you keep your pills paid for 24 months and your score improves and you manage to rebuild credit for 24 solid months - this stuff starts to not matter as much. If you have 24 months of similar high re-established credit, most creditors will consider you "rehabilitated." In many cases, you can even get auto-approved unless they're really targeting specific delinquency types."

[via Experian] (Photo: -heureux-)

Joey wrote in with this tale of annoyance and woe:

Last Friday, when I stopped at a gas station and tried to pay for gas with my Chase Freedom credit card, the machine told me it was declined. I thought it was a problem with the machine so I went inside and tried to use the card with the person working. The card was denied again. Frustrated, I called Chase Card Services to figure out what was going on.

The rep told me my card had been cancelled. Not only my Freedom card, but also my 3 other Chase credit cards (I use them for different rewards). I told him it was outrageous that I hadn't received any early notification, and all he could say was that I would be getting something in the mail soon. I asked why my cards were canceled, and his response was that I had too many loans out so Chase considered me a risk. For the record, I do have loans that I'm paying off - my student loans and the loan on a recently purchased house. However, I've always paid the balance on my Chase credit cards in full every month and rarely ever am I late (the last time was at least 6 months ago). Nothing in my history with them would cause them to think I would not pay my bills. The rep couldn't do anything for me so I asked to speak to a supervisor. I was told they were busy and that one would call me back. No one has since.

This angered me to no end and ruined my weekend. Not only did 4 out of the 5 credit cards I have get cancelled (I still have an Amex), the rep told me that since my credit cards were cancelled, I wouldn't be able to take advantage of the rewards I had accumulated on the card. I currently have over $100 in rewards from Chase that I've been saving to get the $250 check for $200 reward dollars program they had. So now they expect me to pay the remainder of my bill, but they're screwing me out of money I could potentially get from them.

Today, my parents told me all their Chase cards had been canceled as well, and their credit history is probably better than mine. I assume there are many other people out there that have been affected as well. What the #*&@ is going on with Chase!?!?! Do they really have the right to do this!? Can I at least force them to let me use my rewards?

Fight back, Consumerist-style. If escalating things in the normal customer service channels doesn't work, we have some ideas about who to call or e-mail. Be polite, professional, and firm.

Have you experienced similar cancellations at the hands of Chase? Have you fought back? Share your story in the comments.

RELATED:
Contact Information For Chase CEOs
Chase Raises Reader's APR To 148.14%

(Photo: frankieleon)

As a result of the recession and financial companies looking to slash their risk, some of the lesser known, "secret," scores have started to rear their ugly little heads. As you probably expect, creditors of all types collect a massive amount of data. Wal-Mart tracks each and every purchase, it's not surprising to expect that a credit card company would do the same.

As these companies build a dossier of your activity, they're feeding it through their hungry algorithms that spit out scores intended to help them make better decisions. Sometimes they're helpful, sometimes, as was the case with Kevin Johnson, they just make the company look foolish.

So what are some of these secret scores? Liz Pulliam Weston wrote about these 8 secret scores:

While a credit card issuer might check your credit scores once a month as part of its regular account review process, the same company probably checks other kinds of scores every time you pull out your plastic.

The eight secret scores are:
1. Credit-risk scores - This is your typical FICO credit score. (this shouldn't be a secret!)
2. Response score - Likelihood you'll respond to an offer.
3. Application score - Scores the "other" data on your application, not included in a credit-risk score.
4. Bankruptcy score - Likelihood you'll file bankruptcy.
5. Revenue score - Likelihood you're a profitable account.
6. Attrition-risk score - Likelihood you'll stop using their card.
7. Behavior score - Scoring of a single account to determine future behavior.
8. Transaction score - Calculated each time you use your card to determine approval.
9. Collection score - Once in collections, collection agencies use this to determine collectibility.

As I was told over and over again as a kid, knowing is half the battle. Unfortunately, that's all you can do at this point.

Jim writes about personal finance at Bargaineering.com.

(Photo: gotplaid?)

Credit Karma Report Card (requires registration)

Have you wondered why?

At my last job, during the routine background investigation process, I had asked investigators why they reviewed credit histories. They gave some predictable answers. If you have a lot of debt, you may be more susceptible to bribes or you're more likely to steal. If you don't have a lot of debt but are otherwise reckless with money, you might soon acquire a lot of debt and fall into the same trap. Beyond those two tenuous but plausible reasons, there were others I didn't think of. The prime example has to do with residency and corroborating what your résumé claims. If my résumé states that I worked at a company in Pittsburgh for five years, I should have a western Pennsylvania address listed as a former address on my credit report. If that address isn't on my report, it's possible I'm falsifying my résumé.

This underscores the importance of regularly reviewing your credit reports.

If you're curious what you can do to clean up your image, I found an undated article by Liz Pulliam Weston on employment inquiries. It discusses what you can do to clean up your report, what protections you have under the Fair Credit Reporting Act, and what you can do if you are denied a job because of your credit.

Also in the article, she talked to James Lee, chief marketing offer of ChoicePoint Inc., which does background checks. According to Lee:

Credit has not turned out to be a good predictor of workplace theft. This is what our customers are telling us, anyway, Lee said. A better predictor is a criminal history involving bounced checks.

So while they're not a good predictor, employers are still checking anyway. Incidentally, bounced checks are reported on specialty reports offered by ChexSystems. You're given the same free annual right to review those reports as you are credit reports.

Have you ever been denied a job because of your credit?

Jim writes about personal finance at Bargaineering.com.

(Photo: pyxopotamus)

(A "deadbeat" is industry slang for a customer who doesn't bring in much revenue—typically someone who never carries a revolving debt.)

Of course, one of the ways to make deadbeats profitable is to re-introduce annual fees, which is something the industry threatened anyway in the weeks before Congress passed the CARD act. It also helps to find customers who are deadbeats but who still spend a lot every month—which means rewards programs will likely be emphasized.

AdAge writes,

Charge-off-weary credit-card issuers, who still collect the 2% to 3% fee paid by merchants whenever a sale is made, will seek out customers who charge thousands of dollars a month and always pay off their balances.

"The industry has become so risk-averse that even any kind of balance makes them nervous," said Curtis Arnold, founder of CardRatings.com. "That higher end of the market — folks with above average spending and above average credit — will be sought-after."

"I do think annual fees will come back, but I also think there will be rewards for everyone in every possible way — anything you want," Mr. Robertson said. "There will be much more reliance on loyalty programs and making them as robust as possible ... to retain existing customers."

Is this the silver lining to the credit crunch—financially responsible customers will be treated like worthwhile customers again?

"Credit-Card Issuers to Market to 'Deadbeats'" [AdAge] (Thanks to pdp!)
(Photo: Stewart)

35% Payment History: Do you pay your bills on time?
+ for on-time
- for tardy or skipping

30% Utilization: How much are you using of all your available credit?
+ tapping less
- using up most of it

15% Credit History: How long you've held your accounts, how recently have you used them?
+ longer time, fewer accounts
- short time, more accounts

10% New Credit: How many accounts have you opened recently vs. your total number of accounts? How many recent credit inquires have lenders made?
+ fewer accounts, older, less inquiries
- more accounts, more recently, more inquiries

10% Types Of Credit: What kind of credit do you have?
+ showing a history of being able to pay off credit card debt (revolving debt) counts for more than a mortgage (installment loan)

So how can you use this info to improve your credit score? Well, you can change your behaviors so you're doing more of the + stuff and less of the -. Also, check out your credit reports, all three of them, for free at annualcreditreport.com. The first thing you'll want to do is make sure all the information is accurate, and if not, start disputing incorrect information that might be hurting your score.

FURTHER READING:
Credit Scores: What You Need to Know [NYT]
What's in your FICO score [MyFICO]

(Photo: funny strange or funny ha ha)

A lender doesn't set a loan's interest rate based on only your credit score, but it's one of the easiest things you can affect with your actions. Avoid these five things to help ensure you don't get a higher rate than you should.

1. Don't apply for any new credit. When you apply for new lines of credit, the lenders will do a hard inquiry on your credit history. Hard inquiries will cost you a few points on your credit score. It might be appealing to take advantage of hot new credit card promotions but it will hurt you in the long run.

2. Don't take on any new debt. New debt will increase your credit utilization, which will negatively impact your score. Lenders are very wary of borrowers with a large amount of consumer debt, so don't help them build a case for a higher interest rate by taking on debt and dinging your credit score.

3. Don't take advantage of any "same as cash" offers. Same as cash is code for a short term loan and new loans, as you know, are going to hurt your credit score. The same goes for 0% financing or 0% balance transfer offers. Any benefit you receive from a "6 months same as cash" offer is going to be negated by the higher interest rate you'll pay on your home because you lost a few points on your credit score.

4. Watch where you shop. It sounds absurd but where you shop can affect your credit. Last December, Consumerist wrote about Kevin Johnson, a business owner with a FICO score 764, who had his the limit on his AMEX Blue credit card slashed because of where he shopped. Here's a Good Morning America video story about it. If a card slashes your limit, your credit utilization will go up and your score will be hurt by it.

5. Pay any late fees or dues, no matter how insignificant. Owe your local library fifty cents because you kept the Great Gatsby a few days extra? Pay it off. Many small organizations, especially in these economic times, are turning to collection agencies. Take care of these small debts because one report can cost you thousands in the long run in higher interest payments.

Here's one thing you should do right now: If you haven't done so in the last year, go to Annualcreditreport.com and request your credit history from each of the three credit bureaus. Review your history and dispute any inaccuracies. Errors can take months to fix so you'll want to fix them well before you apply for a loan.

Was there a big credit-related no-no that I missed?

Jim writes about personal finance at Bargaineering.com.

(Photo: armydre2008)

The New York Times Magazine takes a look at this new method of determining credit risk, pioneered by Canadian Tire executive J.P. Martin about 6 years ago.

Martin's measurements were so precise that he could tell you the "riskiest" drinking establishment in Canada - Sharx Pool Bar in Montreal, where 47 percent of the patrons who used their Canadian Tire card missed four payments over 12 months. He could also tell you the "safest" products - premium birdseed and a device called a "snow roof rake" that homeowners use to remove high-up snowdrifts so they don't fall on pedestrians.

It's not just that what you buy reflects your socioeconomic level and current financial status, however; what Martin did was take the raw data and tease out personality traits that explained the the purchases while predicting future behavior.

Why did birdseed and snow-rake buyers pay off their debts? The answer, research indicated, was that those consumers felt a sense of responsibility toward the world, manifested in their spending on birds they didn't own and pedestrians they might not know. Why were felt-pad buyers so upstanding? Because they wanted to protect their belongings, be they hardwood floors or credit scores. Why did chrome-skull owners skip out on their debts? "The person who buys a skull for their car, they are like people who go to a bar named Sharx," Martin told me. "Would you give them a loan?"

Lenders have been using this sort of data mining ever since, but until recently they've kept it on the down-low to avoid triggering any privacy fears from customers. Now, with billions of dollars of losses from formerly profitable customers (i.e. the slightly risker ones) who suddenly can't pay, the lenders are using their psychological data not only to screen for the "right" sorts of customers but also to try to convince the bad ones to pay off their debts.

There's another reason for this, too: it helps build a stronger relationship with the customer.

If a credit-card company detects unsettling patterns, it might start cutting credit lines, raising interest rates or accelerating repayment schedules. (Companies are expected to withdraw $2.7 trillion of credit by the end of 2010, according to a March report from the Meredith Whitney Advisory Group, a banking-analyst firm.) But the most useful information the card companies are deriving from their data are the insights that help them deepen their relationships with customers, particularly when a cardholder is going through a rough time. One of the strongest conclusions of the psychological studies is that cardholders are most likely to pay the bills of those companies with which they have an emotional connection.

"What Does Your Credit-Card Company Know About You?" [New York Times Magazine]
(Photo: aturkus)

There are piles of evidence that people are bad decision makers when it comes to how they use credit cards. Even when presented with full and fair information, they often make decisions that are not in their own economic best interest.

Here are three examples from the article:

• We're not always good at picking the best teaser rate offer, because we fail to take into consideration the length of time of the special rate and the true likelihood that we'll pay off the balance during that time.
• We don't give penalty and other fees enough weight when choosing a card, again because we don't seriously consider the possibility of paying late or going over the credit limit.
• We're frequently willing to pay more if we pay by credit card. Kiviat writes, "In one experiment, Drazen Prelec and Duncan Simester of the Massachusetts Institute of Technology found that people were willing to pay twice as much for basketball tickets when they were using a credit card as opposed to paying cash."

The bill before the Senate does try to address some of these psychological stumbling blocks, by requiring credit card providers to show customers how long it will take to pay off a debt, and how much interest it will cost, if they only pay the minimum amount.

Regardless of what happens on the provider side of the issue, the next time you're shopping around for a credit card, it's probably a good idea to be more pessimistic about your future than you normally would be, so that you don't dismiss things like hidden fees, skyrocketing rates, and the possibility that some emergency will leave you carrying an unexpected balance.

"The Real Problem with Credit Cards: The Cardholders" [Yahoo] (Thanks to PewPew!)
(Photo: richardmasoner)

1. IGNORE THEM

Ignoring your debts is not really a good option, but it is the option many people take, hoping their creditors will forget. But creditors have long memories, and they like to exploit lengthy statutes of limitation. The longer you go without doing something, the bigger your debts will get.

Credit card companies, for example, often hang onto your debt for as long as they can, racking up late and over-limit fees and 29% interest (or more) before they must write off the debt. Then they let it sit—or sell it—while it accumulates interest at that high rate for as long as possible. When they sue you a few months before the statute of limitation expires, the debt is twice what it was, or more.

Ignoring your defaulted debts means serious damage to your credit reports, frustrating phone calls from debt collectors, and possibly a lawsuit down the road. If you are lucky, your debt will be sold a few times and end up with someone who cannot prove they own it. Even if you beat the debt in court, you will have expended many hours and dollars for a Pyrrhic victory, since you may still wind up with negative information on your credit report, plus an attorney's fee.

So option one really isn't an option. Let's look at the other two.

2. NEGOTIATE A SETTLEMENT

You could just pay up, but it never hurts to ask for a discount, especially when a lot of what you "owe" probably consists of ridiculous fees and interest. Always ask to settle the debt for less, and suggest a compromise of your own in return.

A few suggestions:

1. Just like used cars, negotiate for a total price, not for a monthly payment;
2. Negotiate an "installment plan" only after arriving at the total price;
3. Record the phone call, asking for permission if your state requires it—just explain that you want to make sure you have a record of the settlement; and
4. Demand a confirmation of the agreement in writing.

Before you agree to anything, you should also look into the tax consequences of settling. If you admit you owe the debt, any amount the creditor "forgives" may be considered income for tax purposes. Depending on the size of the debt, this could be a lot of money, so it makes sense to talk to an accountant or at least do some research on your own.

3. FILE FOR BANKRUPTCY PROTECTION

Creditors, whether banks, doctors, or debt buyers, want you to think "bankruptcy" is a dirty, dirty act, done only by deadbeats and ne'er-do-wells. It's not. It's a perfectly legitimate tool for conducting business. Witness the number of companies making use of it these days.

Bankruptcy is sometimes called a financial weapon of mass destruction, but I prefer to think of it as a Project Genesis for your finances. Bankruptcy can give you a clean start, hopefully so you can avoid getting into the same problem with credit all over again.

When should you consider bankruptcy? Take a good, hard look at your finances. Can you see a way out of your debt? If not, it is probably time to talk to a bankruptcy lawyer.

Sam Glover is a consumer rights lawyer, enemy of shady debt collectors, previous Consumerist contributor, and writes the Caveat Emptor blog. His column appears the first Monday of every month on Consumerist.

(Photo: walknboston)

While all of their advice is correct, it's important to understand why it's correct. It's better to know why you're doing something than to just do it blindly. Today I'll discuss the second most important and one of the most misunderstood aspects of your credit score - credit utilization.

Credit score savvy consumers probably know that your FICO credit score is based primarily on five factors:

• Payment history (35%)
• Amounts owed (30%)
• Length of credit history (15%)
• New credit (10%), and,
• Types of credit used (10%).

Credit utilization is one part of "Amounts owed" factor but it's an important part, it counts for 20% of your score. Credit utilization is a simple equation and measures how much of your available revolving credit is being used each month. Divide the sum of your account balances by the sum of your account credit limits.

An important and often misunderstood aspect of credit utilization is that it doesn't matter if you carry a balance or pay off your entire balance every month, it's just the ratio of credit used to credit available. It also doesn't matter how large your balances or limits are on their own. Only the percentage used is important for this metric.

Why does closing a credit card account hurt my score? It hurts your score because your credit utilization will go up, which is bad. If you have two cards with $500 limits and you charge $250 to one and $0 to another, your utilization is 25%. If you keep your spending the same but cancel the second card, your utilization jumps to 50%. To a lender, you're a risk because you use 50% of your available credit each month.

What's a good utilization? A variety of experts say under 10% is best but 30% is acceptable (Motley Fool). In the end, there's no magic number, the lower it is the better.

So I should apply for a million cards to increase my total limit right? Wrong, because that will hurt you in the "New credit" factor more than the lowered utilization will help you.

So, keep your utilization low, your credit report accurate, and we'll be out of this recession in no time!

Jim writes about personal finance at Bargaineering.com.

(Photo: jadedhalo)

From the study:

• Students have an average of 4.6 credit cards!
• 84% of students have at least one credit card.
• The average (mean) balance is $3,173, the highest ever recorded in the study's history.
• The median balance was $1,645 with 21% of students having between $3,000 and $7,000 in debt.
• 39% of students already have a credit card before they arrive on campus.
• Median debt of those students was $939, up from $373 in 2004, with only 15% having a $0 balance.
• Students graduate with an average of $4,100 in credit card debt with almost 20% having more than $7,000 owed on credit cards.
• A third of students rarely or never discussed credit card use with parents.
• 60% were surprised how high their balances were, and 40% charged items knowing that they couldn't pay for them.

How undergraduate students use credit cards: Sallie Mae's national study of usage rates and trends, 2009 [Sallie Mae]
How Students Use Credit Cards [Bargaineering]
(Photo: me and the sysop)

I review a lot of services on my personal finance site and one of the recent tests I did was to check the accuracy of credit score estimators. Credit score estimators ask you about a dozen general questions to assess your creditworthiness and try to guess your credit score. It sounds ridiculous that it takes fewer than twelve questions to make an educated guess on your score but most estimators are that brief. But how accurate are they?

For this test, I retrieved my real credit score by signing up to myFICO, a credit monitoring service offered by Fair Isaac Corporation, the creator of the FICO score. They pull a real Equifax credit report and calculated a FICO Equifax credit score. My actual Equifax FICO credit score was 794.

myFICO's Credit Estimator tool, which is the same as the Bankrate score estimator featured here two years ago, guessed that my credit score was between 725 and 775. Not bad. CreditKarma, a site that offers your TransUnion credit score using a TransUnion credit report, determined my score was 721. (The credit bureaus say that scores can vary up to 50 points between different bureaus)

The verdict? The estimators are accurate enough if you're simply curious roughly how good your credit is (this is, of course, based on a sample size of 1). Considering they're free and so quick to use, they are quite effective at giving you a ballpark number. If you're planning on getting a mortgage or a car loan, you may want to get an actual credit score so you know exactly where you stand and whether you need to improve it to get a better rate. You can do this one of two says:

• Apply for the loan and then ask the lender what your scores are: When you apply for a loan, the lender will pull your credit scores. You can simply ask them what your score is. The downside to this is that the inquiry will be a hard inquiry, resulting in a loss of a few points, and you won't be able to do anything to improve your score even after you find out what it is because you won't have enough time.
• Sign up for a bureaus' credit monitoring service: Each of the bureau has a trial service that gives you a free FICO credit score. You'd have to sign up, get your score, and then cancel or they will begin billing you something like $15 a month for their service.

If you're simply "curious" about your score, an estimator is good enough. And remember to regularly check your credit reports using AnnualCreditReport.com because your score is based on the information in your reports and your report may have errors.

If you know your credit score and have used the estimators, how has its estimated score compared to your own?

Jim writes about personal finance at Bargaineering.

(Photo: samwilkinson)

Update: Just to clarify a couple of points: Chrysler Financial and Chrysler are different companies, although both are primarily owned by the same private equity firm. Also, Chrysler Financial accepted a $1.5 billion loan earlier this year, making it a bit harder to explain away the most recent refusal as taking a principled stand against bailout money.

The Treasury Department previously had loaned Chrysler Financial $1.5 billion, when less stringent requirements on executive compensation were in place for recipients of federal bailout money. Since that first loan was announced on January 16, the Obama administration and Congress have toughened the rules.

[...]

During March, when it seemed that the first loan would run out, the Obama administration began working on a deal to lend the company another $750 million.

Quickly, most of the agreement fell into place. But on April 7, Treasury asked Chrysler Financial to have its top 25 executives sign waivers regarding their compensation, sources said.

Those waivers would have barred the executives from suing the Treasury or Chrysler Financial over new pay restrictions. As part of the economic stimulus package, Congress approved new executive compensation limits, and the Treasury is currently working on clarifying what the firms must do to comply with these rules.

Within a week, the company responded that some of the executives had refused to give their approval. By last week, Treasury had rescinded the loan offer, the sources said.

"Sources: Chrysler Financial Refused Government Loan Over Limits on Executive Pay" [Washington Post]

From Marketplace Money:

Here's how GM helped spawn the America way of debt. In 1919 GM was trying to catch up with the world's No. one automaker.

Music: The little old Ford, it rambled right along, the little old Ford rambled right along...

Henry Ford's Model-T was plain, simple and relatively cheap. It came in one color: black. To buy one, you paid cash up front. GM cars were more colorful, and more stylish and more expensive. David Farber says GM gained on Ford by starting a credit war.

FARBER: General Motors creates automobile loans. 1919, 1920, they create the General Motors Acceptance Corporation. And that allows people to buy more expensive cars — by going into debt.

Henry Ford didn't like the idea of offering cars on credit, and resisted.

Henry Ford thought he knew the American consumer better than executives at GM. But David Farber says Ford couldn't quite see that attitudes about credit and debt were changing.

Farber: You had a country in some ways based on the virtues of avoiding luxury, avoiding debt, of being thrifty, and then suddenly in the 20th century as manufacturers are able to produce so many goods they begin to wrestle with the possibility that well, maybe it's good to go into debt. Maybe it's good to have luxury items

Autos spurred the credit boom [Marketplace Money]
(Photo:alyates44)

Enjoy.

A Big Ass List Of Student Loan Resources

FinAid's calculators can help you figure out how much school will cost, how much you need to save and how much aid you'll need. FinAid also has basic information about different types of loans, scholarships and military aid.

Student Loan Borrower Assistance, a project of the National Consumer Law Center, provides resources for people who already have student loans and want to know more about their options and rights. This website provides good information for people who are having trouble playing their student loans, and want more information about federal student loan rehabilitation (PDF), student loans and bankruptcy, and collections. They also provide information on where to go for help, including legal assistance.

The US Department of Education has information for those of your preparing for college, including help choosing a school, and applying for financial aid. For in depth information, check out Funding Education Beyond High School: The Guide to Federal Student Aid.

If you are having serious problems with your federal student loans, the FSA Ombudsman is there to help. In addition to personalized assistance, they offer tips for dealing with your loan servicer. To find out who is servicing your loan, use the National Student Loan Data System.

If you're considering applying for a private loan, check out these questions that you'll want to ask your lender, from the Project On Student Debt.

The Project on Student Debt also provides a guide for people already repaying their student loans that covers what borrowers need to know about the changes that take place each July. Expect a new guide each year.

The Federal Trade Commission provides a guide to deceptive student lending offers and how to avoid them. (PDF)

Bankrate has some basic information about financing you education, including help comparing 529 plans if you're saving for your child.

If you're interested in consolidating your loans, check out the US Department of Education: Loan Consolidation site.

For those of you shopping for student loans, MyFICO has information about how it will affect your credit score.

Wondering about the deadline for turning in your FAFSA? Here's a list of the federal and state deadlines.

(Photo:foundphotoslj)

That may come as a surprise to those consumers because they pay off their balances every month and are careful with their credit, says John Ulzheimer of Credit.com. But at the same time, those customers are also generally less profitable for lenders, he says.

Typically, credit scores tend to remain relatively stable over time, in part because there are a number of factors that go into calculating one's score. In fact, the banks' tightening may have spurred some consumers to pay down balances more quickly. Among Fair Isaac's findings: About 6% of consumers saw their scores jump by 40 points or more (about 4% saw their scores drop by 40 points or more).

So there you have it, straight from the source. It's not your fault, and you did nothing wrong. You were just too unprofitable for the banks, just the way you should be.

Credit Cuts Befall Even Top Scorers [The Wall Street Journal]
(Photo: yksin)

To make more money, of course. Only this time, it's from merchants, not you.

First we need to clarify something: just because you select "credit" and sign with your debit card, you're not really making a credit card purchase. The money is still drafted from your account directly, it just takes a little longer. This method of using your debit card is called a signature debit, and it's cleared via a different network than when you pay by punching in your PIN (which, logically, is called a pin debit).

Merchants have to pay more money for signature debit transactions than for pin debit ones. It's in the card issuer's interest to get you to use the debit card in the way that will generate the highest fees. If you're going to pay with debit anyway, it's cheaper on the merchant if you go the pin route.

Remember, though, that paying with a real credit card conveys certain benefits. It may give you more protection in terms of disputes or extended warranties, and in cases where the merchant places a hold—hotels and car rentals, for example—a real credit card will prevent your checking funds from being frozen indefinitely. Your bank may in fact extend those benefits to any signature debit transactions on your debit card, but you'll have to contact your bank to find out.

(Thanks to Travis!)
(Photo: Travis Hornung)