Protect Your Credit, Understand the Risks

Finding out about your outstanding credit lines and checking your credit report regularly has become even more important than ever. By regularly checking your credit report, you are able to verify outstanding credit lines and balances as well as the information about your payment history to those credit lines. In most cases, the new advice is to not close old credit lines because this might damage your credit score. This is because a portion of the score is calculated based on the age of the credit history and removing older, unused credit lines from your credit report can actually hurt you as the age of your credit report is lessened by dropping old histories off the report.

Understanding the contents of credit reports have become critical for some two million customers who recently received credit cards from Citibank without explicitly asking for them, according to an article in The Boston Globe, Oct 7, 2007. It is important to understand the distinction. The reason that these cards were sent is because that these customers had older Macy’s card accounts. However, the new cards that they received had different credit limits. In addition, these were general mastercards, with all of the options that they afford: cash advances, convenience of purchasing anywhere MasterCards are accepted, and even the ability to do balance transfers.

According to Samuel Wang, a spokesperson for Citibank, this switch has prompted positive feedback from customers. In addition, according to the article, Wang contends that Citibank took great care to ensure “customers were well informed and provided with the opportunity to decline the substitution.”

Consumer advocates do not feel the same way. Credit.com’s Emily Davidson mentions in the article that the swap probably resulted in a credit check and also would change the aging of the customers’ credit reports. Both of these could have an impact on the scoring of the credit reports for these customers. The third nail in the coffin is the possibly lower credit limits on the new cards which would also potentially lower the customers’ credit scores. This is because a portion of the credit score is based on debt to credit limit ratios which will increase when credit limits are lowered.

Credit card companies exist to make money. That is the hard, cold, simple fact. And they are parts of large, conglomorate, public corporations which are traded on public stock exchanges. These are broad generalizations to make the simple fact clear: the loyalty lies with the shareholder. In this case, this company did this move because they would expect to make money on it. However, it is the unfortunate job of the consumer to stay one step ahead of Credit Card companies and their tactics.

Only by staying aware and maintaining some real interest in your money can you prevent possible events like this from happening to you. Here are some ideas that might help:

1. Read all of your statements and verify that your credit reports are accurate on a regular basis.

2. Keep most of your accounts active. This will help make sure that the account is not changed or modified without your consent. A simple, small charge 1 or 2 times per year even just for a few dollars (paid off in full immediately) should be enough to keep the card active.

3. Pay the bills on time. You might even consider overpaying a little bit if you are using the card regularly. In the end, just like exercising a muscle, your credit should be exercised and taken care of as well.

Source: Card Switch Concerns Users - Boston Globe Oct 7, 2007