Review Those Statements! The CARD Act Is In Effect Now

Just a friendly reminder to our readers to check your credit card statements. Many Americans are discovering that in the month of July their credit card providers snuck up on them and slipped in fees, higher interest rates or other charges in advance of the enactment of the CARD Act, which will further regulate issuers of credit cards.

Here’s a breakdown of the phases and what they include.

First phase: August 2009
Consumers will now receive statements 21 days in advance of their payment due date. The industry standard before was just 14 days.

Card issuers must also give consumers 45 days of notice prior to an interest rate change.

Second phase: February 2010
Card issuers can only raise rates on existing balances if the consumer is A: 60 days or more past due, B: A promotional rate expired, or C: A consumer doesn’t complete the workout plan or D: A variable rate increase because of movement in an index.

The CARD act will also restrict access to credit cards for borrowers under the age of 21 without a co-signer. I expect that P2P lending will be a place to turn for these borrowers—and potentially as part of a long term trend, as these borrowers won’t be “hooked young” by credit in it’s plastic form.

Already credit card borrowers are turning towards peer to peer lending as a replacement/payoff strategy to their credit cards. Blogger Matt Jabs, of DebtFreeAdventure is conducting a “DIY Consolidation” with Lending Club after his credit card company hiked his rate up. I considered it myself after a credit card I no longer use increased its annual fee, but I decided instead to close the account, as interest on my remaining card is still low.

In sum, don’t forget to take a look at your latest statements to make sure that your credit card company didn’t sneak in adjustments to your agreement before the CARD Act took effect this month.

Movie Review: Maxed Out

If you enjoy banking, finance and lending, I'm recommending that you rent the film Maxed Out.

"Maxed Out" was released in the summer of 2007 as a documentary and shows inside stories and behind the scenes tales of the credit industry, collections and bankruptcy--and left me a bigger believer in peer-to-peer lending than ever.

The film is unrated and covers some pretty heavy topics. Language includes a couple of "F-Bombs" and some discussion of suicide, but it wasn't so offensive that I felt bad about letting my tween daughter watch the film for financial literacy.

The bonus features are also very good including a 1940's educational film about credit (a fun one to watch) and an interview with Dave Ramsey.

Maxed Out also shows debt from the view of the consumer, the investor, the collector and many other steps along the way. It also shares diverse perspectives from Dave Ramsey who doesn't believe in debt, to a Real Estate agent who sees debt as a tool and a way of life to Robin Leach of Lifestyles of the Rich and Famous. I was surprised at how well the movie showed such varied perspectives without feeling fragmented or disjointed.

The subject matter movie is a downer for sure, but the movie is eye-opening in so many ways. It has a perky soundtrack and comedic interludes (not kidding). I think will motivate you to humanize your finances more. If you've seen it--please comment and let us know what you thought.

Contest Announcement

Hello PLR Readers, Jessica here. The editors here at PLR have kindly allowed me to share a contest from my "regular" blog with you all here.

For those who didn't know, my PenywiseFamily blog is all about a family learning to live on less and doing more with it. (That would be the family of yours truly). We've recently launched a contest for others who want to join us in chopping up those credit cards and going debt-free.

A $100 prize (either a SmartyPig gift card or a Kiva Gift Certificate--winner's choice) will go to the person who submits the most creative photo of a recycled credit card by June 15th. You can email entries to me at jessc098@gmail.com or follow along the contest at www.pennywisefamily.blogspot.com.

BillShrink touts money saving features on cell phone plans, credit cards and gas

BillShrink is a free service to help consumers save money when making complex purchase decisions such as with credit cards and cell phone plans. The service is a media darling and has received numerous mentions in the business press and media including Forbes, CNN, The New York Times, Business Week, and The Wall Street Journal. They have a very effective public relations strategy. This review is based on reading over three dozen of these news articles, watching several TV spots, and using the service.

BillShrink has a slick, easy-to-use interface. The site currently offers three services – cell phone plans, credit cards and gas prices.

With credit cards you provide answers to about 6 questions. This allows the system to determine the best credit card for your usage habits. If you pay your credit card off each month the interest rate is of less importance than rewards, for example. Other considerations are credit score, how much you spend and what type of items you purchase. Based on your answers to these questions, the system will recommend a credit card and tell you how much money you can save by making the switch. According to BillShrink, the average user saves $1,000 on their credit card. With over $1 trillion dollars of credit card debt in the United States, the potential for savings is significant.


BillShrink says 85% of people pay more than they need to for their cell phone. Using the cell phone tool, you answer about 6 questions such as monthly minutes used and data and text preferences. For more accurate results, you can upload your recent cell phone bills. The best cell phone plan for you is calculated using a ‘ShrinkScore’ which includes savings and signal strength in your specified area. The available cell phone plans are ranked by ShrinkScore. These results can be further refined by the user according to categories such as service provider, plan type and phone compatibility.

The most recent service released is gas prices. While there are tools which help you find the best gas prices, BillShrink goes a step further and helps calculate the best gas station based on the type of car you drive and the roads you drive. The distance to the gas station incurs a cost, and the least expensive gas station may not be the one with the lowest prices when the total cost of obtaining the gas is considered. Like the other services, you can modify the results based on your preferences such as station operating hours and amenities.


BillShrink makes money by referring customers to cell phone plans, credit cards and other services. This provides a potential conflict of interest. The company may have a financial interest in showing a plan which optimizes their own revenue instead of customer savings. While there is no evidence this bias has influenced results, users must be wary of the potential.

BillShrink launched in April 2008 and has been gradually rolling out new features. They have received 9 million dollars in venture capital. BillShrink has augmented their service with a popular money saving blog.

BillShrink is up against Lending Club and Mint for a 2009 Webby in the financial services category.

CreditKarma: Never Pay for Your Credit Score Again!

I feel like a moron. Just two weeks ago I paid $14.95 for three-month access to my credit score. Let me tell you a little story about how this began:

My neighbor, four doors down, has the same name as me, with the minor difference of a different middle initial. Her middle initial, happens to be that of my maiden name. Because I hyphenated my last names for the first few years after I was married, I have a registered “credit alias” that is exactly the same as her name, and a mailing address just a few digits off.

That really isn’t too much of a problem, except that because our addresses our so similar, and she doesn’t pay her bills, her collections accounts arrive on my credit score routinely.

Four more of these recently appeared on my credit report and were discovered by my mortgage bank during my refinance. I shot off another letter to TransUnion last week hoping to intervene before my rate-lock was threatened.

I’ve got to say, I’m pretty tired of paying for my own credit score. Yes, you can get a credit report free annually, (just one) but it’s far more helpful in a situation like mine to check it more frequently than that.

Finovate 2009 presenter, CreditKarma may be the solution people like me are looking for. It provides constant, free access to your credit score as well as some other features.

You can see how your credit score stacks up to those in your age range, state, or even email domain. You can also use their calculator system to see how adjustments in your financial situation would affect your score in theory. Would it help or hurt you to close a high-interest account, extend your credit limit, or even file for bankruptcy? I was surprised to know that paying off my credit card balance entirely will actually hurt my score, and that optimally I should be carrying some credit card debt. (Thanks anyway, but I’ll still be going debt-free). There’s a screen to view your long-term credit score over time, which will be very helpful for tracking identity fraud or excessive credit inquiries (which cost you points).

The site is free because of sponsorship (think Mint), but I found the sponsorship to be rather oppressive and cluttering. However, not so much that I won’t be using CreditKarma. Also, be reassured, that they fund the site through ad partnership only, not through selling your personal info.

There are some features that I especially like including a credit card debt calculator which allows you to either enter your projected monthly payment and calculate a payoff date, or enter a date and it will show you your estimated monthly payments. Adding a little extra value to this calculation is their friendly nudge that shows you how much you can cut your payoff time by paying just a little bit more.

At this time, CreditKarma is only showing credit scores from TransUnion, and not Experian and Equifax, but in my experience, TransUnion’s scores have always been the lowest (They’ve also been the only ones routinely confusing my neighbor’s accounts with mine).

Because CreditKarma is requesting your score on your behalf rather than for a lender, your credit score won’t be affected by the inquiry.

Jessica Ward is a freelance writer and blogger located in Seattle, WA. She blogs on finance, credit, family and food at http://www.pennywisefamily.blogspot.com/.

Prosper eliminates defaults

In a site update today, Prosper eliminated all defaults - well, they renamed them. Defaults will now be known as "charge-offs". As reported on their blog:

"We are changing the way we display seriously delinquent loans on the marketplace performance page, renaming “Defaults” as “Charge-offs”, and moving the “4+ months late” loans into the “Charge-offs” category. We want to have transparency in the reporting of our marketplace’s default rate, and this change should help lenders take a more direct measure of the market’s charge-off rate. This change is the first step in a larger change we will be making in the way delinquent loans are displayed in lender portfolios."

In addition, Prosper will now allow some new lenders to make loans with PayPal and credit cards. Borrowers can invite family and friends to bid on their loan. After clicking on the link in the invitation, new lenders can place their first bid via PayPal or credit card. This is an attempt to make the site easier to use for new members.

Newsweek tips hat to Prosper

Newsweek considers Prosper, Lending Club and Circle Lending on their smart strategies money tip sheet today. The post is very brief but here's a portion of what they have to say:

"But are these sensible places to borrow or lend money? The interest rates on these unsecured loans tend to be high, so borrowers with good credit scores could get better rates on most mainstream credit cards. Lenders—anyone willing to put up money in the hopes of earning better rates than they would at a bank—might find more to like. Prosper and Lending Club both check borrowers' credit records and are aggressive about collecting on payments, and lenders can make up to 13 percent on their loans."

I find it interesting that peer to peer loans are compared against credit cards instead of banks or home equity loans. Matt wrote a good article back in July about when it makes sense to borrow from Prosper - Why would a borrower use Prosper instead of a traditional bank? He did not consider credit cards in his analysis but my gut tells me that credit cards are only going to beat banks or Prosper if you have a promotional rate. Generally credit cards are not a good place to carry a large balance. In fact, my personal recommendation is to never carry a balance on credit cards.

Also, can lenders earn up to 13%? Yes, it is possible. Unlikely though. Too many borrowers jump in quickly without considering all the risks. In order to earn higher interest rates you must loan to riskier borrowers. The default rates are so high on the riskiest credit grades that the overall return has been negative. Before lending I would consider reading a couple articles:

Prosper: A hands on education in risk management - Matt introduces diversity and talks about the default rates for different credit grades.

How does Prosper compare to other investments? - Matt answers 11 common questions new Prosper lenders have.

Of course, there are plenty of other articles and websites. The article mentions ProsperLenders.com which has a great collection of resources.

Man receives 2,000 credit cards

So this post isn't exactly about P2P lending, but it is finance-related and funny so I thought I'd share. NYC resident Frank Van Buren was flooded in plastic when he received 2,000 credit cards in the mail. He has had an Citibank ExxonMobil account for years and ordered two copies of the card because they were expiring. "How could you send me 2,000 cards by mistake?" Van Buren said he asked customer-service representatives after spending hours shredding them. None of the 2,000 cards had activation stickers which help prevent identity theft and Citibank refused to take them back. Wow, and I thought the occasional credit card junk mail was bad enough. Looks like another reason to cut up the credit card and turn to P2P lending.

In other crazy credit card news, 9-year-old Kyle Shoemaker has two credit cards and an $18,000 line of credit. No, he didn't order them. He's the unfortunate victim of identity theft. Credit cards are just too easy to get.

Stop credit card junk mail

As I mentioned a couple days ago, Lending Club does a great job educating readers through their blog about basic finances. Most of their material is not technical and seems to be geared to someone getting their first credit card. Today they had a post on how to stop credit card junk mail.

I didn't know it, but since December 2004 all the major credit reporting agencies (Equifax, Experian, Innovis and TransUnion) have hosted optoutprescreen.com, a website which will allow you to stop the credit card junk mail. Credit reporting agencies make money by selling your information to credit card companies through a process called prescreening. If you meet certain requirements (usually credit score) then you are pre-approved for various credit card offers. This is where all the credit card junk mail comes from. This is the purpose of the opt-out website:

"Under the Fair Credit Reporting Act (FCRA), the Consumer Credit Reporting Companies are permitted to include your name on lists used by creditors or insurers to make firm offers of credit or insurance that are not initiated by you ("Firm Offers"). The FCRA also provides you the right to "Opt-Out", which prevents Consumer Credit Reporting Companies from providing your credit file information for Firm Offers."

Opting-out of credit card offers will not help your credit score because "firm offers" made through the prescreening process are not used in calculating scores. It may indirectly help your score if you have a tendency to apply for every new credit card offer that comes in. Removing your name from the list will also not affect your ability to apply for credit. Are there any advantages to receiving prescreened offers? The credit reporting agencies put their positive spin on the credit card junk mail:

• Consumers are provided with product choices
• Consumers learn about and have an opportunity to take advantage of offers that may not be available to the general public
• Firm offers help consumers to “comparison shop”, which may increase a consumer’s buying power.

If you are interested in opting out of these prescreened offers you can do so here:

Opt Out of Credit Card Junk Mail

Thanks for the tip Lending Club. Has anyone used this website to stop credit card junk mail? Does anyone prefer to continue to receive these offers?