How to Deal with Credit Cards and Collections

As someone that has over 20 years experience working in the credit card industry, I wanted to share some insights about credit cards, how the banks work, and how you can navigate the world of credit better. First things first, if you have more than 5 credit cards with maxed out balances and are just paying the monthly dues, you are already in critical condition.Get Your Equifax Credit Report Now!
While working at a major bank, I was responsible for multiple initiatives to identify the riskiest customers. The analytics that we used to determine your risk level was based on multiple factors. Your total balance in relation to your limit, as pulled from your credit bureau was first, recent delinquencies with any other creditor or even a change of address would trigger a review. Any change in your FICO score will also cause a review Additionally, if you have recently received a card and charge it up to the limit, you are also risky to the banks.

Most banks have moved away from Universal Repricing, which was basically the "kick" when you are down. In other words, if you missed a payment on any of your other credit cards, banks would reprice you from 19.9 percent up to 24, 28, even 30 percent because you were risky. This is part of the reason that I no longer work in the financial services business. Banks still will reprice you however they do it under the guise of portfolio level pricing changes or annual change in terms. Banks stick these changes of terms either in your statement envelope or send you a mailer. Read these notices carefully, they are all written in legalease so that the average person does not understand what they mean. I highly recommend that you "opt out" of any repricing change, which inevitably means that you must write a letter. You can not opt out of pricing changes by phone calls. Banks also like to put a clause in the contract that states if you accidentally use the card, you have opted in to the pricing change. If you Opt Out, cut up the card immediately to ensure you do not fall prey to this clause.

Make sure you read the disclosure statements that come with the invitation to apply and more importantly the Retail Installment Credit Agreement that comes with the card. These agreements are typically written in a font that no human can read comfortably. There are critical points about how your relationship with the credit card company will be dictated. Important items such as payment cut off times, due dates, fees, payments and other very important information. Rest assured that if you ever miss a payment, go over your credit limit by a dollar or break any other contractual obligation, the bank will hold you to it. This translates to repricing your account, closing your account or even lowering your credit line. Banks have state of the art systems that track everything that happens in your relationship with them. There are internal behavior and scoring systems that tell them how profitable you will become to them, or not profitable. They make every decision in your relationship with them based on these scores.

Nearly all credit card companies now have built in arbitration clauses in their contracts. This was done for one simple reason, to avoid Class Action Lawsuits. Now instead of people having the ability to file a class action lawsuit, you are forced to go to arbitration at the individual level. By the way, you have to pay for the arbitration if it goes beyond a certain number of hours.

Based on our current state of economy in the US, look out for credit card companies to scrutinize your financial picture more closely. Rest assured that if you carry more than 2 credit cards, you are a target for a repricing strategy by one of the banks. There is nothing easier to squeeze money out of a portfolio than to reprice a couple hundred thousand customers.

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