5 tips for handling a declined credit card
The next time your card is turned down in a store or restaurant, you might feel a little less embarrassed if you know these factors.
By Dana Dratch, Bankrate.com
"Your credit card was declined."
It happens all the time for a variety of reasons. You may be over your credit limit. Your credit score may have dropped, or the credit card company may suspect that the card is being used fraudulently.
And it gets worse from there. That sliver of plastic in your wallet may now be worthless – at least temporarily – yet those card bills just keep coming.
But, you have rights. A slew of consumer protections, including the 4-year-old Credit Card Accountability Responsibility and Disclosure Act, require issuers to treat you with respect, even if you're not their favorite customer anymore. Here are five things to consider if your credit card has been declined.
The issuer can't demand immediate payment
Your charging privileges may be gone. But you still have time to pay off your balance.
Federal law gives the card issuer a couple of options. It can double your minimum payments or give you five years to pay off the balance, whichever will take less time, says Chi Chi Wu, staff attorney with the National Consumer Law Center. Whatever choice your issuer makes, it's important to send your payments on time. Your credit score depends on it.
Anthony Sprauve, a spokesman for myFICO.com, a division of credit-scoring firm FICO, says your credit score won't decline simply because an account has been closed. It only considers whether you're paying on time. "If you're making your payments on time, that's going to help your score," Sprauve says.
The issuer can still charge interest
Ah, the card is gone, but that annual percentage rate lives on. The issuer can continue to charge interest on the balance. However, it can't increase your interest rate while you're paying it off, Wu says.
According to the CARD Act, the issuer can raise your APR only if it's a variable-rate card, if your introductory rate has expired or if your payment is late by 60 days or more.
One way to avoid interest rate increases is to set up automatic bill payments. You can use an online calculator, such as Bankrate's credit card payoff calculator, to figure out how much you can pay every month, and then you can commit to pay that much automatically.
If it's 'your fault,' they have to tell you why
If a card company cuts you off because it doesn't like the way you've been using credit – a drop in score, late payments, etc. – it must tell you. Unfortunately, it's not required to give you advance notice. So it's entirely possible you could try to use the card and be denied before you find out you don't have a credit line anymore.
If the move was based on your credit score, the issuer must also give you the exact score or scores used in making that decision, says John Ulzheimer, president of consumer education for SmartCredit.com.
Issuers can also cut you off for reasons that aren't based on your credit, he says. If you're not using the card, or not using it enough, the issuer may think it's not worth the cost associated with keeping your account open. The issuer also may cut you off because it's eliminating your type of card or changing how it extends credit. In both cases, the issuer doesn't have to tell you that you've been cut off, Ulzheimer says.
It could lower your score
Theoretically, if you carry a balance, losing a large credit line on a credit card could lower your score. The reason: Almost a third of your FICO score looks at how much credit you have compared with how much you use each month; in credit-speak, this is your "utilization ratio". The higher your ratio, the worse it is for your score. So if you suddenly have less credit and the same amount of debt, your ratio goes up.
If the credit line is small, like that of many retailer cards, and you have other credit cards, it probably won't have that much of an impact, Ulzheimer says. And if it was a charge card, it may not change your score at all. That's because charge cards require the bill to be paid in full every month, and many charge cards don't report utilization ratios.
Even if the card was a credit card, the impact might not be as bad as you fear. Based on a couple of FICO studies completed in the past few years, the overall effect, on average, "ended up being relatively small – about 5%," Sprauve says.
You can appeal
It's possible the move was a mistake, based on erroneous information.
It's also possible that it's not, but you could explain the situation well enough to get all or part of your credit line restored, says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies. For example, say you normally shop at pricey department stores. But suddenly you switch to buying everything at discount stores. As a result, the issuer may conclude that you have money trouble. If you learn that's the case, it might help to notify your credit card issuer that you've simply changed your taste in stores, Jones says.
On the other hand, if your financial situation has taken a bad turn or you've been running up balances and paying minimums or paying late, "there is probably zero chance that someone is going to talk them into getting it back," he says.
More from Bankrate.com:
VIDEO ON MSN MONEY
Folks, treat your credit cards like charge cards. That is to say, pay the balances off each month. Do not pay the issuers interest. If you can't pay the balances off each month that means you can't afford to buy it.
Credit cards do play an important role. Many buyer protections over cash. Paying for online purchases, booking hotels, renting cars, airline tix. All of these will require a credit card.
It is all about using them wisely. If you can follow these basic principles, you will never need to worry about being suddenly cut off from your credit cards.
The sheeple are standing in line to get a credit card and blindly follow their leader as they topple off the cliff of financial calamity.
This country has gone to hell in a hand-basket.
This isn't directly related, but I wanted to mention a situation I'm in. I recently accidentally sent a monthly payment of over $7,000 to the wrong credit card company (one where I had closed the account and there was zero balance due). I discovered it pretty quickly and sent another $7,000 to the correct card company too. The company where I accidentally sent $7,000 (CapitalOne) says that it'll be 60 - 90 days before they bother to refund my overpayment! Isn't that ridiculous? The Feds should shut them down immediately! In my business, I don't even cash checks when someone overpays. I immediately return their uncashed check to them. It seems to me that there is no other proper way to handle it (At least for entities that have integrity).
The card was a business card. Perhaps I should charge $7,000 on my personal CapitalOne card and then tell the company it can wait 60 - 90 days before I pay it, or that they should just take what is overpaid on the business card and apply it to my personal.
I'd strongly urge anyone considering a CapitalOne credit card to look to a different credit card company. Hopefully someone that has audit authority over CapitalOne will read this posting and send a huge team of auditors theit way.
I have a BofA AMEX that is fine locally. But before I travel I have to call the 800# to let the card company know where I'm going and when so the card is not denied at the counter when presented. Over zealous and ramped up fraud protection. I hardly use it anymore because of the hassle.
also, the company i work for do assess annual fees if there is a rewards program tied to it or to keep the account open if it has been inactive for 6 mos or more. even if you purchase just a cheap cup of coffee and pay it in full, you keep the account active and no fees!
one other reason is the person left town / city on a trip from AZ. to TX. but did not tell the Credit card company and the card is used and shut off ............. I see this happen every time I travel....
They get mad but it's there to save there credit and money.......
A quick call can get your card back on in just short time. If you travel let your card company's know the dates and city's / state.
I always tell them the dates and states away from home - Never had a problem:
Also, make sure you understand fully the credit card companies policies and procedures as some of the things we do are by bank others are by law
I am old and have used credit cards for many years. I have had only a few problems, all of which were due to the credit card company trying to protect me from fraud. I learned to notify them if I plan to travel, especially outside the US. I pay my bill in full every month - self discipline - if I cannot afford to pay cash, then I do not use the card.
So why do I use the card? Convenience, and for cash back. My annual rebates are usually about $500. But, there is a problem of ethics here. Clearly, credit card companies are charging merchants too much for their service. But until the CC companies change that practice, I will take the rebate.
Maybe a follow on to my post. Even though I keep my credit immaculate, my cards can still (and have been) be declined. Each and every time it is due to "fraud" or potential fraud occurring on my account. The CC companies have become super sensitive to any charges that do not fit your profile. You start buying things that you never bought before or book travel to places never traveled before. They say they are protecting you, but in reality they are protecting themselves as they have already agreed to not hold you responsible for fraudulent activity. Usually the answer is use a different card and then call them up to find out why they are blocking the card.
I think it is the CC companies fault to begin with. They don't make merchants positively ID someone before accepting the cards. That would potentially cut into the merchants business. If this would happen, CC fraud would plummet and these credit monitoring services would go bust.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
RECENT ARTICLES ON CREDIT CARDS
Your health may improve if you cut gluten out of your diet, but your pocketbook will take a hit -- unless you follow these tips.
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'