How to create New Year's resolutions that actually work

Most of us resolve to improve; heeding the '3 Rs' help you keep them

By Marcia Frellick

Millions of recession-weary Americans are making New Year's resolutions to spend less, save more and be more responsible with credit. But without a plan, experts say you're likely doomed to fail.

The good news is that with careful and realistic planning, you just might be able to keep that resolution and move closer to your dreams of greater financial stability.

Resolutions are becoming more and more popular amid today's double-digit unemployment and general economic uncertainty. Three in four Americans will make at least one financial-related New Year's resolution in 2010, according to a survey from Omaha-based brokerage TD Ameritrade and the Opinion Research Corp of Princeton, N.J. That's up from 71 percent in 2008. And despite the popular belief that resolutions don't often work, the survey found 60 percent of those who made financial resolutions last year reported they were still "going strong" -- though it is possible that more people say they keep their resolutions than actually keep them.

With that in mind, we spoke with personal finance experts to get their thoughts on what actually works.

The '3 Rs' of resolutions
To start with, they say resolutions that work follow "the three Rs."

They should be:

1. Reasonable.
2. Realistic.
3. Rewarding.

That means that goals shouldn't be so lofty that they're unattainable, and planning for them should include ways to both hold yourself accountable and to pat yourself on the back for a job well done.

Here's more of what these experts had to say.

Kathleen Gurney, CEO
Financial Psychology Corp.
Resolutions are incredibly emotional things. Gurney, a psychologist based in Sarasota, Fla., says you can't forget the emotional component of cutting back. If you do, you're making an already challenging endeavor just that much more difficult.

"When you say you will cut out all family splurges for the next three months, can you emotionally afford that?" Gurney says. "By about February, you may become really resentful that you don't have that time to de-stress with your family."

To keep the emotional impact to a minimum, Gurney offers the following suggestions:

• Remove as many willpower decisions as possible. If your resolution is to spend less and your favorite activity with a friend is shopping, find another way to be together, and let the friend know why. If you are prone to spending what you make, sign up for monthly automated savings.
• Keep track daily. Gurney suggests keeping a daily journal and writing down three things you did well toward keeping your resolutions and three things you need to do to improve. This is a way to reward yourself daily and reinforce the behavior changes you're making.

Leigh Ann Fraley, blogger
"Save Leigh Ann -- The Daily Rantings of a Bulimic Shopper"
Recording daily progress on her spending goals and writing about her debt in a public way made all the difference for Fraley, who racked up $19,947 in credit card debt before she began blogging about her financial struggles in 2005. She maxed out cards despite the fact she was a financial educator at a bank in California and lectured groups on how to manage their finances. Through her blog, she was accountable to herself and her readers.

She wiped out her debt in a year with the moral support of readers who clicked into her blog, which she still maintains. Last year, she was laid off and took on more credit card debt for COBRA insurance payments. But now Fraley, who just turned 40, has been rehired by the bank and has a four-month plan for becoming debt-free again.

She offers this advice on making resolutions:

• Get an accurate picture of what you owe. Stop the denial. Open up the bills and get the real picture, she says. "People usually think they are worse off than they are, and they think there's nothing they can do."
• Don't just vow to give up the lattes. Invest the latte money. "Take that $2.50 and move it over every day into a savings account with online banking. Then you can see it add up."
• Cut up your credit cards if you don't trust yourself. Fraley cut hers up and now keeps the pieces in a transparent box as a warning. (See video: How to cut up a credit card)

Nicole Mladic, blogger
"The Budgeting Babe"
Mladic of Oak Park, Ill., 30, had $25,000 in student loans by the time she moved out of her parents' house. She then quickly realized her reserve was rapidly draining and she had to act. She says setting small, achievable goals and getting educated about finances help maintain resolutions.

Many people her age are struggling with debt. In the TD Ameritrade survey, more than half of Americans between the ages of 18 and 34 said they are more likely to make a financial-related resolution in 2010 than they were in 2009. Mladic offers these suggestions:

• Start small. For instance, open a savings account and vow to save $25 a month instead of saying you will save for a down payment. Also, you can resolve to increase your 401(k) contribution 1 percent at a time. She says she started with 2 percent and is now at 10 percent plus her company's match.
• Get educated. She felt she didn't know nearly enough about finances to reverse her situation and neither did many of the young women she knew. She started a blog called The Budgeting Babe in 2004 and continued it until late summer 2009. Months later, she made her last student loan payment.

Kit Yarrow, consumer psychologist, author
"Gen BuY: How Tweens, Teens and Twenty-Somethings are Revolutionizing Retail"
Yarrow, a psychology and marketing professor at San Francisco's Golden Gate University, says the new year often follows a bloated feeling of overspending, which is a motivator for change.

It's also when people find more support for their resolutions, and that's an important part of maintaining them. Stop-smoking, weight-loss and financial-help programs commonly roll out after the new year. Even if you don't join a group, Yarrow recommends giving a verbal commitment to at least a few people when you make your resolutions.

"It's funny. People will cheat on themselves before they'll cheat on someone else," she says.

She also recommends these tips for keeping resolutions:

• Post tangible reminders. "Visual cues are very important, especially for young people raised on the Internet. Tape up a picture of the thing you are working toward as a constant reminder."
• Emphasize positive action. When making a resolution, she says, focus on what you should do rather than what you should not do. Instead of focusing on not shopping or not having, find something proactive to do, such as budgeting or writing down expenses. In some ways, that will help replace the loss, she says.
• Celebrate a milestone. Acknowledge a month of good budgeting or three months of reducing debt. But don't reach for the wrong reward -- like a spending binge, she says.

But none of this matters if you don't take the first step, and it doesn't have to be January 1 for you to start living in a more financially responsible way. "The reason New Year's resolutions often fail is because if you're motivated enough to change your life you don't need an arbitrary date to do it. ... Changes in behavior come when you seize the moment," Yarrow says.

How to read FICO's explanations of what's hurting your credit score

Don't take the credit critique personally, especially if your score is high

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." Ask a question. 'Opening Credits' stories

Dear Opening Credits,
My credit score is good -- mid-700s. I've heard that there are things that you can do to hurt your score that don't make sense to me. I got my credit report earlier in the year and was shocked to see several comments. I don't recall the exact statements, but this is my understanding of what they meant:

• Too many revolving accounts with balances. I have three credit cards I use regularly. At the time, the total balance was around $1,000. I pay the entire balance off each month.
• Available credit too high. Over the years, several of my cards have gotten updated limits. Discover had me at $21,000. So, I called and had the limits lowered. How much is a reasonable limit to have?
• Too many revolving accounts. I had a few credit cards that I'd never used. So, I closed the accounts. Since then I've heard a few people say this is a bad thing to do. The only debt at the time was our home mortgage. Paid off my car loan a few years ago. Were my actions in error? -- Donita

Dear Donita,
Actions in error? Have some confidence, Donita! You have a terrific credit score. Anything in the 750 range is more than acceptable, which means that even if you weren't trying, you've been doing a lot of things right.

In fact, it looks like you've satisfied the two weightiest factors in a FICO score: payment history (accounts for 35 percent of your credit score) and the amount of debt you have in relation to your credit limit (30 percent). By paying your bills on time and keeping what you owe well below the amount you can actually charge, you've achieved a credit score most lenders would be thrilled with. Check out the box on this page for more information about what goes into your credit score.

Now, what's up with the confusing credit report "explanations"? With such a good score, the statements don't make much sense. Here's why: Many of the comments you are reading are nothing more than stock responses and shouldn't be taken so literally. They aren't actually personalized to your exact situation, but are general suggestions as to why your score isn't at the "perfect" 850.

For further clarification, I turned to Jose Rivas, a financial educator for Consumer Credit Counseling Services of San Francisco (my old haunt). He reviews countless consumer credit reports for this nonprofit organization each year.

"The comments listed seem like the generic suggestions that are written into the mathematical code of the FICO scoring model," says Rivas. "When a credit file is processed by the FICO scoring model, the process will yield a three-digit score, unless you have no credit history, and four recommendations for improving the score. As a person's score gets closer to 850, there is less and less for the FICO model to recommend for improvement, but the process is designed to still yield the four recommendations."

In other words, for individuals like you who have scores in those upper numbers, the explanations about why it's not perfect are kind of meaningless. Why? Because FICO only publishes general information about how a score is determined -- a skeleton, basically, of why your score may go up or down. The meat and bones of the mathematical model they use is proprietary. (They pulled back the curtain a bit in November 2009 when they released some details of how late payments, foreclosures and other mistakes impact your score, but by and large, the scoring remains a mystery.)

Rivas does question the point about your available credit too being too high, saying, "there is no known drawback to having 'too much' available credit. This is usually a lender's feedback, but not likely to be FICO score-related." And because you don't carry over a balance from month to month, I don't see how lowering your credit line with Discover did any significant damage.

In general, it is best to keep older, well-managed credit accounts open. Doing so helps with the "length of credit history" section of a FICO score. Though a relatively minor factor in calculating your score (15 percent), having a long, traceable record of using credit positively works in your favor. However, your excellent score confirms that the effect of closing them has been negligible.

As for having too many revolving accounts with balances, I believe the number of credit cards you have is fine. Having three active credit accounts is generally perceived as ideal. It's balanced: You are not a one trick pony with a single card, and you don't have so many that your reports are overrun with random accounts.

In the end, try to not put too much stock in what random people tell you about credit reports and scores. If you have a question about anything financial, whether it's credit reports or investing, go straight to the source. I'm not suggesting that your best friend, sister-in-law or coworker is incorrect or isn't knowledgeable, but it's always best to get information on such important subjects from professionals who are actually in the business.

Just keep doing what you're doing, Donita. Your credit intuition is on the mark.

Chrome Bags Soyuz Laptop Backpack Review

BY: Jerry Jackson, NotebookReview.com Editor
PUBLISHED: 12/28/2009

If you're looking for the perfect laptop bag for your new notebook then you may be in luck. Chrome Bags promises the Soyuz laptop backpack is the ultimate solution for road warriors who are constantly running between the office and the gym ... or maybe need to join a conference call from the beach. Is this $180 laptop backpack worth your holiday cash? Keep reading to find out.

Soyuz Specifcations:

• Dimensions: 21 x 14 x 6 inches (L x W x H)
• 1000 Denier Cordura Body
• Airmesh Strap Construction
• Waterproof RF Welded Urethane Roll-top Main Chamber
• Ergonomic EVA Compression Molded Back Panel
• PVC Coated Weatherproof YKK Zippers
• Full Shoulder Strap Accessory Attachment Belts
• Industrial Metal Cam Locks Under Arm Compression Buckles
• 11" x 17" File Pocket With Organization Pockets
• Five Additional Weatherproof Cargo Pockets
• MSRP: $180.00 (available at www.chromebags.com)

Build and Design
The designers at Chrome Bags are obviously aware that modern road warriors don't haul the "traditional" mobile office anymore. Today your average mobile professional brings a notebook PC, a smartphone, and a variety of personal items ranging from a day's worth of clothes for an overnight business meeting or an outfit for the afternoon workout.

The Soyuz laptop backpack meets these needs and more thanks to dual primary compartments, multiple weatherproof pockets, and a sleek design that easily fits inside the overhead compartment on a flight or under the seat in front of you. The main roll-top backpack compartment is fully waterproof with a seam-sealed main chamber that will keep sweaty workout clothes away from delicate electronics or keep your beach clothes separate from your laptop. The side-access laptop compartment features a moderately padded section for your notebook and a divider for paper files or hard copies of your next business presentation. Another compact waterproof compartment on the front of the bag is the perfect place to store USB flash drives or any other small items you want to keep dry.

User Comfort
Of course, all of the waterproof storage in the world won't help a backpack that isn't comfortable on your shoulders and your back. Thankfully, the Soyuz is exceptionally comfortable thanks to shoulder straps that have airmesh padding and a back panel with ergonomic pads. While the surface of the shoulder straps that faces your shoulders has great breathable padding it's the front of the shoulder straps that I found particularly impressive. The front of the shoulder straps features seatbelt-quality reinforcement straps for added durability and metal compression buckles to keep the shoulder straps set to the right length. Shoulder straps are usually the first thing to fail on most of my laptop backpacks because I haul multiple notebooks and netbooks when traveling (I review these things for a living, after all). The straps on the Soyuz feel so rugged that I suspect they can handle any abuse I inflict upon them. If you prefer to carry your backpackl one handed using the top handle then you'll be pleased to know that the top handle feels nice and strong ... but the roll-top enclosure at the top of the bag does get in the way of the handle sometimes.

Usability Issues
The Soyuz proved itself to be a fantastic travel companion during my month-long test of the backpack. I used the Soyuz as my daily work bag and as my only carry-on bag for several business flights. Not only was the slim profile of the Soyuz easy to squeeze into overhead compartments and under seats, but the rugged construction held up to scrapes, drops, and more than a few rain showers without damaging the contents of the bag.

That said, I often found myself wondering if the Soyuz had enough padding around the main laptop compartment. None of the notebooks or netbooks I used during the review period were damaged in any way, but the padding on this bag "looks" thinner than what I see in most of the bags that arrive in our office. As mentoned before, the top handle on the bag is often obstructed by the roll-top enclosure, so if you don't roll the top as tight as possible before closing the Velcro then you might not be able to get a good grip on the top handle. Other than these issues I can't say there were any major usability problems with the Soyuz. As long as you don't attempt to overstuff the bag with multiple laptops, a change of clothes, paperwork, and your lunch then this bag has all the room you're likely to need for a work day or an overnight business trip.

Conclusion
The Russian word "Soyuz" means "Union" in English, and I think it's fair to say that the Soyuz laptop backpack from Chrome Bags is the perfect union of form and function. The Soyuz is the ideal companion for urban road warriors who need to jump between the office and an active lifestyle. The interior of this backpack offers enough storage to get you through a day's worth of work and play and it's rugged enough to last as long (or longer) than you do.

If I have any criticism about this backpack it's that the roll-top enclosure sometimes gets in the way of the top handle, the laptop compartment could use a little more padding, and the waterproof Urethane elements might look a little unappealing to some business professionals (though I think it looks great). Still, the Soyuz is a fantastic premium backpack at the $180 price point and might be the perfect choice for someone looking for a new laptop bag.

Pros:

• Attractive industrial design
• Weatherproof and rugged
• Abundant compartments

Cons:

• Limited laptop compartment padding
• Industrial design might look unprofessional

By Greg Ross

Symantec pcAnywhere 12.5 is a remote control application that allows users to operate a computer from any other computer in the world -- include PCs running a different operating system. Is pcAnywhere really the ultimate cross-platform remote desktop tool? We put it to the test in this review.

Symantec pcAnywhere 12.5 can connect almost any two computers, regardless of what OS either is running. However, as with any non-Web-based remote desktop program, pcAnywhere users need to know the exact IP address of the target computer (which never works well in my experience). Moreover, to connect via the Internet, pcAnywhere requires a third-party VPN.

Program Interface

The basic view for pcAnywhere 12.5 is very self-explanatory and resembles XP's play-toy interface. From here, you can access wizards to start using the most important features of the program. Clicking Remote Control starts up a wizard to connect to a computer at a known location, File Transfer starts up an FTP session wizard with a known pcAnywhere host, and Host launches the program necessary for the local computer to be remotely controlled. Quick Connect pulls up a window that is a little more advanced as it automatically scans for pcAnywhere hosts on the local network (good for home networks with DHCP enabled), and allows the user to invoke encryption protection during the remote session.

Remote Operation provides quick access to settings that largely impact the quality of the remote session experience. High-quality remote session streaming is useful when plenty of network bandwidth is available, while low-quality streaming is best for bridging two computers over the Internet. You can also set up a remote printer that can be accessed during the remote session.

The most important feature found in the Settings tab is the ability to configure pcAnywhere 12.5 to boot automatically with the computer, which I think should be mandatory in any remote access software. Callers are client computers that connect to the host, and a wide range of authentication options are available (including support for Windows user logins). One can never have enough security options in remote access software and pcAnywhere 12.5 certainly excels here.

While the overall user experience with pcAnywhere 12.5 was good, the various layouts and wizards were not exactly user-friendly a times.

When a remote session is running, the target computer's screen is front and center within the same interface.

The web browser version of pcAnywhere 12.5 is not as refined as the main program, but then again the Java web client is meant to be carried around on a USB memory key or used on a computer where the main client program cannot be installed.

Performance

During the evaluation period, the target computer was connected to the internet via a 6Mbit DSL connection. The computer used to access the target was connected to the same DSL connection for a high-speed test, or connected to the internet using a public Wi-Fi hotspot in the same city.

In each test, I never had any issues with input lag or slow refresh rates while I was running office applications. The only time pcAnywhere 12.5 ever had a problem was when I ran my video tests at too high a quality given the network connections I was using. When running on the public Wi-Fi network, pcAnywhere 12.5 defaulted to using low-quality mode with 256 colors. At those settings, I had no issues with input latencies or full screen changes like scrolling and window maximizations.

Performance only got better when pcAnywhere 12.5 was using my 6Mbit connection. Full-screen window changes refreshed in less time and scrolling through long documents was not as stuttered as with some of the competition. Where pcAnywhere 12.5 starts to show off is in successfully streaming video content with decent visual quality. Unfortunately, pcAnywhere 12.5 does not support audio transmissions so the experience was a little bittersweet. Nonetheless pcAnywhere 12.5 provides the best video streaming experience of any remote desktop app I've reviewed.

Connecting to the host using the client's web browser Java application was an interesting experience. Controlling the computer was almost as easy as from the main program, except that I could never get the scrolling wheel to actually work during these sessions. Scrolling was stuttered, but otherwise performance was acceptable given its intent.

Conclusion

In the end, pcAnywhere 12.5 certainly shines. The user interface is not as polished as I would prefer for a consumer application, but there is a wide array of powerful configuration options that are available. Performance was in line with the competition but, under the right circumstances, pcAnywhere 12.5 downright impressed us. It has incredible cross-platform support that should meet just about anyone's demands, and it even has a web interface that operates just like its web-based competitors.

In the end, the adage that 'you get what you pay for' is definitely true when pcAnywhere 12.5 is concerned. At $200 retail, it is certainly an expensive product. However there are no monthly fees and you can use it as long as you wish. Keep this product on the short-list, and look out for rebates.

Pros

• Works with Windows, Linux, and Mac
• Excellent performance, especially with video
• File transfer and multi-monitor support

Cons

• No audio streaming support
• Web access requires third-party VPN
• High up-front cost

IBM Lotus Symphony 1.3 Review

By Jay Garmon

IBM Lotus Symphony is Big Blue's free alternative to MS Office. Can Symphony win a battle of the bands with Microsoft's productivity heavyweight, or does it ring hollow? We sound it out in this review.

Symphony is a forward-thinking and relatively full-featured productivity suite, but it lacks polish in some key areas. It's solid, but I wouldn't pay for it; luckily, it's free. This clunkiness starts with the download process, which involves over a half-dozen screens, requires the creation of an IBM ID, tries to opt you into affiliate e-mail newsletters, and insists the user actively decide between using IBM's Java-based downloader or a regular browser HTTP download. It's that needless lack of user-friendliness that mars an otherwise great app suite.

IBM Lotus Symphony gets high marks for supporting multiple operating systems, including Windows, Mac OS X, and multiple flavors of Linux. It loses marks for its format support, in that it can open multiple file types but can really only save to to handful - notably excluding MS Office 2007 file save options.

Interface and Usability

Symphony shares some ancestry with OpenOffice -- it's based on OpenOffice 1.1.4 source code -- but the two products diverged several iterations ago. Like most office suites, Symphony includes a word processor, spreadsheet and presentation program, but it integrates them in a somewhat unusual fashion. Lotus Symphony 1.3 looks and feels like a recent generation Web browser - in fact, it has a somewhat feature-crippled Web browser built in - in that it employs a tabbed interface for its applications.

Essentially, Symphony lets you open a new spreadsheet, presentation, or document just like you'd open a new tab in Google Chrome or Firefox. Each of these tabs shares a standard menu layout, which means commands don't move around like they do in the current MS Office ribbon interface. When you open a specific tool set, it often generates a sidebar or menu-bar that stays onscreen until you close it. This is handy, but opening too many sidebars can crowd out the actual document.

The tab system also has the advantage of letting you toggle between multiple docs and sheets easily, though I recommend not doing the same with the extremely poor built-in browser. Web connectivity is nonetheless quite essential to Symphony, even though it's conventional software and not a Web app. An online user wiki is your best source of help information, and you can link directly to document templates, plug-ins and widgets from the Symphony Web site.

Widgets are somewhat like Google Gadgets crossed with MS Office Macros, in that they can analyze data in your documents and process them in the sidebar. For example, you could write a widget that reformatted addresses on the fly. They're a good idea in principle, but I had trouble finding a practical application for them.

Lotus Symphony Documents

Lotus Symphony presents a document interface very similar to a MS Word 2003, though there are just enough quirks to give Word power users pause. For example, Symphony has a very solid spellchecker but no grammar-checker or thesaurus. Robust functions that aren't found in most Web-based apps - like mail merge - are present and usable, though not spectacular.

My personal acid test for word processors is the ability to use the find/replace function to making formatting changes. Like OpenOffice, Symphony honors a list of regular expressions that let you create complex find/replace command strings. While I could accomplish most of the same power-tricks that I regularly use in Word, Symphony made me jump through more arcane hoops to get there. Symphony passed my personal hurdle, but it didn't exactly leap over it.

Lotus Symphony Spreadsheets

As I do with every new spreadsheet, I threw the most complicate, graphics-laden, macro-and-formula-infested file I could find at it to see how it held up. Despite warning of conversion errors, Symphony handled the Dungeons & Dragons 4^th Edition multipage autocompleting character sheet with ease. No obvious function breakdowns or layout problems occurred.

When we used Symphony to create basic spreadsheets, all the standard formulary functions were present, and in fact the sidebar system proved useful in dealing with multiple commands at once. What isn't present are the SQL database hook-ins and pivot tables that MS Excel power users may depend on for heavy data-crunching. Symphony is a solid spreadsheet handler, but don't expect it to displace Excel for your custom uses.

Lotus Symphony Presentations

Symphony was decidedly schizophrenic when it came to presentations. It failed to properly convert our sample PowerPoint 2007 document, breaking some layers and graphs. That said, Symphony offered almost too many customization options when it came to building spreadsheets. A hefty clip-art library, multiple transitions, and 3D object generators were almost dizzying in their possibilities. For once, I think MS Office power users will; be comfortable with an alternate app, as there was little that PowerPoint can do (aside from Sharepoint hook-ins) that Symphony couldn't Except, of course, competently handle PowerPoint 2007 slideshows.

Conclusion

IBM Lotus Symphony is the ignored stepbrother of OpenOffice, in that both are free, traditional software alternatives to MS Office, but that OpenOffice is the one that has been embraced by the open source community. As such, it is OpenOffice that has the final shine and polish -- and template and extension support -- that Symphony lacks. Using Symphony is hardly a bad choice -- especially given the price tag -- but there's nothing Symphony does that OpenOffice doesn't do better. In the end, that's the worst criticism I can offer.

Pros

• Free
• Runs on Linux, Mac or Windows
• Feature-rich

Cons

• Lacks polish
• Limited file format support
• Poor third-party suppor

How fast does your credit score recover from your goofs?

Time heals credit wounds, but how soon and how well remain a mystery

By Jeremy M. Simon

Credit Score Report

Jeremy M. Simon covers credit scoring and other issues as a staff reporter for CreditCards.com. Ask a question. 'Credit Score Report' stories

Dear Credit Score Report,
I know if I have even one 30-day late payment, my credit score drops. Question: How long is the penalty? When can I expect to see my score increase again? -- Mike

Hey Mike,
Experts say you can expect a late payment to hurt your credit score for seven years, with your score gradually recovering over that time frame as you make smart borrowing decisions -- though exactly how much and how fast your score recovers isn't entirely clear.

The federal Fair Credit Reporting Act says that negative items can only appear on your credit report for seven years, but it doesn't say how the credit industry should treat the impact of those items after they happen. That vagueness, combined with the secrecy and complexity involved in credit scoring, mean that it's tough to say exactly how a borrower's credit score will recover from a late payment. Still, provided the borrower makes smart decisions following a slip-up, time will heal those credit wounds.

"Every consumer's situation is different, but generally speaking, the impact from a negative item, such as a late payment, will lessen as that item ages" says Steve Katz, spokesman for credit bureau TransUnion.

While FICO, creator of the most-widely used scoring model, largely keeps the details of its scoring model a secret, we do know the approximate damage a late payment will cause. FICO pulled the curtain back a bit on its scoring model recently when it acknowledged just how much certain credit mistakes can hurt a borrower's credit score. For example, in the case of two hypothetical consumers, FICO said that a 30-day late payment would reduce a FICO score of 680 by 60 to 80 points, while an identical late payment would reduce a FICO score of 780 by 90 to 110 points. (For more on this topic, see our story on FICO's damage points.) You can run FICO's credit score simulator to get an idea of how much damage various mistakes, including a late payment, may cause to your own credit score.

But when it comes to the recovery process, it's still largely a mystery. FICO spokesman Craig Watts says your score will recover over time because the scoring model factors in when you made your errors, how bad they were -- for example, was your payment late by 30 days or by 90 days? -- and how often you made them. However, FICO's mathematical formula can't predict exactly how fast your score will improve. Watts says there are simply too many changes that can happen over time in a consumer's credit report, both due to the cardholder's own actions and changes that are beyond the consumer's control. For example, you wouldn't have any control over the continual aging of your existing accounts.

Still, FICO's Web site gives some clues as to how a credit recovery might play out. FICO says that for negative items on a credit report, "a collection that is 5 years old will hurt much less than a collection that is 5 months old." Please note the use of the phrase "much less" to signal that five years out from your late payment, its impact will be seriously lessened.

In discussing a foreclosure's impact, FICO says "it's a common misconception that it will ruin your score for a very long time. In fact, if you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as two years." Based on the fact that a foreclosure is much more damaging to a credit score than a late payment, it would make sense that in your case, your FICO score would also begin to recover within two years of your late payment.

Although FICO leaves it somewhat unclear what a recovery from score damage looks like, the steps you need to take to recover from that mistake are clear: "The best way to minimize the impact is to catch up on the payment and then continue to make all of your payments on time," says Rod Griffin, director of public education with credit bureau Experian.

By always making on-time payments from now on, as well as keeping debt levels low and only taking on additional lines of credit when necessary, that late payment will become just a minor slip-up on the road to an improved credit score.

Good luck!

-- Jeremy

Instant in-store credit card offers in danger of extinction

New credit card law requires retailers to ask customers for income, other data

By Connie Prater

Instant in-store credit card offers -- you know, the ones pitched by perky sales clerks offering 15 percent off your purchase if you sign up now for a store credit card -- may disappear in malls and retail outlets across the country come February.

RETAILERS SAY INSTANT, IN-STORE CREDIT CARD OFFERS MAY VANISH
WHAT'S HAPPENING: The Federal Reserve has proposed rules requiring credit card issuers, including retail stores that offer instant in-store credit, to assess customers' ability to pay card loans before issuing them credit cards. WHY IT'S IMPORTANT: Retailers say instant credit card offers won't be possible if consumers have to provide paycheck stubs or other income information at the cash register. WHAT'S NEXT: The Fed must issue final rules sometime before the Feb. 22 startup of the Credit CARD Act. The Fed won't say whether it will revise the rules to address retailers' concerns.

That's because a provision in the new credit card reform law says that starting Feb. 22, 2010, credit card issuers must consider an applicant's ability to repay the card loan before issuing a new card or increasing the credit limit on an existing account.

The measure has thrown a speed bump into the instant credit approval process and has the retail world in an uproar. Some of the biggest names in retail -- Saks Fifth Avenue, Macy's, Best Buy and Lord & Taylor -- are objecting to new guidelines proposed by the Federal Reserve Board. If given final approval, they say, it could kill the retailers' lucrative in-store instant credit card plans.

A speed bump to instant credit?
"We think it's pretty serious," says Mallory Duncan, senior vice president and general counsel for the National Retail Federation trade group. The Fed wants to require lenders to review income or asset information -- such as paycheck stubs or investment statements -- of people applying for new credit cards. The problem: Instant credit won't be so instant if consumers must fork over paycheck stubs at the cash register (known in the industry as the point of sale).

"My guess is most people don't walk around with either a pay stub or financial information in their purse," Duncan says. "In an effort to achieve one goal, the Federal Reserve Board may be inadvertently issuing consumer unfriendly regulation."

Macy's and other stores claim the restrictions could impact consumer spending at a time when the country is trying to pull itself out of a recession. Retailers have other reasons for concern. Data compiled by The Nilson Report, a payment card industry newsletter, show store credit cards were declining long before the new credit law. Outstanding balances on retail store cards -- known in the industry as private label credit cards -- have been falling as a percentage of total credit card balances for nearly two decades -- from nearly 24 percent in the early 1990s to about 11 percent in 2008, according to Nilson.

Some shoppers are shunning store cards -- which typically limit customers to spending at a single store chain -- and opting instead for general purpose credit cards that carry the Visa or MasterCard logos and can be used anywhere those brands are accepted. Store cards have historically had higher default rates and cardholders with lower credit scores than general purpose cards.

My guess is that most people don't walk around with either a pay stub or financial information in their purse.

-- Mallory Duncan National Retail Federation

How instant credit works
Currently, many stores require sales clerks to ask if shoppers have store credit cards. If they don't, the smiling clerk makes a pitch to sign customers up for cards -- sometimes with the inducement of getting 10 to 15 percent off that day's purchase, or, if online, getting free shipping or a gift card. If the customer agrees to get the card, they may be given an application form to fill out. Some stores have computer terminals set up to allow customers to input personal data: name, address, date of birth and Social Security number. In other stores, customers may be asked to fill out paper application forms, which are used by store personnel to input data into a computer.

With the click of a button, the application is electronically sent to the credit card bank used by the retailer or directly to a credit reporting agency (Experian, Equifax or TransUnion). Within seconds, a credit report and credit score is generated for the customer, and the bank sends an approval or denial of the application to the store. If approved, the customer's purchase goes through as the first charge on the new credit card account. The actual card is mailed a few days later, along with the credit card agreement outlining the terms and conditions of using the account. If there's a problem on the credit report, such as a history of paying bills late, bankruptcy, charge-offs or debt collection activity, the application is denied and the customer may be asked to provide additional information, such as bank account numbers or proof of income.

There's no huge benefit of instant credit for consumers.

-- Gail Hillebrand Consumers Union

Under the Fed's new "ability-to-pay" rule, there could be an additional step that would take the instant out of instant credit. "A card issuer has not complied with this provision if, for example, a card issuer does not review any information about a consumer's income, assets, or current obligations, or issues a credit card to a consumer who does not have any income or assets," according to the Fed.

That could mean customers may have to hand in a pay stub or some other proof of income or assets along with the initial credit card application. Stores would have to figure out how to scan this information into their computer systems and how to evaluate the customer's ability to pay based on that documentation.

Liar loans?
Another potential problem: Customers who deliberately lie about their incomes, either because they are embarrassed to reveal it to store clerks, want privacy or want to overstate their income in hopes of improving their chances of getting a credit card. Currently, annual household income is a standard question on credit card applications. This amount is self-reported and not verified.

Duncan from the retail federation argues past credit history is a better predictor than income of how customers will repay credit card loans. Income becomes more important for big ticket items such as homes and cars, he says.

"An applicant's credit history demonstrates a consumer's commitment to meeting their financial obligations," Steven Franks, Macy's senior counsel wrote in the comments filed with the Fed. "Their ability to properly budget for monthly expenses is indicative of their ability to make at least their minimum payments. This type of evaluation is more revealing to a credit card lender than asking an applicant for an unverified income amount."

The proposed rules may also create new roadblocks for stores hoping to increase credit limits on existing accounts. Duncan gives the example of a customer with an $800 credit limit on a Saks credit card who wants to buy two suits that cost a total of $900. The store can run a credit check, look at the customer's past payment history with the store and instantly approve bumping the credit limit up to $1,000 to accommodate the sale. Under the proposed Fed rules, the clerk would have to ask the customer for income information.

"Most consumers would find that conversation, if not intrusive, then distasteful while standing in line," Duncan says.

He adds: "We're not in the position that we want to alienate good customers ... Very few merchants are going to want to have that conversation. You want to have as few negative conversations with your customers at the point of sale."

RETAILERS SOUND OFF ABOUT PROPOSED CREDIT CARD RULE ON ABILITY TO PAY

Some of the nation's top retailers filed comments with the Federal Reserve objecting to proposed rules on assessing applicants' ability to repay credit card debts. Click the links to read their comments. "We are worried that this new requirement will have a chilling effect on the willingness of our customers to apply for credit and the willingness of our store associates to offer credit." -- Belk Inc. "There is concern that consumers will hesitate to provide such sensitive and personal documentation (like pay stubs) to retail associates." -- Best Buy Inc. "Consumers seeking credit should not be required to make information about their income or assets public in order to apply for credit in a retail store." -- Charming Shoppes Inc. (Lane Bryant, Catherines Plus, Petite Sophisticate, Fashion Bug) "Consumer credit is crucial to our retail business and we do not wish to create unnecessary hurdles for our customers." -- Lord & Taylor "Both the store associate and the applicant are placed in an uncomfortable position when discussing sensitive information with other customers standing in close proximity." -- Macy's Inc. (Macy's and Bloomingdale's) "Very few people carry income information (such as a pay stub) that would be necessary to satisfy the proposed language nor would customers (and those waiting in line behind them) be inclined to wait in line for it to be evaluated." -- The Talbots Inc. "We believe that the proposed rule will restrict commerce." -- Saks Fifth Avenue

Consumer group: Instant credit fuels impulse buying
Consumer advocates and credit counselors who coach people out of mountains of debt say making it harder for people to get credit cards while shopping is a good thing. It may cut down the number of people who get into trouble with compulsive buying.

"The risk of instant credit is impulse borrowing," says Gail Hillebrand, financial services campaign manager for Consumers Union, the nonprofit owner of Consumer Reports Magazine. "Instant credit is generally not a good idea for consumers. Other people can get it pretending to be you, which creates a mess for you."

Hillebrand says consumers with decent credit scores likely have the ability to pay. "If can you afford to make the payment, you probably already have credit available to you. In that case, you can use another credit card. There's no huge benefit of instant credit for consumers. It's retailers that need instant credit -- not consumers."

Duncan from the retail federation acknowledged that retailers will lose out if instant credit is curtailed. "These customers are typically more loyal to the stores," Duncan says, adding, "There are advantages to both the retailers and the consumers in this."

Signing up for a store credit card is about more than just getting a credit card. The retailer builds a database of loyal customers that can be mined for years with marketing and promotional programs. Store cardholders who are offered special deals and services (earlybird specials, discounts, coupons, etc.) help move merchandise and contribute to a store's bottom line.

At Lord & Taylor, the high-end retail store, 40 percent of its $1.1 billion in customer sales is conducted with a Lord & Taylor credit card, according to comments filed by Christopher Sim, the company's senior vice president and CFO. Similarly, Belk, a department store chain that operates in 16 states, predicted a sales hit.

"The ability of customers to purchase on credit is critical to our retail sales," wrote James. A Ward, Belk's vice president of credit. "In these tough economic times, we simply cannot afford for credit to become less attractive or more cumbersome to obtain, and we expect this income requirement to have a direct impact on our sales."

As an alternative, several retailers have suggested that the Fed modify the rules so that opening credit card accounts with small credit limits -- perhaps $3,000 or less -- would be exempt from income review requirements.

Hillebrand from the consumer group agrees a low credit limit account may not warrant a review of income data. "They certainly could start you off with a very low credit limit," she says. "If you want more, fill out the form and tell us all this other information."

Credit bureaus offer solution
Experian and Equifax -- two of the three major credit reporting agencies (TransUnion is the third) -- have launched services in recent weeks they say will help retailers and other lenders assess borrowers' ability to pay in the same amount of time it currently takes to pull a credit report. Called income-estimation modeling, the programs rely on statistical analysis of databases of financial data to estimate a credit card applicant's income and assess their ability to pay loans.

Experian's Income Insight tool uses verified financial information from the IRS and other sources and links it to the credit bureau's database of millions of consumers, says Brannan Johnston, Experian's vice president of income and deposits. He says the model assesses the likelihood that applicants can pay based on verified income from the databases and on outstanding credit balances, available lines of credit, how long they have had credit, the sizes of their mortgages and whether they've ever missed a payment.

"For those lenders that ask income on an application, Income Insight can be used for income verification," Johnston says, noting that because the program is a statistical model, it is not used as the sole basis for declining an applicant. People who are deemed unable to make payments by virtue of the model would be asked to submit pay stubs or other proof of income before they could get loans.

Equifax announced on Dec. 8, 2009, it was expanding its ability-to-pay services to include tools that use IRS, employer and other databases to estimate personal income. "By combining the predictive power of modeled financial measures, such as income, with the accuracy of bureau data and verified income, credit issuers have additional options to minimize risk and assess consumer ability and willingness to pay," according to an Equifax statement.

Representatives from Experian met with Fed officials in November to brief them on how the income estimation tools may help lenders meet the ability to pay requirements.

The Fed is reviewing the comments submitted on the guidelines and must issue final rules before the Feb. 22 effective date of the credit card law. A Fed representative would not comment on whether the ability-to-pay rules will be revised based on the retailers' concerns or if the income estimation modeling tools would satisfy the Fed's requirement for assessing ability to pay credit card loans.

What will retailers do?
Duncan from the retail group says if the Fed doesn't revise its rules, some retailers may be forced to back away from instant credit offers.

"Some will try, in some of their stores, asking for financial information at point of sale," Duncan says. "If the reaction is negative, it will go away. In the short term, it will dry up a lot of very good deals for consumers."

Tough choice: credit card debt vs. down payment on a car loan

Consider your credit score, amount of debt and size of loan

By Todd Ossenfort

The Credit Guy

The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues. Ask a question 'The Credit Guy' archives

Dear Credit Guy,
I have two credit cards. One balance is $2,645 with a credit limit of $2,800. The other balance is $5,143.86 with a credit limit of $5,500. I have $1,800 that I was going to pay on these or pay down on a car. My credit score is 680. I pay my bills on time all the time and always more than the minimum. I was looking to buy a car within the next 30-45 days. I am wondering whether I should pay this money on one or both of my credit cards, and how much? (Which will help my credit score the best?) After making these payments to my credit card or cards, how long does it take for your credit score change to show up? I really would like to get the best interest rate when I go to buy my car. -- Sharon

Dear Sharon,
I believe you would be better off in the long run using your $1,800 as a down payment on your car purchase. My rationale is that if for some reason you needed to sell your car, particularly early on in your loan term (reasons you may need to sell might include getting laid off from your job, a decrease in salary or some other interruption in your income) without a down payment, it is likely you would be upside down in your car loan. Upside down means you owe more on your loan than the car is worth. In a must-sell situation, you would then be in a bad financial situation, either having to continue to pay on a car loan when you no longer own the car or face repossession because you can no longer afford the loan payments -- both of which could be very expensive.

With a credit score of 680, you would qualify for a national average 48-month term loan on a new vehicle at 9.5 percent interest. If you increased your credit score to the next level or 690-719 range, the national average for a 48-month loan would be 7.5 percent. The lower rate would save you $906.46 in interest charges on a $20,000 loan over the life of the loan. I know you don't want to pay any more for your car loan than you need to, but I would rather you plan for the unexpected.

If you disagree with my advice and would rather use the money to pay down your credit card balances, you could pay $1,245 on your card with the balance of $2,645 and the remaining $555 on the card with the $5,143 balance. Paying the majority of the $1,800 on the lower balance card will bring what you owe down to 50 percent of your credit limit and should boost your credit score. One of the elements considered for your FICO credit score is the ratio between the credit available to you and the credit you are currently using. The goal is to owe less than half of the credit available to you. You would still be over that limit on the higher balance card, but you would be bringing one of the accounts down to that magical 50 percent acceptable level.

Take care of your credit!

Adult son racks up $20,000 on mom's cards

What's a mom to do? Sell his stuff... fast

By Sally Herigstad

To Her Credit

Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). Ask a question. To Her Credit archive

Dear To Her Credit,
When my son (49) had bad, bad credit, I authorized him to use two accounts of mine -- a Visa and a business American Express card. I had the AmEx account because I was going to start a cookie business and the rates seemed good. I never used or signed either card. I told him he could use the cards for a couple of months, and I assumed he wouldn't spend more than a few hundred dollars.

His signature is on all of those bills. I didn't know he was still using them, in fact I thought I had closed the American Express. Now I find out that he called them and had all the bills sent to him. He has run up balances of over $20,000.

What can I do other than seeking legal help and ruining his life? I cannot pay those bills nor do I want to hurt my credit score as I pay the minimum or more each month, but the companies have been calling me.

I know I should not have been so generous, but he is my only son. -- Lenore

Dear Lenore,
You have a worse problem than a $20,000 debt right now. You have a son who, way past the age when he should know better, is treating you disrespectfully.

I know you had the best of intentions. We parents all want to help our kids and to have good relationships with them. In the short term, it seemed like handing over your cards to him would accomplish both of those things. In the long term, it has accomplished neither. Giving a card to someone who cannot handle money is like opening a tab for an alcoholic. And unpaid debts between parents and children only cause more stress in relationships.

If you authorized him to use the cards, he didn't break any laws doing so. I don't know if he had the statements sent to him because he intended to make the payments himself or to hide them from you. Either way, sorry to say, the bills are in your name.

Bankruptcy is not a good option. That amount of money is not worth going bankrupt over as it would cost you another $5,000 in fees by the time it's over, plus repercussions to your finances for the foreseeable future. It's not your answer.

People ask a lot about negotiating debt settlements with the credit card companies. However, despite what you've heard in some advertisements, nobody can snap their fingers and cut your debt in half or make it go away. Banks typically settle with debtors only in extreme hardship cases, such as catastrophic illness or unemployment. Loaning out your credit cards to your son probably won't qualify.

The first thing you should do is close every account your son has access to. Check your credit report and make sure he hasn't bought anything else in your name.

Next, level with your son and tell him you cannot afford these bills. Kids often assume their parents have unlimited money (although a 49-year-old kid should know better). Tell him he is going to have to pay you back and give him suggestions on how he can do so.

He must have bought things with the $20,000. Is any of it returnable? People who go on spending sprees often have clothes with the tags still on or electronics still in the box, for instance. They can go back to the store. Used items can be sold on eBay or Craigslist. If he's enjoying the latest sound systems and video games while you get stuck with the bills, the party's over. I don't care if it's installed in his car -- tell him he has to pay for it or sell it.

You can even offer to take items of value in lieu of cash. Does he have a motorcycle, a fishing boat or guns? He may laugh when you tell him to hand over his toys, but this level of debt is no joke. You are perfectly capable of turning it into cash to start paying down this debt. If he can't part with his stuff, maybe he will suddenly find cash.

Don't let him reduce what he owes you by claiming inflated values of what he owns. People tend to overestimate what their things are worth -- often by two or three times. Check out the wholesale values yourself, or agree to only reduce the amount he owes you by the cash you get out of them.

I'm assuming that if your son is 49 years old, you must be retired. Earning enough money to pay off $20,000 would be daunting. Your son, however, is in his prime earning years. He spent the money -- he can pay it off.

If he's already working full-time, your son might have to take an additional part-time job to pay off the debt. If there are no jobs where he lives, he may have to start a service business of his own that doesn't require an investment. Depending on his skills, he can do odd jobs such as driveway resurfacing, roof cleaning, after-school tutoring or Web site design. Essential services are the best bet because even in a slow economy, people still pay for them.

The bottom line is this: Your son owes you $20,000 and he has to pay it back. It's the best thing for him, for you and for your relationship with him.

Federal Reserve again leaves interest rates unchanged

Experts say rates won't increase until unemployment rate falls

By Jeremy M. Simon

The Federal Reserve left its lending rates unchanged again on Wednesday, and experts say it's likely to continue that plan until sizable numbers of unemployed Americans begin finding work.

That central bank decision came at the conclusion of a two-day meeting, with Fed officials voting unanimously to leave its federal funds rate at a range of 0 percent to 0.25 percent, keeping the prime rate at 3.25. Variable rate credit cards -- which account for the majority of plastic -- have annual percentage rates that are set using the prime rate. That means when the central bank eventually raises the fed funds rate, which it last did in December 2008, most cardholders in the United States can expect to pay higher rates on their credit cards.

However, that decision may be months away. With unemployment currently at 10 percent, economists weren't surprised by the Fed's latest decision to hold off on hiking interest rates. "They're not going to do it before they have positive employment numbers," likely around the second quarter of 2010, says John Silvia, chief economist with Wells Fargo.

Fed points to job losses
The Fed highlighted the unemployment problem in the first sentence of the statement accompanying its decision. "Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating," the Fed said.

Still, despite that note of optimism, the Fed says that joblessness remains a challenge. "Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit," the statement said.

Amid other key portions of the Fed's statement, its language didn't change at all from earlier statements -- for example, when saying that the strength of the economic growth isn't enough to warrant interest rate hikes. The Fed said it continues to expect the health of the economy to require "exceptionally low levels of the federal funds rate for an extended period."

Unemployment continues to influence lending rates
Analysts agree the Fed is waiting on the labor market's recovery. Although the U.S. economy has shown signs of life, the unemployment rate remains in the double digits. In October, unemployment reached 10.2 percent, before dipping slightly to 10 percent in November.

"The Fed typically waits for the unemployment rate to fall notably for a number of months before it is willing to raise rates, and we believe this should prove especially true with the unemployment rate at a 10.0 percent level," Barclays Capital's economics team said in its weekly report on Dec. 11.

That means, for the time being, any changes to annual percentage rates will come from the card issuers themselves rather than the Fed.

Banks making moves
Banks continue to suffer losses as unemployed workers struggle to repay their loans. On Tuesday, Capital One said its U.S. credit card charge-offs -- or the amount of loans the bank has given up on collecting -- rose to 9.6 percent in November, Discover reported that its credit card charge-offs increased to 8.98 percent and Chase said its write-offs advanced to 8.81. Bank of America, meanwhile, posted a 13 percent write-off rate in November, down from the previous months' rates, but still the highest rate among those banks that have so far reported their results.

To offset these losses, banks have made borrowing more costly and difficult for cardholders. For card issuers, "you tighten the standards in a recession and loosen the standards as the recovery proceeds," Silvia says. Banks have also blamed their tighter lending standards on increasing regulation, which lenders say makes doing business more expensive.

For now, banks are more focused on the current recession than a pending recovery. As of last week, interest rates on new credit card offers reached 12.75 percent, according to the CreditCards.com Weekly Credit Card Rate Report. That's the eighth increase in the past 12 weeks, and it represents an increase of more than three-quarters of a point from June and a point and a half since summer of 2008. Cardholders may also find themselves paying higher fees for late payments, balance transfers and cash advances, as well as inactivity fees.

However, Silvia says that card issuers have likely already implemented the bulk of their interest rate increases. "I have to believe most of the change occurs in availability rather than the rate itself," he says, with consumers still finding it difficult to get their existing credit lines extended or get approved for new credit cards.

As for interest rates, Silvia says credit card APRs could start to come down after the Fed begins to adjust its monetary policy next summer. (The prime rate is just one of the factors that influences credit card APRs, so banks still have significant control over many of the others.) "I think the banks are going to lag whatever the Fed does, so it won't be until the end of next year before anything gets done" by card issuers, he says.

'No payment, no interest' credit card deal? No way

Make no mistake: If there's a balance, you owe a minimum monthly payment

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." Ask a question. 'Opening Credits' stories

Dear Opening Credits,
I did a balance transfer to a Chase card. I did not realize, nor was I told when the card was issued, that it had monthly minimum payments. I have usually done payment transfers where if the balance is not paid off by a certain date, the interest is retroactive. I would pay on the balance when I could. I did the same with the Chase card, not realizing the balance. I made two payments, missed two months, then paid it off. Now, five months have gone by, and they finally called me to tell me I have a balance in excess of $300, and a payment of $180 will bring the account current. I explained my situation, and they are unwilling to listen/help. Do I have any recourse? Is there anywhere I can go to get help? I offered to pay a portion, but they won't budge. -- Shelley

Dear Shelley,
I must say that I'm mystified that you weren't aware that minimum required payments are an intrinsic aspect of revolving credit cards. Did you really think that you could add a balance to a new credit account and not be expected to send them some money each month?

The only rationale I can imagine is that you mistook a "zero APR on balance transfers for X months" offer from Chase for the financing arrangements that some retailers offer for furniture or major appliances. Typically, in those cases, as long as you pay 100 percent of the sales price within a certain time frame, you won't have to make any payments and won't be charged a penny in interest.

However, what you got is a standard credit card, and all companies that issue such products require monthly payments on what you owe whether you actively made purchases with that account or have transferred the balance from another card. To be sure you got that information, though, I asked Gail Hurdis, Chase Card Service's communication & public affairs vice president about your situation. "There is a section in the customer agreement that calls for a minimum payment," says Hurdis, who goes on to say that it also explains in detail how the payment and interest is calculated.

Apparently you managed this account fine in the beginning, as you submitted two consecutive payments. Then, for whatever reason, you skipped a couple of cycles before sending in what you thought was the remaining balance. Your troubles began when you missed the payments, as it caused finance charges and other fees to be added to the account. The end result: that unanticipated bill of about $300.

This leads me to my first piece of advice, which is to make sure you open all of your mail. You say you first heard of this surprise debt when Chase called you, but it is standard protocol for issuers to send letters alerting customers that their account is delinquent before making collection calls. Because you weren't expecting a bill, you may not have been as diligent about checking the correspondence from the bank.

Now, I understand that you don't want to pay the debt and have attempted to have it purged. Chase won't budge and, frankly, I don't see why it should. You were under an obligation to pay at least the monthly minimum (the "payment due" printed on your statements was further indisputable proof that remittance was expected), which, at least for a couple of months, you did not do. Because of that, Chase is fully within its rights to add on the charges.

So what should you do? This leads to my second and most pressing piece of advice: Pay it. Now. You legitimately owe the money. It's been five months since Chase has received any cash from you. Though the amount due is not large, chances are it's being reported on your credit report and doing some major damage. I'm willing to bet that it won't be long before Chase charges the debt off and sends it to a collection agency. When that happens, troubles will only increase. Your credit report will take another bad hit, and you'll be dealing with collectors, who are not typically a joy to work with.

Do not miss this opportunity to get back on track, Shelley. For a mere $180, you can offset the problems that will surely happen if you don't. And next time you enter into a contract with a credit card company, read the application and agreement carefully before accepting the offer. The terms will be spelled out -- from how much you are expected to pay each month to the grace period and fees. For now, consider this a valuable life lesson in the real world of credit.

Creative new fees escape CARD Act rules, surprise consumers

New report highlights ways issuers have gotten around new law

By Tamara E. Holmes

While the Credit CARD Act of 2009 puts an end to abusive tactics card issuers have long used to boost their profits, consumers need only to look at their card statements to know there's no reason to celebrate.

In the past year, card issuers have rolled out or expanded their use of other ways to collect millions more in fees each year, many of which are hidden to consumers, according to the Durham, N.C.-based Center for Responsible Lending's Dec. 10 report, "Dodging Reform: As Some Credit Card Abuses Are Outlawed, New Ones Proliferate."

"Credit card issuers are going to more than ever try to find ways to make extra profits," says Joshua M. Frank, a senior researcher with the Center and author of the report. New charges and changes to the way fees are calculated are adding to the balances of a growing number of cardholders. While some of the practices were instituted after the Credit CARD Act was approved in May, others were quietly being put in place earlier as a result of the recession. The one thing they have in common, says Frank, is that "none of them are explicitly prohibited by the Credit CARD Act."

Hidden rate changes
Consumers with fixed rate credit cards won't have to worry about interest rate changes to current balances if they pay on time, under the Credit CARD Act. The vast majority of cardholders, however, carry variable rate cards, in which the interest rate is determined by adding a fixed percentage to the rate of an index such as the prime rate. For them, things get a little murkier.

In the past, issuers would generally use the highest prime rate in a cardholder's current billing cycle as the starting point for determining a credit card's rate for the month. However, a number of issuers have amended their terms this year so that they now can select the highest prime rate in the previous 90-day cycle, a move that costs consumers $720 million a year, the Center for Responsible Lending estimates. As a result, the interest rate paid by cardholders may not go down in a given month even if the prime rate goes down. "It's so hidden and obscure that it can't be interpreted as anything other than a way to extract money from people in ways they don't understand," says Frank.

Credit card issuers are going to more than ever try to find ways to make extra profits.

-- Joshua Franks Center for Responsible Lending

Variable rate cardholders are also impacted by another pricing strategy, as many issuers have begun setting "floors" -- limits to how low a cardholder's variable rate can go. While the rate will rise with the prime rate, it won't go any lower than the flooreven if the prime rate goes beneath that point. As of December 2009, the prime rate is at the historically low level of 3.25 percent. But "if you get a card in the future and the prime rate is, say 6 percent, then you wouldn't get the benefits of a decrease in the rate that would likely occur," Frank says.

New and expanded fees
Changes to interest rate calculations aren't the only ways issuers are mounting charges on consumers. A number of fees have become more prevalent this year, according to the center's study.

• Minimum finance charges can be greater than the amount of interest owed. As a result, if a consumer owes only $0.50 in interest, he may have to pay $2 because that's the minimum interest fee.
• Card issuers charge late fees that vary according to the card balance, so those who owe the most pay the highest fees. "But right now almost nine out of 10 people are in the top late fee category," says Frank. Though issuers often tout the lowest late fees, "the average fee that people pay has gotten higher and higher."
• Cardholders who don't incur regular charges risk being hit with inactivity fees. This strategy is even applied to cardholders who've opted out of a change of terms to the account and can no longer charge new items. Although their inactivity is forced, they may end up paying an additional $36 per year.
• Foreign transaction fees, which cardholders pay when a currency exchange takes place, are nothing new. But this year, more card issuers redefined "foreign" more broadly to include any transaction that at any point touched a foreign bank, even if the exchange took place in U.S. dollars. Likewise, the fee has inched upward with a majority of issuers charging 3 percent in 2009, compared with 2 percent in 2004.
• Card issuers are also cashing in on cardholders' use of balance transfer offers and cash advances. Not only are the fees for these transactions rising, but many card issuers are implementing minimum charges and removing caps they once had in place to keep the costs from surpassing a certain level. For example, a card issuer may implement a 4 percent transaction fee on cash advances with a $20 minimum. If a cardholder borrows $100, the 4 percent transaction fee would be $4. However, because of the minimum rule, the cardholder would pay an additional $16.

An exercise of choice
Consumers have more control over some charges than others, such as the ability to use a card to avoid an inactivity fee, but they need to keep a close eye on credit card statements. "We are seeing a lot of changes in the agreements so it's something for people to be really aware of in the next three to six months," says Sarah Fouquart, a group manager with Troy, Mich.-based GreenPath Debt Solutions. Those who don't understand the changes should ask their issuers about them, Fouquart adds.

While many of the top credit card issuers are embracing these new fees, consumers might also look to smaller regional banks or credit unions to avoid paying some of these additional costs, suggests Frank. "Usually you'll find that these organizations care more about the relationship with the customer than making a quick profit on one product," Frank says.

New fees and charges are unlikely to disappear anytime soon, but consumers still have options. "There's no harm in shopping around a little bit," says Fouquart.