Wednesday, May 6, 2009

Good credit history doesn't go away when card canceled

Question for the expert

Dear Opening Credits,
I had a one credit card, which is a secured type, and I opened at a $300 limit with Washington Mutual in November 2007. Now WaMu has merged with Chase, and they have to close that credit card because Chase doesn't have a secured credit card. It was my one and only credit card which built my credit history. Now, I don't have any credit cards, and I am worried that account has been closed, and I don't know what would be the impact of that on my credit history. And also I have worked hard to build that history, and I would like to still keep that. I don't know what to do. It's not easy to get a credit card. -- Husrev

Answer for the expert

Dear Husrev,
It sounds like you had a good thing going with Washington Mutual, and then when Chase stepped in and took over -- poof! -- it all vanished.

Or did it?

All your hard work was not for naught, Husrev. Clearly you had the account and used it, which means that WaMu regularly reported all of your charging and payment activity to the three major credit bureaus. Consequently, you have a traceable credit history that is yours to keep. As per the Fair Credit Reporting Act, positive credit information may be reported forever. Most negative information, on the other hand, will drop off the reports after seven years has lapsed.

Even better, because you opened the account way back in 2007 (ancient history!), you had at least a year before it was closed to create a great credit history. Assuming you always paid on time and kept your balances low, now may be the perfect time to spread your wings and fly with a brand new credit card that doesn't require the training wheels of a security deposit. Though the lending market has tightened and requirements are a bit tougher today than in previous years, there are still plenty of credit card companies, banks and credit unions eager to extend credit to a person who has proven to be a responsible borrower. Oh, and who also has a job and perhaps some assets ...

Now, in the event that you have none of the above, and financial institutions are reluctant to give you an individual unsecured line of credit, you may consider a cosigned account. With it, someone who does have an excellent credit history steps in to help you get an account by letting you benefit from his or her good name. However, if you overcharge or fail to pay, you'll damage the other person's credit as well as your own. For this reason, a cosigned account can wreak havoc on a relationship.

A better option, then, may be to simply start over with another secured credit card. While Chase isn't offering such collateralized products right now, many other credit issuers are. As with unsecured credit cards, you will find what you need by getting online and reviewing available credit offers. After that, apply for one or two of the best cards that fit your needs and circumstances.

I sense a lot of worry about how the closed account has affected your credit report, but breathe easy. The impact, if any, is most likely minimal. You won't be penalized for the account's closure, and only 15 percent of your FICO score is comprised of length of credit history. During the time you had the card, the way you borrowed and repaid carried considerably more weight, as the combined total of those two categories is 65 percent of your score. Inquiries and types of account are 10 percent each, and so are relatively minor factors. Still, they all add up, so once you do have a new account, assume a comprehensive approach: Obtain a mix of several credit types (a credit card, charge card, and maybe a loan), repay all balances on time and in full and keep your applications to a minimum. Over time, your FICO score will zoom and the angels will sing.

Back to your old account -- do you still have any of that security deposit left? I hope so. Gail Hurdis, communication and public affairs representative for Chase card services, said they notified customers whose secured accounts were closed and issued refunds for anything in the savings accounts. They also would have credited any portion of the annual fee that was unused for the account year. Therefore, if you've got the cash, I strongly suggest that you immediately plunk it into a savings account. This will act as a personal security deposit -- something that everyone, cardholder or not, should have. After all, unexpected emergencies happen, and when they do, you'll be grateful for having tucked away that money.

Finally, Husrev, keep in mind the adage "the only thing constant is change." Indeed, the entire financial world is in a perpetual state of flux. Bank mergers and shake-ups are commonplace, so stay tuned to market adjustments, adopt an attitude of resilience and always plan ahead.

Rep. Frank introduces bill to allow online gambling

Don't bet on it quite yet, but you soon might be able to legally use your credit card to place online wagers without giving your card numbers to -- and funneling your money through -- a foreign company.

Rep. Barney Frank, D-Mass., introduced legislation Wednesday that would permit U.S.-based companies to accept online bets from Americans -- and relieve United States-based credit card companies of the many gambling-related regulatory burdens they now face.

"The government should not interfere with people's liberty unless there is a very good reason," said Frank, chairman of the House Financial Services Committee and a longtime supporter of online gambling, during a news conference.

"This is, I believe, the single biggest example of an intrusion into the principle that people should be free to do things on the Internet," he said.

Gambling interests delighted
The move won instant praise from a variety of gambling interests, including casino operator Harrah's Entertainment, online wagering site, and the nonprofit Poker Players Alliance.

"Online poker is a legal, thriving industry, and poker players deserve the consumer protections and the freedom to play that are provided for in this legislation," said Alfonse D'Amato, chairman of the Poker Players Alliance and a former Republican senator from New York.

"We are grateful for Chairman Frank's leadership and will be activating our grassroots army made up of over 1 million members to help him drive legislation."

Called the Internet Gambling Regulation, Consumer Protection and Enforcement Act, the proposed legislation would establish a federal framework under which Internet gambling operators could obtain licenses to accept bets from U.S. residents.

The bill mandates thorough investigations of potential licensees and it requires technological barriers to deter underage gambling, fraud, money laundering and tax avoidance. The U.S. Department of the Treasury would be in charge of establishing the regulations; violators could be fined and/or imprisoned for up to five years.

Amounts to a repeal of UIGEA
In essence, the bill would repeal the widely criticized Unlawful Internet Gambling Enforcement Act, passed in 2006. The UIGEA regulations went into effect on Jan.19, 2009, but financial institutions were given until December of 2009 to become completely compliant. That measure basically banned U.S.-based firms from conducting online gambling operations. Critics called the UIGEA impossibly vague, and said it produced serious compliance issues for credit card issuers and others in the banking industry, which somehow ended up on the front line of enforcing the ban.

"It's not a good thing for banks," Steve Kenneally, vice president of the American Bankers Association, which represents credit card issuers and other elements of the banking industry, told in January.

He said the rules associated with the bill -- and finally announced just last December as the Bush administration was ceding power -- weren't quite as burdensome as the industry feared, but that was only modest consolation.

Instead of getting hit on the head with a telephone pole, we're getting hit with a baseball bat. It still hurts.

-- Steve Kenneally
American Bankers Association

"Instead of getting hit on the head with a telephone pole, we're getting hit with a baseball bat," Kenneally said. "It still hurts."

Among the problems: No one in Congress or anywhere else defined the "illegal" part of "illegal Internet gambling," requiring attorneys for banks and credit card networks to navigate a thicket of ambiguous, varying and often contradictory state laws and even Native American tribal rules.

And the 2006 bill, passed in the dead of night, didn't come close to achieving its objective -- Americans simply pointed their Web browsers to overseas gambling sites.

online gambling
How many Americans
gamble online?

About 2 percent of Americans report they gamble online, according to a November 2008 survey by the Annenberg Public Policy Center. The number fell off sharply after the passage of the 2006 Unlawful Internet Gambling Enforcement Act.

To this day, Internet gambling remains a $10 billion to $12 billion per year industry in the United States, according to Congressional testimony and various industry experts.

Now, amid the economic meltdown, Frank and others want to recapture some of that bounty and redirect it to the U.S. Treasury. Co-sponsors of the bill include Peter King, R-N.Y., and Shelley Berkley, D-Nev.

"Chairman Frank's bill is a welcome and realistic approach to U.S. internet gambling," Michael Brodsky, chief executive of, said in a written statement Wednesday.

"Illegal U.S. online gambling is a growing multi-billion dollar industry," Brodsky said. "Chairman Frank's bill recognizes those realities and would bring this underground activity into the light ... providing much needed revenue in these difficult economic times."

Also on Wednesday, Frank said he would introduce separate legislation to delay implementation of the rules associated with UIGEA. "The legislation will stop federal regulators from enforcing the UIGEA until Congress has had a chance to decide national policy," according to a written statement from Frank's committee.

Frank said he hopes to have his panel act on the legislation before the August recess of Congress, but passage is by no means assured. Last year, a similar measure failed to win congressional approval.

And this latest attempt ran into immediate opposition Wednesday.

Said Rep. Spencer Bachus, R-Ala.: "Illegal offshore Internet gambling sites are a criminal enterprise and allowing them to operate unfettered in the United States would present a clear danger to our youth, who are subject to becoming addicted to gambling at an early age."