Beware of Foreign Transaction Fees on Your Credit Card

Credit card issuers are now turning to foreign transaction fees to further increase their revenue. Since February, four issuers--Discover, Citigroup, Simmons and Bank of America--have added or expanded this fee. Consumers need to be aware of this fee because it is much broader than it first appears and it could be charged even if one never leaves the United States.

Until recently, the foreign transaction fee was a 3% fee charged by some issuers on purchases made outside of the country. Now, issuers are expanding that fee to include all transactions made or processed outside of the United States. That means shopping online could cost you an additional 3% of your purchase if that online merchant is based in another country. Or, if you purchase airline tickets or a hotel room with a foreign based company, you could be charged an extra 3%. If you purchase a high priced item, that additional fee can be quite a surprise.

"Before you order anything from a merchant that is not based in the United States, it is a good idea to call your issuer and ask about this fee," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "You can save yourself a little money by using a credit card that doesn't charge a fee for foreign transactions. CapitalOne is one of the few cards that still does not charge a foreign transaction fee."

While credit cards are convenient to use when traveling outside they country, they are costly.

"Every transaction that you put on your credit card while in another country could be charged an extra 3%, including lunch, t-shirts, books, artwork and souvenirs. It is a good idea to keep this charge in mind to know the true price of the item you are buying," says Hardekopf.

Understanding the Credit Card Reform Legislation

Last week, the House easily passed the Credit Cardholders' Bill of Rights and sent it on to the Senate.

But the Senate is considering its own version of a credit card reform bill called The CARD Act. This week, the Senate begins discussions on The Credit Card Accountability Responsibility and Disclosure Act, an entirely different credit card bill than what passed in the House.

The CARD Act in the Senate is similar in a number of ways to the House's Cardholder Bill of Rights but is also considered stronger with more regulations. Both end some of the unfair practices used by credit card companies and require more notice on all interest rate and fee increases. But the Senate bill is not expected to pass quite so easily. Republican Senators are expected to be more sympathetic to the difficulties that new regulations will place on banks and are hesitant to make laws that limit a bank's ability to raise rates when they are needed.

If the Senate passes the CARD Act, the next step will be to merge the Senate and House bills together. Since they passed different bills for credit card reform, both bills will be sent to a Conference Committee. Members from each house form a Conference Committee to work out the differences. If the Conference Committee reaches a compromise, they prepare a report detailing the changes they have proposed and send the new bill to both houses for a vote. Both the House and Senate must approve the report of the Conference Committee or the bill will be sent back to the Committee for further work. Once the bill is approved by each house, it is sent to the President for his signature. President Obama has already declared that he will sign a credit card reform bill.

While the Fed, House and Senate are addressing many of the same issues, here are some areas where the Senate version is stronger with more legislative regulations:

* Requires interest rate increases to apply only to future credit card debt.

* Prohibits late fees if the card issuer delayed crediting the payment.

* Prohibits the charging of interest on credit card transaction fees, such as late fees and over-limit fees.

* Prevents issuers from multiple over-limit fees for exceeding a card limit, and allows such fees only when a cardholder's action, rather than a fee or finance charge, causes the limit to be exceeded.

* Strengthens credit card industry regulation and supervision. Provides each federal financial regulator with the authority to prescribe regulations governing unfair or deceptive practices by banks and savings and loan institutions.

* Requires issuers to offer consumers the option of operating under a fixed credit limit.

* Requires issuers to lower penalty rates that have been imposed on a cardholder after six months if the cardholder commits no further violations.

* Requires issuers to provide individual consumer account information and to disclose the period of time and total interest it will take to pay off the card balance if only minimum monthly payments are made.

* Requires issuers soliciting to persons under the age of 21 to obtain an application that contains: the signature of a parent, guardian, or other individual who will take responsibility for the debt; proof that the applicant has an independent means of repaying any credit extended; or proof that the applicant has completed a certified financial literacy course.

Fed Report Shows Banks Tightening Lending Standards on Credit Cards

On Monday, the Federal Reserve released its quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices.

The survey shows that banks have maintained their tight grip on credit card loans and are reducing credit limits. It also shows that more lenders continue to raise the minimum required credit scores on credit card accounts, making it more difficult for some consumers to be approved for credit cards.

Here are some of the results of the survey:

* Nearly 60 percent of survey respondents indicated that they had tightened lending standards on credit card loans, about the same proportion as in the January survey.

* Approximately 55% of the respondents reported having raised minimum required scores on credit card accounts over the previous three months. The report says this is a somewhat higher proportion than in the January survey.

* Approximately 65% indicated that they had lowered credit limits to either new or existing credit card customers, a very large increase over the 45% reported in the January survey.

"These numbers show that you will find it very difficult to be approved for a new credit card if you do not have good or excellent credit. We don't see this changing anytime soon. Despite the political rhetoric and bills passing in Congress, we probably won't see credit card reform until sometime in 2010. Right now, the best protection consumers have is to take care of your credit score," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "Banks
continue to raise the bar for credit scores and are becoming more selective on which customers to approve. Since the credit score is the most important factor for loan approval and interest rates, consumers must do all they can to improve their score."

Tips for building a good credit score:

* Pay your bills on time. Late payments, the most common piece of negative information appearing on credit reports, are often responsible for significant drops in credit scores. Make at least the minimum payments on your credit cards and loans on time each month.

* Keep your accounts open, especially your oldest accounts because longevity with these long-standing accounts looks good on a credit report. "We used to recommend closing some of your newer accounts that you no longer use. However, actions by issuers have changed that. Since they are reducing limits and closing accounts, keeping the accounts you have, even if you never use them, can actually help your
debt-to-credit-limit ratio, which helps your credit score," says Hardekopf. "If you have a rarely used credit card, occasionally put a charge on it and pay it off immediately."

* Keep your debt-to-credit-limit ratio under 30%.

* Use your credit card at least once each month and pay it off in its entirety as soon as the bill arrives.

* Keep your bank record clean; an insufficient funds problem with your bank could show up on your credit report.

* If you have a good credit card, keep it. Maintaining a card and building a good payment history helps build your credit score. Creditors want you to have a long, dependable credit history.

* If you are just getting started, don't open several new accounts all at once because that will lower your average account age. Opening too many accounts during a short period looks risky even for the best borrower.

* Having a variety of loans that you pay on time each month, such as a mortgage or car loan, helps build your score. Get into the habit of paying all bills, including mortgage and utilities, before the due date.

* Pay off your balances; don't continue to transfer them to another card or loan. If you are having trouble paying your bills, contact your creditors to work out a payment plan or see a legitimate credit counselor. This will help you manage your credit and improve your score over time. A good place to start is the National Foundation for Credit Counseling at http://www.nfcc.org.

* If you have past due accounts, pay off the one that is closest to being current first.