10 things credit card issuers don't say

1. "We're waiting for you to screw up."

Despite new credit card rules, there are still many factors that can cause a credit-card issuer to raise your interest rate. Among them is when a lender reviews your credit history and decides to change the terms of your credit card after it's informed that you missed a payment with another credit issuer.

The Credit Card Accountability Responsibility and Disclosure Act does offer consumers some protection here, though. Should your credit-card issuer change the terms on your credit card, in most cases it can do so only for purchases going forward, not the balance you're already carrying.


Credit card horror stories
The credit-card industry claims that what it's doing is managing risk. "Prior to these reforms, most of the larger issuers would review risk profiles on average every 90 days," says Peter Garuccio, a spokesman for the American Bankers Association, a trade group. He says many of them build their own risk models, basing them on reports from the credit bureaus. He anticipates that this practice will continue. "It's a matter of sound underwriting," Garuccio says.

2. "We'll give you advance notice -- but your options are limited."

With the Credit CARD Act, issuers need to give you at least 45 days' advance notice before making a significant change to your account.

"The key is the flexibility with which they can apply any change to a customer's profile," says Garuccio, explaining that the customer has the right now to reject any new terms a credit card issuer plans to impose. If a customer rejects the changes, the issuer can either maintain the account under the existing terms until its expiration date or close the account. Either way, the customer is responsible for paying off any balance under the original terms.

The options for consumers are limited. Shutting down a credit card will lower a credit score, while the alternative often means having a card with a higher interest rate.

3. "When it comes to identity theft, you're at risk."

Credit cards are a common gateway for identity theft, and it's almost impossible for consumers to be certain that their identifying information won't be compromised, says Murray Jennex, an associate professor of information security and information systems at San Diego State University. But there are some basic steps you can take to minimize the chances.

Before you give your credit card information to a Web site, make sure it's secure; look for a URL beginning with "https://" and for the image of a padlock by the Web address. Don't store personal information online, and update your computer's antivirus software each year.

Also, don't respond to e-mails requesting your personal information and don't click on links included in them. "Your bank won't contact you in an e-mail asking for this," says Margot Mohsberg, an ABA spokeswoman. And if there's a link in the e-mail, "just by clicking on it, fraudsters can download 'malware' that would allow them to coast with you when you go into your bank account." If you're unsure whether the source is actually your lender, call and ask.

Consumers who fear their credit card information has been compromised should immediately notify the issuer and, if possible, file a police report. In most cases, credit card issuers will work with you; while you will likely be liable for the first $50 of unauthorized charges, the issuer typically covers the rest of the losses. Mohsberg says that credit card issuers are increasingly waiving the $50 payment. They've "found it's not worth it to charge customers that amount of money; it's much better for the company to completely reimburse that fee and to ensure consumer trust."

4. "We haven't forgotten about your kids."

Many of the new credit card rules are geared toward protecting those under 21 years old. But don't think the rules will keep credit card issuers at a distance.

For example, issuers no longer can give free stuff to college students in exchange for filling out credit card applications on college campuses or at college-sponsored events. But issuers can still give out those freebies as long as they don't require students to sign up for a credit card to get them. Representatives of Citigroup and Bank of America say their banks aren't doing this.

5. "Our rewards can throw you off track."

In the credit card marketplace, rewards are a way for issuers to target niche audiences -- frequent fliers, for instance. Before signing up, figure out how much you'd have to spend to earn the incentives from a given card and if the card is geared toward your spending habits. And check to see if rewards on specific purchases are offered throughout the year; some credit cards rotate their rewards every few months, says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling. With rewards cards that offer cash back, find out if the amount you can earn has a ceiling. And for cards with travel rewards, inquire about blackout dates and other limits.

Consumers who are approved for these credit cards should also avoid carrying balances, because interest payments can eat into savings, cancelling out the value of the reward. "What people tend to do with rewards cards is charge everything," Cunningham says. "But if you're a person who carries a balance month to month, don't consider (such a card), because you'll be paying interest on it and probably not gaining the rewards you should."

6. "Deferred-interest plans can leave you worse off than when you started."

Stores often promote deferred-interest credit card plans with the sale of big ticket items like furniture, electronics and watches. But often these plans really are too good to be true.

Typically, such plans -- financed by a lender -- allow a consumer to purchase an item without paying interest during a promotional period, such as six or 12 months. But if the promotional period ends and the consumer hasn't paid off the balance in full, interest kicks in and the shopper is retroactively charged interest on the balance for the entire promotional period, says Chi Chi Wu, a staff attorney at the National Consumer Law Center.

Also, if a consumer is more than 60 days late with a required payment during the promotional period, the 0% interest could be replaced with retroactive interest charges. "Even if consumers understand the pitfalls, such a tactic relies on consumer optimism or failure to think of the worst," like losing a job or getting sick and being unable to make payments, says Wu.

7. "Double-cycle billing isn't entirely a thing of the past."

A big change in the Credit CARD Act is the elimination of double-cycle billing. This is a formula that computes interest charges based on the two previous billing cycles -- effectively penalizing consumers who go from paying off their balance in the first month to carrying a balance in the second.

However, if your card doesn't have a grace period -- the period in which an issuer allows a cardholder to avoid paying interest on charges by paying off the balance in full -- you still could be exposed. "The provisions against double-cycle billing apply when a credit card has a grace period, so if a credit card doesn't have (one), the rules don't apply," says Wu. For cards without a grace period, some credit card companies refund the interest if a consumer pays the balance off in full each month.

8. "We're accepted around the globe, but beware of our rates."

By now, plastic has all but replaced the traveler's check as the preferred way to make purchases abroad. But beware of the charges that accompany these transactions.

At issue is the foreign transaction fee, a charge for converting a currency into U.S. dollars. Currently, Visa and MasterCard charge a foreign transaction fee of 1% for any purchases, and most banks that issue these cards add a second fee. For example, Bank of America charges 2%; when combined with the Visa or MasterCard fee, card users end up with a fee of 3%. Foreign transaction fees are often this high, says Gerri Detweiler, a personal finance advisor at Credit.com and author of "The Ultimate Credit Handbook."

Consumers who purchase items from an online vendor based abroad are also typically charged a foreign transaction fees.

9. "Late fees are still with us."

With the Credit CARD Act, consumers should be aware of the new changes to the time their payments are due. Prior to the new rules, many banks were setting deadlines as early as 9 a.m. or as late as 2 p.m. on the payment due date. Payments are now considered on time when received by 5 p.m. on the due date. And if the due date is on a weekend or federal holiday (when payments aren't processed), the credit card issuer must consider your payment on time if it arrives on the next business day.

"This change gives you a better shot at getting your payments in on time," says Detweiler. For consumers who are late with their payments, though, issuers can still charge a late fee, which they aren't as quick to refund anymore, she says. Such fees run as high as $39 and they're not proportional to the amount owed. So a consumer who is late making a $20 payment can incur a late fee nearly twice that, she says. The Federal Reserve has a announced a proposal that includes changing the way late fees are assessed, but it remains under consideration.

10. "Go ahead and exceed your credit limit -- we like that."

With the new credit card rules, consumers have two options: Consent to be charged an over-the-limit fee or refuse to opt in and risk being denied if they try to exceed a card's limit.

You can be charged a fee of around $30 to $35 each month you're over the limit (or more if you exceed the limit with another transaction in a subsequent month), says Wu. The Fed has proposed rules to limit the amount of the "opt in" fee.

Wu says consumers have reported that credit card issuers are trying to persuade people to opt in by offering the incentive of a lower fee and implying that by opting in they'll have extra protection in case they need to use their credit card. "It's a way for credit card companies to make more money off fees, and we recommend not opting in because it will more likely hurt you," she says.

Garuccio of the ABA says he hasn't heard of credit card issuers doing this.

This article was updated and adapted from the book "1,001 Things They Won't Tell You: An Insider's Guide to Spending, Saving, and Living Wisely," by Jonathan Dahl and the editors of SmartMoney with additional reporting by Nancy Nall Deminger.

Updated March 23, 2010

5 tax myths that can cost you money

By Jeff Schnepper

MSN Money

Santa Claus. The tooth fairy. Babe Ruth pointing to where he would hit a home run in the 1932 World Series. Someone who knocks on your door, smiles and announces, "I'm from the government, and I'm here to help you."

Our culture is full of myths. And our tax system is full of myths, half-truths and untruths that can cost you big bucks if you don't understand the rules.

So let's have a look at some of the bigger myths about taxes. If I've done my job properly, I'll show you how they can trap you and how you can save money by separating myth from reality. And if you find you need more help, check this site for more information, or consult a tax professional.

Myth 1: Students are exempt

Lots of people believe there's an exemption for students that excludes them from tax. Wrong, scholarship breath!

There's no special tax status afforded to students. They are subject to tax on all their income, regardless of how many credits they're taking or whether or not they're fully matriculated.Students do get special tax credits, the Lifetime Learning Credit and the new American Opportunity Credit, which has replaced the Hope Credit for 2009 and 2010. In addition, distributions from a Section 529 Plan are tax-free. But their income is subject to tax, just like everyone else's.

Many students who work over the summer check the box "exempt" on their W-4's. If they had no taxable income last year and don't expect to have any this year, that's OK. But let's say a student earned more than $5,450 in 2008 or $5,700 in 2009. And let's say she is claimed as a dependent on her parents' return. She will owe tax and penalties if she owes more than $1,000 or actually fails to file. Don't get caught in this trap.

Myth 2: My child is working, so I can't claim him as my dependent

Again, pure myth. As long as you provide more than half that child's support (and meet other qualifications such as citizenship and relationship), the child qualifies as your dependent, and you can deduct, for example, all the medical costs you paid for that child.

Remember, support is what's spent, not what's earned. So, let's say your child makes millions as a teenage fashion model. If she banks all the cash and you actually shell out the dough to support her profession, you've provided 100% of that child's support.

Video: The most common tax mistakes

You can also qualify for a personal exemption for that child if the child doesn't earn more than the value of that exemption -- $3,650 for 2009. This income test doesn't apply to whether the child qualifies as your dependent, nor does it apply if the child is under age 19 or is a full-time student under age 24.

A child qualifies as a full-time student if, during each of any five months of the calendar year, he or she (a) is in full-time attendance at an educational institution or (b) is taking a full-time course of instructional or farm training.

Continued: Selling homes tax-free

Myth 3: I'm over age 55, so I can sell my house tax-free

Wrong again, graybeard! You're thinking old law.

It used to be that if you were older than 55, you could exclude as much as $125,000 in gains from taxes, but only once. Now the rules are even better.

Under current law, age no longer matters. If the property sold was your principal residence for at least two out of the last five years, you can exclude from tax as much as $250,000 in gain (and $500,000 in gain on a joint return).

Your age is irrelevant, and you can take the gain exclusion every two years if you qualify. By the same token, if your property appreciates by $250,000 to $500,000 every two years, give me a call. I could use your help in finding a new house.

Myth 4: I can deduct my sales taxes

This is a funny one. You haven't been able to deduct any sales taxes for purchases made for personal use since 1986.

But the deduction has made a comeback of sorts. Starting in 2004 and renewed through 2009, you can deduct your sales taxes from your federal income taxes or your state income taxes, but not both. If you live in one of seven states -- Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming -- you just got a nice deduction. You don't pay income taxes in those states. Don't get too chummy with this break if you live in one of those states, though. Congress will be asked to renew it before the end of this year. It probably will be renewed, but that action could get hung up in political fights.

Now, what about sales taxes paid on purchases made in the course of business? Easy. If you pay sales tax on an item bought for business and if the item itself would be allowed as a business deduction, then the sales tax on that item would be allowed as well -- no matter what.

Myth 5: I'm married, so I have to file a joint return

Again, not true. If you're married, you can always file "Married Filing Separately." That normally results in you having to pay more in taxes. But in some situations, it can be to your advantage.

For example, if one spouse has substantial medical or miscellaneous deductions, those deductions are subject to the 7.5% and 2% floors, respectively. That is, only medical expenses over 7.5% of adjusted gross income and miscellaneous deductions over 2% of adjusted gross income are deductible. If I had $10,000 in income and my spouse had $90,000 in income, the first $7,500 in medical expenses and the first $2,000 in miscellaneous expenses aren't allowed.

But if I filed as "Married Filing Separately," the disallowance would only apply to the first $750 in medical expenses and the first $200 in miscellaneous itemized expenses. The potential availability of $8,550 ($7,500 plus $2,000, less the sum of $750 and $200) in additional deductions could offset the bracket and other limitations of filing separately.

Video: The most common tax mistakes

Try it both ways, and see which gives you the lower total tax. You can change your filing status annually.

I should add a caveat on this filing myth. If you're married, you normally can't file as single or head of household. Let's say, though, that you're married but separated, and you have a child. There's a special rule that will let you file as a head of household.

You can qualify as an "abandoned spouse" if your spouse didn't live with you for the last six months of the year and you have a child living with you who qualifies as your dependent. If so, you can file as head of household rather than jointly or married filing separately.

Run the numbers and see which produces the lowest tax bill.

Our tax code is complicated and changes with painful regularity. Many of the old rules are poorly remembered and distorted into myths. Don't get caught in the trap of using the wrong rules. That can cost you big!

Updated Dec. 3, 2009

http://articles.moneycentral.msn.com/Taxes/AvoidAnAudit/5taxMythsThatCanCostYouMoney.aspx?page=all

Social Security crunch coming fast (msn)

http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/social-security-crunch-coming-fast.aspx?page=all

The debate over health care has captured everyone's attention, but it appears the next big government program that needs to be addressed will be Social Security. That's the focus of the July 30 article "The next great bailout: Social Security" by Allan Sloan, Fortune's senior editor at large. Those who've been paying attention have long known there is no money in the Social Security Trust Fund -- it's all been spent. Thus, former Vice President Al Gore's famous assessment that Social Security receipts should be placed in a "lockbox" was actually correct.

Given that so few people really understand the Ponzi nature of the current Social Security financing scheme -- created in 1983 by a commission chaired by none other than the world's greatest serial blower of bubbles, Alan Greenspan -- I decided to reprise Sloan's article. (The Social Security problem is especially important because it likely will put additional pressure on the dollar and on bonds, and exacerbate the funding crisis down the road.)

The story begins: "In Washington these days, the only topics of discussion seem to be how many trillions to throw at health care and the recession, and whom on Wall Street to pillory next. But watch out. Lurking just below the surface is a bailout candidate that may soon emerge like the great white shark in 'Jaws': Social Security.

"Perhaps as early as this year, Social Security, at $680 billion the nation's biggest social program, will be transformed from an operation that's helped finance the rest of the government for 25 years into a cash drain that will need money from the Treasury. In other words, a bailout."

Could Social Security's number be up?
As I've already noted, there is no money in the Social Security Trust Fund -- just IOUs from the government to itself. What is liable to spark debate and grab headlines is that instead of producing its biggest surplus ever in 2009-10, the trust fund could start running deficits in the next year, primarily because the weak economy is generating less tax revenue.

That's years earlier than expected. Social Security wasn't supposed to go into the red until around 2015.

Past projections were for a cash-flow surplus of about $87 billion this year and $88 billion next year. But new projections show those figures may drop to around $18 billion or $19 billion, which could easily go negative. And once the red ink starts spilling (a temporary bounce into the black in the next couple of years notwithstanding), that deficit will grow for the next 20 or so years unless something is done to halt it.

In order to better illuminate what has transpired and how misleading government accounting is, I would like to use the example from Sloan's article to explain what has happened: "The cash that Social Security has collected from my wife and me and our employers isn't sitting at Social Security. It's gone. Some went to pay benefits, some to fund the rest of the government. Since 1983, when it suffered a cash crisis, Social Security has been collecting more in taxes each year than it has paid out in benefits. It has used the excess to buy the Treasury securities that go into the trust fund, reducing the Treasury's need to raise money from investors."

In other words, the government spent it. Throughout all those years in the 1980s and 1990s, when folks worried about the budget deficit, it was reported to be lower than it would have been had the Social Security Trust Fund's money not been going into government coffers, thereby reducing the size of the deficit. Also untenable is the projected worker-to-retiree ratio, which will jump from 30 Social Security recipients per 100 workers in 1990 to 46 per 100 in the next 20 years.

The next (orthopedic) shoe to drop?
And Social Security funding isn't the only time bomb. Sloan notes that "when it comes to problems, Medicare makes Social Security look like a walk in the park, even though at about $510 billion this year, it's far smaller. Not only are Medicare's financial woes much larger than Social Security's, but they're also much more complicated. . . . Medicare is more convoluted, because the health-care system is much more complex than Social Security. Which, when you think about it, involves only money."

(I've discussed some of the health care proposals, by the way, in my daily column on my Web site; a subscription is required.)

Summing up, Sloan cautions: "Social Security may not make it onto the agenda until next year. But it's going to show up sooner or later, and probably sooner, because the numbers are so bad that something's got to be done."

All of these future funding issues will come under scrutiny in the next couple of years as the budget deficit explodes and worries about how it will all be financed take center stage.

A Fed follow-up
Turning to last week's main event, the Federal Reserve's Open Market Committee meeting, here's what I wrote ahead of the release: "There is just too much pressure on the Fed (not the least of which is Bernanke's view of the 1930s) for it to do anything that even remotely resembles tightening."

The Fed did not contradict me, as it chose to continue pursuing the policies it had previously articulated. That must have put a smile on the face of Paul McCulley of Pimco, who recently stated in an interview on Bubblevision that he wanted the Fed to avoid raising interest rates too soon and that the economy needed to see more inflation.

That, ladies and gentlemen, coming from the country's largest holder of bonds. In the old days, bondholders were thought to be inflation vigilantes. But as we can see from McCulley's statements, they are now really just liquidity hogs.

Commodities primed for higher prices?
As for the ramifications of all the money printing the feds are doing and the recent growth spurt in China, it's worth passing along the conclusions reached by "Government Sachs" in a report headlined "Commodities in the Crosshairs" (not available online to the public). That report described the moves we've seen so far this year in commodity prices as "just the beginning" of a new bull market that "ultimately would likely be even more extreme" than what we saw in prior commodity rallies.

Goldman Sachs (GS, news, msgs) noted: "The reality is that the commodity problem is one of supply shortage due to years of under-investment. . . . This chronic problem has been exacerbated during the financial crisis by tight credit conditions and large price declines, which impact producers."

Goldman says that when the global economy recovers, we're likely to see severe price constraints and some wild action, just as we did in mid-2008.

I pass that along as food for thought, and it jibes with the view of a friend of mine that I find intriguing: that as crazy as commodity prices seemed to be last year, they could get even crazier, just as tech stocks' wild ride from 1995 to 1998 paled in comparison to what occurred in 1999-2000. I'm not saying that's going to happen, but given the amount of money printing that has gone on (and will go on), anything is possible.

Housekeeping
I was interviewed last week by Eric King (again) of King World News. It was another excellent, wide-ranging conversation, in my opinion. Click here to watch it and decide for yourself.

At the time of publication, Bill Fleckenstein did not own or control shares of any company mentioned in this column.