Money Blue Book

Borrow Money Or Invest In Interest Earning P2P Loans With Lending Club

With the lowering of interest rates by the Federal Reserve in response to the current economic climate to the lowest levels we have seen in years, the interest rates offered by high yield savings accounts and high interest certificate of deposits are now simply not as attractive as they once were, only a few years ago. With the stock market still suffering from unstable price swings and massive volatility across all sectors, it makes present day sense to look towards alternative investment ideas to make some money.

While I have been a quiet Lending Club member for a few years now since the online company opens its doors to loan investors, I haven’t felt the need to review the program until now. Until recently, the top high yield savings account and best CD rates at most banking institutions offered a reliably consistent rate of return on deposits. But with market turmoil ever present and the specter of worsening bank failures looming, I’ve begun to turn my attention to other investment possibilities in an attempt to diversify my portfolio risk and seek a higher rate of return. The ability to earn a reasonably competitive interest income with the added ability to diversify risk via peer to peer lending networks like Lending Club and Prosper is becoming more and more attractive. At the very least, P2P lending programs offer potential profit seeking investors like myself the ability to play the role of the banker and help people out with their loan needs, while at the same time earning interest income that’s higher than what’s currently available in a regular savings account or bank CD.

What Is Lending Club and What’s P2P Lending and Borrowing All About?

Lending Club is a person to person, also known as a peer-to-peer, lending website that matches ordinary borrowers with ordinary local lenders (who are ordinary people themselves) through a pairing system that combines social networking, a computerized search algorithm, and manual credit worthiness checks. Essentially, Lending Club is a way to offer low interest loan rates to borrowers with good credit, while at the same time offering willing potential lenders like you and I the ability to earn a reasonably high interest rate of return with a relatively low risk of default on the loans that we extend to these borrowers. It’s an alternative way (that’s growing in popularity) for ordinary Americans to borrow money, get qualified, and get funded for loans expediently without the complex hassles of applying for traditional bank loans or having to deal with the riskier side of 0% balance transfer credit card offers or getting mired into the clutches of payday loans. On the whole, Lending Club offers borrowers better interest rates than can be obtained from any credit card offer, even those that purport to be low interest.

The whole business concept behind P2P lending networks like Lending Club is built on the premise that borrowers will be less likely to default to members of their own local communities. The Lending Club online system offers anonymous borrowers and local micro loan lenders a way to find each other and get matched up based on personal preferential demographic factors like geographic location, educational and professional background, and activity within a particular social network like Facebook (the social networking site where Lending Club had its upstart roots).

Still don’t believe Lending Club or peer to peer lending and borrowing programs are legit? Just take a look at a recent article from the Harvard Business Review, which notes the remarkable rise of peer to peer lending programs and documents the rise of such emerging programs as the next big wave of important financial innovations in the coming years, especially in light of the ongoing economic recession and the collapse of traditional lending institutions. It looks like P2P lending is here to stay, one way or another.

My Lending Club Experience – Investing In High Interest Bearing Loans

As a person who’s always up for trying out new financial products, I signed up for Lending Club when it first came out and have been using the online service ever since. So far, my Lending Club experience has been pretty positive, yielding fairly respectable returns in the process. Currently, my entire Lending Club participation has only been that of a lender and I have yet to participate as a borrower. However, while I can’t comment on Lending Club through my own personal experiences as a borrower, I have had numerous extended online conversations with actual people who have used the Lending Club service for their borrowing needs, primarily to help pay down existing high interest debt. Most of the Lending Club borrowers I’ve come into contact with have been pretty receptive to the user-friendliness of the Lending Club online platform and pleased with the convenient access to reasonably priced loans that the website affords, particularly when compared to last ditch lending alternatives like car title loans or payday cash advances.

One of the reasons why I slightly prefer Lending Club over other peer to peer lending networks – is its non-eBay auction-like nature. Having to engage in a convoluted bidding process for loan offers or loan investment prospects would inject too much complexity into an online loan matching process that’s trying to cater to the ordinary masses. Fortunately for investors in particular, Lending Club offers its loans on a take it or leave it store front basis. If you find a loan and the credit characteristics and interest rate of return strikes your fancy, you can buy it on the spot, or pass.

As primarily an experimental investor and cautious lender, I have mostly sought out high quality, lower risk of default type loans. As a relatively risk adverse lender with an infrequent appetite for riskier loans, I am not to keen on the prospect of any of my loan investments ever defaulting. However, at the same time, I understand that it’s a trade off – safer loans generally yield much lower interest rates of return, while riskier loans almost always yield much higher rates of return to compensate for the higher risk of default and nonpayment. The vast majority of my Lending Club loans as a lender have been A-grade, personally-chosen loan investments. Thus far, I have stayed away from using Lending Club’s computerized LendingMatch program to pair me with desired loans. I guess I have confidence in my own ability and prefer to retain control, rather than let some computer software do the leg work for me.

Currently, I have a little more than $800 invested into numerous micro loans with local borrowers. I’m always on the look out for high quality, attractive loan prospects but unfortunately, they are not always available. When they do become available, I try to snap them up quickly. These A-grade Lending Club loans have become quite a set of high yielding cash cows for me. Thus far, I’ve been very lucky and relatively fortunate as none of the Lending Club loans that I’ve extended have been significantly late or have entered default. Intriguingly, my Lending Club loans have earned me a steady interest rate of almost 8%, which is 2-3 times higher than what I earn with my best CD rates, best high yield savings, and even best money market accounts. As Lending Club continues to grow in popularity, its borrower base will inevitably grow larger in size, and the volume of attractive loan investments are bound to increase. If my default-free track record holds, I may decide to dabble in slightly riskier Lending Club loans in the near future to see if I can snag a higher rate of return but still maintain my default-free streak. Stay tuned!

For those wondering about the prospect of income taxes levied on the earnings off of Lending Club loans – yes, you are personally responsible for paying ordinary income taxes on all interest income that your Lending Club investing activities generate (you are issued a handy 1099 form at tax time).

Setting Up A New Lending Club Account Is Free and Quick

Opening an account with Lending Club is easy and efficient, and as expedient as opening a new online bank account. To open an account and start lending money through Lending Club, you simply submit your personal information, bank name and bank transfer account numbers, along with some optional background information. Thereafter, the account registration process wraps up with the obligatory bank test deposits to verify true bank account ownership

Opening a new Lending Club account for borrowing purposes on the other hand entails a stricter registration process that necessitates that the applicant provide a Social Security Number and other identifying information for a full credit report and  FICO credit score background check (try looking up your own free FICO credit score beforehand). Though Lending Club imposes a rather strict set of prime standards for borrowers, this attention to credit quality over mere quantity ultimately ensures a better experience and loan exchange for both lenders and borrowers in the long run.

Borrowing Money and Getting A Loan From Lending Club

For prospective qualified borrowers, Lending Club offers an attractive way to obtain a loan at comparatively affordable rates – offers that beat out most personal bank loans and credit card interest rates. However, do be forewarned that Lending Club’s qualification standards for borrowers are high grade and rather stringent. Lending Club pretty much only wants prime, or near prime borrowers with good to excellent credit. Those with very bad or subprime credit are probably out of luck when it comes to Lending Club, and will probably have to resort to less than advisable, bottom tier loan alternatives such as bad credit credit cards or payday loan borrowing.

The process of applying for a Lending Club loan is surprisingly straightforward. Approved Lending Club borrowers get a 3 year unsecured fixed interest rate loan, with repayment obligations managed by Lending Club. There is no haggling or negotiations to contend with as you simply submit an application for a loan, and based on your FICO credit score, credit report, and background check, you are offered a fixed interest rate loan to accept or reject. At Lending Club, you can borrow anywhere from $1,000 to $25,000 as an unsecured loan, to be used for just about any purpose, including but not limited to, high interest credit card repayment or small business financing.

To get started as a Lending Club borrower, simply open a new Lending Club account as a borrower, and submit a loan application. At the time of registration, Lending Club will obtain a credit report and FICO credit score check of the borrower in order to rate and assign a credit risk grade (ranging from A thru G) and determine the appropriate interest rate the borrower can solicit on the site. Once approved, the borrower is free to list his or her loan request on Lending Club for prospective lenders to review and examine. During the credit risk scoring process, particular attention is paid to the borrower’s credit rating history, the amount of the desired loan balance, and the borrower’s current debt to income ratio.

Lending Club’s standards for borrowers are high and the program only currently accepts members who can meet the followings status and credit history requirements:

• Must be a U.S. resident.
• Must have a FICO credit score of at least 660, with a debt to income ratio (excluding mortgage) below 25%.
• Credit history report must indicate that you are a responsible borrower.
• Have at least 1 year of credit history, showing no current delinquencies, recent bankruptcies (7 years), open tax liens, charge-offs or collection accounts in the past 12 months.
• Must have no more than 10 inquiries on your credit report in the last 6 months.
• Must have a revolving credit utilization of less than 100%.
• Must have more than 3 accounts in your credit report, of which more than 2 are currently open.

For their middle man loan matching services, LendingClub charges a processing fee (ranging from 0.75% to 3.50% based on Lending Club’s assessed credit risk grade), which is included in the annual percentage rate (APR) and is subtracted from the loan proceeds prior to disbursement to the borrower.

Lending Money and Earning A Comparatively High Interest Rate On Lending Club Loans

To qualify as a Lending Club loan investor, you must meet and satisfy certain preliminary state and financial suitability conditions – translation: you must belong to an approved state and/or pass certain income and net worth requirements. With exemptions for certain states such as California, you generally must have an annual gross income of $70,000 or a networth (including your home) of at least $250,000.

As for the state residency requirement, you must be a resident of one of the following states below. Your state not on the list? Fear not – Lending Club has submitted proposals to all states and new ones are being added as they are approved.

• California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Minnesota, Mississippi, Montana, New Hampshire, Nevada,New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.

As a prospective Lending Club loan investor, you can start with as little or as much money as you’d like. Once you have opened a Lending  Club account and transferred in the appropriate funds for lending purposes, you will be asked to indicate your level of risk tolerance (credit risk ratings that range from A – G) and prompted to search for loans either manually, or get matched up with prospective loans with the aid of Lending Club’s computer algorithm based LendingMatch software. The Lending Match program generates a suggested loan portfolio based on your level of risk desired and your connections with the borrowers in your account. As mentioned above, I have chosen to stick with manual loan evaluations (with great success thus far) as I feel more comfortable with my own ability to assess loan prospects than entrust that duty to a random computer program.

Those who are new to peer to peer lending may wish to start with small incremental investments and tinker a bit with the seesaw effect of risk and interest rate of return, before diving into larger denominational investments. Those who get the hang of it may actually find the loan investment hunting and evaluation process rather interesting and personally rewarding (remember, you are potentially helping out someone who is in desperate need of a loan to get his or her life going again).

There are two loan components that will be of paramount importance to prospective Lending Club loan investors – the interest rate of return offered, and the rate of default risk. The current range of interest rates that Lending Club lenders and investors can potentially earn varies from 7.37% to 20.11% (depending on how risky the loan is in terms of risk of default, as determined by the automatically assigned Lending Club loan grade.

The worst case scenario for any Lending Club loan lender or investor is the dreaded loan default, which occurs when the borrower refuses or is unable to fulfill the obligations of his or her loan principle and interest rate repayment. Lending Club’s website indicates that the current overall default rate is less than 3%. However, and probably due to my personal strict and stingy loan evaluation tactics, I have yet to experience a loan default on my Lending Club loan investments. On the downside, I probably earn a much lower interest rate of return on my loan investments than I would be able to garner if I opted to invest in slightly more riskier B and C grade loans.

As a Lending Club loan investor, one of the general statistics and trends I track closely is the company’s continuously generated performance stats for all loans. As you can see from the current Lending Club loan stats, Lending Club does a pretty commendable and transparent job of providing updated statistics relating to all late and defaulted loans for all members to review and assess. As the updated loan default statistics demonstrate, rather surprisingly perhaps, the vast majority of loans (particularly the A graded ones) are current and not late or in default. The B and C loans are also not as horrendous in terms of late payments or defaults as one may have assumed. Those who are into mathematics and willing to play the odds of probability may find it worth the slight risk of partial loan default to capture the higher interest rate of return on their investments. As always, smart Lending Club investors ought to spread their loan investments around to minimize the chances that one unexpected loan default will torpedo their entire Lending Club portfolio.

Lending Club Loans Are Now More Liquid Than Ever And Can Be Traded Like Securities

As Lending Club has completed the SEC registration process, all Lending Club notes and loans issued on or after October 14, 2008 can now be purchased and sold as securities, as they now represent Lending Club security investments rather than direct loan obligations of the underlying Lending Club borrower.

Now instead of waiting for the 3 year locked in loan commitment notes to reach maturity, they can now be traded on the secondary market through Lending Club’s trading platform agreement with FOLIOfn Investments Inc, greatly enhancing their liquidity and versatility as investments. While only loans and notes issued after Lending Club’s October 14, 2008 SEC registration date may be traded, in due time, it is reasonable to expect the number of trade-able notes to balloon in the coming future.

For those concerned about the safety and security of their invested loan funds as a lender in the event of a Lending Club failure or bankruptcy, Lending Club actually addresses this issue on their webpage. According to Lending Club, in the event the company, for whatever reason goes out of business or is no longer able to continue servicing loans, in order to ensure continuity, Lending Club has a backup servicing and successor agreement with Portfolio Financial Servicing Corporation (www.pfsc.com) for PFSC to take over loan servicing.

While the Lending Club business entity itself is still burning through venture capital cash like it’s going out of style, particularly as it focuses on promoting the growth and adoption of peer to peer lending, I personally think the concept of P2P social network lending is here to stay. Whether companies like Prosper or Lending Club will be around forever, or whether they ultimately will be bought out by more traditional banks eager for a piece of the peer lending pie, remains to be seen.

Note: The New Credit Card Rules Do Not Go Into Effect Until July 1, 2010

These days, it seems like whenever there’s a good thing going or some attractive opportunity for pecuniary gain or profit, the masses ultimately swarm the offer like locusts until they’ve completely ruined it for everyone else. This is how I feel about credit cards and the credit card industry. Credit card rewards and interest free balance transfers were once the easiest ways to make some free money on the side, but now that the Feds have enacted the new credit card law, all of that’s about to change.

As a big proponent of credit card use and an eager partaker of reward credit cards, balance transfer deals, and credit card arbitrage, I’ve been taking advantage of all that they’ve had to offer for some time now. Over many years, I’ve applied for and been approved for more than 25 credit cards. I’ve owned, carried, and used most of the major credit cards from Capital One, Bank of America, Citibank, Advanta, Discover Card, to American Express. Throughout college and into adult hood, I’ve used my squadron of credit cards to earn more than $10,000 worth of cash back rewards, redeemed point rewards for countless free gift cards, and accrued more than $15,000 of interest profit from balance transfer arbitrage. At its peak, I was carrying more than $100,000 in total credit card balances at one time, taking advantage of 0% APR credit card funds deposited into a high yield savings account to earn free interest money.

However, despite my aggressive credit card usage history, I’ve never paid a single cent in credit card interest, forked over a single late fee, or suffered a major long term FICO credit score hit. Currently, my FICO credit score stands at a very healthy 802, thanks to my solid credit history and lack of any late payments. In fact, I don’t even know what any of my credit card interest rates are as I’ve never had to deal with them before. I have always paid my monthly card balances in full and on time. As a naturally frugal saver, I’ve always lived within my means and eschewed unnecessary material goods . Since I started using credit cards at the age of 18 and made paying off my regular credit card balances a priority in my life, I’ve never had to pay anything to the credit card companies, and instead have managed to profit immensely from them.

Because of all this, I had mixed feelings when the federal government finally issued the new credit card rules and announced its plan to crack down on allegations of unfair and deceptive credit card practices by the credit card industry. While the new rules have the potential to benefit American consumers and essentially protect them from their own spending stupidity and consumerism negligence, the new changes are likely to rain on my parade and spell the end to the credit card party I’ve been enjoying for the past few years. However, despite my personal misgivings and the potential loss of a key cog of my personal finance arsenal, I think the new credit card rules and regulations were probably long overdue. Like the mortgage industry, the credit card sector has been in serious need of a good shakeup for some time. Lax federal oversight and governmental complacency has allowed the industry to get a bit too lax on basic fairness standards, permitting abusive and egregious predatory credit card practices to go unchecked.

Despite the Current Recession, The New Credit Card Law Don’t Go Into Effect Until Summer Of 2010

As evidenced by the huge credit bubble that finally popped recently, America has had a love affair with debt and leverage for the last two decades. This abundance of credit in all forms caused many to become drunk with highly leveraged spending power, leading many down the path of out of control shopping, and encouraging the tapping of home equity to pay off credit card balances. The credit card industry’s practice of packaging and selling credit card debt to investors and hedge funds encouraged the growth of exorbitant risk penalties, over the credit limit fees, and all sorts of balance transfer and cash advance charges. Driven by the natural pursuit of profits, the credit card issuers eagerly raked in the ever increasing interest charges and late payment fees. Eventually the subprime mortgage crisis destroyed the housing market and in turn caused a chain reaction devastation that led many credit card consumers to no longer be able to handle their credit card payments, leading to a rise in defaults and ballooning non payment scenarios.

Wallowing in their own mismanagement mess and inability to control their spending habits, consumers ultimately turned to the federal government for bailout assistance. After bombarding the Fed with over 65,000 public comments (the highest number ever received by the federal government on any one issue offered up for comments), the Fed finally responded and issued an announcement of its approval of new credit card rules to combat what regulators labeled as unfair or deceptive credit card industry practices.

In its combined action and announcement, the Office of Thrift Supervision, the National Credit Union Administration, and the Federal Reserve Board approved the new credit card rules, sending a financial tsunami through the the banking and credit card industry. From here on, it is clear that these new rules will fundamentally rewrite the way future credit cards are packaged, marketed, and priced for consumers and small businesses. Despite the significant moves, some lingering critics remain displeased at the effective date of the new rules – July 1, 2010 – and argue that consumers need the new rules now to protect them from overbearing credit practices already in place in light of the current ongoing economic recession and not wait until mid-2010 when the recession may already be over. Of course, the industry has indicated that it needs the lengthy amount of time to adapt to these newly enacted regulations.

How Will The New Credit Card Rules and Regulations Affect You and Make Your Debt Reduction Life Easier?

1) No More Interest Rate Hikes On Existing Balances – Previously, as was the routine practice by the credit card issuers in recent years, credit card interest rates could be increased and jacked up on a whim with only a short notice to the customer in one of those fine print letters that nobody ever actually reads. With the new credit card regulations, interest rate hikes will not be permitted on existing balances and rate increases will only be allowed under limited circumstances such as on future purchases, new cash advances, when a promotional or introductory rate ends, or in response to an actual late payment in violation of pre-existing card agreements. This is one of the biggest changes and one that I wholeheartedly agree with. However, as one who has always paid off his card balances on time and has never paid late fees or credit card interest charges, my advice to all is to always pay off balances on time and in full to avoid having to even worry about credit card interest rates to begin with.

2) Interest Rates Cannot Be Raised Until A Payment Is Over 30 Days Late – Under the new credit card rules, interest rates for existing balances can only be increased if there is an outstanding payment that is over 30 days late. This change eliminates the old practice of allowing credit card companies to increase or double your current APR interest simply if you run up a large balance on your cards (to force you to pay those balances off quicker than you’d like). In addition under the new rules, card lenders must give cardholders at least 45 days of advance notice in the event of interest rate changes, including rate hikes due to 30 day late payments or non payment penalties. Previously, card issuers frequently gave notice of 15 days or less.

3) No More Universal Default – Credit card companies will not longer be permitted to raise current interest rates on cardholders simply because of their payment history or track record with other unrelated creditors such as landlords, utility companies, or even with different credit card issuers. Previously, universal default essentially allowed card issuers to raise rates arbitrarily by alleging cardholders had universally defaulted on all existing loans simply with a single violation against one unrelated debt account. While many card issuers like JP Morgan Chase have already discontinued this practice, this new rule compels the rest to follow.

4) No More Double Cycle Billing – While the immensely illogical practice of two cycle or double cycle billing is predominantly already a thing of the past with most card issuers having already abandoned this ridiculous practice, the new rules will officially end the loophole. Double cycle billing is the practice of calculating interest on daily card balances from more than just the previous 30 days. This billing practice hurts consumers who pay off their balances in full in one month but not in the next, because it irrationally averages multiple month balances to generate interest fees for credit card companies. Thus cardholders end up getting hit with finance charges and interest fees from the previous billing cycle even though they have paid the bill in full.

5) Card Payments Applied To Higher Interest Rate Balances First – One of the most significant new changes (and perhaps the most important), will help compel the practice of fair allocation of payments – a great future benefit to consumers, particularly those that engage in 0% balance transfer offers, cash advances, or ATM withdrawals that carry different interest rates. Any new payment above the credit card bill minimum must automatically now apply to the part of the balance with the highest interest first. For those who have multiple balances on the same account at different interest rates, this new rule will prohibit card lenders from applying payments towards lower interest balances first before applying them to the higher interest ones. This will stop the seemingly unfair industry wide practice of applying monthly payments to the cheaper credit card balances first, while letting more expensive balances accrue interest charges at higher rates.

6) Longer Payment Grace Periods Of At Least 21 Days – Credit card issuers will be required to offer consumers  a reasonable amount of time to make payments on monthly credit card bills – at least 21 days after bills are mailed or delivered. This will help protect consumers from shrinking payment periods and give them a reasonable amount of time to make payments before late charges and interest fees are applied. Personally, I don’t even know how long my credit card grace periods are as all my cards are set up with automatic bill payment that automatic pulls money from my linked checking account to ensure I never have a late payment. I highly encourage the use of automated debit payments. It makes life easier and much more hassle free.

7) No More Unreasonable Fees For Exceeding Credit Limit Because Of Hold On Account – This addresses a basic fairness problem some cardholders have been experiencing, particularly those who travel a lot. Oftentimes when consumers make reservations for rental cars or hotel rooms, merchants will place a hold for a certain credit limit amount on credit cards as a security deposit beyond the purchase amount. While the security deposit hold is in effect, the card’s credit limit is temporarily reduced, making it more likely for the cardholder to accidentally exceed his or her credit limit in the meantime with additional charges and thereby incurring an over the limit charge or fee. The new rules do away with excessive fees in such a scenario.

8) Limitations On Bad Credit Credit Card Fees - This new credit card rule change has the potential to reign in fees for subprime credit cards big time. Subprime credit cards that target people with bad credit will no longer be allowed to charge hefty upfront fees with the new limitations. What was happening was that these subprime credit cards (high interest cards for people with low credit scores with $500 credit limits) were charging applicants with upfront fees that totaled half the credit limit and demanding fee payment in less than a year. The new regulation will severely reign in these fees, but essentially eliminating the future of credit card offers for people with bad credit altogether.

9) Disclosure Of Foreign Currency Transaction Fees – While most people are not aware, international credit card users have had to pay extra fees for credit card transactions charged overseas in foreign currency denominations. While these extra foreign currency fee charges remain perfectly legitimate, the new rules require issuers to clearly list the fees and do a better job of publicizing then to the consumer so that it doesn’t come to them as a surprise.  The disclosure of all fees charged for purchasing goods or services in a foreign currency or for using the credit card outside of the United States will need to be made on a table on credit card applications and marketing solicitations, and not just in tiny fine print when the account is initially opened.

10) Better Overall Disclosure of Credit Card Terms and Conditions -  The new federal rules will require all credit card terms to be disclosed and marketed more clearly to consumers. Card issuers will need to clearly disclose and provide notice regarding important terms and conditions like payment due dates and times, as well as how interest rates and fees will be applied to those making only minimum payments each month. Some credit card issuers have been sneakily shifting around payment due dates and mandating arbitrary payment times, such as setting cut off times at 1:00 pm or on a weekend or holiday. These rules will prohibit such unreasonable and arbitrary practices. As mentioned above, any change to existing credit card terms will need to be expressly disclosed to the consumer at last 45 days before they take effect.

Goodbye Credit Card Rewards, Introductory Teaser Rates, and 0% Balance Transfer Credit Card Offers

The new credit card regulations issued by the federal government will have a significant negative impact on the credit card industry and the future of credit card use in the United States and elsewhere as issuers re-evaluate their existing business and risk pricing models. Because the new rules will severely restrict the ability of card issuers to modify pre-existing interest rates and card terms in response to changes they perceive as credit risk factors (known as interest rate pre-pricing), it is likely all new credit card interest rates will increase as a result, along with a severe reduction in credit availability. All existing rates in place prior to the effective date of July 1, 2010 will likely go up tremendously as well (even for those with excellent credit history scores). Because the new rules do not mandate a ceiling on how much credit card issuers can actually charge for interest fees or late payments, consumers are likely going to be slapped with even higher rates from hereon. With the credit card industry, it comes down to profitability and redistribution of costs. Because of the new rule changes, credit card issuers are likely going to lose a significant amount of money (more than $10 billion a year) in lost interest payments and fees. Instead of eating up the loss and taking their lumps, they are likely going to pass them onto consumers through stiffer interest rates and less favorable credit card reward terms.

The new regulations will have several unintended but perfectly foreseeable consequences as well, including a severe reduction or complete elimination of popular low interest deals, 0% APR balance transfers, and 0% purchase credit card offers, even for those with very high credit scores. The new rules greatly favor those who are irresponsible with credit card usage and those who were never meant to carry credit cards to begin with, and will punish the prime borrowers by eliminating the vast majority of all cash back credit card offers and interest free promotions. Only time will tell whether all such offers will be eliminated en masse, or whether the industry will be able to find a way to stay profitable and continue to offer purchase and usage incentives for consumers.

Despite the fairness benefits of the new credit card rules, here are some of the ways the changes will negatively affect credit worthy consumers:

• It will be much more difficult to qualify for credit cards as credit availability in compliance with the new rules will dry up.
• Substantially higher credit card interest rates overall, even for those with excellent credit scores – primarily to compensate the card issuers for their loss of income under the new rules.
• No more 12 month zero percent balance transfer offers with no balance transfer fees – likely to be replaced with high balance tranfer fees or low interest credit card offers instead.
• There will be a signficiant scaleback of credit card rewards, cash back incentives, and frequent flyer airline mile programs for responsible credit card use. Goodbye juicy credit card promotions.
• Severe reduction or total elimination of bad credit cards, forcing those with poor credit to seek higher credit and riskier options such as payday loans or pay day cash advance.

As always with life, it seems financially responsible individuals such as myself always seem to get the shaft. It’s always the bad home mortgage borrowers, bad credit card users, or the irresponsible spenders who ultimately get bailed out by the government – taking all the credit card goodies enjoyed by the responsible credit card consumers with them.

Updated List Of The Best Secured and Unsecured Bad Credit Cards For Credit Improvement

Credit card usage is a fact of life whether you agree with its pervasiveness and all around commercial necessity or not. What started out as a way for consumers to make payments quickly and efficiently without the need to carry around cash bills and coins has morphed into a mish mash variety of credit card rewards, airline credit card miles, and balance transfer offers. Today, credit cards are used and needed for everything from airline ticket and hotel room reservations to car rental bookings. Credit card numbers are also necessary for frequent online shoppers as traditional bank accounts and debit cards don’t offer the same high degree of fraud protection that credit card issuers do. Owning at least one credit card and paying back the balance on a regular basis is also one of the easiest and most established ways to build up a credit score history, and secure your future ability to get approved for home mortgages and car loans.

Even those who are generally opposed to the use of credit cards and revolving debt on principle may find it difficult at times to survive without one. During tough economic times, independent minded people such as myself have used credit cards as emergency fund money to weather momentary periods of unemployment instead of relying on family handouts or resorting to desperate measures like high interest payday loans.

Of course, tapping into the myriad of credit card programs available in the marketplace requires that you be credit worthy and reliable as a borrower, as reflected by your existing FICO credit score, the 3 digit numerical expression most commonly used by credit card issuers and loan officers to evaluate your ability to pay back debt based on past payment history. Those with high FICO credit scores naturally have the inside fast track to the best credit card offers featuring the lowest interest rates with most lucrative cash back reward tantalizers, but even those with poor credit scores or a damaged credit history still have viable options at their disposal. While credit card issuers are significantly more leery about lending credit to those with troubled pasts, it’s not impossible for those with no credit history or those with bad credit to obtain a credit card, although it will probably cost you. Those with poor credit must recognize that the bad credit or subprime credit cards will almost certainly demand higher interest rates, annual fees, and account maintenance charges than regular consumer or business credit cards. However, the stiffer terms are necessary to compensate credit card issuers for the extra credit risk they must take on to lend money to applicants with less than perfect credit.

Secured and Prepaid Credit Cards Provide Credit Options To Those Denied For Regular No Fee, Low Interest, Unsecured Credit Cards

Those with out of control shopping obsessions, with damaged credit histories and no self control when it comes to credit card use, should stay away from applying for credit cards altogether, bad credit cards or otherwise. However, those with limited or no credit history, or those with a less than stellar past when it comes to debt, who wish to improve their credit scores may want to consider credit card programs set up to help cardholders rebuild, repair, and improve their credit for the better. Because people who have never used credit or those who need to repair a poor credit history may not qualify for regular card terms, applying for either a high interest unsecured credit card, a deposit-secured credit card, or even a prepaid credit card may be the only way to establish or re-establish credit. These so-called bad credit credit cards in all their variety provide cardholders the ability to maintain their access to the day to day consumerism benefits of credit card usage and take steps towards salvaging their financial lives and credit histories. By making regular monthly payments towards their secured or prepaid credit cards, their FICO credit scores are likely to see improvements, allowing them the opportunity in a few months time to possibly qualify for a regular consumer card with substantially more favorable terms.

Of course at the same time, it’s important to bear in mind that if you fail to meet your bad credit credit card’s monthly payment obligations, you will likely be hit with stiffer fees and interest payment demands resulting in further deterioration of your credit rating. But those with poor or damaged credit who are genuinely planning on walking the straight and narrow path to improving their credit status will benefit from the poor credit credit card programs listed below. Even in this current tough economic climate amidst the credit crisis, there are still ways to approach debt usage responsibly.

The Best Unsecured Credit Cards For People With Average Or Slightly Bad Credit In Need Of Improvement (Low Fees, But Require Average Credit):

If your credit is merely average or could use some improvement, then applying for an unsecured credit card designed for those with average credit may be your best option. These cards still provide a reasonable array of reward offers without the hassle of overly high annual fees or extraneous charges. The only downside is that compared to their excellent or good credit card comparables, the credit cards for those with average credit tend to have lower and more modest credit limits ($1,000-$3,000).

1. Capital One Classic Platinum Mastercard – Get an introductory 0% APR interest rate for purchases until May 2011, and a relatively low rate thereafter. Both the Visa and Mastercard versions only require average credit for approval. There is an annual fee of $39.
2. Capital One Platinum Master Card – Enjoy a promotional 0% interest rate offer for all card purchases until August 2011, and a very low rate thereafter. Only average credit is needed for approval. There is no annual fee.
4. Capital One Standard Platinum Credit Card – There are no balance transfer fees. There is an annual fee of $19.
5. Capital One No Hassle Cash Rewards – One of the few reward credit cards that only require average credit to apply. Earn 1% cashback on all purchases and an extra 25% annual bonus on the cash you earn during the year. Get a 0% purchase rate until June 2009. There is no annual fee.
6. Capital One No Hassle Point Rewards – Even with average credit, you can still qualify for this reward card, and earn 5 reward points per dollar spent at gas stations, grocery stores, and drug stores. The annual fee is $29.

The Best Unsecured Credit Cards For People With Poor Or Bad Credit (No Deposit Required, But Need To Pay Attention To Fees):

Those with a troubled credit history or those with a bad track record of timely credit card payments may have to resort to higher annual fee unsecured card options. Credit card issuers that cater to the bad credit or subprime market are willing to extend you credit, but will undoubtedly demand more restrictive terms and conditions in exchange for the higher risk. While the unsecured cards listed below do not demand a potentially hefty upfront deposit, many do require higher maintenance charges. Of course, despite the higher fees, the very purpose of applying for bad credit credit cards is to help you improve your credit usage history so that one day you can upgrade to a more traditional card program in 12 months or so.

1. Orchard Bank MasterCard – This card is issued by HSBC and the application process features a custom Orchard Bank subprime card finder for those with bad credit in need of assistance in rebuilding their credit. The credit cards available include those with and without fees, and vary in terms of account processing charges. Please carefully read the fine print regarding the card programs available before applying.
2. Continental Finance Gold MasterCard - With this First Bank of Delaware credit card offer, those with poor credit histories can still get a second chance at a low interest unsecured credit card. Please read the terms and conditions carefully regarding account fees. While there are upfront charges, timely payments on your part will result in automatic credit limit increases over time.
3. Tribute Gold Mastercard – This card was designed for those with low credit scores and bad credit in mind as it periodically reports to the major credit bureaus to help you rebuild your history. Please read the terms carefully regarding the various bad credit credit cards available for applicants.
4. Continental Finance Mastercard – This unsecured bad credit card provides semi annual credit limit increases with monthly reporting to the credit agencies. Despite the upfront charges and fees, the monthly credit bureau reporting feature should be able to help cardholders rebuild their credit in time. As always, please read the terms carefully before applying.
5. Horizon Gold Credit Card – This unsecured credit card offer guarantees a $500 credit limit for those already with an active debit or credit card established in their name. Designed for those with poor credit, there is no credit check for card approval. There is automatic enrollment into a free trial of the ConsumerDirect identity protection program, but you can easily cancel within 5 days for free with no obligation. Please read the fine print carefully before making your decision to proceed.

The Best Secured Credit Cards For People With Very Bad Or Damaged Credit (Security Deposit Needed):

While there is a growing trend away from secured cards and towards unsecured cards with lower credit limits and higher interest rates and fees, secured credit cards still remain a viable option for those with nowhere else to turn for credit. Unlike an unsecured card, a secured credit card requires an upfront cash collateral deposit that becomes the credit limit for your account (for example if you deposit $500, your credit limit is $500). While the deposit is held by the card issuer for security, the deposit generally earns interest and is refundable once the cardholder no longer wants to access the secured credit line. Of course, because all secured credit cards charge an annual fee, it’s important to shop around and compare.

1. Bank of America Secured Visa Card – Provided by Bank of America, an established name in the credit card business, this secured credit card offer from BoA allows you to set your own credit limit depending on your deposit amount. The annual fee is $29 but with timely payments, this card can be a stepping stone for you to rebuild or reestablish your credit.
2. New Millennium Bank Secured Platinum Visa/Mastercard – Your secured credit limit will be equal to the balance in your interest bearing collateral savings account with New Millennium Bank. Minimum deposit is $300 and the maximum deposit is $5,000 per card. Your credit history will not be checked and you are guaranteed to be approved for this secured credit card offer.
3. New Millennium Bank Secured Black Diamond Visa/Mastercard – All of the New Millenium Bank secured credit card offers on this page offer the same terms regarding secured credit limits, fees, and charges. As always, please thoroughly read the credit card terms and conditions in the tiny print before applying.
4. New Millennium Bank Secured Gold Visa/Mastercard – Like the other NMB secured credit cards, the Gold Visa and Mastercards are meant for those with very bad or damaged credit who are unable to get approved for a credit card elsewhere. While there are upfront fees and regular account charges, steady on time payments will help you repair your credit history and help you reach your goal of ultimately upgrading to a regular card with substantially lower interest rates and better terms.
5. Applied Bank Secured Visa Credit Card – Get a low fixed rate with this secured credit card for poor credit history applicants. As with all secured credit cards, your credit limit is determined by your refundable security deposit. Remember to read the terms carefully regarding fees and processing charges.
6. Applied Bank Secured Visa Gold Card – The Gold card is basically the same as the regular Applied Bank secured credit card, with the same terms and conditions regarding fees and charges.

Updated List Of The Best 0% Balance Transfer Credit Cards Below

If you stumbled onto this page through Google or one of the popular search engines, then you’re likely looking for a compilation list of the top recommended 0% APR balance transfer credit cards. Well you’ve come to the right place then.

After performing quite a bit of reading, research, and comparison of credit card deals and promotional offers, the following categorized list contains what I believe to be all of the best balance transfer credit cards available. For those of you who track this sort of development, you may have noticed that the more lucrative 12  month 0% APR no balance transfer fee offers have seemingly disappeared. Unfortunately, the balance transfer promotions out there seem to rise and fall with the credit market so as the credit market has tightened, so has the exclusive list of lucrative balance transfers. But given enough time, I’m confident the 12 month no balance transfer fee cards will return eventually. But for now at least, the following are the best deals currently available in the credit card market.

So What’s The Point Of Using A Balance Transfer Credit Card Anyway?

For those not certain as to why 0% balance transfer credit cards are so heavily sought after and used by credit card consumers, one only has to look at their versatility and multiple range of possible uses.

For those who are credit savvy and financially responsible, using a balance transfer is an excellent way to borrow interest free money for various financial planning purposes. One of the most common uses for balance transfers is to use low interest rate or 0% APR balance transfer credit cards to pay off high interest credit card debt. Another common use for balance transfers that people like myself frequently use is to incorporate them as part of an emergency fund. Properly used, they can help carry the cardholder through difficult financial times when the cardholder is temporarily cash strapped and in immediate need of a temporary infusion of interest free money to pay off short term liabilities. On the other end are balance transfer arbitrage seekers who utilize 0% balance transfer cards to make money by obtaining interest free balance transfer funds and investing the money in a high yield savings account for credit card arbitrage profit.

Whatever goal the balance transfer applicant is looking to achieve, there is likely an appropriate offer out there for him or her. Just make sure you know what is a balance transfer and educate yourself on knowing how to make a balance transfer properly without committing a risky or costly financial mistake. Remember, 0% balance transfers are powerful financial tools – meant to be used only by those who know how to handle the logistics of credit card debt management.

Unless otherwise noted, all of the credit cards listed below offer 0% balance transfers for up to 12 months at a minimum. Many of the longer 12 month balance transfer offers impose a nominal balance transfer fee of 3%, but many do cap the fee at somewhere between $50-$100 (please read all terms and conditions carefully). For those looking to transfer a high credit card balance, having to pay a one time capped balance transfer fee is usually worth the price of getting a long term interest free credit card loan. I’ve also specifically noted the 6 month 0% balance transfer offers as well, due to the fact that most of the 6 month offers provide the additional benefit of having no balance transfer fees associated with them.

Without further ado, here is my list of the Best 0% Balance Transfer Credit Cards For Up To 12-18 Months:

Citibank Credit Cards With 0% Balance Transfers

1. Citi Platinum Select Card – 18 months

Discover Credit Cards With 0% Balance Transfers

1. Discover Card Miles – 6 months
   
2. Discover More Card - 15 months
3. Discover Open Road Card - 12 months
   
4. Discover More Card Black – 12 months
   
5. Discover Motiva - 15 months
   
6. Discover Escape- 6 months
   
7. Discover Miles - 6 months
   

IberiaBank Credit Cards With 1.99% Balance Transfers

1. IberiaBank Visa Platinum Rewards Card – 6 months
2. IberiaBank Visa Gold Cash Back Rewards Card – 6 months
3. IberiaBank Visa Classic Card – 6 months

That’s everything. I will update the entire list as regularly as I can. Please let me know if there are additional balance transfer offers out there that I may be missing.