"If a debt management plan is needed, regaining control of their finances should be the consumer's top priority-not maintaining the FICO score," Watts says. "Opening a credit card almost always lowers one's FICO score at least slightly. That's because adding a new credit obligation makes it statistically more likely the person will become delinquent with a creditor in the near future. For most people, their FICO score will recover over the next several months."
When seeking a new card or cards with better terms, your client might try credit unions and savings institutions, which have less credit card business. Besides being more willing to lend, these institutions may offer better terms than large bank issuers.
Does a client need a credit line increase? Ulzheimer advises against calling the creditor blindly seeking a higher limit. If the lender has to order a credit report, the credit score might be dinged in the process and the line increase may or may not be granted. Ulzheimer says it's better for your client to ask the creditor: "How high can I go from where I'm at without you pulling a credit report?" and then settle for that amount.
If your client must negotiate debt, consider that an interest rate reduction won't be reported to the credit bureaus or factored into a credit score. A debt management plan is noted on the credit report, which may be examined by creditors, but is not considered in the FICO score.
Upcoming Rules
Here are the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 provisions, slated to take effect February 22, 2010:
The card's annual percentage rate can't be raised on existing balances for one year after the account is opened, with certain exceptions.
After the first year, the higher rate is limited to new transactions.
Teaser rates must be disclosed clearly, and can't rise for at least six months.
For cards with multiple interest rates, any payments over the minimum monthly payment must be applied first to the highest-rate balances.
Double-cycle billing, which factors interest charges over both current and previous billing periods, is prohibited.
Disclosures before and after the account is opened must be improved and the cost of credit more clearly detailed.
The act requires standard credit card agreements to be posted online.
It prohibits the switching of monthly due dates for credit cards.
It prohibits fees for exceeding the credit limit-unless the cardholder agrees in advance.
It generally prohibits issuing a card to consumers younger than 21 unless they submit a written application that includes the signature of a co-signer over 21.
It prohibits gift cards and similar types of prepaid cards from expiring within five years from the date they were activated-unless that expiration date is clearly disclosed. Inactivity fees are permitted only in certain circumstances.