Despite persistent high unemployment and remaining uncertainties about the economy, fewer Americans fell behind on their credit card debt in July. All major credit card issuers reported decreases in both July write-offs and late payments, putting credit card losses at their lowest levels yet this year.

Capital One took the lead with one of the steepest decreases in charge-offs, reporting a decline in defaults from 9.28 percent in June to 8.13 percent in July. Capital One delinquencies also dropped, from 4.79 percent down to 4.66 percent. Credit card delinquencies are payments more than 30 days late; they are typically a reliable indicator of future credit card defaults.

JPMorgan Chase also reported the lowest charge-off rates for the year, with defaults declining to 7.95 percent from last month’s 8.38 percent. Chase delinquencies fell as well, dropping from 4.13 percent in June to 4.06 percent in July. Discover Card similarly saw a new low this year, Discover credit card write-offs declined from 8 percent to 7.28 percent in July and late payments inched down from 4.81 percent to 4.72 percent.

Bank of America, which has shouldered some of the highest credit card losses among all major issuers, saw charge-offs move down from 11.98 percent to 11.39 percent in July. The decline solidifies the sharp decrease from 12.7 percent to 11.98 percent in annualized charge-off rates reported by BofA from May to June, an almost 10 percent decline month over month. BofA also reported its lowest delinquency rates so far this year, as late payments declined from 6.16 percent on an annualized basis in June to 5.92 percent in July.

Citigroup, which has been second only to BofA in credit card losses, took the unusual step of restating its losses all the way back to January. The move followed an announcement that the card issuer had discovered a flaw in the way net losses were calculated, causing some accounts to be counted twice, artificially inflating default rates. As a result, Citi lowered the numbers for June write-offs from the 11.46 percent first reported to 10.72 percent. At the same time, the card issuer reported a steep decline in credit card write-offs for July, taking defaults from 10.72 percent in June to 9.10 percent in July, an almost 15 percent drop month over month.

The number of consumers paying their Citi cards late remained high, however. Despite a modest improvement in credit card delinquency rates, Citi had the highest late payment rates of all major card issuers. Payments past-due by 30 days or more stood at 8.32 percent in July, down from 8.58 percent in June.

American Express, which of all major card issuers has been least affected by the economic downturn, continued to report the lowest default rates of all major issuers. Amex credit card losses dropped to 5.4 percent in July, down from June’s 5.9 percent, and close to the territory which before the economic downturn was considered “normal” credit card default levels for most card issuers. American Express delinquencies inched further down as well, from 2.7 percent in June to 2.6 percent in July.

While delinquency and default rates remain high for most card issuers in comparison to pre-recession levels, analysts saw the across-the-board decline in both delinquencies and defaults as an encouraging sign that consumer finances are stabilizing, despite the continuing high unemployment levels and weak economy.

Although these times of low job security and financial caution keep consumers reining in credit card debt and day-to-day expenses, the current economic climate may have the opposite effect on education-related spending.

Credit card debt has contracted considerably over the past eighteen months, dropping 13.3 percent from its 2008 high of $958.1 billion. Consumers’ revolving credit, largely a measure of credit card debt, dropped $4.5 billion in June alone, according to the Federal Reserve’s monthly report on consumer credit.

With the almost two-year decline in credit card debt—whether due to pay-offs or charge-offs—consumers’ outstanding balances on credit cards in June fell below the amount owed on student loans. According to Mark Kantrowitz, publisher of FinAid.org and Fastweb.com, Americans now owe $829.8 billion in student loans, compared to approximately $826.5 billion in credit card debt. An estimated $300 billion of those student loans have been incurred within the last four years alone.

Why the sharp increase in student loans? The rise likely reflects both the rise in education expenses, as well as the fact that more Americans may choose to borrow money to go to school, rather than be unemployed in today’s tight economic environment,. In addition, since credit cards often carry higher interest rates, most consumers choose to pay off card debt before any type of loan, particularly student loans.

While investing in education to increase one’s income-earning capacity generally speaking is a positive, some consumer advocates express concern about the sharp rise in outstanding student loans. Unlike credit card debt, mortgage loans, and other types of borrowing, student loans are not subject to fair-lending or consumer protection practices. Student loans stay with a consumer even if he or she or he files for bankruptcy. None of the typical protections, like statues of limitations, truth-in-lending laws, or even state usury laws apply to student loans. As a result, student loans can be an intractable form of debt that will continue to weigh down borrowers for a long time. Unfortunately, a rising number of consumers are experiencing firsthand the dangers of getting saddled with student loans that they will be spending decades of their lives paying off.

The past few years of rising credit card debt, unemployment, and economic hardship undoubtedly have made Americans’ wallets smart, but the experience may also have made consumers smarter. According to The New American Pantry, a study done by Deloitte and The Harrison Group, over the past couple of years consumers have reined in spending and wised-up their shopping habits.

The study, which surveyed over 2,000 consumers, shows that more than nine out of ten Americans have made changes to their shopping habits since the economic downturn that began four years ago. Not only that, but a full 81 percent actually find it fun to play the “how much can I save?” game.

Whether you’re already a fan bearer in the new, post-credit crisis Frugality Is Hip fad or simply looking for answers to stay on top of bills and wipe out that credit card debt, the study reveals some useful strategies that cash-strapped, credit card-wielding consumers are using to stay ahead in a difficult economy:

1. Delayed gratification. According to the survey, 40 percent of consumers are now waiting for a sale before buying products they need. Even 10-30 percent savings on small items can add up over the long run: just think, if your grocery bill alone saw a $20 reduction each week, that translates to $1000 in savings by the end of the year.
Tip: To keep purchases at a minimum and avoid overspending, many consumers choose to leave their credit cards at home when shopping for niceties and just carry cash. That way, there is no temptation to spend more than one intended.

2. Giving generic and private labels a try. These days, a full 75 percent of Americans are open to testing out non-brand name products ranging from to bathroom cleaners to breath mints. These private label items, often marketed under the store’s name, not only cost less than their brand name counterparts, but often contain comparable, if not the exact same ingredients.
Tip: If giving up your favorite shampoo feels like a pinch, don’t worry about it. Instead, experiment with cutting back on things you don’t care as much about, like dishwashing liquid.

3. Home-cooked meals. This change has a double benefit for most people: not only is the chicken cashew stir fry that comes out of your kitchen cheaper than the one at a fancy restaurant, it’s most likely healthier as well, since you have control over each ingredient that goes into it.
Tip: Tools like crock pots with timers can help you prepare meals in advance and cut down on cooking time after work, as can making oven-baked dishes. In addition, a variety of websites offer free fast-and-easy recipes for the time-constrained chef.

4. Loyalty programs. Airline reward credit cards offer frequent flyer miles, grocery stores offer frequent shopper programs, and warehouses like Costco procure bottom-line prices for their members. All these programs and more offer consumers the chance to get more mileage (no pun intended) out of each dollar. Research shows that 60 percent of Americans have now hopped on either the rewards credit card wagon or are enrolled in some type of frequent shopper or warehouse shopping service.
Tip: While a few loyalty programs do require a commitment or fee, many ask for no more than a valid e-mail and phone number and offer substantial savings over time. If loyalty savings are offered hassle-free, go ahead and sign up; it will only take a minute, and the benefits are far-reaching.

5. Coupons. More and more Americans are not throwing out those shiny pages of coupons that come in the mail. But snail-mail coupons aren’t necessarily the ones that carry the most allure: internet coupon services that allow consumers to download coupons directly to loyalty cards have gained traffic. In addition to saving paper, these programs save consumers hassle of keeping track of all those little clippings—and allow members to more easily search and locate the most useful product savings.
Tip: Before making a purchase online, do a quick search to see if there are any coupon codes out there that could provide free shipping or an extra 10 percent off. (To find coupons, simply Google the name of the product or vendor and add the word “coupon”)

According to the New Frugality—saving isn’t just savvy, it’s fun. A full 93 percent of those surveyed in the study report that they expect to continue spending conscientiously, even after the economy improves. For many Americans, it seems, tight times have triggered one of those primal instincts from our hunter-gatherer days of yore, transforming us back into—well, bargain hunters.

The full moon looms in the midnight sky, obscured by heavy clouds. From the skeletal branches of a dead tree a bird of prey calls out, and the iron gates creak open. You trudge up the muddy, overgrown path to the dilapidated hotel and knock on its ivy-encrusted door.

No, it isn’t the beginning a new Stephen King thriller or even yet another “It’s a dark and stormy night” novel. It’s the video intro welcoming you to Bad Credit Hotel, Uncle Sam’s bid at interactive credit education at http://www.controlyourcredit.gov.  

The site design pays homage to Alfred Hitchcock’s scary movie ambience, complete with grainy black and white footage and an element of mystery to boot. Visitors unfamiliar to the dangers of bad credit before arrival will be sure to leave, if not older, at least wiser.

At Bad Credit Hotel, visitors can explore all the ins and outs of the world of bad credit and uncover the many hidden tips on how to improve it. Hover your mouse in the right place, and up pops information on credit counseling, debt collection, and personal bankruptcy; as well as useful tools such as real-cost calculators and debt-repayment analyzers.

The hotel manager, a dignified yet slightly eerie character (who also plays every other character you’ll meet in the hotel, from chimney sweep to “worldly gentleman”), guides you through the interactive credit game and helps lead you to the clues you’ll need to get into “Room 850,” the hotel’s much coveted luxury suite—and of course, the number corresponding to the highest achievable FICO score.

While some visitors might find the Bad Credit Hotel to be decidedly—well, “retro,” the site deserves praise for both design and content. As they progress through the hotel, those with credit concerns will uncover the information they need to improve credit scores. Even those with a sparkling score will find useful information—along with the compulsion to venture deeper into the hotel’s mysterious world.

For example, taking a collect call in the 1940’s style phone booth hooks site visitors up with a voice that offers tips on payments and collection agencies. And don’t forget to check in the phone’s coin return before heading back to the lobby.

A brief conversation with the hotel’s idiosyncratic librarian leads guests to pull library books off the shelves, which open to reveal information on credit history (such as how to get a free credit report and more) as well as bad credit counseling (including what to expect from credit counseling agencies and how to navigate the system).

Waking a snoozing “worldly gentlemen” garners access to a monthly budget calculator that can help cardholders formulate a debt repayment plan. Heading upstairs to dingy “Room 205,” guests will find a real-cost calculator, which reveals that a $1,982 laptop could end up costing a total of $3,834—nearly twice it’s original price—when paid off on a 19 percent APR credit card over the course of just under 4 years.

The main drawback of the site is simply the limitations imposed by Flash, the software in which it is configured: if a visitor accidentally navigates away from the page, all progress is lost. Also, some viewers with older versions of Flash will find the loading time aggravatingly slow.

Fortunately though, the site features a non-interactive file of the information it provides (along with pictures of the game to give the viewer a taste of the ambiance), so those who aren’t “spellbound” by the old film-noir style hotel can extract the useful data on their own terms.

Will smart phones overtake credit cards as the preferred payment method of consumers in the future? After all, the idea of being able to make a payment during checkout, simply by waving your iPhone instead of swiping plastic has undeniable appeal.

According to recent reports, wireless carriers AT&T, Verizon, and T-Mobile are preparing a major bid to enter into in the payment processing market. The companies reportedly have formed an alliance with Discover Financial Services and British-owned Barclays Bank to develop the technology that will enable smart phone users to pay for purchases via their cell phone. Transactions would be processed by Discover’s payment processing network, and Barclays Bank would aid in managing the accounts.

The “wave and pay” concept isn’t a new one; it has been used in so-called contactless credit cards with “near field communication” (NFC) chips. Installed in standard plastic credit cards, NFC chips send out low-power wireless signals that transmit credit card data to card readers without the need for any old-fashioned swiping.

Why bother to go to all the trouble with chips when smart phone apps could offer a similar payment option? The answer comes down to connectivity: while such apps might work perfectly in a heavily Wi-Fied down-town coffee shop, consumers making transactions out in Podunk, Alaska may find the reception too weak to process a payment.

Installing the technology in smart phones is the next step, though it won’t necessarily be cheap. Merchants accepting the new form of payment will have to buy a $200 electronic reader to process smart phone payments, and phones featuring the payment chips will cost an extra $10-$15 more. Despite the cost though, experts predict that the new technology will take off with little resistance. The new system reportedly will first be tested in four major U.S. cities, including Atlanta.

Industry experts predict that a new mobile payment system will be a game changer. Visa and MasterCard have long dominated the electronic payment processing industry; last year, the two behemoth payment processing networks processed 79 percent, or $2.45 trillion, of all consumer spending on credit and debit cards. Credit card rivals American Express and Discover shared the remaining 21 percent.

Wireless carriers are in an excellent position to enter the electronic payment market, as most Americans by now carry a cell phone in their pocket, and wireless carriers already have extensive billing networks set up. Some industry experts predict that nearly half of U.S. consumers will use some kind of mobile financial services within five years; acceptance among young consumers aged 18 to 34 is likely to reach eighty percent.

Merchants, not consumers, may be the first to benefit from increased competition in the electronic payment processing industry, however. Retailers have long complained over the ever-increasing transaction fees charged by Visa and MasterCard, and many hope that increased competition in the field will bring down the merchant fees stores charge each time a customer pays by credit card.

Whether or not that will eventually translate into slightly lower prices for consumers remain to be seen. Still, as competition heats up, Visa and MasterCard may well be forced to try harder-and the benefits of that are likely to eventually trickle down to consumers.

Although consumers for many years have been entitled to a free copy of their credit report each year, credit scores have remained harder to come by. The only way to get a copy of your credit score was to either pay for it or use a credit score estimator to approximate the score.

One of the immediate effects consumers will notice from the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act is increased access to that vital little three-digit number. Consumers who get turned down for a mortgage or car loan or who experience any other “adverse action” based on their credit score will be entitled to receive a free copy of the score the decision was based on. Even being turned down for a job due to a credit check can provide a cardholder with access to their score.

The new stipulation will allow anyone who has faced a credit, loan, mortgage, or any other kind of financing refusal to better understand the specifics of why their application was refused. Many consumers think that as long as they pay their bills on time, all is well in regards to their credit score. Unfortunately, there are numerous factors other than payment history that come into play, so gaining easier access to credit scores can be an important step towards understanding your credit strength.

Unfortunately, the new law limits the free access to credit scores to people who have experienced an “adverse action.” Consumers looking to find out what their credit score is before applying for a credit card, mortgage, or car loan, will still have to pay to obtain their credit score, or use a FICO score estimator.

Of course, getting a copy of one’s credit score(s) can be as confusing as it can be illuminating. The different credit bureaus feature differing credit scores, for two reasons. While all credit score calculations fundamentally are based on the FICO model, both Experian and TransUnion have developed their own slightly different credit scoring model. In addition to the different scoring models, variations can arise from differences in the data each bureau has collected for the cardholder.

Equifax is the only credit bureau that uses traditional FICO scores; scores range from 350 for bad credit to 850 for the best possible credit. Experian calls their FICO-based credit score the Experian/Fair Isaac Risk Model (ranging from 330 to 830) and Transunion has developed its proprietary EMPIRICA model, with scores ranging between 300 to 850.

If you don’t mind paying for your credit score, one of the most reliable methods for obtaining credit scores continues to be through MyFICO.com. The site, sponsored by FICO-score creator Fair Isaac, will provide cardholders with both TransUnion and Equifax report-based credit scores for a fee of $15.95. Between these two numbers (Experian-based scores are no longer being offered), you can get a good sense of where you stand and what to expect from lenders.

There are also a variety of reasonably accurate online FICO-estimators, known as “Fako”s, see e.g. Bankrate.com’s easy-to-use free FICO estimator.

Keeping an eye on your credit score is a vital part of financial management in today’s economy. While many cardholders assume that making minimum payments on their credit cards ensures good credit standing, the truth is that a variety of factors contribute to credit scores, and regular check-ups are necessary to ensure that that little crucial number hasn’t taken a dive. For consumers not concerned about the extra cost, credit score monitoring can also help cardholders protect themselves from any potential identity theft or card fraud.

The new CARD Act has brought many benefits for consumers, however, we may also have taken a step back in the process. These are the key findings of a recently released study on the aftermath of the Credit CARD Act, aptly titled “Two Steps Forward,” by the Pew Charitable Trust Safe Credit Card Project.

The study analyzed the benefits—and the drawbacks—of the new credit card era. It was based on a review of nearly 450 credit card applications for consumer credit cards offered online by the largest 12 bank and 12 largest credit union card issuers in the U.S.

On the bright side, the study finds, consumers are enjoying many of the protections Congress sought to implement: freedom from retroactive rate-hikes or arbitrary APR increases and protection against over-the-limit fees. Cardholders are also benefitting from the new rules that stipulate that any portion of payments above the minimum must be applied to the balance with the highest APR, saving consumers who pay more than the minimum considerable amounts in interest charges.

However, while many things have changed for the better, some have not. Nine out of ten banks in the study and almost one in two credit unions continue to feature steep penalty rates. Furthermore, the penalty rates have increased to as much as 29.99 percent for most major card issuers. While Congress mandated that such penalties remain “reasonable and proportional,” the Fed has done little to set rules ensuring this, or even defining what it means. The Fed left the door open for card issuers to levy penalty rates, instantly and retroactively, on promotional balances, such as 0 APR balance transfer. The upshot of this has been that most card issuers reserve the right to introduce penalty APRs on promotional balances, if a cardholder has as little as one late payment.

Moreover, Pew researchers found that nearly half of all issuers refused to disclose their penalty rates; a strategy that allows them to change the numbers when they see fit, as opposed to maintaining a standard rate. Issuers also evaded revealing the specifics of what cardholder actions would trigger rate increases, or how cardholders might be able to bring a penalty APR back down to normal levels.

Consequently, despite the new legislation, cardholders are still at the mercy of their issuer when it comes to what triggers a penalty rate, how high the rate is, and what it takes—if anything can be done—to reduce it. Consumer advocates express concern over these new, evasive policies, suggesting that they not only undermine the greater transparency the CARD Act sought to establish, but longstanding bank regulations requiring the disclosure of crucial pricing terms as well.

Penalty rates aren’t the only rates that have risen since the implementation of the CARD Act: purchase APRs are up as are cash advance and balance transfer fees. On the bright side, however, the onslaught of additional fees that some predicted has not materialized. When the CARD Act was signed into place, many experts projected that more issuers would begin to levy annual fees alongside inactivity fees and other new charges. However, the number of cards with annual fees has actually decreased slightly to 14 percent of cards this year compared to 15 percent last year. For the cards that do feature annual fees, however, there has been an upward trend, from an average of $50 to $59 for bank credit cards and $15 to $25 for credit union issued cards.

Researchers also found that not only has the legislation put a damper on over-the-limit fees, but many credit card issuers themselves have begun to do away with the charge altogether. Less than one in four cards (down from four out of five) included in the study carried an over-the-limit fee.

Overall, the study concludes, the changes brought in by 2009’s CARD Act have propelled the credit card industry “two steps forward.” The specific terms that make up the implied “one step back,” however, are something that consumers will want to remain watchful for.

For consumers struggling with bad credit, acquiring a credit card presents a daunting catch 22: lenders don’t want to issue credit until their credit score has improved, and the only way to improve their credit score is demonstrating that they can responsibly use the credit—which, coincidentally, no one wants to extend to them.

Of course, there are ways to navigate this daunting scenario, and there are several types of credit cards specifically targeting people with bad credit scores. However, when it comes to applying for credit cards for people with bad credit, it’s buyer beware. At their best, so-called subprime credit cards can help users rebuild their credit more quickly as well as offer the convenience of plastic; at their worst, they will cost users a bunch of money and even further ruin their credit score.

In the wake of the Credit CARD Act, the terms of credit cards for people with poor credit have changed. Lawmakers laid out more stringent terms for subprime credit cards with the intent of protecting consumers. In some cases this has worked, but in the case of some card issuers at least, it has also resulted in new, confusing, and equally costly fees.

A case in point is the appearance of new types of fees for some unsecured credit cards. Fees on this type of credit card for people with bad credit traditionally have been daunting. The new Credit CARD Act sought to remedy this by limiting the fees that subprime card issuers can charge when issuing credit cards to people with bad credit to 25 percent of the opening credit limit. For an unsecured credit card with a starting credit limit of $300, this means that the maximum annual fee should be manageable $75, instead of the close to $250 in annual fees charged by many unsecured credit cards in the past.

Some subprime credit card issuers, however, have been quick to come up with new fees to make up for lost income. Most subprime credit card issuers now charge a one-time processing fee, which for some issuers can be a modest $19, but for issuers run as high as $95.

In addition, some unsecured credit cards now come with a credit limit increase fee, equivalent to 50 percent of the limit increase. This means that for each $100 increase in credit limit, cardholders will have to pay $50. For example, for an unsecured credit card starting out with a $300 initial limit, the cost to reach a modest $500 credit limit would be $100 in credit limit increase fees, the $75 annual fee, and a $95 processing fee. This amounts to a total of $270 in fees for the pleasure of access to a $500 credit line.

Not all subprime issuers are created equally, however, and it is possible to find credit cards for people with bad credit with better terms and lower costs. In short, if your credit is poor, signing up for an unsecured credit card in some cases can be worthwhile. While not giving you any significant access to credit (at least initially), unsecured credit cards can help cardholders rebuild their credit scores fairly quickly, as they report on your credit behavior every month to the major credit rating agencies. With the better subprime card issuers, a track record of on time monthly credit card payments will result in (fee-free) credit limit increases over time, as well as lower fees and interest rates down the road.

See here for a selection of best credit cards for people with bad credit.

Editor’s Pick: Best Credit Cards for Bad Credit 2010

In a sobering reminder that the long-term economic downturn is taking its toll, more Americans are seeing their credit scores drop below the levels considered necessary to qualify for mortgages, credit cards, and other important lending products. According to the Associated Press, today one out of every four Americans have FICO scores that fall below 600, up from 15 percent of Americans only a few years back.

FICO scores are used by lenders such as car loan, mortgage, and credit card companies to determine a person’s credit worthiness. Created by Fair Isaac, the company behind FICO scores, the scores put a numerical value on the degree of risk involved in extending credit to a consumer. FICO scores range from 300-800, with anything below 620 currently considered “bad credit,” i.e. high risk. There are other types of credit scores as well, but FICO scores are the most commonly used. All credit scores are based on pretty much the same features, including a consumer’s credit history, payment record, debt-to-available credit, and credit mix.

On the background of recent economic events, the rise in people with bad credit scores hardly comes as a surprise: record foreclosures, high unemployment, and drops in property values have swept many consumers into a downward credit spiral. People struggling financially often are forced to turn to credit cards and other types of loans to make ends meet. Unfortunately, as credit card balances increase and meeting payments becomes increasingly difficult, credit scores quickly head south.

Approximately 43 million Americans now have credit scores below 600, cutting them off from an important part of the economy and seriously limiting their financial prospects. Conventional loans require a score in the neighborhood of 700, and even for the more forgiving mortgage loans backed by the Federal Housing Administration, consumers need a score of at least 620 to qualify. People whose credit scores have plummeted are also excluded from important economic services most people take for granted, such as financing a car purchase or getting a credit card with reasonable terms.

Whether motivated by the markets or forced out of necessity, more and more consumers are making an effort to live tightly within their means and pay down credit card debt. Unfortunately, pulling a credit score out of the deep end isn’t a quick and easy job: for the worst credit score blemishes, such as bankruptcy or credit card defaults, it takes seven years to fix the bad credit, even once all the issues have been taken care of. For minor issues, such as late payments or high credit card balances, however, credit scores can be increased much faster, once the underlying issue is addressed.

Consumers whose credit scores have dropped to risky lows might want to consider turning to credit counseling—a service which is often available for free. According to experts, consumers who adopt a credit counseling debt-management plan can be back in the black within five years. Those who want an even more aggressive course of action can also work with a credit repair company who, for a sizable fee, will negotiate more heavily with lenders.

In general, when it comes to credit scores, an ounce of prevention is worth a pound of cure. Take these simple precautions to make sure that your credit score never heads so far south that it becomes a financial liability:

• Always pay all bills on time, particularly credit card bills and mortgage payments; your payment history makes up a full 35 percent of your FICO score.
• Keep credit card balances low in relation to the credit limit, i.e. below 30 percent and ideally around 10 percent. The debt-to-available-credit ratio across all credit card accounts makes up 30 percent of FICO scores;
• Keep a mix of different types of credit;
• Limit applications for new credit to a minimum, ideally not more than once a year;
• Keep old credit accounts open, even if you don’t use them.

See here for more ways to improve your credit score.