Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, November 13, 1995 TAG: 9511150003
SECTION: MONEY PAGE: 8 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Medium
That premise may be dead wrong if you want to borrow more money, say for a car or a new home. Some bankers will count your total credit lines as potential debt, not just your outstanding balances. So accepting too many cards is a financial liability.
James Beckner, vice president in charge of NBC Banks in Western Virginia, said his institution looks at the total credit lines of potential borrowers. That includes bank cards as well as store cards that are being given out "like water."
Those cards can be run right up to their credit limit at any time without any intervention by the store or bank, Beckner pointed out. So the credit lines are used in the computation of income to debt ratio in determining eligibility for new borrowing.
Alexis Ellison, spokeswoman for First Union Corp., said that bank also looks at credit lines, not just outstanding debt.
Barbara Lewis, an assistant vice president at Crestar Bank, said the total of available credit is one of many factors the bank considers in weighing a loan application.
But Mike Hach, who works in the consumer loan division of Central Fidelity Bank, takes the opposite viewpoint.
Hach looks only at the outstanding balances on credit cards, not the total line. To him, a person who holds back on spending shows discipline in handling finances. He said he would not penalize people in that position.
Despite national figures that suggest people are borrowing too much against credit cards and starting to get into financial problems, Hach said Central Fidelity - whose customers live primarily in Virginia - hasn't seen any upward trend in delinquencies.
In Virginia, he said, delinquencies on credit card payments are exactly where they were many months ago.
The volume of charges on credit cards is "very strong," Hach said. "People are willing to borrow more."
Beckner said he hasn't seen any rise in problem loans at NBC Bank, either. If times turn bad, he said, all forms of debt, such as installment and home-equity loans, start showing delinquencies together.
"This area's a pretty good area" in terms of people's ability to manage money and handle debt, Beckner said.
With Christmas approaching, he said, "people are starting to come to us" with requests for more borrowing. That happens every year, he said, and the equity line is especially popular.
Ram Research Group said that nationally delinquency rates rose nearly 3 percent in October, the largest single-month gain in five years. Overall card delinquency now stands at 4.33 percent, the highest level since November 1993.
Most credit cards offered by banks in the Roanoke Valley have floating interest that is tied to banks' prevailing prime rate. Prime currently stands at 8.75 percent, and the banks add up to 9.9 points to that figure.
If interest rates should turn up again, a higher rate would cause payments to rise.
You should look for a card that meets your individual needs. If you routinely pay off your balances in full each month, you should look for a card without an annual fee. If you carry a balance, you should find a card with a low interest rate.
One possible strategy is to have two cards. Use one for purchases that you can pay off in full at the end of the month. The second card is for more expensive items that you can repay over a period of time.
Don't jump at teaser rates you receive in the mail because the interest could rise sharply after an introductory period. Use such a card to transfer balances from a higher-rate card, then pay off the debt as quickly as possible during the low-rate period.
What about the new wave of rebate cards and frequent-flier cards? Rebate cards offer cash rebates or credits toward the purchase of a new car, discount certificates at national retailers and more.
The Virginia Society of Certified Public Accountants said that, in many instances, higher interest rates or annual fees offset these extras.
As a general rule, the CPAs said, rebate cards only make sense for those who charge large sums (several thousand dollars a month) and pay balances in full each month.
If you sign up for a frequent-flier credit card in the hope of earning a free airline ticket, allow yourself plenty of time.
The society said that cardholders generally earn a free mile for every dollar charged. Because most frequent flier deals require 25,000 miles for a free ticket, it will take an average cardholder, who normally charges $2,500 a year, 10 years to earn a free ticket.
by CNB