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The Real Reasons Retailers Push Branded Credit Cards

When shoppers hit the counter of their favorite retailer this holiday season, they may be asked to sign up for the store’s branded credit card in exchange for a discount on their purchase. The cards are often a better deal for the stores than they are for consumers.

There are some perks to consumers—store cards, or private label cards as they’re known in the industry, are a good starting point to build up credit score, and there can be rich rewards for frequent shoppers. In general, though, these branded cards carry higher interest rates than general purchase cards and have lower limits. That makes them more expensive for consumers.

For retailers, however, store cards are a growing profit center. Private label card use by consumers grew nearly 12 percent per year from 2009 through 2012, according to the most recent data from the Federal Reserve. They’re an easy way for stores to build loyalty, collect data, and—of course—earn revenue from consumers. Retailers are so invested in turning customers into private-label cardholders, that they often offer their sales clerks cash incentives for signing people up.

One big reason that retailers like store credit cards is that they encourage customers to spend more. More than 60 percent of consumers say that they shop more often with retailers with whom they have a store card, and they’re also more receptive to communication about events and promotions by that retailer, according to a market research report from Packaged Facts.

Not only do store cards encourage more spending and build loyalty for merchants, but they also give the stores access to valuable consumer data. Plus, they cost less to process than other forms of payment. They’re also often compatible with mobile pay systems, which are expected to grow more dominant in future years.

Since retailers often control the approval process, they’re able to give cards to consumers who might not qualify for general-purchase cards, and to charge them interest on the balance.

In 2014 private-label credit and debit cards generated $254 billion in sales, according to Business Insider. They account for a large share of purchases at major retailers, used for nearly 60 percent of sales at Kohl’s and nearly 50 percent of sales at Macy’s last year, per an analysis by credit card consultant Ryan Douglas at First Annapolis.

The growing importance of private-label and general credit cards reflects a shift among consumers, who shied away from credit in general after the Great Recession. The average number of credit cards held by consumers has been ticking up in recent years according to the Consumer Financial Protection Bureau. Those numbers could continue to increase as cashiers suggest new credit cards over the coming months.

How to Protect Your Child’s Identity at Every Age

Some lenders require a social security number with a clean credit history, but don’t necessarily check that the borrower’s name matches the number, so thieves can get away with using social security numbers that aren’t assigned to anyone at all.

Your child’s identity can be at risk at any point in life. Children are easy targets because of their clean credit. So how can you protect Junior from a bruised credit history before he or she is even old enough to say “credit card”?

Here are a few steps you can take, at every age, to ensure your child starts off adulthood with a clean slate.

Birth-Preschool

Start with keeping your child’s documentation safe. Don’t carry around your child’s identifying documents, like a birth certificate or social security card. Establish good filing habits and store your child’s important documents in a fire-proof, locked safe or box. Be cautious when you offer your child’s social security number or identifying details. Always ask why the information is needed before you give it out. And, of course, make sure your family computer is up-to-date with the latest virus protection software. Entering sensitive information online without taking the proper precautions could leave your child’s details in danger of being captured by a thief.

Before your child is old enough to start using credit, he or she shouldn’t have a credit history at all. any sign of a credit history could mean fraud. If you want to ensure that your child’s credit history is non-existent before the age of 14, you have to go directly to the credit bureaus. Fill out the Child Identity Theft Inquiry Form with TransUnion, which will tell you whether or not your child has a credit report. If the answer is yes, your child could be an identity theft victim and you should contact the other two bureaus. Use the guidelines from the Identity Theft Resource Center.

Middle School

When your child turns 14, you’ll be able to request a credit report from each of the credit bureaus through AnnualCreditReport.com, but only if one is available. At this age, there should be no credit history at all, so if it turns out one exists, it’s a red flag for identity theft.

To give you time to dispute any fraudulent accounts with the credit bureaus, and to protect your child’s credit from being accessed again, put a credit freeze on the report. Guidelines for credit freezes vary by state, so checkConsumersUnion to find out how to initiate one in your state of residence. You’ll have plenty of time to clean up the credit report and dispute inaccurate items before he or she is old enough to start building a real credit history.

High School

Your teen will likely get a first job in high school. Teach your child how to protect financial information, not to carry certain pieces of information like ocial security card, internet passwords, passport or account PINs in a wallet or purse. Caution against giving out personally identifying information without first asking what the information will be used for. And encourage a credit report check once a year.

After turning 18, you can help your young adult set up an account with Credit Karma, including free credit monitoring. This way your child will be notified if anything important changes, like an unauthorized account, so your family can react quickly to any suspicious signs of fraud. Teach responsibly building credit, perhaps with a student credit card, when the time is right..

Bottom Line: In adult life, your child’s credit will be not be your responsibility. But you can help ensure your little one starts off adulthood with a clean credit history.

Clear Language Establishes Trust, Minimizes Anxiety

How financial concepts are presented can have a big impact on how people feel about their bank statement. In August, Credit Karma worked with Qualtrics to survey over 1,000 people about their reactions to two descriptions of adjustable rate rules, one technical and one conversational. Their responses were highly correlated with their attitudes toward money and their credit score. In short, the closer the fine print was to language they would use to talk to their friends, the more likely they were to find it not just helpful, but trustworthy. This was particularly true for those with lower credit scores who were more negative about financial disclosures overall.

These findings mirror a Federal Reserve Board study in 2011 that concluded, “When reading disclosure documents, consumers are best served by terms that are straightforward. Small wording changes can significantly improve consumer understanding.”

Credit Karma Head of Consumer Insights Greg Lull is passionate about making managing money as stress-free as possible for everyone. “When we communicate in everyday language, we help people take control of their financial future. That is powerful.”

Technical paragraph

Your variable rates may change when the Prime Rate changes. After the initial introductory 0% interest rate period, the variable rate is calculated by adding a percentage to the Prime Rate published in The Wall Street Journal on the 25th day of each month. Variable rates on the following segment(s) will be updated quarterly: Non-Introductory Purchase APR: Prime plus 9.74%, 14.74% or 19.74%; Non-Introductory Transfer APR: Prime plus 9.74%, 14.74% or 19.74%; Cash Advance APR: Prime plus 19.74%.

Conversational paragraph

You’ll have an introductory interest rate of 0% for the first 12 months. After that, though, you’ll have a variable interest rate – meaning your rate will change based on the Wall Street Journal’s “prime” rate (here’s more about the prime rate). We’ll calculate your interest rate for purchases and balance transfers based on your credit. We’ll let you know the percent (prime plus 9.74%, 14.74% or 19.74%) after you’re approved.

Overwhelmingly, the conversational language was seen as more positive. In addition to being seen as easier to understand, helpful and less anxiety-inducing, it was also seen as more trustworthy than the technical language.

Did the CARD Act Really Protect College Student Credit Scores?

Before the Credit Card Accountability, Responsibility, and Disclosure or CARD Act went into effect in 2009, it was a much more common sight to see credit card companies setting up kiosks welcoming students to campus, offering swag in exchange for filling out an application for a college-affinity card. Credit cards branded with the logo and name of a college, alumni association, or other affiliated group were a common sight in college towns across the country.

Congress passed the CARD act, partly in response to critics of these offers, who argued that students could get better deals by shopping for credit card offers elsewhere. Others, such as the American Bankers Association, claimed that it’s important for college students to have a strong credit score.

In addition to eliminating freebies like Frisbees and T-shirts in exchange for completed applications, the CARD act also required that students under age 21 have a parent co-sign (or have a job) in order to get a credit card, and urged colleges to put restrictions on the way the card companies marketed to students.

The effects of that law have been dramatic. In 2009, colleges inked more than 1,000 agreements with credit card issuers. Under these agreements, credit card companies pay affiliated institutions for the use of their logo or campus image, as well as access to contact information of students or alumni for marketing purposes.

In 2014, there were just 272 such agreements, according to a report on the impact of the CARD Act by the Consumer Financial Protection Bureau. Colleges are also making far less money off of these deals, with royalty and bonus payments from issuers dropping from $84 million in 2009 to $34 million five years later, according to the CFPB report.

Shifting regulations may be the primary reason that card issuers have cut back on marketing to current students, but the trend also reflects public sentiment against such practices. Even before the passage of the card act, colleges like the University of Maryland and Rochester Institute of Technology were implementing laws limiting the ability of issuers to market to students.

Another reason for the decline in new student accounts may be a growing wariness about debt. According to asurvey of millennials by Credit Karma, 48% of those who do not have credit cards said that the reason was they didn’t want to accumulate debt. While the majority (61%) of millennials in that study had already opened at least one credit card, they now have access to a lot more resources about smart ways to build a healthy credit history than previous generations. According to another Credit Karma study, two thirds of those between the ages of 31 and 44 made a “credit fumble” and had to take steps to recover later in life.

All of those factors have issuers of affinity cards focusing their efforts on targeting students post-graduation, rather than while they’re still on campus. While the CARD Act also covers alumni associations, graduates tend to be over age 21, eliminating the need for a cosigner and making it easier for issuers to send prescreened offers.

While the total number of all new affinity card agreements has gone down since the regulations changed in 2009, the portion of agreements that target alumni has increased, to make up more than half the market, according to the CFPB report. In 2014, alumni agreements accounted for 66 percent of all affinity card payments by card issuers, 65 percent of new accounts, and 72 percent of open accounts.

The Alumni Association of the University of Michigan netted the highest issuer payment in 2014, raking in more than $2.2 million from FIA Card Services, a subsidiary of Bank of America. The Penn State Alumni Association ranked second with $1.8 million in payments. The University of Southern California took in $1.5 million in 2014, making it the third highest institution on the list, but the top-ranking school, after the alumni associations.

Credit Cards and Auto Loans Push Total US Debt Total to $12.29 Trillion

Americans are shopping again and they are increasingly charging it. Growth in credit card and auto loan debt added to the $35 billion increase in aggregate household debt for a total of $12.29 trillion at the end of June according to government reports.

The Federal Reserve Bank of New York Center for Microeconomic Data reported in August that aggregate household debt balances at the end of June increased 3% from the end of March. Still, overall household debt is 3.1% below its peak of $12.68 trillion in the third quarter of 2008 just before the start of the recession. After a long, slow climb, the debt level is now 10.2% above the lowest level in the middle of 2013.

This was not an example of people rushing out to buy houses and take on second mortgages. In fact, consumer credit reports show that at the end of June, the total mortgage debt in the U.S. actually fell $7 billion from the previous quarter for a total of $8.36 trillion. Balances on home equity lines of credit fell by the same amount to $478 billion.

The jump in household debt came from an increase of $32 billion in auto loan debt and $17 billion in credit card debt nationwide from the previous quarter. Some areas of the country contributed more per person to that debt load than others. According to trends seen in the aggregate records of millions of visitors to Credit Karma between June 1 and June 30, the average auto loan in America was $18,049. Texans who financed their cars carried the largest auto loans on average with $22,816 per person. They were followed by Wyoming where the average auto loan for those who had one was $22,633. The states with the lowest outstanding auto loan debt per person who financed their car were Michigan with $13,546 and Rhode Island with $14,255.

Average amounts of credit card debt also varied pretty drastically by state. Over that same time period, credit card debt for those with an open card was $5,101 nationwide. Alaska led the way with an average of $6,087 in credit card debt per person with an open card, followed by Hawaii with $5,978. The states with the lowest credit card debt per person with an open card were Mississippi and Iowa with $4,025 and $4,308 owed respectively.

New York Fed Research Officer Donghoon Lee saw the report as a positive reflection of the direction of the economy. “Today’s report highlights a positive ongoing trend in household debt. Delinquency rates continue to improve, even as credit has become more widely available.”

Why October FAFSA Deadline Could Help Students Make Smarter Choices about Paying for College

A new change to the process of applying for federal financial aid could lead students to make smarter choices when borrowing for college. Starting this year, the Free Application for Federal Student Aid (FAFSA), which was previously available for students and their families to fill out in January, is available starting October 1. The shift is significant since it will give students a better sense of the federal student aid they may be eligible for much earlier in the application process.

That may push students to think more carefully about the financial implications of where they apply, and to consider schools that may be less of a long-term financial burden. While students won’t get school-specific aid packages any earlier, they will find out whether they’re eligible for Pell grants and what their “expected family contribution” will be. They can then plug that EFC into college’s net price calculators to get an idea of what their need-based final aid package might look like (scholarships and other merit-based aid are awarded separately), and—importantly—how much they may need to borrow in order to make up for any shortfalls.

Nearly 70 percent of public and non-profit college graduates in 2014 owed money at graduation, with an average debt load of $29,000, according to the Institute for Student Access and Success. A recent Credit Karma surveyshowed that while most hope to pay off their loans in a decade or less, some plan to be making payments for more than 20 years. While college graduates may have higher employment and better pay than peers who without a degree, those who borrow too much for school may face financial insecurity for years after they’ve left. For some students, a better path may be attending a lower cost school, or one that offers a financial aid package that allows them to borrow less.

Just as students choose which schools to apply to based on their geographic, academic, and cultural fit, this FAFSA change allows students to better target schools that are a better fit financially. While that may mean ruling out schools they’d hoped to apply to, they will also have more time to research schools that they not have previously considered.

An earlier deadline will also give students an opportunity to explore other funding options, including scholarships and think about whether they’ll realistically be able to pay any money they borrow back after graduation.

The price of college has already become a major factor for students and parents. More than two-thirds of families considered it when narrowing their list of schools last year, according to Sallie Mae, and more than half of families eliminated schools for financial reasons before they began the application process. This change means that those students who take advantage of the early FAFSA may have more information on which to base their decisions about where to apply.

While the U.S. Department of Education asked schools not to shift their financial aid calendars this year, but going forward schools may start to send admitted students their full aid packages earlier in the Spring. That would benefit students once again, since it would give them a bit more breathing room to consider their packages, appeal awards, and either come up with a plan to deal with expenses not covered by need- or merit-based aid or choose another school that may make more financial sense.

In another major change to the FAFSA this year, families must use their income tax data from two years ago, known in the industry as “prior-prior year” returns to fill out the form. Previously, families had to use data from the immediately preceding year and often had to wait to file until they had a more complete estimate of their income. (As they have in previous years, families with irregular incomes will need to discuss their situation with financial aid officers if they don’t think that the prior-prior year data gives an accurate picture of their earnings.)