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Credit Card Protection: You Don't Need It

John Ulzheimer is a nationally recognized credit expert and contributor to On the Money. Learn more atCredit.com orJohnUlzheimer.com .

Q. My question is about credit card account protection. It's a service offered by pretty much every credit card company and it offers benefits such as freezing one's account when circumstances like unemployment occur. I have chosen not to enroll any of my cards because I always pay my balances in full at the end of each billing cycle. My question is: Is it worth it to enroll in these account protection programs? One fear that I have is that once enrolled it might be a hassle...or even impossible to actually qualify for the benefits. (ie: the fine print on one card stated that I had to unemployed for at least six months before the plan would actually take effect.) Please shed some light on this topic. – Monique

A.Hello Monique. Simply from reading your email I can tell that you have your head screwed on tight. That’s an expression my father uses to describe someone who can read between the lines and get a true understanding of what is being said, or sold as it is in this case.

The infamous credit card protection service is what’s commonly referred to inside the walls of the credit card companies as an “enhancement product.” The problem is the only thing being enhanced is their bottom line. You are right to be skeptical. Those services have little to no value for someone like you who pays their balances in full each month.

Incidentally, you are called a “transactor”, meaning that you pay off your bill each month versus a “revolver”, who is someone who carries a balance over to the next. A transactor generates very limited revenue for the credit card company. You are doing well to keep it this way!! -- J.U.


Q.
I am a Permanent Resident (a Green Card holder) and I have lived in the US for the last 5 years. I started realizing the importance of establishing a good credit history and I got my first credit card four years ago. Granted, its limit was just $300.00, but I used it and paid it off every month so it served its good purpose.

I received a letter from HSBC on the 29th of August (dated Aug 15,2008) saying they closed my credit card as I haven’t used it for the last year. I understand it is my mistake; I failed to read the disclosure saying they would do that if I didn’t use my card. However, I am worried this action cuts my credit history short.

Would you please advise me if there is anything I can do to convince HSBC to leave my credit card open? -- Nevena

A.Hello Nevena – Your story is becoming a more common one. Right now the credit card issuers are hemorrhaging money and are trying to limit their downside risk. It’s called “mitigation.” Even those with great credit are on a very short leash and many credit card issuers are closing accounts due to inactivity. I always advise people to use their credit cards at least once every few months so the issuer won’t close it because of the inactivity.

There’s good news and bad news as far as your credit goes. The bad news is that now you don’t have access to that $300 credit limit, which may not bother you much. The good news is that secured cards are very easy to get so you shouldn’t have any trouble opening a new one. You can search for secured cards here at our web site. Choose one that reports to all three credit bureaus.

If you’ve had credit for four years now then it’s not far fetched that your credit scores would be good enough to get an unsecured card with a much higher credit limit. Have you thought about trying to open an unsecured card instead?

By the way, they should have sent you back your $300 deposit you made when you opened the account. -- J.U.