About a month ago, I received an alert from my Equifax service that my FICO score had dropped 16 points... argh!!!  I logged in and found that my most recent credit application from early May had triggered an inquiry limit, and flagged me as a consumer desperately seeking credit.  Well, it is true that I have applied for credit more over the last 2 years than in any period of my life, but it has not been in desparation.  Over the last 2 years, I've purchased a home and a townhouse, both for rental purposes.  I opened several credit card accounts, including one each from Home Depot and Lowes, to help finance and improve the properties.  All these accounts had very attractive initial interest rates, so it made a lot of sense from a pure financial and accounting standpoint.  My initial seed money for the purchases came from a home equity line of credit (HELOC), and I've since refinanced the first home I purchased.  My two rentals are doing well and turning a small profit, and I have significant equity in both properties.  Yet the vagaries of the FICO formula conspired to make me look desparate.  As I've mentioned before, the FICO formulas don't know or care what your income is or what assets you own, they simply look at trends in your credit habits and try to predict the future based on large-scale patterns of those with similar credit habits.  Some will be helped by these calculations, while others will appear to be a greater credit risk than they really are.

Are credit card companies evil, or just greedy?  I have often mulled this question over in my mind. Credit card company practices have been labeled "abusive" by many lawmakers and regulators. But how did we arrive at a place where issuers can arbitrarily rate your interest rate, charge outrageous penalties for the most minor transgression, and trim your credit limit or even cancel your account at their whim? Are these companies evil, or is it greed driving this behavior?

I imagine deep in the halls of a bank are MBA graduates responsible for marketing a company's products and services. Card issuers are just like any other company in this respect. Consider a consumer product company like Apple, maker of the iPods.  Apple has marketing people that figured out that a small, easy to use electronic music player could sell millions of units, leading to soaring profits for the company. The marketing plan called for iPods of varying shapes and sizes with performance levels differing depending on how much the consumer would be will to pay. Some buyers just want a basic unit, others pride themselves on having the best new toy and would pay more.  Apple exploits these human tendencies to maximize profits.  A bank is no different. They have products, like a credit card, with varying features and costs.  The marketing people are charged with maximizing profits for the company.  The company motivates the marketing people and management, up the chain all the way to the CEO, using stock options and bonuses.  The more profits, the more money these people make.  This is just the way business works.

New rules are on the way to regulate credit card issuers. While the House of Representatives shaped a new bill to reign in issuers (see Credit Cardholders' Bill of Rights), the Senate ran out of time and failed to address it. The Federal Reserve, on a parallel track, has devised a set of rule changes in the same spirit as the Bill that stalled in the Senate. On the down side, the rules don't take effect until July, 2010, giving issuers another year and a half to bleed consumers under the current lax regulations.

The common thread between the two initiatives is broad consensus that issuers have spiraled out of control over the last few years in their exploitation of consumers. Referring to the Fed actions, Sen. Carl Levin, D-Mich., said the new rules "are a good first step, but they don't prevent a number of unfair, deceptive and predatory practices that saddle many American families with crushing debt."

In the chaos of the financial industry meltdown, you may have missed the news that a Bill was passed by the House, and now awaits Senate approval.  Dubbed the "Credit Cardholders' Bill of Rights", the law would update the Truth In Lending Act with provisions specifically aimed at curtailing the exploitive practices card issues have developed over the years.  One of the Bill's main sponsors, Carolyn Maloney (D-NY) describes the main provisions of the Bill on her web site, including the following provisions:

My credit card debt crept up slowly over the years, and hovered around $20,000 for quite a while. It seemed that just when I'd get serious about paying it down, another expense would pop up... a major car repair, soccer and hockey registration for the kids, Christmas. My interest rates seemed reasonable, and I got comfortable with the monthly payments as my salary crept up over the years as well. Paying off debt never became a huge priority.

Last year, after months of enticing from "Flip That House", I decided to invest in real estate. My strategy was to "fix and rent", with an eye towards building income for eventual retirement. I bought a bank-owned property in November 2007 with a new home equity line of credit, topped off with some more credit card debt. The plan was to rehab the house using more credit card debt, then refinance using the much higher value of the house as collateral. The result was a ballooning of my credit card debt to just over $60,000.